Fitch Lovell Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Date | 1962 |
| Year | 1962 |
| Court | Chancery Division |
Revenue - Stamp duty - Conveyance or transfer on sale - Sale of shares followed by sub-sale - Name of transferees not inserted in transfers on first sale - Whether conveyance or transfer on sale -
In November, 1958, F. L. Ltd. made an offer to the shareholders in I.B.S. Ltd. to acquire their shares in I.B.S. in exchange for shares in F. L. A number of the shares in I.B.S. were already held by L. & C. Ltd., a subsidiary company of F. L. The offer was conditional upon acceptance by 90 per cent. of the I.B.S. shareholders. Shareholders accepting the offer were invited to sign a form of acceptance and a form of transfer but were asked not to insert in the latter the purchase consideration, the date or the name of the transferee. A letter from the board of I.B.S. which accompanied the offer and recommended its acceptance, contained an indication that F.L. intended to transfer the I.B.S. shares to a subsidiary. On November 29, 1958, the offer became unconditional and F.L. issued to the I.B.S. shareholders allotment letters in respect of the F.L. shares they were to receive and I.B.S. handed over to F.L. the transfers it had received from its shareholders. No steps were ever taken to complete those transfers by inserting therein the names of the transferees. The value of the shares in F.L. acquired by the I.B.S. shareholders was 30s. 4d. per I.B.S. share. By December 20, 1958, F.L. had acquired all the I.B.S. shares other than those held by L. & C.
On December 22, F.L. agreed to sell its I.B.S. shares to L. & C., it being recited in the agreement for sale that steps were to be taken to reduce the value of the I.B.S. shares from 30s. 4d. each to 1d. each. By a resolution passed at an extraordinary meeting of I.B.S. held on December 23, there was created a new class of 400 preferred ordinary shares of 5s. each in I.B.S. which conferred a right to a fixed preferential dividend of £2 million per year and to a payment of £3 million out of the assets on a winding up. On that basis, the auditors of I.B.S. certified that the ordinary shares in I.B.S. which were the subject of the sale to F.L. could only be considered as having a value of 1d. each. The sub-sale to L. & C. by F.L. was completed on December 24 at 1d. per I.B.S. share and F.L. handed over to L. & C. the transfers signed by the I.B.S. shareholders but still not completed by the insertion of the transferees' names. L. & C. did not insert its name into each transfer but executed a document stating that it was the transferee in respect of all the shares covered by those transfers.
The Commissioners of Inland Revenue considered that the document executed by L. & C. on December 24 was a conveyance or transfer on the sale by F.L. to L. & C. and assessed it to ad valorem stamp duty on the sub-sale consideration of 1d. per I.B.S. share, the total amount of the duty being £36. There was no appeal as to this assessment. The commissioners also assessed the transfers signed by the I.B.S. shareholders to ad valorem stamp duty on the consideration of 30s. 4d. per I.B.S. share paid on the sale by the I.B.S. shareholders to F.L., the total amount of the duty being £13,238 6s. F.L. appealed against this assessment:—
Held, (1) that it was sufficient for a document to amount to a conveyance or transfer on sale if it was the instrument chosen by the parties to complete the sale in such a way as to show that they did not intend any other document to be executed (post, p. 1334).
(2) That, in the circumstances of the present case, a position was created and intended to be created such that F.L. had the sale in its favour completed by the documents which were intended between it and the vendors, the I.B.S. shareholders, to be the documents of completion of the sale and consequently the transfers, even though not completed, should be regarded as conveyances on sale within the Schedule to the Stamp Act, 1891, and that, therefore, the assessment of those documents to stamp duty was correct and the appeal should he dismissed.
CASE STATED by the Commissioners of Inland Revenue.
