Commissioners of Inland Revenue v Plummer
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,LORD JUSTICE BRIDGE,MR. JUSTICE FOSTER |
| Judgment Date | 05 May 1978 |
| Judgment citation (vLex) | [1978] EWCA Civ J0505-3 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 1977 No. 7 |
| Date | 05 May 1978 |
[1978] EWCA Civ J0505-3
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court of Justice
Chancery Division (Revenue Paper) (Mr. Justice Walton)
Lord Justice Buckley
Lord Justice Bridge
and
Mr. Justice Foster
MR. PATRICK W. MEDD Q.C., MR. PETER GIBSON and MR. BRIAN DAVENPORT (instructed by. The Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) appeared on behalf of the Appellants (Appellants).
MR. MICHAEL P. NOLAN Q.C. and MR. DAVID MILNE (instructed by Messrs. Roney, Vincent & Co., Solicitors, London EC2M 1LY) appeared on behalf of the Respondent (Respondent).
This is an appeal from Mr. Justice Walton, who on 1st July 1977 dismissed an appeal by the present appellants, the Commissioners of Inland Revenue, from a decision of the Special Commissioners for the income tax, who had allowed appeals by the respondent-taxpayer, Mr. Plummer, against three assessments to tax in respect of the years 1970/71, 1971/72, 1972/73. The case involves considering the effect of an ingenious tax avoidance scheme devised by Slater Walker Ltd ("Slater Walker"), the objects of which were (1) to reduce the surtax liability of any surtax payer who availed himself of the scheme and (2) to enable a charitable body to build up a fund applicable for its charitable purposes by means of tax reclaimed from the Revenue in respect of five-year annuities sold by the surtax payers to the charity and paid subject to deduction of tax, without in effect either the surtax payer or the charitable body having to find any cash from their own resources. The facts are set out in the case stated. It will be sufficient if I explain how the scheme worked in respect of the respondent.
At the relevant time the respondent was employed as taxation manager by Slater Walker and acted in that capacity for the whole of the Slater Walker Group of Companies. It was part of his duties to ensure that the scheme to which I have referred worked efficiently. The Slater Walker Group included a company called Baldrene Ltd. ("Baldrene") of which the respondent was a director, and also a company called Old Change Court (Investments) Ltd, ("O.C.C"). On 30th December 1970 Home and Overseas Voluntary Aid Services Ltd. ("HOVAS") was incorporated ad hoc for the purposes of the scheme. Its authorised and issued share capital was £10 divided into ten shares of £1 each. It was formed for charitablepurposes and registered under the Charities Act 1960. It had a close business association with Slater Walker, but was not, as I understand it, one of the companies in the Slater Walker Group. It has not been suggested that the personal relationship of the respondent to Slater Walker or Baldrene has any bearing on this case.
Hovas, with the aid of monies borrowed from Baldrene, held itself out as prepared to purchase annuities on terms attractive to persons who paid a high rate of surtax. Insurance and investment brokers named S. Cardale & Co. Ltd. ("Cardale") sought to interest clients in the scheme. The respondent decided to take advantage of the scheme himself and approached Cardale accordingly. By 11th March 1971 negotiations were concluded under which the respondent was to promise to pay to Hovas for a period of five years or during the remainder of his life (if shorter) a yearly sum which would after deduction of income tax at the standard rate for the time being in force be equal to £500 in consideration of a price of £2,480 to be paid by Hovas to him. On the same day Hovas wrote to the respondent confirming that Hovas would accept as security for the yearly sum payable by the respondent promissory notes to the value of £2,500 issued by O.C.C. and a cheque for £300 to be invested in the respondent's name in bank stock which he proposed to lodge with Hovas as part of the security.
On 12th March 1971 the respondent opened a banking account with Slater Walker, remitting £40 as an opening credit. He informed Slater Walker that they would be receiving £2,480 from Hovas on 15th March 1971 to be credited to his account, following which Slater Walker should make the following payments out of the account, viz., £15 to Cardale (a fee for negotiating the agreementwith Hovas) and £2,500 to O.C.C. in return for which O.C.C. would issue ten promissory notes payable to hearer, The respondent asked Slater Walker to accept the promissory notes and lodge them on his behalf with Hovas as security for the due performance of his obligations under his agreement with Hovas, He explained that, as his obligations were fulfilled, a proportion of the security given by him would be released, and he requested and authorised Slater Walker to accept each release on his behalf. In the event of his account being overdrawn at the time of a release Slater Walker were to present an appropriate number of the notes to O.C.C, for payment and to credit his account with the sums paid. The respondent gave Slater Walker a standing order for payment out of the account of the five yearly sums of £500, the first to be paid on 29th March 1971.
