Commissioner of Estate & Gift Duties v Fiji Resorts Ltd [1979] FJSC 88; Action 205 of 1976 (26 October 1979)

IN THE SUPREME COURT OF FIJI
(WESTERN DIVISION)
AT LAUTOKA
CIVIL JURISDICTION

Action No. 205 of 1976

BETWEEN:

THE COMMISSIONER OF ESTATE & GIFT DUTIES
Plaintiff

AND:

FIJI RESORTS LIMITED
Defendant

Mr. M. Scott, Counsel for the Plaintiff
Mr. K.R. Handley & Mr. P. Knight, Counsel for the Defendant

JUDGMENT

The Commissioner for Estate Duties sues Fiji Resorts Ltd. as "executors de son tort" in relation to the estate of Alan Davis who died in Fiji on 28.2.72. I shall refer to him as the deceased.

He was married, domiciled in California and had property in the U.S.A. and Fiji when he died. This action only concerns the deceased's property in Fiji.

The deceased's wife Doris Davis makes claims to the deceased's Fiji estate under the California law governing marital property. It is agreed that under the Californian law Code property acquired by a couple during marriage otherwise than by gift, devise or descent is held in common as community property. Property owned before marriage, or received by gift, devise or descent during the marriage is that spouse's separate property. There can be his and her separate property apart from community property.

It is agreed by the parties that the term "separate property" means that property which is held both in its use and title for the exclusive benefit of the husband or wife.

Community property includes the earnings of the husband and wife.

The husband has management and control of that community property which comprises personal property with absolute power of disposition, other than testamentary. But at any given instant the rights of the spouses to the community property are equal subject of course to the husband's management and control.

It is not essential that separate property shall kept rigidly apart from community property although if it becomes commingled with community funds it will be absorbed into them unless it can be realistically traced back to its source.

On the death in California of one spouse estate duty is payable on his (her) separate estate and on his half of the community property. By agreement they can regulate common and separate ownership of property to the exclusion of the Code and the deceased and Mrs. Davis entered into such an agreement in October 1961. It is accepted that their agreement did not alter the effect of the Californian Code on their rights to community property and separate property in so far as it relates to this action. The agreement is annex RTH 4-9 in the affidavit of Mr. R.T. Holmes, The Fijian Commissioner.

It is agreed that at the time of his death the deceased held in Fiji in his own name 25,180 x $2.00 units or shares in Yanuca Island Ltd., and in the joint names of himself and his wife 37,354 units or shares of $1.00 each in Fiji Mocambo Holdings Ltd. All the shares were converted to Fiji Resorts shares but the conversion does not affect the outcome of this case. After his death a further 56,281 units were acquired in Fiji Resorts Ltd. The defendants sold all the shares held in the deceased's own name plus the shares acquired after his death, plus the bulk of the shares held in the names of the deceased and his wife although probate had not issued in Fiji.

Following that sale the Commissioner demanded death duties from the defendants on the whole of the shares and bank balances held by the deceased in his own name and in the joint names of his wife and the deceased. That demand is annex RTH 14 in the affidavit, dated 27.8.76, of Ross Thomas Holmes (above). References to R.T.H. are to annexures to his said affidavit.

On the application of the Commissioner, an Order of the Supreme Court dated 22/11/77 directed the defendants under S.31(1) of the Estate and Gift Duties Act, Cap. 178 to deliver to the Commissioner a statement containing details of the deceased's property dealt with by the defendants, and to show cause why they should not pay the duty assessed thereon. These proceedings follow on from that Order.

The Commissioner amended the assessment on 14/7/78 to include a ship called "the Rebel" valued at $40,000 as part of the deceased's estate.

Since the action is not based on pleadings there are no specific allegations pleaded by the Commissioner and the defendant. Thus the facts upon which the defendant relies in reduction of the Commissioner's claim are not set out and have to be gleaned from the affidavits and evidence of witnesses and submissions by counsel. The later have been helpful in tendering written submissions on the evidence and the law in addition to oral submissions.

The defendants mode of showing cause is to say that they are not liable on all the shares sold because a substantial quantity were the separate property of Mrs. Doris Davis, which under Californian law does not form part of the deceased's estate. The defendants also allege that the remainder of the shares were community property under Californian law entitling each spouse to one undivided half thereof and, on the death of one spouse only the value of his half is included in his estate. That exposition of the Californian law is accepted by both parties.

In order to establish that the shares held in their joint names were Mrs. Davis's separate property and that the shares held in the deceased's name alone were community property the defendant under Californian law has to trace the purchase back so as to show that they were purchased from the community funds or from Mrs. Doris Davis's separate funds.

During correspondence with the Commissioner, Messrs. Cromptons, (Solicitors & Barristers), acting for the defendants, stated in a letter of 25/9/73, annex. RTH 4-3, that all the Fiji shares were purchased with community funds but that the ship, "the Rebel", was purchased with Mrs. Doris Davis's separate money. They did not allege in 1973 that some of the Fiji shares had been purchased from Mrs. Doris Davis separate funds, nor did they allege this in their later letter of 30/4/75 RTH 4-17. The San Jose Bank in California, the deceased's executors, submitted returns to the Californian State and the U.S. Federal tax authorities (see RTH 5) stating that the deceased held as his own estate only one half of the Fiji shares as community property. The defendants now allege that at least half were Mrs. Davis's separate property and that less than half were community property. In other words the deceased's estate in Fiji included less than one quarter of the shares.

Mr. Scott submitted on behalf of the Commissioner that the defendants having repeatedly stated that all the shares were community property, are estopped from alleging that at least half were Mrs. Doris Davis's separate property. He revealed no actual loss of revenue or other detriment caused to the Commissioner by reason of the change in allegations as to ownership. The Commissioner maintains as he has done for several years that the deceased's separate estate includes all the Yanuca Island shares and half the rest as his share of the community property. Thus the Commissioner has not acted on the defendant's earlier representations that all the shares were community property.

Spencer Bower & Turner's Estoppel by Representations, 2nd Edn. at p. 88 clause 98, states that the representee must prove that he was induced by the representation to act upon it. I have not been shown any statement in the Commissioner's affidavits alleging that he has been misled and caused to alter his position to his detriment. In fact the only changes made by the Commissioner, notwithstanding the defender's representations, have been to enhance the sum claimed. Thus at a later stage, as I have already indicated, the value of the ship "the Rebel" was included in the final assessment.

