v. Lord Advocate

20, 1894

the whole of the personalty, proposed only to return so much as represented 10 per cent. on the money paid by the original executors to the next-of-kin. But it was held that the case fell under the 37th section of 36 Geo. III. c. 52, and that the will having been avoided, only 3 per cent. was due upon the whole sum, and that it was immaterial that the will was avoided by consent, and that the strangers in blood had retained one-half. That judgment told against the Crown's claim. It is now appealed to by the Crown as an authority that if a will is not set aside the duty chargeable must be regulated according to its terms, whatever arrangement may be privately made as to the disposal of the estate. Assuming that case to be well decided, it is not against the argument for the residuary legatee. Not only in point of fact, but as a matter of form and by decree of the Court, the bequest has been refused effect to the extent of one-half. No doubt this was done by arrangement, and not causa cognita, but according to Stracey's case you cannot inquire into the grounds on which the Court proceeds; the result alone is regarded. Here no reduction was required. If the case had been fought out, and I had decided in favour of the residuary legatee and next-of-kin, I should have ranked and preferred him to the whole of the legacy without necessarily stating the grounds on which I proceeded. It would not have been necessary to expressly declare that the legacy had lapsed or become inoperative, although that would really have been the ground of judgment. As matters stand, I have ranked and preferred him to one-half, and that decree constitutes his right to so much of the legacy.

"The Crown assumes that here the strangers in blood have given up half of their legacy to the representatives of the residuary legatee and next-of-kin for the sake of compromise. It may as well be said that the latter has given up half of the legacy falling to the residuary legatee and next-of-kin to the strangers in blood. According to the formal decree, the Court has given each of the parties onehalf.

"Apart from this, I think that the 23rd section of 36 Geo. III. c. 52, applies. The 23rd section provides, inter alia, that where a legacy is released for a consideration or compounded for less than the amount or value thereof, the duty shall be charged and paid in respect of such legacy according to the consideration for release thereof or composition for the same.

Here

it may be said that the strangers in blood have compounded for half of the legacy left to them in favour of the next-of-kin and residuary legatee, and therefore while admittedly 10 per cent. must be paid on what the strangers in blood receive, only 3 per cent. will be charged on the remainder, a result in accordance with equity, and not, I think, against the law.

"I need scarcely add that in the present case there is no suggestion that the arrangement was fraudulent or collusive."

The Lord Advocate reclaimed, and argued

-The legacy here was still operative and unrevoked-it was under it that the State Commissioner acquired his rights; that legacy was to persons strangers in blood to the testator, and therefore 10 per cent. was payable. In Stracey's case, 1814, 6 A. & E. (Q.B.) 657, the will was, although by consent, set aside, and the persons paying legacy-duty took under the laws of intestate succession. To give effect to the claim of the next-of-kin would be to encourage arrangements which would defeat the Revenue-strangers in blood putting forward the next-of-kin for the purpose of saving payment of the higher rate of duty. Here had an arrangement not been come to, the State Commissioner might have got the whole fund in medio.

Argued for respondent-There was no suggestion here of collusion. By arrangement sanctioned by the Court, only half the amount of the bequest went to strangers in blood, and therefore only half should pay 10 per cent. legacy-duty. He did not impugn Stracey's case, but it was scarcely in point. So far as it had a bearing, the present case was a fortiori, because there the will had by consent been set aside. The fallacy underlying the argument of the Inland Revenue was that if this case had not been arranged the strangers in blood would have got the whole sum claimed. It might quite well have been that the next-of-kin got it all. The 23rd section of the Act of Geo. III. applied. The strangers in blood had compounded for less than the legacy, and were only liable to pay upon the amount they had taken in satisfaction.

At advising

LORD ADAM-The late John M'Learn, who died so long ago as July 1836, left a trust-disposition and settlement dated 27th August 1834, by which he conveyed his whole estates to trustees for certain purposes.

