Floor v Davis
| Jurisdiction | England & Wales |
| Judge | Lord Wilberforce,Viscount Dilhorne,Lord Diplock,Lord Edmund-Davies,Lord Keith of Kinkel |
| Judgment Date | 17 May 1979 |
| Judgment citation (vLex) | [1979] UKHL J0517-3 |
| Date | 17 May 1979 |
| Court | House of Lords |
[1979] UKHL J0517-3
Lord Wilberforce
Viscount Dilhorne
Lord Diplock
Lord Edmund-Davies
Lord Keith of Kinkel
House of Lords
Upon Report from the Appellate Committee to whom was referred the Cause Floor against Davis That the Committee had heard Counsel as well on Tuesday the 13th, as on Wednesday the 14th and Thursday the 15th days of March last upon the Petition and Appeal of Ides Maria Floor (now deceased) and Madame Marguerite Marie Mathilde Janssen Floor c/o 15 Wimpole Street, London, W1M 8AP 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 17th day of March 1978 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 Petitioner 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 Maurice Edward Davis 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 (Civil Division) of the 17th day of March 1978 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.
My Lords,
In this appeal your Lordships, as to the decisive point, have to choose between two persuasive judgments, that of Goulding J. at first instance and that of Sir John Pennycuick on appeal. In my opinion that of Goulding J. is correct. Though it might be enough simply to express my agreement with the arguments and conclusions of his judgment, I shall add some observations as to the use of the Interpretation Act 1889 in the interpretation of a taxing statute, which seems to raise an important point of principle.
The case is concerned with the capital gains tax introduced in 1965 by the Finance Act of that year. Using a modern technique, Parliament has placed most of the working and detailed provisions in lengthy schedules. This case arises under Schedule 7 headed "Capital Gains: Miscellaneous Rules". These rules deal with a number of types of transactions which are to be treated, or not to be treated, as disposals and as to the manner in which disposals are to give rise to tax. The point about them is that these are transactions of a normal character�many of them concerned with companies and shares in companies. They are not artificial transactions: the companies referred to are, or at least include, public companies. They include such transactions as alterations of rights attached to shares, and receipts of capital distributions in a winding up�see below for the relevance of this.
Paragraph 15 of Schedule 7 must be considered in this context�of general problems relating to all types of company. It deals with "gratuitous transfers of value derived from assets". It lists three cases which are to be treated as disposals. If the point is relevant at all, there is no warrant for treating these as "anti-avoidance" sections, as the Crown describes them: they are simply taxing provisions, to be interpreted as such.
These provisions in paragraph 15 are all expressed conspicuously in the singular: "a person", "the owner", "the lessor", "the lessee", "the person". Paragraph 15(2) is as follows:
"(2) If a person having control of a company exercises his control so that value passes out of shares in the company owned by him or a person with whom he is connected, or out of rights over the company exercisable by him or by a person with whom he is connected, and passes into other shares in or rights over the company, that shall be a disposal of the shares or rights out of which the value passes by the person by whom they were owned or exercisable."
It is obvious that this paragraph is designed to introduce a special rule, different from those previously stated as to companies generally, to a controlling shareholder, a well known figure in fiscal legislation.
The set of facts on which the relevant issue arises can be stated very simply: the full story is contained in the stated case.
There were three stages.
1. The taxpayer owned 44% of the 100,000 preferred shares in a company called "F.N.W." which held valuable assets. One of his sons-in-law held 34%, another 22%. Each share carried one vote and there were no other shares in issue. Thus the taxpayer did not control the company.
2. A foreign company called "Donmarco" became entitled to 100 preferred shares and 50 ordinary shares in F.N.W. The ordinary shares also carried one vote each, and conferred superior rights as to return of capital in a winding up.
3. F.N.W. was put into voluntary liquidation by the votes of one son-in-law and Donmarco. The greater part of the assets of F.N.W. thereupon passed to Donmarco. The Court of Appeal held that when the resolution for the winding up of F.N.W. was passed, value passed out of the taxpayer's shares in F.N.W., presumably to shares in F.N.W. held by Donmarco. This was on the ground first that the taxpayer and his sons-in-law at the date of the winding up had control over F.N.W. and secondly that they exercised that control by passing the resolution, or causing it to be passed.
The first question, and that with which alone I deal, is whether, on the facts stated, paragraph 15(2) of Schedule 7 applies.
The critical words are "a person having control". Do they include any case where control belongs to more than one person and if so, which case?
One point may be at once cleared away. By a circuitous definition process "control" is to be "construed in accordance with paragraph 3 of Schedule 18" (Finance Act 1965 section 45(1)).
That paragraph contains provisions (inherited from previous legislation) as to when for the purposes of that Schedule, a person is to be taken to have control of a company: it states familiar tests, possession of the majority of the share capital or voting power, power to control the company's affairs, right to the greater part of the assets in a winding up, etc. Then there is this sentence:
"Where two or more persons together satisfy any of the conditions in paragraphs (a) to (c) above, they shall be taken to have control of the company."
It is quite clear, to my mind, that this sentence does not resolve or indeed touch the question now under consideration: all it does is to state the conditions for plural control for the purposes of Schedule 18�a Schedule which has nothing to do with Capital Gains Tax. It does not assist in deciding whether plural control is envisaged in section 15(2). That must depend on whether the Interpretation Act 1889 can be invoked.
That Act contains two relevant provisions: Section 1(1). "In this Act and in "every Act passed after the year 1850 �, unless the contrary intention appears,
(a) �
(b) words in the singular shall include the plural �".
Section 19. "In this Act and in every Act passed after the commencement of this Act the expression 'person' shall, unless the contrary intention appears, include any body of persons corporate or unincorporate."
It does not require authority to establish that the Act is one for the convenience of drafting: "for further shortening the language used in Acts of Parliament", nor that a contrary intention may be gathered from the sense and intention of the Act in question. Though the Act appears to state a presumption this is not a strong one. Speaking of the common law presumption (which applied before the Interpretation Act 1889) that "person" in an Act of Parliament includes "corporation", Lord Blackburn said:
"Circumstances, and indeed circumstances of a slight nature in the context might show in which way the word is to be construed in an Act of Parliament � Whenever you can see that the object of the Act requires that the word 'person' shall have the more extended or the less extended sense, then, whichever sense it requires, you should apply the word in that sense."
(1880) 5 App. Cas. at p.869. I do not think that the Act intends to apply any different test. In deciding which sense is required one should have regard to the fact that the word "person" in a taxing Act usually denotes "an entity of assessment" ( Income Tax Commissioners v. Gibbs [1942] A.C. 402 [1942] A.C. 402, 418, 9 per Lord Macmillan). Persons are taxed, normally, one by one, not collectively with others and paragraph 15(2) seems to be drafted on this normal basis. The "person having control" is the same as the person later referred to as "the person by whom [the shares] were owned", and that "person" is made liable to tax. I take this as an indication that a singular taxable person is meant in both places. This is certainly the case in the next following paragraph 16 where the (taxable) single person is contrasted with one or more connected persons. I do not think that the Interpretation Act should be used so as to impose tax on several persons at the same time. If that had been intended, the draftsman would surely have said so.
There are two further tests which can be applied to determine whether "person" may include "persons". The first is to consider the scope of the paragraph: the second the consequences of reading "persons" where "person" appears. Both tests show that the singular word is meant, and that the plural is not included.
Applying the first test, it would seem to me apparent that to impose a tax on a controlling shareholder is one thing, familiar enough in the law. A...
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