An estoppel ensures that something which was probably not true shall be regarded as true because someone has been caused to rely upon it as true. If the Commissioner insists on it being accepted as true that all the shares were community property then he cannot allege that half of them were the sole property of the deceased.

In any event, the amount of duty payable has not yet been decided, let alone paid and accepted as a true and final account. Until then the Commissioner cannot have acted to his detriment.

I take the view that the defendants are not estopped.

It is agreed that separate property remains separate although its form may be changed. The defendants submit that under Californian law I f separate property is used as security for a loan, the proceeds of the loan and any property purchased with it is the separate property of the spouse who provided the security even though the loan is repaid from community property. The defendants rely upon opinions and cases cited in the affidavits of Californian lawyers Martin A. Schainbaum and G.A. Strader. Their affidavits as expert witnesses on Californian law seldom quote actual passages from the cases cited but often refer to a particular part of a judgment. Photostat copies of the relevant sections of the Californian Code were annexed to Strader's affidavit but there is no need for me to quote them, because as I have indicated their broad effect is not disputed.

Mr. Scott submitted that the expert's approach in relying at times upon the entire judgment in a Californian case instead of upon a particular portion was erroneous. He argued that for an expert to simply state that the principles of tracing property are set out in decided cases such as Mix v. Mix, Hicks v. Hicks, and other quoted cases is insufficient. He contends that the expert should state his views on the law and then refer to the actual portion of any judgment on which he relies. He drew attention to "The Conflict of Laws," by Dicey, 8th Edn." (supra), Rule 185, which deals with proof of foreign law. R. 185 (ii) at p.1115 points out that if the expert witness cites a passage from a foreign decision the court may not look at other parts of the decision without the aid of the witness.

Nowhere in their affidavits have either of the experts on Californian law categorically stated the defendants' proposition that where the separate property of one spouse is security for a loan then the proceeds of the loan are that spouse's separate property even though the other spouse signs as obligor and even though it is repaid from community property. Schainbaum's affidavit refers to the judgment in "In Re the Marriage of Mix" 14 Cal. 3d. 604, 122 Cal. Reporter 79, 536 p.2d. 479 along with 2 other cases, photostats of which were tendered, setting out the principles of tracing separate property which has become mingled with community property. He refers to p.610-611 and quotes a passage to show that where separate and community property are commingled the spouse's rights to his (her) separate property are not affected as long as it can be traced to its source. No portion of that judgment refers to the effect of using separate property as security for loans. Nothing in Mix (supra) supports the defendants' contention.

Schainbaum referred to Hicks v. Hicks 211 Cal. App. 2d. 144, 152-157, 27 Cal. Reporter 307 where the Court of Appeal held that the separate property of one spouse can be traced through community accounts in order to show that it has not changed its identity although it may have changed in character. To support his evidence Schainbaum referred to p.p.312-315 of the judgment in Hick's case. If Mr. Scott's submission is that Schainbaum should have quoted p.p.312-315 verbatim before this Court could rely upon that passage, I do not, with respect, concur. I see no difference between quoting a passage verbatim and referring to its location in the judgment. I accept Schainbaum's references to p.p. 312-315 of Hicks (supra) in support of his testimony regarding the unmingling of community and separate property. The judgment covers pages 307 to 320 but it is only p.312-315 which the witness Schainbaum relies on to explain unmingling of community property by tracing the separate property to its source. The entire case is not placed before this Court for the Judge to make of it what he can but only p.p.312-315. However, I must peruse it all so as to understand the portion to which I am referred.

At p.315 (9-11) Hicks, (supra), the Californian Court of appeal stated that the proceeds of a loan obtained upon the security of the husband's separate property are his separate funds and the fact that the wife joined in signing a promissory note as additional security did not cause the proceeds of the loan to become community property. It seems that in Hick's case the wife did not contribute to repayment of the loan nor was it repaid from community property but it was paid off from the husband's separate income. Therefore Hicks case does not show that the proceeds of a loan are the separate property of the spouse who provided the security for it although the loan was repaid from community property.

The defendant also relied upon See v. See 64 Cal. 2d. 778. Schainbaum drew attention to pages 778 and 783 but they do not refer to borrowing on the security of separate property.

Reference was made to In Re Lissener's estate 27 Cal. App. 2d 570, 81 P.2d. 448 in which Schainbaum drew attention to pp. 449-451. In that case the husband received, from a third party, a gift of mortgage property and he promised to repay the mortgage. The Court of Appeal held that even if the mortgage had been repaid from community funds its separate character would not be changed because it will not be inferred from such expenditure alone that there was an agreement to change the separate character of the property. That expression of opinion appears to be obiter but in any event it does not indicate that the proceeds of a loan guaranteed by the husband's separate property are his separate property although the loan is repaid from community funds. In Lissenser's case no loan was made to the husband but had been made to a third party who retained the proceeds thereof. If the community had repaid the mortgage debt of the third party they would not have been entitled to claim the proceeds of the loan from him. Lissener's case is not unlike that of a husband whose separate property is mortgaged to provide funds for a third party. Although the loan may be paid off from community property the proceeds of the loan were never in the husband's possession and he would receive no benefit from the community property being used to pay the third party's loan. It is clear that in such circumstances the community could not lay a claim to the proceeds of the loan any more than the husband could. The judgment leaves undecided whether the husband or the community would become the third party's creditor. It is also worth noting that the intention of the parties is referred to in Lissener's case as having a bearing on whether a gift to one spouse of mortgaged property becomes community property if the latter is used to redeem the mortgage.

The foregoing Californian authorities, reveal that the proceeds of a loan raised on the security of one spouse's separate property which is repaid from his separate property is separate property although the other spouse has given a promissory note for all or part of the loan. There is no evidence that the proceeds of a loan raised under such circumstances continue to be separate property if it is repaid from community property, although one may get that impression on a first perusal of Lissener's case that in any event one has to have regard to the intention of the parties when community funds are used to repay loans. I reject the defendant's contention that the proceeds of a loan which has been secured by one spouse's separate property become part of his separate property even though the loan is repaid from community property.

I turn now to consider the evidence tendered by the defence in tracing the financial sources form which the shares were purchased.