One of these purposes was contained in a direction to his trustees to apply onehalf of whatever right and interest he might be found to have in the property which belonged to his deceased brother Archibald M'Learn, or his deceased sou James Henry M'Learn, situated in the county of Chatham and State of Georgia, United States, America, for the education of the negro or slave population who were upon the plantation of Gourie, on the banks of the Savannah river, at the time of the death of his brother, and their offspring, and for the education of the slaves or negroes upon the plantation in general.

He further directed his trustees to deposit a sum, equal to one-half of his share and interest in the said property, in a bank in Savannah in the names of certain persons, to be applied by them in the education of the said negro or slave population, so soon as the laws of the State of Georgia should permit their education.

These gentlemen declined the trust as being in violation of the laws of the State of Georgia.

The sum realised by the trustees as the amount of the said one-half share and interest was £355, 14s. 6d.

Thereafter in 1838 the trustees raised an action of multiplepoinding and exoneration for the distribution of this sum, in which claims were lodged by the residuary legatees and next-of-kin of the testator.

The Lord Ordinary in that case, on 4th July 1838, repelled in hoc statu the claim of the residuary legatees, and appointed the case to be called for the purpose of determining how the legacy might be most conveniently invested in order to await the contingency the testator contemplated. Thereafter his Lordship, in respect that the fund in medio had been consigned, found it unnecessary to give any further order in regard to it, exonered and discharged the trustees, and found them and the claimants entitled to their expenses out of the fund in medio.

The balance of the fund after payment of these expenses amounted to £262, 3s. 2d. Nothing whatever was done with regard to this fund until the month of September 1890, when the pursuer was appointed judicial factor thereon at the instance of the next-of-kin and residuary legatees of the truster. He has uplifted the fund, which amounts to £734, 18s. 11d., under deduction of expenses, and has now raised this action of multiplepoinding for its distribution.

Condescendences and claims have been lodged for Mr Bradwell, State School Commissioner for the State of Georgia, as coming in place of the persons named by the truster, who declined to accept the trust, and he claims on the ground that the laws of the State now permit the education of the negroes; and also for the representatives of the next-of-kin, and of the residuary legatees of the truster.

It appears that these claimants entered into an agreement with reference to the disposal of the fund, which they embodied in a joint minute to which the Lord Ordinary by interlocutor dated 18th October 1893 interponed authority, and in terms thereof, inter alia, ranked and preferred the claimant S. D. Bradwell to one-half of the fund in medio, the claimant David Murray, who claimed as representing the next-of-kin, to the other half of the fund, and repelled the claims of John Kinloch and others, who claimed as representing the residuary legatees. He further ordained the pursuer to make payment to the claimants David Murray and D. S. Bradwell of the sums above mentioned, but under "deduction always of the expenses necessarily incurred by the pursuer and the real raiser, including the whole Government duties payable in respect of the succession of the respective claimants to the fund in medio."

Thereafter the Crown, on behalf of the Board of Inland Revenue, lodged a condescendence and claim in which they claim that legacy-duty at the rate of 10 per cent. shall be paid out of the fund before its division.

The ground on which this claim is made

is that the legacy is in terms a bequest to strangers in blood, and that the claim of the Crown to duties cannot be affected by any agreement or transaction between the parties.

The Lord Ordinary by the interlocutor under review has repelled this claim, and found the Crown entitled to duty at the rate of 10 per cent., only on the half of the fund in medio falling to Mr Bradwell, and at the rate of 3 per cent. on the half of the fund falling to Mr Murray.

In my opinion the Lord Ordinary is right. I think this case falls within the 23rd section of 36 George III. c. 52. That section enacts that where any legacy, whereon any duty shall be chargeable, shall be released for consideration or compounded for less than the amount or value thereof, then and in such case the duty shall be charged and paid in respect of such legacy, according to the amount taken in satisfaction thereof, or as the consideration for release thereof, or composition for the

same.