I.B.S. was a company having on November 5, 1958, an issued and fully paid share capital of 140,500 preference shares of £1 each and 600,000 ordinary shares of 5s. each, all of which were at that date officially quoted and dealt in on The Stock Exchange, London. 171,429 of the ordinary shares were on that date registered in the names of nominees for Lovell & Christmas Ltd., a company incorporated under the
At a meeting of the board of Fitch Lovell on August 28, 1958, the possibility of I.B.S. being brought into the group consisting of Fitch Lovell and Lovell & Christmas was discussed and it was agreed that two members of the board, Sir Ambrose Keevil and Sir Rolande Wall, should continue discussions which they had already commenced with Mr. Edward Shephard, the chairman of I.B.S., with this possibility in view. At a further meeting of the board on October 21, 1958, Sir Ambrose Keevil reported on the result of the discussions with Mr. Edward Shephard and it was resolved (inter alia) that a committee consisting of Sir Ambrose Keevil (the chairman) and Sir Rolande Wall be and they were thereby requested to proceed with the proposed acquisition on the basis of an exchange of seven new second ordinary shares of 2s. 6d. each fully paid in Fitch Lovell for every three ordinary shares (subsequently designated “B” ordinary shares) in I.B.S.
Lovell, White & King (the solicitors acting for both Fitch Lovell and Lovell & Christmas) were accordingly instructed on the proposed acquisition of the ordinary shares in the capital of I.B.S. and on October 23, 1958, Mr. K. O. G. Huntley, a partner in that firm and a director of Lovell & Christmas, wrote a letter to John Gilpin, the secretary of Fitch Lovell, in which he stated that he thought a little ingenuity was desirable and proper with regard to the question of stamp duty on the transfers of the said shares. He advised that the following procedure could be adopted: That an offer for the shares should be made in the normal way, the transfers, however, being executed with the transferees' name in blank and with an authority for the blanks to be filled in by the transferee company and in such a form that the voting rights of the accepting shareholders could be exercised by Fitch Lovell before the registration of the transfers. When all the shares had been acquired I.B.S. should increase its capital by say £100 such £100 to consist of “master shares” having special rights attached to them giving the holders thereof virtually all the rights in the company. These “master shares” would then be acquired for cash at par by Fitch Lovell. The shares in I.B.S. acquired as a result of the offer (the transfers of which would not have then been stamped) would then be sub-sold to Lovell & Christmas for a nominal sum on which stamp duty would be payable, this being all that such shares would then be worth having regard to the creation and issue of the “master shares.”
At some time before October 28, 1958, it was agreed by both Fitch Lovell and Lovell & Christmas that that procedure should be adopted. On October 29, 1958, Mr. A. G. Maby, another partner in the firm of Lovell, White & King, wrote to Mr. P. D. Warren, a partner in the firm of Goodman, Brown & Warren (solicitors for I.B.S.) with particulars of the foregoing procedure. Mr. Warren agreed on behalf of I.B.S. that the scheme should be adopted, having been informed that the matter would be submitted to the commissioners for adjudication.
The following steps were then taken by Fitch Lovell, Lovell & Christmas and I.B.S., respectively, in relation to the acquisition of the ordinary shares of I.B.S. On November 5, 1958, an offer was made on behalf of Fitch Lovell by letter addressed to the directors of I.B.S. to acquire the 428,571 ordinary shares of 5s. each in the capital of I.B.S. being the whole of the ordinary share capital of I.B.S. other than the 171,429 ordinary shares already owned by Lovell & Christmas. The consideration was expressed to be seven fully paid “B” ordinary shares of 2s. 6d. each of Fitch Lovell in exchange for every three fully paid ordinary shares of 5s. each of I.B.S. The offer was made conditional on (inter alia) its acceptance not later than November 21, 1958 (or such later date as Fitch Lovell might determine), by the holders of not less than nine-tenths in nominal value of the shares to which it related (or such smaller proportion as Fitch Lovell might elect to accept) being not less than three-fourths in number of the holders of such shares (or such smaller number as Fitch Lovell might elect to accept). On the same date, November 5, 1958, a circular letter (to which there was annexed a copy of the offer) was sent by the chairman of I.B.S. to each of the ordinary shareholders of that company (other than Lovell & Christmas)...
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