The Mocambo shares held in the joint names of the deceased and Mrs. Davis were purchased with a cheque dated 5/9/61 for U.S. $25,000 payable to Fiji Holdings, Annex.B, to Mrs. Davis's first affidavit. It is signed by the deceased but it bears the printed names of both spouses showing that the account can be drawn on by either party. Mrs. Davis says that $20,000 of that $25,000 was a loan from the PAN AM. Credit Union, San Francisco, under 2 promissory notes for $10,000 each of which was sided by the deceased and Mrs. Davis. No doubt the loan was taken from Pan Am. because the deceased was employed by them, as a pilot officer. Para 6 of her affidavit states that she deposited 591 Seattle Bank shares as security for the $20,000 loan and in para 10 she says that she sold 150 of the shares for $10,050. The promissory notes, Exs. C & D, show the security for the $20,000 loan as "Stock". Mrs. Davis; held a considerable amount of stock in the Seattle Bank as her separate property. Sale of some of the stock is verified by an Income Tax return for 1961, annex L, to her affidavit. Para 7 of her first affidavit, as amended by para 5 of her second affidavit, says

"We borrowed the $20,000 so that my husband and I could obtain shares" in Mocambo investments. Those are not the words of a person making a "separate" investment. She also says that the $20,000 borrowed was paid into their joint banking account but corrects this in her second affidavit by reference to a bank statement, annex. G, for January 1965 which suggests that it was her own account. But the $25,000 cheque (annex B) was made out in 1961 on which date that account may have been a joint account. The bank statement for September 1961 referring to the $25,000 cheque was not tendered. There is no doubt from examining the cheque (annex.B) that it was used to purchase Mocambo stock. She says the proceeds of one hundred of the aforesaid sale of shares was paid into the bank to meet the $US.25, 000 cheque. Had the bank statement for that period been produced the statement of Mrs. Davis that the $25,000 cheque came from her own bank account may or may not have been verified.

In cross-examination Mrs. Davis said that the Pan Am. loan was repaid in part from deceased's salary in monthly instalments. She never suggested that any part of the Pan Am. $20,000 loan was re-paid from her separate property. It appears from Ex.P.1 (N1, N2 & N3) that the $20,000 Pan Am. loan was re-newed twice; once on 4/5/66 and again on 13/7/71 or thereabouts in which stock was again the security. Ex. P.1(N4) & (N5), are two portions of the Pan Am. loan repayment account relating to the $20,000 loan. They are isolated accounts in the name of the deceased although two other similar loan repayment accounts each marked Ex.P.N6. show $10,000 under the deceased's name and $10,000 under Mrs. Davis's name. Exs. P.1 (N4, N5 & N6) show repayments of the $20,000 loans from April 1971 to March, 1972. They indicate that the second $20,000 loan and the third loan including Mrs. Davis's portion' was being repaid out of the deceased's monthly salary from Pan Am. Why were the loan statements for the period 1961 to 1972 not tendered? Was it because they would show that the first loan was also repaid by monthly deductions from the deceased's Pan Am. Salary? Mrs. Davis said in cross-examination that the Pan Am. loan had been originally made with the San Francisco branch but the loan was transferred to the Seattle branch which gave better terms and Seattle did not require her stock as collateral. Ex.P.1N.6 are two Pan Am. records showing repayments of the loan to the San Francisco branch. Even the interest on those loans came from the deceased's salary. The conclusion I come to is that the first $20,000 loan and the second loan for the same amount and the interest thereon were repaid by the deceased from his monthly salary and as is indicated later he was repaying the third $20,000 loan at the time of his death. Moreover, I am not satisfied that the additional $5000 added to the first loan to make it up to $25,000 was provided from the sale of Mrs. Davis's bank shares. There is no evidence that the additional $5000 was paid into the account in 1961 from which the cheque was drawn or that in 1961 it was not a joint account. Even if it was Mrs. Davis's sole account in 1961, there is nothing to suggest that community funds were not paid into it and used for community purposes. Mrs. Davis's statement that the deceased had little opportunity for saving because of his domestic commitments reflects upon her credibility in the face of the above finding that the deceased in paying off 2 x $20,000 loans from his salary saved substantially more than $40,000 in the 10 years 1961-1971 when the interest thereon is included. In her evidence Mrs. Davis stated that she and the deceased entered into a marriage agreement annex RTH 4-9 dated 6/10/61 because the deceased and she were going to invest in Fiji. Her evidence conveyed the impression that it was not she alone nor the deceased alone but both of them who were investing together. Had Mrs. Davis alone been investing in the Mocambo I think she would have automatically said so, but she frequently said "we" and not "I". She referred to a trip (or trips) made by the deceased to Hawaii to discuss the Fijian projects with architects showing that he was very much involved in them. She is a business woman and was the sole owner in California of Tropical Pools Ltd. Which she purchased by realising some other Seattle Bank Stock. I think that if she were purchasing the Mocambo shares for herself they would have been entered in her name as was done in her purchase and personal management of Tropical Pools Ltd. But she never sold the 596 shares which were used as security and when that $20,000 loan was renewed for the third time her shares were not required as security. To conclude the saga of the Pan. Am. loan there was about $18,349 owing on it when deceased died. Letter Ex.P.1 (N3) dated 8/5/72 from Pan Am. shows that the loan was insured for $10,000 which Pan. Am. collected on the death of the deceased leaving a balance of $8,349 which was no doubt paid from the community fund. Yet Mrs. Davis proclaims that the deceased's domestic commitments left him with little opportunity for saving.

In para 16 Mrs. Davis says "My husband and I" made further investments in Fiji during 1965." She does not say that she alone made them. She says 224 shares and 672 debenture shares in Fiji Holdings (Mocambo) were purchased with cheque 229 of 5/1/65 for $3,153.92. The cheque, Ex. 5, is drawn by deceased on what appears to be his own account 01314 with the Bank of America. It would seem on the face of it that the shares were community property since they were registered in both names. But Mrs. Davis says she provided the money for them by selling more Seattle Bank shares and depositing the money in the bank as shown in the bank statement annex G of January 1965. The sums realised from the sale were $2,917 on 7/1/65 and $2,207.13 on 15/1/65. However, Ex. G is allegedly Mrs. Davis's own bank statement but the above cheque 229 of 5/1/65 was drawn not on Mrs. Davis's alleged bank account but on the deceased's bank account which for some reason is not exhibited. There is nothing to support her testimony that cheque 229 drawn on the deceased's account was met by funds from her separate property i.e. from the sale of her Seattle Bank shares.