It appears to me that Mr Bradwell has released this legacy and compounded for less than the amount thereof, and that therefore the duty to be charged and paid thereon must be according to the amount taken as the consideration for the release, or composition for the same, which in this case is one-half of the amount.

I think this ground of judgment is sufficient for the decision of the case, and that it is unnecessary to consider the first ground on which the Lord Ordinary has rested his judgment, but I must not be held as at all dissenting from his Lordship's opinion in that respect.

Had there been any reason to suppose that the agreement between the parties was not a bona fide agreement, but was entered into merely for the purpose of evading the duties payable to the Crown, the result might be different, but no such suggestion was made, or apparently could be made in this case.

I am therefore of opinion that the Crown is not entitled to 10 per cent. on the whole amount of the legacy in question. That was the only question argued to us, and I therefore think that the interlocutor of the Lord Ordinary should be adhered to.

LORD M'LAREN-The statutes which impose duties on legacies and successions are, I think, in every case statutes applicable to the whole United Kingdom, and although the laws both of intestate succession and of the transmission of rights of succession by deed necessarily vary in different parts of the Kingdom, yet the statutes imposing the duties are expressed in such terms as to be applicable to those various legal systems, and that is because in the imposition of a tax-at all events of a tax relating to succession-it is understood that the substance of the right is what is dealt with, and that the duty cannot be evaded by merely altering the form of the deed whereby the suc cession is created, or by going through any form after that succession has accrued. It is plain enough, for example, that where

Lord Advocate

20,

duty at the higher rate has accrued in respect of the succession given to a distant relative, he cannot evade the duty by putting forward a nearer heir who shall make a claim and pay the duty, and then re-convey to the one who is really entitled. If this were competent, the Crown would never obtain duty at any rate higher than the minimum. But on the other hand, where, in consequence either of intrinsic defects applicable to a will as a whole, or objections to a particular clause in the will in respect of the uncertainty or failure of objects, the rights of the next-of-kin are let in, the persons truly entitled are only to pay the duty at the rate which is properly applicable to such rights. Now, the rights of next-of-kin, I think, are safeguarded by the 23rd and the 37th clauses. The 37th clause deals with the case of a will being set aside as a whole, the 23rd deals with objections to legacies which have led to transaction or compromise of the claim, and in each case duty is to be paid at the rate which is applicable to the person in whose favour the compromise has been made, and only upon the benefit which he has received. It is noticeable that while under the 37th section the statute only treats of the case of a will being set aside by a court of law, it was held in the case quoted by the Lord Ordinary that it is immaterial whether the decree setting aside the will has been obtained by consent in respect that the will could not be defended, or after a contested litigation, and that principle will evidently support us in the conclusion which your Lordships have reached-that in the construction of the 23rd section, although what the Legislature immediately contemplates is an extrajudicial compromise of the legacy, yet the statute is equally applicable when the compromise has taken place with reference to a succession that has been the subject of a multiplepoinding or distribution decree, and where it takes the shape of a decree giving only partial effect to the claim of

the legatee. In order that duty may be payable either at a lower rate or upon a lesser sum than appears from the face of the will the case must be brought within one of these sections, but I agree with Lord Adam that this is a case falling in substance and effect under the 23rd section, that it is truly a release of the legacy for a sum which in the present case is one half of the claim, and the duty should accordingly be paid only upon the sum actually received. It follows, of course, that as regards the benefit which has resulted to the next-of-kin from this arrangement, they shall only pay duty upon the other half of the provision at the rate properly applicable to their relationship.

LORD KINNEAR-I am of the same opinion. I cannot say that I think Stracey's case, which was founded upon by the respondent, is directly in point. There is no judgment for or against the validity of this legacy. All that we know is that the party claiming to represent the legatee has claimed payment of the legacy in full, and has been content to accept half of the amount of the legacy in satisfaction of his demand. I agree with your Lordships that that is a case which falls directly under the provisions of the 23rd section of the Act 36 Geo. III. c. 52, because the legatee has compounded his legacy for less than the amount or value thereof. The duty therefore must be paid upon the consideration for composition. The practical result is, as the Lord Ordinary has found, that the legatee must pay 10 per cent., and that the residuary legatee is liable to pay the duty chargeable to residuary legatees.

