Clarke Chapman-John Thompson Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RUSSELL |
| Judgment Date | 24 July 1975 |
| Judgment citation (vLex) | [1975] EWCA Civ J0724-4 |
| Date | 24 July 1975 |
| Court | Court of Appeal (Civil Division) |
[1975] EWCA Civ J0724-4
In The Supreme Court of Judicature
Court of Appeal
Civil Division
On appeal from Order of The Vice-Chancellor (Sir John Pennycuick).
Lord Justice Russell,
Lord Justice Stephenson and
Lord Justice Geoffrey Lane
Mr G.B.H. DILLON, Q.C. and Mr R.S. NOCK (instructed by Messrs Herbert Smith & Co.) appeared on behalf of the Appellants (Plaintiffs).
Mr ALLAN HERMAN, Q.C. and Mr D.K. RATTEE (instructed by Solicitor of Inland Revenue) appeared on behalf of the Respondents (Defendants).
The Judgment I am about to deliver is the Judgment of the Court.
This appeal from a decision of Vice-Chancellor Pennycuick (reported in 1975 Chancery at page 173) raises the question whether relief from duty on statements of loan capital issued by the Appellant company in exchange for the loan capital of John Thompson Limited is afforded by the Finance Act, 1967, Section 28(5). The solution of the question depends upon whether the loan capital was issued "in connection with" a scheme for amalgamation of the two companies which qualified for relief from capital and transfer stamp duty under the Finance Act, 1927, Section 55.
Section 55 provides (so far as now material) that "If in connection with a scheme for …the amalgamation of any companies it is shown to the satisfaction of the Commissioners of Inland Revenue that there exist the following conditions" relief from capital and transfer stamp duties may be obtained. The conditions, so far as now material, are (i) that Company A has increased its capital with a view to the acquisition of 90% of the issued share capital of Company B, and (ii) that the consideration for the acquisition consists (apart from the assumption by Company A of liabilities of Company B) as to 90% in the issue of shares in Company A in exchange for the shares in Company B. In this case the Plaintiff is Company A and John Thompson Limited is Company B.
It is not in dispute that there was here a scheme for amalgamation which qualified for the purposes of Section 55: the requisite conditions existed.
The argument for the Crown which was accepted below starts with the construction of the words "in connection with ascheme for amalgamation" in Section 55. It is said, in our view correctly, that there the phrase is related and related only to the conditions there stated, and that those conditions by their very nature are parts of a scheme for amalgamation. Consequently, it is contended, the words "in connection with" must be construed as "as part of".
The argument then moves on to the Finance Act, 1967, Section 28(5). Until that section, relief from duty on a statement of loan capital was available only in the case of substitution of new loan capital for old loan capital in the same company. This section extends such relief to cases where there is a substitution of new loan capital in Company A for existing loan capital in Company B where such substitution is (to use a neutral phrase) in some way associated with a scheme of amalgamation which satisfies the requirements of Section 55: it does this by providing that the new loan capital shall be treated as if it had been applied in conversion of existing loan capital in Company A which would bring relief under the Finance Act, 1907, Section 10(1). But this relief is confined in these terms and circumstances, so far as now material: "Where loan capital is issued … (a) in connection with such a scheme … as is referred to in Section 55 of the Finance Act, 1927 … and in exchange for holdings of loan capital of the existing company (that is Company B) … by a company (that is Company A) which satisfies the Commissioners that the conditions specified in sub-section (1) of that section exist in connection with the scheme …".
The argument for the Crown is that "issued in connection with … a scheme" must bear the same meaning as "in connection with" in Section 55, more particularly because the same phraseis quoted from Section 55 in. the same subsection of 1967. Therefore, in the 1967 Act the issue of loan capital must be a part of the scheme for amalgamation) to qualify for relief, and it is not contended that it was such part in the instant case.
It is not, we think, disputed that the ordinary meaning of "in connection with" in the context of a matter such as a scheme is not a reference to parts of the whole in relation to each other, but to matters outside but connected with the whole. But, having regard to the intrinsic nature of the conditions set out in Section 55, the phrase must be taken to have been used as one capable of referring to parts of the scheme. However, it seems to us to be taking a distinct step beyond that conclusion to say that because the phrase is used in a sense that is extended beyond its ordinary meaning it is stamped for the purposes of relevant legislation with a restricted scope limited to that extension and deprived of its ordinary meaning. Rather we would say that Section 55 demonstrates a use of the phrase in a wider sense than is normal. When therefore the phrase in 1967, Section 28(5), "loan capital issued in connection with a scheme" falls to be considered, we see no reason to hold that it does not retain the wider sense, including the ordinary meaning of "in connection with".
For the Crown, Counsel was unable to suggest any reason why the phrase "as part of" was not used in Section 55 and Section 28, if that was meant. Moreover, there is at least some doubt whether such loan capital issue could be a part of such a scheme. Counsel for the Crown limited such a possibility to a case in which the offer for the shares in Company B was accompanied by a statement by Company A of an intention, should the share offer become unconditional, to make a particular loancapital offer in exchange for the loan capital in Company B. This in any event is very restrictive of the circumstances in which relief could be available under Section 28. But additionally it is to be observed that the loan capital offer might not be accepted by the requisite majority: nevertheless the scheme of arrangement under Section 55 would have taken effect: and this, it seems to us, suggests that the loan capital. exchange would not form a part of the scheme of arrangement, which ex hypothesi would have been complete by the share offer becoming unconditional before the loan capital exchange offer was to be made.
It was argued for the Crown that it would lead to problems, requiring in any particular case solution by the Court, if in Section 28 "in connection with" was construed as embracing its ordinary sense, involving a question of fact and degree: and that a construction having that result in a section conferring relief from duty was undesirable and unlikely to have been intended by Parliament, We do not find that argument persuasive: fiscal legislation poses many such problems. Further, the Crown contended that Section 55 required the conditions to be fulfilled uno flatu (see ( Lever Bros. Ltd. v. Comnrissioners of Inland Revenue 1938 2 King's Bench, 518):...
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