A problem arises in that the Mocambo share certificates show the shares to be the joint property of Mr. and Mrs. Davis with a right of survivorship. However, I think the problem is dispelled by the marital agreement of 6/10/61 which states in clause 3 that property acquired by the husband and wife during marriage shall become and remain community property. (Except property acquired by gift, bequest, or descent.) My conclusion that the Mocambo shares were acquired from community funds makes them community property under clause 3 of the marital agreement. For the husband or wife to register there as jointly owned with a right to survivorship would constitute a breach of that agreement.

Turning now to Fiji Resorts Shares (Yanuca Island) which were in the sole name of the deceased. In paragraph 18 of her affidavit Mrs. Davis again says "My husband and I paid for our initial investment in Fiji Resorts with cheque No. 247 for $12,500." The cheque, annexe H, dated 3.6.64, is signed by the deceased alone and comes from an account which she says was hers but which was operated as a joint account. A study of cheques and bank statements does not show that the account which is No.701314 was her separate liability and asset. She states that the $12,500 cheque (which is also tendered as Ex.6) was not met until 7.10.75 when the Bank of America took the promissory note, annex 'J', for $12,500 which is dated 7.10.65 and jointly signed by the deceased and Mrs. Davis. No loan statement or bank record has been produced showing when and how that promissory note was paid.

The $12,500 loan was re-newed on 20.1.66 by Mrs. Davis's personal promissory note for the same amount. There is nothing to show how much was owing on the promissory note when it was renewed, or the purpose for which it was renewed. I have no doubt on the evidence that the Bank of America looked to Mrs. Davis as well as to deceased for repayment of the $12,500. It was finally repaid on 19.8.66 from the account 701314 (supra) as revealed by the bank statement annex M&L, which records a credit item of $24,384, a sum which was received from the sale on 11.8.66 of the Davis's home at Woodside, California. (Para 20 of her affidavit).

The house at Woodside and the other real estate owned by them was community property but in spite of that the proceeds were paid into account 701314 which Mrs. Davis says was her separate account.

It is apparent that the account No. 7013141, although in Mrs. Davis's name, was operated by them as a joint account and received community funds and was not reserved for her separate property. Shortly before the above mentioned sale of the Woodside house they had mortgaged it for $58,000 under a deed of trust dated 24.1.66 Ex.P.1 (0). Mrs. Davis said in evidence that the amount of the existing mortgage was $24,000. The balance left for their use would be $34,000. Where did that money go? It is not reflected in the account No. 701314. Apparently when the $12,500 promissory note was re-newed on 20.1.66 the deceased and Mrs. Davis knew substantial community funds were at hand. There is nothing to indicate that she used any of her Seattle Bank stock as security for the $12,500.

The defence argue that a further sum of $2,377 paid to (Yanuca Island) Fiji Resorts by the deceased's own cheque Ex.P.1(D) dated 2.2.68 drawn on his account No. 3484 was really funded by Mrs. Davis. The deceased's cheque Ex.P.1(D) is reflected in his bank statement Ex.P1(E), dated 12.3.68, showing that it increased his overdraft to $3,256. His next bank statement dated 11.4.68 Ex.P.1(F) shows a deposit of $2,600 which put the account in credit. The $2,600 came from a cheque Ex. P 1 (G) dated 3. 2. 68, drawn on Mrs. Davis's purported separate account 701314, and paid in to the deceased's account on 21.3.68. I do not accept that those documents show or provide a reasonable inference that Mrs. Davis in effect paid the aforesaid sum of $2377 to Fiji Resorts. There could have been substantial community funds in account 701314 as for example the monies received from a sale of the Woodside house, and I am not satisfied that it operated solely as her own account. The statements Exs. P.1(E & F) show a payment in to the deceased's account of $959.87 on 1.3.68 and $826.97 on 15.3.68 apart from Mrs. Davis's cheque for $2,600. The deceased at the time was receiving $35,000 per year as a pilot but it is not reflected in any bank statements before the court. Which account, I wonder, was his salary paid into? It does not appear to go to his account (Ex.P.1 E & F) (supra) yet his salary seems to have been paid monthly. There has been no endeavour to show what happened to that substantial salary. He appears to have had more than one account with the Redwood City branch of the Bank of America.

The affidavit of Francis Chua HockHai, Secretary of the defendant company, shows that two lots of Yanuca Island (Fiji Resorts) shares were acquired by the deceased in his own name between 23rd October 1967 and 1st July 1968 i.e. a period of 8 months. In that time he purchased 25,180 shares at £1.0.0 each. They were later converted to $2 shares. It is submitted by the defence that the bulk of these shares were paid for from the proceeds of sale of the house at Woodside. By way of mortgage and sale the sums of $34,000 and $24,000 were realised in 1966 i.e. a total of $58,000. That sum coupled with the $2,377 and $12,500 loan would go a long way towards the purchase of 25,180 x £1 shares in 1967. But it would have to lie dormant for 18 months or so before being used to purchase the Yanuca shares in October 1967 and July 1968.

During 1967 and 1968 the deceased and Mrs. Davis lived at two different addresses according to their income tax returns, annexed to her affidavit. They purchased an apartment for $41,500 which was, according to her evidence, paid for from joint income. In February 1971 they sold it for $42,500.00. Another house in Menlo Park, California was sold for $32,000 in October, 1971. It had originally cost $26,500. That information does not help to trace the source of the funds used to purchase the Yanuca Shares in 1967 and 1968. Apart from the $12,500 cheque of 3.6.64 no cheques have been tendered to show from what account the 25,180 x £1 Yanuca shares were purchased.

It is surprising that income tax returns for 1948 and cheques and bank statement going back to 1961 as well as other accounts should be available and not more recent records. The documents tendered by the defence have been selected to try and show that some shares were Mrs. Davis's separate property, that the rest were community property, and that none were the deceased's separate property. If Mrs. Davis had pre-deceased Mr. Davis's would he have declared that most of the Mocambo shares held in their joint names were not community property but were Mrs. Davis's separate property and should be assessed for her estate's death duties; would he have volunteered that the Yanuca shares held in his own name were not his separate property but were community property and therefore not exempt from death duty and that half of them should rank for death duties as Mrs. Davis's share. If the Commissioner suspected in the hypothetical case of Mrs. Davis's demise that the Yanuca shares were community property and not Mr. Davis's separate property would the latter be able to produce bank statements, and cheques of his own which have not been tendered to this Court to support a contention that they were his separate property.

