Eastham v Leigh London and Provincial Properties Ltd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE RUSSELL,LORD JUSTICE BUCKLEY,LORD JUSTICE CAIRNS |
| Judgment Date | 16 February 1971 |
| Judgment citation (vLex) | [1971] EWCA Civ J0216-1 |
| Docket Number | 1970 No. 22 |
| Court | Court of Appeal (Civil Division) |
| Date | 16 February 1971 |
[1971] EWCA Civ J0216-1
In The Supreme Court of Judicature
Court of Appeal
(Revenue Paper)
On Appeal from Order of Mr Justice Goff
Lord Justice Russell
Lord Justice Buckley
and
Lord Justice Cairns
MR E. I GOULDING, Q. C., and MR MORRISON (for Mr P. W. Medd) (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Appellant.
MR D. C. POTTER (instructed by Messrs Berwin & Co.) appeared on behalf of the Respondent.
We need not trouble you, Mr Potter.
This appeal concerns an assessment to capital gains tax, which, in simple terms, may be described as a tax on the difference between the acquisition of a capital asset and its subsequent disposal at a profit. The Respondent Company acquired a relevant capital asset in the form of a long leasehold of the site of two buildings, 80 and 82 King's Road, Reading. The actual lease was executed on the 12th May, 1964, and the contract was dated the 22nd June, 1962. The lease was for 125 years from the 24th June, 1962, at a rent of £5,000 a year.
As I have said, the contract leading to the grant of the lease was on the 22nd June, 1962, and it was a building lease agreement in a quite usual form. It required the demolition by the Respondent Company of buildings which were already on the site and the erection of an office block at its own cost within two years in accordance with annexed specifications and plans and to the satisfaction of the landlord's surveyor at an expenditure of not less than £270,000. This was all done shortly before the date of the lease. On the 28th July, 1965, the Company disposed of that lease at a handsome profit by selling the leasehold interest for some £587,000.
The short question is whether the contract was a conditional contract within paragraph 1 of the Ninth Schedule to the Finance Act, 1962. If it was, then the acquisition by the Respondent Company of the asset was when the condition was fulfilled which, if there was here a condition, may be taken to be the date of approval of the landlord's surveyor very Shortly before the date of the grant of the lease. The exact date is not material. In that case the measure of the capital gain is, broadly speaking, the difference between the sale price of £587,000 and the Respondent Company's outlay. If it was not a conditional contract, then the measure of the gain is, or would be, the difference between the sale price and the value of the asset shortly before, namely on the 6th April, 1965. It is common ground that that difference would be negligible and would, therefore, involve a nil assessment.
The reasons for these differing results are to be found in various provisions of the Finance Act, 1965, and in particular in the transitional provisions, but since those provisions do not, to my mind, throw any light upon the problem which falls for solution, it is not necessary, I am glad to say, to go through them.
I need, I think, only refer to two parts of the Finance Act, 1962. The first is section 12, sub-section (2) which, broadly speaking, when we are considering the acquisition of an asset such as the leasehold interest in the present case, provides that the acquisition takes place, not when there is conveyance or the grant of the lease, but at the date of the contract, and it is in these terms: "For purposes of Case VII, where a contract is made to acquire or dispose of an asset (including an asset not in existence or not ascertained at the time of the contract), the contract shall be deemed to be theacquisition or disposal of the asset (for the consideration provided for by the contract), and the conveyance or transfer of an asset or of an interest or right in or over an asset in pursuance of a contract previously made shall not be deemed to be an acquisition or disposal of the asset".
There is a modification to that in the Ninth Schedule to the same Act, which is described as " Miscellaneous Rules applicable to Case VII of Schedule D". Paragraph 1 sub-paragraph (1) provides thus: "Save as provided by paragraph 2 below, a person's acquisition or disposal of an asset by a contract in that behalf shall be disregarded for purposes of Case VII if - (a) the contract is discharged by mutual consent or by operation of law; or (b) default is made in carrying out the contract and by reason of that default there is no conveyance or transfer to implement the contract, whether by or to the person originally making the contract or another; or (c) the contract is conditional and the condition is not satisfied".
Sub-paragraph (3): "If in the case of a conditional contract to acquire or dispose of an asset the condition is satisfied…. then subject to the following sub-paragraphs the acquisition or disposal of the asset by the contract shall be treated as taking place at the time when the condition is satisfied", that is to say, as distinct from the time of the contract.
The contract is fairly summarised in the Stated Case and I can, I think, summarise it even more. It was an agreement of the date I have already stated between some people called the landlords, the Respondent Company called the tenants and a Surety Company. First of all the tenants were given leave and license to go upon the particular site for the purposes of "demolishing the existing structures and erecting a building and executing works in accordance with the stipulations hereinafter contained and for no other purpose whatsoever".
Then in Clause 2 they are to perform and observe various stipulations which follow, and the important part is (3): "At its own cost within the said period of two years to erect cover in and complete fit for immediate occupation upon the said piece or parcel of land in a substantial and workmanlike manner with the best materials of their several kinds and in conformity in every respect with the plans elevations sections and specifications which have been approved by the Landlords and are annexed hereto and to the satisfaction in all respects of the Landlords' Surveyor a six storey building consisting of offices with a garage basement and with all proper and suitable offices drains sewers and fences", and (4): "To expend in erecting the said building for materials and labour at cost price the sum of not less than Two hundred and seventy thousand pounds", and then there are various provisions as to insurance, and so on.
Clause 3 provides the Landlords, during the period of the building, with rights to enter upon the land to supervise and see that everything is being done properly, and ultimatelyto re-enter if the tenants fail to carry out their side of the bargain.
Clause 4: "If the said building shall have been completely finished to the satisfaction of the said Surveyor (to be evidenced by his certificate in writing to that effect) at the expiration of the said period of two years or of such extended period (if any) as aforesaid and the Tenants shall have performed and observed all the stipulations and conditions on their part contained other than such as may have been waived as aforesaid then the Landlords shall grant to the Tenants a Lease of the said building for a term of One Hundred and twenty five years from the Twenty fourth day of June One thousand nine hundred and sixty two at the yearly rent of a peppercorn until the Thirty first day of October One thousand nine hundred and sixty three and thereafter at the yearly rent of Five thousand pounds…"
It is that contract which the Crown contends, for the reasons I have indicated, was a conditional contract within the meaning of that phrase as it is used in the Ninth Schedule, paragraph 1, sub-paragraph (3). What is said is, not that the document contains two agreements, but that there being no obligation on the landlords to grant the lease except in the event which is envisaged in Clause 4 of the agreement, namely the completion of the building in a proper manner as agreed by the Tenants, the contract to acquire is conditional.
We were referred, quite properly, to a number of authorities, some dealing with the question whether in any particular case the beneficial interest in property subject to a contract had passed and some dealing with cases in which the question was whether specific performance could properly be ordered. I for my part, with all respect, do not gain any guidance from those cases in the solution of this point. The answer, to my mind, is a short and simple one: I cannot accept that it is correct to say that because the grant of the lease was dependent upon the fulfillment by the tenant of those obligations which constituted the consideration for the grant of the lease, the contract to...
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