The LORD PRESIDENT concurred.
The Court adhered.

VOL. XXXI.

NO. XLI.

HOUSE OF LORDS.

Thursday, May 10.

Before the Lord Chancellor (Lord Herschell) and Lords Watson, Ashbourne, Macnaghten, Morris, and Shand.) HAMLYN & COMPANY v. TALISKER

DISTILLERY AND OTHERS. (Ante, Nov. 30, 1893, p. 143, 21 R. 204.) Contract Locus Solutionis - Conflict_of Laws-Reference to Arbiters Unnamed.

When two parties, living under different systems of law, enter into a personal contract, which of these systems must be applied to its construction depends upon their mutual intention, either expressed or implied.

By contract executed in London, an English firm agreed to buy from distillers in Skye all grains made by them at a specified price, and to erect a graindrying machine at the distillery. The distillers agreed to maintain the machine and to bag up their grains in the sacks of the English firm, and deliver them free at a port in Skye. The contract further provided-"Should any dispute arise out of this contract, the same to be settled by arbitration by two members of the London Corn Exchange or their umpire in the usual way."

Held (rev. the decision of the First Division) that the language of the reference clause indicated that the parties intended it to be interpreted and governed by English law, and being valid by that law the Scottish Court must give effect to it.

This case is reported ante, p. 143, and 21 R. 204.

Hamlyn and Company appealed.

At delivering judgment

LORD CHANCELLOR-My Lords, on the 27th January 1892 an agreement was entered

into between Roderick Kemp & Company, of the Talisker Distillery, Carbost, Isle of Skye, and Hamlyn & Company, of London, under which Hamlyn & Company were to supply to the distillery a patent drying machine, which was to be worked by the Distillery Company, who were to bag up and deliver to Hamlyn & Company dried grain free on board at Carbost to their order, or otherwise as required. The agree ment concluded with a clause in the following terms "Should any dispute arise out of this contract, the same to be settled by arbitration by two members of the London Corn Exchange, or their umpire, in the usual way." This agreement was made between the parties in England.

Shortly after the contract was entered into, Alexander Grigor Allan became the sole partner in the firm of Roderick Kemp & Company, and the present action was instituted by him in Scotland in respect of an alleged breach of the contract. The defenders pleaded that the Court of Session had "no jurisdiction," and that "the action is excluded by the clause of reference in the memorandum of agreement." These pleas were repelled by the Lord Ordinary, and his judgment was affirmed by Lord Adam and Lord M'Laren in the Inner House, Lord Kinnear dissenting. During the course of the litigation the pursuer died, and is now represented by the respon dents.

It is not in controversy that the arbitra tion clause is according to the law of England a valid and binding contract be tween the parties, nor that according to the law of Scotland it is wholly invalid inasmuch as the arbiters are not named. The view taken by the majority of the Court below is thus expressed by Lord Adam-"So far as I see, nothing required to be done in England in implement of the contract. That being so, I am of opinion with the Lord Ordinary that the construction and effect of the agreement, and of all and each of its stipulations, is to be determined by the lea loci solutionis-that is, by the law of Scotland."

It is not denied that the conclusion thus arrived at renders the arbitration clause wholly inoperative, and thus defeats the expressed intention of the parties, but this is treated as inevitably following from the rule of law that the rights of the parties must be wholly determined by the lex loci solutionis. My Lords, I am not able altogether to agree with the view taken by the learned Lord that everything required to be done in implement of the contract was to be done in Scotland, inasmuch as it appears to me that the arbitration clause which I have read to your Lordships does not indicate that that part of the contract between the parties was to be implemented by performance in Scotland. That clause is as much a part of the contract as any other clause of the contract, and certainly there is nothing on the face of it to indicate, but quite the contrary, that it was in the contemplation of the parties that it should be implemented in Scotland.