I do not think that my comments are out of place in the light of the kind of one sided records tendered by the defendants. Mr. Handley asked who could go back as far as Mrs. Davis has done in presenting accounts. The answer is determined by one's marital property laws and the amount of property a married couple accrues from investment. It is clearly essential in California and in U.S.A. to retain records of separate and community property in case of divorce and death. Mr. & Mrs. Davis were obviously conscious of this because, according to Mrs. Davis, the marital property agreement of October, 1961 was entered into because she had a great deal of separate property at a time when they were proposing to invest in Fiji.

There was reference to a. ship called "the Rebel" which was purchased in Denmark and brought to Fiji. It was purchased in the deceased's name as evidenced by a Bill proving its sale for $18,000. Mrs. Davis claimed it as separate property evidencing this by a cheque Ex. 18 dated 10.2.71 and drawn on Tropical Pools Ltd., her separately owned firm. She says she sold 591 Seattle Bank shares to finance the purchase. Further cheques Exs. P.1K totalling $26,000 (approximately) were made out in payment for repairs to the vessel in Denmark. The total sum invested in "the Rebel" was $U.S.44,000 of which about $29,000 was drawn on the account of Tropical Pools, but two payments amounting to $15,000 were made in the name of the deceased. The Courts in U.S.A. have accepted that "the Rebel" was the property of Tropical Pools Ltd. If Mrs. Davis had pre-deceased Mr. Davis would he have relied on the registration being; in his name and avoided pointing out that "the Rebel" was Mrs. Davis's separate property and liable to death duties?

After Mrs. Davis and Mr. Surke the family accountant, had given evidence the Commissioner accepted that "the Rebel" was the separate property of Mrs. Davis and withdrew his claim for death duties on its value of $40,000. However, I mention it because it indicated the need for particularity in tracing separate property where it is necessary to rebut presumptions of separate ownership which arise when possessions are held in the name of one spouse.

In my view there has definitely been no tracing which reveals that any part of the Yanuca shares were purchased with Mrs. Davis's separate property. Why did Mrs. Davis not produce all the cheques used for purchase of all the shares; and all the bank statements relative thereto? It has not been said that they have been lost or destroyed. The investments began in 1961. Mr. Davis died in 1972. The period between is not unusually long. In 1972 it was known that references to community property and separate property would arise. Consequently Mrs. Davis and her advisers are not casting back from 1979 to 1960 or thereabouts but from 1972. Mrs. Davis stated categorically that the deceased had no separate property. I accept that evidence because it is supported to some extent by the marital agreement of October 1961 annex RTH 4-9 to Mr. Holmes first affidavit. The preambles thereto state that property held in their joint names at the date of the agreement is community property that Mrs. Davis has inherited property during the marriage and the agreement clarifies the position relating to community property and separate property. Nowhere is it stated that the deceased holds separate property. Having regard to the lack of cheques and bank statements relating to the purchase of the bulk of the Yanuca Island shares, and the omission of records relating to bank statements recording the deceased's and Mrs. Davis's salary payments into the community fund, it has not been shown in the slightest degree that all the Fiji shares could not have been purchased from community property. It seems that although the defendants have failed to establish that all the Mocambo shares and part of the Yanuca shares were Mrs. Davis's separate property. I am satisfied that the Yanuca shares were not the deceased's separate property but were community property.

I find that all the shares and bank deposits in Fiji were community property at the time of the deceased's death. It remains to consider the effect in Fiji of the marital agreement of October 1961. Dicey's Conflict of Laws, 8th Edition at p.629 R.110, states that the terms of a marriage contract govern the rights of the husband and wife in respect of moveables. Sub-rule 1. at p.631 states that the marital contract is governed by the law of the matrimonial domicile. Thus the rights of the deceased to the marital property during his lifetime are determined under the marital agreement of October 1961 as construed under California law. The expression separate property and community property used in the marital agreement are common to Californian law and not to Fiji law.

It is clear from the relevant sections of the Civil Code of California annexed to Strader's affidavit and cases cited by Schainbaum and Strader that the earnings of the husband and wife during marriage are community property; money earned by a spouse from the use of his or her separate property is community property (e.g. Mrs. Davis's salary as a Director of Tropical Pools was community property although the company was her separate property; but dividends paid by the company were her separate property). However the husband has absolute control of community property and may dispose of it as he wishes. The wife may apply to the court to deter inconsiderate or fraudulent disposition of community property.

Under Californian law only half the community property belongs to the estate of a deceased spouse for death duty purposes. Estate duty payable in Fiji is determined under S.5 of the Estate and Gift Duties Ordinance, Cap. 178. As a result of my finding that all the shares in Fiji are community property one has to determine under Fiji law to what extent the community property is liable to be assessed for death duty. The fact that only half of it is taxable under Californian estate duty law is no indication that the same statutory rule applies in Fiji. The portions of S.5 which the parties rely upon are S.5 (1) (a), 1(e), 1(h), (1) (i).

S.5 (1) (a) excludes from estate duty all property held by a deceased as trustee for another. The defence submitted that the deceased was a trustee of the community property to the extent of Mrs. Davis's half interest and that her half should be exempt. In my view the husband's control over community property in California is not as limited as that of a trustee. During his lifetime he does not have to ensure that the wife receives a half-share of the income which finds its way into the community.
Community property is a varying fund which fluctuates according to the earnings and expenses of the spouses and profits which may accrue from community investments. It is liable for medical expenses, education and maintenance of the children and other domestic requirements all and each of which receive such priority and share in the community funds as the husband sees fit. He may give more to one child than another, more to himself than to his wife or vice versa. One can present other illustrations which show that the husband is not a trustee of the kind envisaged by the law of Fiji.

The Commissioner submits that the whole of the community property and not simply the deceased's half is assessable for death duties under S.5(1)(h) which states that property over which the deceased had a general power of appointment at the time of his death is liable for death duty. He argues that the deceased's powers over community property under the Californian law amount to a general power of appointment under Fijian law.