On 15th March 1971, at a meeting referred to as the completion meeting, at which all parties concerned were present or represented, the respondent entered into a written agreement with Hovas (Exhibit A 7 to the Case Stated) and a memorandum of agreement to deposit with Hovas securities having a value equivalent to twice the aggregate amount of the net yearly sums due under the agreement or such other security as Hovas should from time to time be prepared to accept to secure the due payment of the annual sums payable under the agreement. At the completion meeting Hovas paid £2,480 to Slater Walker, which was credited to the respondent's account with them. Slater Walker paid £15 to Cardale and £2,500 to O.C.C. O.C.C. issued ten promissory notes to bearer payable on demand for an aggregate amount of £2,500. O.C.C. entered into a written agreement with the respondent to pay him interest on the amounts of the said notes at the rate of 6½% per annum less income tax atthe standard rate until demand for payment (Exhibit A 10 to the Case Stated), Slater Walker lodged the notes with Hovas. Hovas in turn lodged the notes with Baldrene as part of the security for Baldrene's loan to Hovas. The respondent gave Hovas a cheque for £300 and by way of further security assigned to Hovas his right to interest under his agreement with O.C.C. The £300 was invested by Hovas in the respondent's name and the investment was retained by them as security as arranged. The respondent signed five certificates of deduction of income tax pursuant to the Income and Corporation Taxes Act 1970 Section 55 and handed these to Slater Walker with instructions to complete them on his behalf for use by Hovas when claiming repayments of tax as and when each of the yearly sums was paid. All the documentation of these transactions was in standard pre-prepared forms.
Hovas for a small premium effected a life assurance policy covering the risk of the respondent's death before 16th April 1975 in annually reducing amounts. The respondent was 34 years of age at the time and in good health. In the agreement (Exhibit A 7, which I shall call "the annuity agreement") the respondent is described as "the annuity payer" and Hovas is described as "the annuitant". Clause 1 of the agreement is in these terms: "In consideration of the sum of £2,480 (hereinafter called 'the purchase price') now paid by the annuitant to the annuity payer (the receipt whereof the annuity payer hereby acknowledges) (a) the annuity payer hereby agrees to pay to the annuitant for the period of five years from the date hereof or during the remainder of the annuity payer's lifetime (whichever period shall be the shorter) an annuity (hereinafter called 'the annuity') at such rate as shall after deduction of income tax at the standard ratefor the time being in force be equal to £500 per annum which annuity shall be payable in accordance with the provisions of Clause 2 hereof".
Paragraphs (b) and (c) of that Clause relate to a warranty by the annuity payer concerning his age and medical history. Clause 2 reads: "The first payment hereunder shall be made 14 days from the date hereof and subsequent payments hereunder shall be made on the anniversary of the first payment in each year during the continuance of this agreement each payment (if not paid on the due date) to carry interest at the rate of 18% per annum from the due date until payment". Clause 3 reads:" Notwithstanding anything in the Apportionment Act 1870 the annuity payments hereunder shall only become payable on the due dates and shall not be deemed to accrue from day to day".
The memorandum of agreement to deposit was satisfied by the deposit with Hovas of the promissory notes and the £300.
The first payment under the annuity agreement was made on 29th March 1971 when Slater Walker debited the respondent's account and credited the account of Hovas with the sum of £500. The respondent's account with Slater Walker thus went into overdraft. Promissory notes amounting to £500 in value were released by Hovas on 31st March. 1971 to Slater Walker and on the same date O.C.C. at Slater Walker's request paid £500 into the respondent's account with Slater Walker. The two days' delay between 29th March and 31st March 1971 was caused by the fact that the promissory notes lodged with Hovas by the respondent had been lodged by Hovas with Baldrene as security for the monies lent by Baldrene to Hovas for the purchase of the respondent's promise to make the yearly payments. Baldrene would not release any of its security untilsatisfied that its account had been effectively credited with an appropriate repayment. precisely similar procedure was adopted on and...
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