My Lords, the learned Judges in the Court below treat the lex loci solutionis of the main portion of the contract as conclusively determining that all the rights of the parties under the contract must be governed by the law of that place. I am unable to agree with them in this conclusion. Where a contract is entered into between parties residing in different places, and where different systems of law prevail, it is a question, as it appears to me, in each case with reference to what law the parties contracted, and according to what law it was their intention that their rights either under the whole or any part of the contract should be determined. În considering what law is to govern, the lex loci solutionis is a matter of great importance. The lex loci contractus is also of importance. In the present case the place of the contract was different from the place of its performance. It is not necessary to enter upon the inquiry, which was a good deal discussed at the bar, to which of these considerations the greatest weight is to be attributed, namely, the place where the contract was made or the place where it is to be performed. In my view they are both matters which must be taken into consideration, but neither of them is of itself conclusive, and still less is it conclusive, as it appears to me, as to the particular law which was intended to govern particular parts of the contract between the parties. My Lords, in this, case, as in all such cases, the whole of the contract must be looked at, and the contract must be regulated by the intention of the parties as appearing from the contract. It is perfectly competent to those who, under such circumstances as I have indicated, are entering into a contract, to indicate by the terms which they employ which system of law they intend to be applied to the construction of the contract, and to the determination of the rights arising out of the contract.

Now, in the present case it appears to me that the language of the arbitration clause indicates very clearly that the parties intended that the rights under that clause should be determined according

to the law of England. As I have said, the contract was made there; one of the parties was residing there. Where under such circumstances the parties agree that any dispute arising out of their contract shall be "settled by arbitration by two members of the London Corn Exchange, or their umpire, in the usual way," it seems to me that they have indicated as clearly as it is possible their intention that that particular stipulation, which is a part of contract between them, shall be interpreted according to and governed by the law not of Scotland but of England, and I am aware of nothing which stands in the way of the intention of the parties thus indicated by the contract they entered into, being carried into effect. As I have already pointed out, the contract with reference to the arbitration would have been absolutely null and void if it were to be governed by the law of Scotland. That cannot have been the intention of the parties; it is not reasonable to attribute that intention to them if the contract may be otherwise construed; and for the reasons which I have given, I see no difficulty whatever in construing the contract between the parties as an indication that the contract, or that term of it, was to be governed and regulated by the law of England.

But then it is said that the Scotch Court is asked to enforce a law which is against the public policy of the law of Scotland, and that although the parties may have so contracted, the Courts in Scotland cannot be bound to enforce the contract which is against the policy of their law. My Lords, I should be prepared to admit that an agreement which was against a fundamental principle of the law of Scotland, founded on consideration of public policy, could not be relied upon and insisted upon in the Courts of Scotland; and if according to the law of Scotland the Courts never allowed their jurisdiction to try the merits of a case to be interfered with by an arbitration clause, there would be considerable force in the contention which is insisted upon by the respondents. But that is not the case. The Courts in Scotland recognise the rights of the parties to a contract to determine that any disputes under it shall be settled, not in the ordinary course of litigation, but by an arbitration tribunal selected by the parties. If in the present case the arbitrators had been named, the Courts in Scotland would have recognised, and given effect to, and enforced the arbitration clause, and would by reason of it have declined to enter upon a trial of the merits of the case. That being so, I have been unable to understand upon what fundamental principle of public policy it can be said to rest as a foundation that where an arbitrator is not named an agreement between the parties to refer a matter to arbitration ought not to be enforced.

It is not necessary to inquire into the history of the distinction which has arisen in the Courts of Scotland between arbitration clauses where arbiters are named and clauses with an unnamed arbiter. It is