He also contends that all the Fiji shares, even if they are all community property, come under S.5 (1) (i) (i) & (ii) which states that assessable property includes:-

(i) Any property situate in Fiji at the death of deceased comprised in any settlement, trust or other disposition of property (including the proceeds of the sale or conversion of any such property and all investments for the time being representing the same and all property which has in any manner been substituted therefor) made by the deceased whether before or after the commencement of this Ordinance –

(i) by which an interest in that property or in the proceeds of the sale thereof is reserved, either expressly or by implaction, to the deceased for his life or for the life of any other person or for any period determined by reference to the death of the deceased or of any other person; or

(ii) which is accompanied by the reservation or assurance of, or a contract for, any benefit to the deceased for the term of his life or of the life of any other person or for any period determined by reference to the death of the deceased of any other person;

The contentions of the Commissioner under S.5(1) h and under S.5(1)(i)(i) & (ii) were both considered in Ochberg v. Commissioner of Stamp Duties in 49 (1949) State Reports (N.S.W.) 248, by the State's Full Court of Appeal. That case is remarkably similar to the instant case. Ochberg was domiciled in South Africa at the time of his marriage and he died on 11th December, 1937 at which time he had property in N.S.W. Letters of administration were taken out in South Africa and re-sealed in N.S.W. The action was to determine to what extent his property in N.S.W. was liable for Australian death duty. Under South African law all property belonging to either spouse at the time of marriage and property acquired during marriage becomes community property (As in California the parties can make their own agreement controlling marital property). The property in N.S.W. was community property. The community property is vested in them jointly subject to the husband's exclusive authority to control, manage and administer the community property subject to the wife's right to protect herself, as in California, against the husband's prodigality by an application to the court. On his death the husband's authority, as in California, ceases and the surviving spouse, as in California, is entitled to one half of the community property. It is apparent that the "joint interest" of the spouses in South Africa and California in the community property during their lives is not the same as a joint interest of the kind known to English law where the whole beneficial interest in a joint estate vests in the survivor(s).

In Ochberg's case, as in the instant case, the husband pre-deceased the wife and the question arose as to whether the wife's half of the community property held in New South Wales was assessable for duty under the law of New South Wales. The Full Court held that it was assessable under S.102(2)(e) and S.102(2)(j) of the Australian Stamp Duties Act 1920, which are similar to Fiji S.5(1)(i) and S.5(1)(h) respectively. The Ochberg property in New South Wales consisted of bonds and once again there is a similarity with the instant case. The judgment delivered by Jordan C. J. referred to the Commissioner's contention that under the marital contract which is implied by the statute law of South Africa there was a disposition of property under S. 102(2) (e) (corresponding to our S. 5 (1) (i) by the deceased of one-half of the bonds to his wife, but an interest in them was reserved to him for his life and there was a reservation of or contract for a benefit to him for the term of his life. The learned C.J. stated near the top of p.255,

"The correctness of these submissions depends upon the legal effect of that part of the law of S.A. which provides, in effect, that the wife's half as well as the husband's half is 'subject to the marital power."

He proceeded further down that page to express the Full Court's view of the "legal effect of the marital power," stating,

"It would however I think be contrary to the scheme of community property - to conclude that it required all existing and after acquired property to be divided into vigorously separated halves, the husband "being entitled to administer them both but entitled to have personal enjoyment only of his own half, the wife's half being left intact except in so far as it is applied by him for her benefit. Community of property appears by necessary implication to provide a scheme by which the whole of the community property is administered by the husband and utilised by him in any way he thinks fit for the benefit of himself, his wife and his family. The interests of himself and his wife are thus the continually fluctuating halves of a necessarily fluctuating whole. When the husband takes anything for his own benefit he reduces his own half and his wife's half of the whole property by one moiety of each amount taken. Hence a beneficial interest in his wife's half is reserved to him. The view is borne out by the provision that the wife may protect herself against 'prodigality' by her husband by obtaining "from the court a 'separatio bonorum." Further the provision that upon the death of one spouse the marital power of the husband ceases – and the survivor is entitled to half the estate indicates that until death (subject to a separatio bonorum) of one spouse the community property is to be administered by the "husband as a whole, the whole and every part of it being available to be applied by him for the personal benefit of himself and his family.

"For these reasons I am of the opinion that the evidence shows that the wife's half of the bonds was dutiable under S.102 (2) (e). It follows that, in my opinion, the wife's half was dutiable under S.102 (2) (j)." From that judgment it is apparent that the wife's half was liable for duty under para (i) and para (ii) of S. 102(2) (e) of the N.S. Wales Act which are the same as para (i) and para (ii) of our S.5(1) (i)."

The judgment at p.254 refers to the statutory definition of "disposition of property" quoting S.100 (a) and (c) of the N.S.W. Act which are the same as the Fiji definition of disposition of property appearing in the Fiji S.2 '(disposition of property)' para (a) & (c).

The Australian judgment does not explain why the full Court concluded that "the material power" of the husband in Ochberg's case amounted under their S.102 (2) (j) to a general power of appointment over the community property held by the deceased at the time of his death. Clearly some thought was given by the Full Court to that conclusion because at p.254 the judgment quotes the statutory definition of "a general power of appointment" which is similar for the purposes of this case to the definition in the Fiji S.2. The N.S.W. S 102(2) (j) is the same as the Fiji S.5 (1) (h).

Ochberg's case has been referred to in two N.Z. judgments without adverse comment but they have indicated that the facts in Ochberg were somewhat different from those in the N.Z. cases.

In Re Manson (deceased) 1964, N.Z.L.R. 257 the N.Z. court of Appeal was considering whether a power vested in a beneficiary under a will was a general power. In the course of its judgment the Court referred to Ochberg's case in the following terms which appear at p. 269:-

"The Full Court of N.S.W. decided that the property was dutiable primarily because there was a 'disposition' within the meaning given to that term in that statute. That was so because community property by necessary implication, provided a scheme by which the whole of community property could be administered by the Husband and utilised by him in any way he thought fit for the benefit of himself, his wife and his family. This power remaining in the husband amounted, in the view of the Court, to a reservation sufficient to create a disposition of property within the meaning of S.102 (2) (c). That the Court went on to say, very briefly and in conclusion, that it followed that the wife's half was also dutiable under S.102 (2)(j)." The reason why is not enlarged upon and we take it that it was that, having the power to utilise the whole of the fund for his own purposes and those of his wife and family the husband had power to dispose of it."

