Central and District Properties Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord MacDermott,Lord Hodson,Lord Pearce,Lord Pearson |
| Judgment Date | 18 May 1966 |
| Judgment citation (vLex) | [1966] UKHL J0518-2 |
| Date | 18 May 1966 |
| Court | House of Lords |
[1966] UKHL J0518-2
House of Lords
Lord Reid
Lord MacDermott
Lord Hodson
Lord Pearce
Lord Pearson
After hearing Counsel, as well on Monday the 28th, as on Tuesday the 29th and Wednesday the 30th, days of March last, upon the Petition and Appeal of Central and District Properties Limited, of Berkeley Square House, Berkeley Square, in the City of Westminster, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 26th of February 1965, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 26th day of February 1965, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The question in this case is whether the Respondents were right in deciding that a number of transfers of shares were chargeable to Stamp Duty. The Appellant maintains that by reason of the provisions of section 55(1) of the Finance Act 1927 no stamp duty was exigible, and therefore seeks repayment of £109,098 which has already been paid. It is admitted that if the appeal succeeds no duty is payable.
It will I think make for clarity if I first describe the position in 1958 before the events which have given rise to this case. The Appellant company was a subsidiary of another company which I shall refer to as Unicos. The latter had a capital of £1,500,000, all in Cumulative Preference shares except 1,000,000 Ordinary Shares of Is. each. 98 per cent, of these ordinary shares were owned by Mr. Rubens and Mr. Shine who were two of the four directors. The Appellant company had a capital of £600,000, the issued capital being £250,000 Cumulative Preference shares and 1,343,000 Ordinary Stock units of 4s. each: Messrs. Rubens and Shine were directors but they did not have sufficient shares to control this company. Unicos had prospered exceedingly, the value of each Is. share being about £3 10s. 0d. But these shares were not quoted on any Stock Exchange whereas the Appellant's shares were. So, in order to make their holdings more marketable Messrs. Rubens and Shine took steps to enable the Appellant company to acquire the whole share capital of Unicos in exchange for shares of the Appellant.
The first step was to cause the Appellant to cease to be a subsidiary of Unicos. On 2nd July 1958 Unicos sold 255,000 Ordinary Stock units of the Appellant company at 9s. 3d. each to Leadenhall Investments and Finance Ltd. Leadenhall had no connection with Unicos or the Appellant beyond the chairman of Leadenhall being a director of the Appellant company.
Then it was necessary to induce 90 per cent, of the owners of the Preference Shares of Unicos to agree to accept Preference Shares of the Appellant in exchange, and apparently it was thought well to make this offer more attractive by adding to it an offer that if 90 per cent, of these shareholders, who were numerous, agreed to the exchange they would receive transferable options to purchase ordinary stock units of the Appellant at a low price: the market price of these units was about 14s. and it was proposed to offer one unit per preference share at 9s. 9d. But the offer of these units was to be made not by the Appellant but by Leadenhall. Leadenhall already held 255,000 of these units but this offer required that Leadenhall should have 1,443,588 units available. The rest were provided first by Unicos selling to Leadenhall 658,687 units which they still held and secondly by Messrs. Rubens and Shine agreeing to transfer to Leadenhall 529,901 out of the units which they would receive if the proposed merger was completed. In each case Leadenhall paid 9s. 3d. per unit and undertook to sell the units to the Preference shareholders of Unicos or their nominees at 9s. 9d.
It is fairly obvious that the details of this scheme were devised with the object of avoiding stamp duty by bringing the scheme within the scope of section 55. The relevant parts of that section are as follows:
"(1) If in connection with a scheme for the reconstruction of any company or companies or the amalgamation of any companies it is shown to the satisfaction of the Commissioners of Inland Revenue that there exist the following conditions, that is to say—
( a) that a company with limited liability is to be registered, or that since the commencement of this Act a company has been incorporated by letters patent or Act of Parliament, or the nominal share capital of a company has been increased;
( b) that the company (in this section referred to as 'the transferee company') is to be registered or has been incorporated or has increased its capital with a view to the acquisition either of the undertaking of, or of not less than ninety per cent, of the issued share capital of, any particular existing company;
( c) that the consideration for the acquisition (except such part thereof as consists in the transfer to or discharge by the transferee company of liabilities of the existing company) consists as to not less than ninety per cent, thereof—
(i)….
(ii) where shares are to be acquired, in the issue of shares in the transferee company to the holders of shares in the existing company in exchange for the shares held by them in the existing company;
then, subject to the provisions of this section,
(A)….
(B) Stamp Duty under the heading 'Conveyance or Transfer on Sale' in the First Schedule to the Stamp Act, 1891, shall not be chargeable on any instrument made for the purposes of or in connection with the transfer of the … shares…"
The Commissioners were satisfied that conditions ( a) and ( b) existed in this case. They decided that Stamp Duty was payable because they held that condition ( c) was not satisfied. The case turns on whether the value of the option given to each Unicos shareholder to purchase one ordinary stock unit of the Appellant company per share held by him was or was not part of "the consideration for the acquisition" of his shares. If it was not then the shares in the Appellant company to be given in exchange for the Unicos shares formed more than 90 per cent, of the consideration for their acquisition. But if the agreed value of the option—4s. 3d. per share—was part of the consideration, then the proportion of the consideration attributable to the shares of the Appellant company given in exchange was reduced to less than 90 per cent., so that section 55 would not apply and Stamp Duty would be payable.
The proposals were duly submitted to the Unicos preference shareholders and accepted by the owners of more than 90 per cent, of these shares. Each of these shareholders in fact received for each of his shares not only a preference share of the Appellant company but also the option to buy an ordinary stock unit at the price of 9s. 9d. But the Appellant contends that this option was not part of the consideration for the acquisition of the Unicos shares. Consideration for the acquisition must mean consideration for the acquisition by the Appellant and therefore it can only include what was provided directly or indirectly by the Appellant. It is said that the Appellant had nothing to do with the offer of the option. That offer was not made by the Appellant or on its behalf. It was made by Leadenhall who held the units offered and who were making the offer because they had undertaken to do so to Messrs. Ruben and Shine, or to Unicos which was controlled by Rubens and Shine, who had their own reasons for causing the offer to be made.
The Respondents maintain that, even if that were the true view of the facts, the offer of the units must nevertheless be held to be part of the consideration for the acquisition. They point to the initial words of the subsection— "If in connection with a scheme" —and say that any valuable consideration put to the transferor shareholders as part of a scheme and in fact received by them must be regarded as part of the consideration for the acquisition. But they have to admit that not every valuable advantage received by transferor shareholders can be regarded as part of the consideration for the acquisition. Suppose that Messrs. Rubens and Shine had gone direct to the transferor shareholders behind the back of the Appellant, and told them that if they would agree to accept the Appellant's offer they would receive this option as an inducement provided by Rubens and Shine, then the Respondents admit that the value of the option could not be regarded as part of the consideration for the acquisition.
I find some difficulty in accepting the Respondents' argument in this matter. I think that the natural meaning of "consideration for the acquisition" is the quid pro quo provided by or moving from the acquiring company. No doubt this phrase is capable of a wider meaning if the context in which it is used so requires. But, even if the apparent general intention of the section could be held to justify a wider meaning, I would not find it easy to define just...
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