Kirke Smith, J (in Chambers):
1 This is an appeal by the executors of the estate of the late Hubert Victor LaFontaine Whittall, pursuant to the Succession Duty Act, RSBC 1960, c 372, section 44 (re-enacted 1963, c 44, s 22), from the affirmation by the respondent Minister of Finance on May 3, 1974 of a revised statement of succession duties assessed against the estate of the late Mr Whittall, this revised assessment being dated September 12, 1973.
2 The appeal was argued on the basis of the statement of facts agreed to by counsel and certain affidavit material filed by each side.
3 The facts of the matter can be related briefly. On February 29, 1964 the deceased pursuant to a written agreement transferred to his wife, Mary Malins Whittall, six policies of insurance on his life which are described in the agreed statement of facts. It is further agreed that, as of the date of transfer, the aggregate cash surrender value of the six policies was $29,330.09; and the Crown further concedes for purposes of this appeal that payment by the recipient of the cash surrender value of a transferred life insurance policy can constitute adequate consideration for that transfer.
4 In this case, Mrs Whittall gave her late husband a demand promissory note in his favour in the sum of $29,330.09 payable without interest at the rate of $4,000 per year.
5 On March 21, 1964 the six policies in question were transferred by Mrs Whittall to M M Estates Ltd, a British Columbia private corporation, in which at all material times all issued shares were held by Mrs Whittall and members of her family, excluding the deceased who was not at any time a shareholder of the company. The consideration for this transfer was the same sum of $29,330.09 represented by an account for that amount in favour of Mrs Whittall on the company's books.
6 The promissory note given by Mrs Whittall to the deceased was paid in three instalments in the following fashion:(1) On March 1, 1965 M M Estates Ltd issued a cheque to the deceased in the sum of $12,000, which sum was debited on the company's books to Mrs Whittall's account.
(2) On March 1, 1966 Mrs Whittall issued her own cheque to the deceased in the sum of $10,000.
(3) On March 2, 1967 Mrs Whittall issued a cheque to the deceased in the sum of $7,330.09.
7 Following the death of the deceased on September 16, 1972, probate of his will was granted to the executors named therein, and on July 31, 1973 a statement of succession duties was issued against the estate. In that statement there was included in the value of the estate an aggregate sum of $40,489.99 with respect to the six life insurance policies mentioned above. The revised assessment of September 12, 1973 adjusted that aggregate value downward by $1,334.52. As indicated above, it is from this revised assessment and its affirmation by the respondent Minister of Finance that this appeal is taken.
8 The issue falls to be decided on the language of the Succession Duty Act itself. By that statute, it is provided that, in subsection 2(2) (am 1963, c 44, clause 2(f); 1967, c 51, subsec 2(2); 1969, c 11; 1972, c 59, s 2):
2. (2) For all purposes of this Act, the following property shall be deemed to be property of the deceased and to be property passing on his death:- (g) Notwithstanding the provisions of the Insurance Act...
(i) that portion of the money payable as a result of the death of the deceased under a contract of insurance that is in the same ratio to the whole that the amount of the premiums paid by the deceased or paid from moneys derived directly or indirectly from the deceased on such contract bears to the total amount of the premiums paid, ...
9 It is the position of the respondent Minister of Finance that this provision justifies the assessment which has been made in this instance. The appellants, however, rely on the concluding unnumbered provision of subsection 2(2) of the Act, which reads:
but nothing herein contained shall render liable for duty any property bona fide transferred for a consideration that is of a value substantially equivalent to the property transferred.
10 The appellants contend that during the deceased's lifetime he agreed to transfer and did transfer these policies to his wife, that he received consideration for this transfer in the form of a demand promissory note, that this note was for a sum “substantially equivalent” to he value of the transferred policies, and that accordingly the insurance proceeds are specifically excluded from the deceased's estate under the above provision. It is the appellants' position that neither the Crown nor the Court can go behind that note since, upon its delivery to the deceased and the transfer of the policies by him to Mrs Whittall, the property passed and, accordingly, anything that happened subsequent to the delivery of the note is irrelevant and inadmissible.
11 The Crown, on the other hand, contends that this statute deals with the situation existing at the time of death, and that everything that happened prior to that time not only may, but must be, considered in determining whether the transaction in question is or is not “bona fide”.
12 On this point, I find myself in complete accord with Mr Henderson's submissions; it seems to me a contradiction in terms to contend that, where the bona fides of a transaction are required to be considered, that transaction must be accepted at face value with no investigation of the surrounding and subsequent circumstances.
13 Looking, then, to the circumstances disclosed in the material as to the manner in which the note was paid off, it is clear from Exhibit D to the affidavit of Robert Brace Fields, supported by bank records annexed as prior exhibits to that affidavit, that each of the three payments in 1965, 1966 and 1967 were what might simply be termed “cheque-swaps” in circumstances where the majority of the cheques in question would not be honoured due to insufficient funds if it were not for the offsetting entry of the other cheque. To me, despite the intervention here of a promissory note, the situation in this case is indistinguishable in principle from that dealt with by the Supreme Court of Canada in MNR v H Cox Estate, [1971] S.C.R. 817, [1971] C.T.C. 227, 71 D.T.C. 5150, where Judson, J (per curiam) said at page 820 [229, 5151]:
I am in complete agreement with the Minister's contention that the exchange of cheques was merely the machinery used to effect a gift of the policy by the deceased to his wife. The simultaneous exchange of cheques where neither would be honoured due to insufficient funds were it not for the offsetting entry of the other cheque, can only be viewed as a single transaction ... The deceased received no consideration for this transfer.
14 In my opinion, that language is entirely appropriate to the situation before me. This was not, in my opinion, a bona fide transfer such as is contemplated by the statutory provision relied on by the appellant. Not coming within the exemption provision, it falls clearly within clause (g), quoted above, relied upon by the respondent Minister of Finance.
15 The appeal is accordingly dismissed; pursuant to subsection 44(7) of the Act, there will be an order for costs in favour of the Crown, payable following taxation thereof.
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