Clearly the N.Z. Court regarded the husband's marital power in Ochberg's case as amounting to a general power of appointment.

The N.Z. Court was at that time considering the meaning of general powers of appointment as defined in the N.Z. statute, S.5 (1) (h), Estate & Gift Duties A. 1955, which closely corresponds to our definition thereof in the Fiji S.2 and they said of Ochberg's case, at p.269 of their judgment,

"Alternatively it was argued that the property was caught by S.102(2)(j) - whose wording is similar to our S.5 (1) (h) and whose expression "general power of appointment" is extended by a definition similar to that contained in our S.2."

Had there been anything dubious about the decision in Ochberg that the husband's marital power amounted to a "general power of appointment" there can be little doubt that the N.Z. Court in Manson's case would have drawn attention to it.

The other N.Z. case is In Re Going 1951 (70) N.Z.L.R. 144 and again the Court of Appeal was considering what amounted to a general power of appointment in connection with a demand for death duty. Hay J. A. in his judgment at the foot of P.173 said of Ochberg's case:-

"The judgment is almost wholly confined to a consideration of the circumstances of the case in relation to the Australian para (c) the equivalent of our para (j). After deciding that the case fell within that para, the Court went on simply to state that it followed that the wife's half of the bonds, being a portion of the joint estate was dutiable under para (j) the equivalent of our para (h). The obvious reason for the latter part of the decision was that during the joint lives of the parties the community property was to be administered by the husband as a whole, the whole and every part of it being available to be applied by the husband for the personal benefit of himself, his wife and his family. It is therefore understandable that while such a power qua the wife's share vested in the husband whilst he lived he was possessed of a general power of appointment within the extended meaning of that term in the Act, which is substantially the same words as the definition in our Act."

The Fiji section 5(1)(h) with its statutory definition of a power of appointment and S.5(1) (i) (i) (ii) and (111) with its statutory definition of disposition are expressed in similar terms. Therefore Ochberg is relevant to the facts in the instant case as are the comments thereon of the learned judges of the N.Z. Court of Appeal. Mr. Handley has drawn attention to the wording of S.5(1)(h) which states that assessable estate includes:-

"(h)-"_________ any property situate in Fiji at the death of the deceased over or in respect of which the deceased had "at the time of his death" a general power of appointment."

He stresses that if there is a general power of appointment in respect of the Fiji shares it must be one which the deceased held "at the time of his death." He submitted that the deceased's powers necessarily ceased at the time of his death and therefore none of the shares were liable for death duties. He relied upon Re Silk deceased, Australian Tax Rep.321, a judgment of the High Court of Australia in 1976. It refers to a wife who survived her husband. She was entitled under his will to request the trustees to, "raise any sum(s) out of the capital. Of

"(half the residuary estate) and pay the same to my wife for her use and benefit."

The Australian Commissioner for taxes contended that the will gave her a general power of appointment over half her deceased husband's residuary estate, and therefore it was assessable for tax on her death under S.7(1)(f) of the Australian act which is expressed in the same terms as our S.5(1)(h). The Australian Commissioner took the view that the words "at the time of death" meant "immediately before death." The High Court did not uphold that contention and held that S7(1)(f) did not apply because the power did not exist at the time of her death.

Mason J. in his judgment at p.327 said that he was reluctant to draw a distinction between the expressions "at the time of deaths" and "immediately prior to death" but that the Act itself made the distinction on four occasions in S.7. He said that as death was the event which terminated the power it could not exist at the time of death. The learned judge observed that the statutory definition of power of appointment did not assist in giving meaning to the expression "at the time of death."

The defence in the instant case draw a parallel to mason J's reasoning by pointing out that the Fiji Statute uses the expression "immediately before death" as well as at "the time of death"

As was said in Silk's case it is difficult to accept that one can draw a fine distinction between the expressions "immediately prior to death" and "at the time of death." As Jacobs J. pointed out in his dissenting judgment it is only in theory that one can conceive of a person making a decision in the instant before death.

There seems in ordinary parlance to be an instant of time between the certainty that there is still life and the certainty of death at which the last spark of life is extinguished and which is loosely referred to as "the time of death." Till that instant a man in theory possesses all his powers of disposition. The instant the spark is extinguished he is already dead; "the time of death" has passed and such dispositions as are exercisable in his name are testamentary.

When S.5 (1) (h) refers to "the time of death" the defence argue that it means that instant when all life has passed away. One may counter that by saying that if such were the meaning then the legislature would have used the words "upon the death of." If it means the instant when the last spark of life is about to be extinguished it might be better expressed by the words "up to the time of death." It appears to me that the expression "at the time of death" is not an example of grammatical precision. The Australian High Court regarded it as an ambiguous phrase because they looked to other portions of the same statute for assistance in resolving the ambiguity. They concluded that it did not mean "immediately before death" because the statute used the expression "immediately before death" several times and would have done so again if that was what was meant.

The relevant sections of the Fiji Statute are similar to the Australian Statutory provisions.

There is a slight difference in the Fiji definition of a "general power of appointment" in that it is a little wider in scope but that does not affect the outcome of these deliberations.

Although S.5 uses the words "before death" on several occasions it only once uses the expression immediately before death." It is found in S.5 (1)(e) which uses the expressions "immediately before death" and "at the death" in the course of enacting that joint interests are assessable for death duty. It makes assessable for duty:-

""(e) the beneficial interest held by the deceased 'immediately before his death' in any property as a joint tenant or joint owner with any other person or persons if that property was situate in Fiji 'at the death of' the deceased; ""

On the death of a joint owner his share in the whole passes by operation of law to the survivor(s); his marriage, business partnership, contracts for his personal services, etc. are likewise dissolved on death. In the absence of S.5(1)(e) a claim for death duties against a deceased's joint beneficial interest could be met with the argument that it only survived up to the time of death and then automatically passed on death to the survivor(s) and therefore could not form part of his estate after his death. Para (e) avoids such argument and although assessment occurs after death, by which time the deceased's joint beneficial interest has already accrued to the survivor, para (e) still includes it in the deceased's estate by making a joint interest hold immediately before death assessable for death duties.

S. 5(1)(e) in using the expression "at the death of" obviously means the event of death as opposed to the instant before death. If the words "at the time of death" used in S.5(1)(h) mean the event of death the Commissioner could argue that the legislature would have said so by using the words of S. 5 (1) (e), namely "at the death of. " Thus a reference to S.5(1) (e) for assistance in resolving the meaning of the words "at the time of death" merely tends to emphasise the ambiguity.

Therefore one must turn to other modes of interpretation in order to construe their meaning. If there are two possible meanings to a statutory expression one of which is absurd and one of which gives it a sensible meaning the Court will take the sensible one.

A power to make testamentary dispositions is not exercisable after death; it exists during life to include in one's will provisions which take effect after death. Testamentary powers not exercised during life cease on death. General powers of appointment cease on death. Therefor, when S.5(1)(h) speaks of a power held "at the time of his death" it would be meaningless if it refers to powers held "at the death of." A corpse has no powers. If my reasoning is correct and logical and if S.5(1) (h) becomes meaningless by reason of such a construction then the inclusion in S.2 of a definition of a general power of appointment would be a waste of legislative time for the reasons following.

S.5(1)(h) is the only portion of the Ordinance which refers to a general power of appointment except for S.2 which defines it as :-

"any power or authority which enables the donee or other holder thereof, or would enable him if he was of full capacity, to obtain or appoint or dispose of any property or to charge any sum of money upon any property as he thinks fit for his own benefit, whether exercisable orally or by instrument inter vivos or by will or otherwise howsoever _________________."

If in S.5(1)(h) the expression "at the time of his death" means "at the death of" then the definition of a general power in S.2 would become superfluous and unnecessary because the definition is only inserted for the purposes of S.5(1) (h), but, as I have said S. 5 (1) (h), has no meaning if it speaks from death. A dead man could not exercise that general power of appointment which the legislation in S.2 has so carefully defined. In fact the inclusion the definition in the Ord. would be an exercise in sheer futility.

S.2 defines "the dutiable estate" as the estate of a deceased computed and constituted in accordance with S.5. S.5(1) commences as follows :-

"5(1) in computing for the purposes of this Ordinance, the final balance of the estate of a deceased person, his estate shall be deemed to include and consist of the following classes of property :-"

It then sets out in paras (a) to (i) the classes of property which are deemed to fall within the deceased's estate. Each paragraph of the subsection embraces a class or kind of property which is liable for death duties as part of the deceased's estate. It would be absurd to include para (h) if it did not describe a class of property forming part of a deceased's estate but this is what would happen if the words "at the time of death" were to mean "on the death of." S.5 (1)(h) would become meaning less. By constructing the words "at the time of his death" as meaning "up to the time of his death" or 'immediately before death,' S.5(1)(h) would then include property over which the deceased had a general power of appointment up to the time of his death and would comply with the obvious intention of the legislature by giving a meaning to S.5 (1)(h) and by giving some sensible intention to the inclusion in S.2 of a definition of a general power of appointment.

I consider that the expression at the time of death should be construed as meaning immediately before death.

I am disposed to the view that I can properly apply the reasoning of the Full Court of N.S.W. in Ochberg's case as explained by the N.Z. Court of Appeal (Supra). In my opinion the deceased under the marital agreement held a general power of appointment over all the Fiji shares i.e. the community property in Fiji up to the time of his death. I accordingly find that all the Fiji shares are assessable for death duty under s.5 (1) (h).

Turning now to s.5 (1) (i) it makes assessable for death duty.

"(i) any property situate in Fiji at the death of the deceased comprised in any settlement, trust or other disposition of property (including the proceeds of the sale or conversion of any such property and all investments for the time being representing the same and all property which has in any manner been substituted therefor) made by the deceased whether before or after the commencement of this Ordinance-

(i) by which an interest in that property or which in the proceeds of the sale thereof is reserved, either expressly or by implication, to the deceased for his life or for the life of any other person or for any period determined by reference to the death of the deceased or of any other person; or

(ii) Which is accompanied by the reservation or assurance of, or a contract for, any benefit to the deceased for the term of his life or of the life of any other person or for any period determined by reference to death of the deceased or of any other person; or

(iii) by which the deceased has reserved to himself the right by exercise of any power to restore to himself or to reclaim that property or the proceeds of the sale thereof."

It is expressed in very much the same terms as s.102 (2) (c) of the Australian Act considered in Ochberg's case. Any differences in wording are immaterial in applying the reasoning in Ochberg to the facts of the instant case. The Fiji Shares in the instant case were, as in Ochberg's case, community property.

It was agreed in Ochberg's case that under South African law as under Californian law the spouses are presumed to enter into the community property agreement. The law imposes the arrangement upon them although they can, as under Californian law, make their own agreement. In the instant case the deceased and Mrs. Davis had made their own marital agreement for community of property.

The court held in Ochberg, P.255, that under the Aust.S.102 (c) the South African marital agreement amounted to "a disposition of property" made by the deceased by virtue of the implied contract involved in his marriage whereby one half of the bonds passed to his wife, but an interest therein was reserved to him for life; and there was a reservation of, or contract for, a benefit to the deceased for the term of his life."

In the instant case the comparable disposition of property under the Fiji s.5 (1) (i) arises under the marital agreement of October 1961 whereby one half of the shares passed to Mrs. Davis but an interest therein was reserved to the deceased for his life.

Following the reasoning adopted by Jordon C.J. p. 254 which I have already quoted at length I find that Mrs. Davis's half of the Fiji shares is dutiable under s.5 (1) (i), (i) & (ii).

There have been no submission relating to the shares acquired after the death of the deceased and I take it that there is no attempt to include them in the assessable estate.

The parties have requested that I should not attempt to calculate the amount of duty payable but simply to state what proportion of the Fiji shares I regard as assessable for death duty.

I accordingly give judgment for the plaintiff for duty of the whole of the Fiji shares and direct the defendants to pay the death duty assessed thereon by the Commissioner.

By consent of the parties the question of costs is deferred for agreement between them following delivery of this judgment or failing agreement by application to the court.

(sgd) (J.T. WILLIAMS)
JUDGE

26th October, 1979
Lautoka