Hawking-Byass and Another v Sassen ; Hawking-Byass v MacLaren
| Jurisdiction | England & Wales |
| Judgment Date | 09 July 1996 |
| Date | 09 July 1996 |
| Court | Special Commissioners (UK) |
special commissioners decision
Mr DA Shirley and Mr Theodore Wallace.
Brian Green, counsel for the taxpayers.
Mr DA Griffiths of the Solicitor's Office, Inland Revenue.
Capital gains tax - Valuation of shares - Market value on 31 March 1982 - Disposal in 1988 of shares in unquoted Cayman Islands company - Trading group whose principal activities carried on in Spain - Factors to be taken into account in determining market value of shares held by each of three family shareholders - Determination accordingly -Taxation of Chargeable Gains Act 1992 section 272 section 273Capital Gains Tax Act 1979, ss. 150, 152 (Taxation of Chargeable Gains Act 1992 section 272 section 273Taxation of Cargeable Gains Act 1992, ss. 272, 273).
1. We have before us appeals against assessments to capital gains tax for the year 1987/88 by Geoffrey William Hawkings-Byass ("Geoffrey"), his son Nicholas Geoffrey Edward Hawkings-Byass ("Nicholas") and his brother (Nicholas's uncle) John Arthur Hawkings-Byass ("John") arising out of the disposal by each of them of their holding of shares in Gonzalez Byass and Co (Cayman Islands) Ltd ("GB Cayman") on 25 March 1988 in the case of Geoffrey and Nicholas and on 31 March 1988 in the case of John.
2. The appeals were heard together. Geoffrey and Nicholas were represented by Mr Brian Green of Counsel and the Crown was represented by Mr D A Griffiths of the Solicitor's office, Inland Revenue. John was not represented and did not appear.
3. The question for determination is the open market value of each holding of shares on 31 March 1982. This falls to be ascertained in order that the indexation provisions in Finance Act 1982 may be applied in computing the Appellants' chargeable gains arising from the disposal of their shares in 1988. The shares were not quoted on a recognised stock exchange. The provisions of sections 150 and 152 of the Capital Gains Tax Act 1979 apply which we shall consider later.
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(2) Geoffrey in effect disposed of 21795 ordinary shares of 70p each in G B Cayman (18.16%) for £507 per share giving a total of £11,047,530. Nicholas likewise disposed of 13305 such shares (11.09%) for the same price per share giving a total of £6,745,635. John disposed of 10908 such shares (9.09%) for £3,272,100, a price of £300 per share. The issued capital of G B Cayman consisted of 120,000 70p ordinary shares.
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(3) Technically Geoffrey and Nicholas disposed of their shares by granting the purchasers an option to purchase in consideration of £50 per share followed by a sale at the price of £457 per share on the exercise of the option. John's was a straight sale.
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(4) The purchasers were in each case Carlos Gonzalez Rivero, Manuel Mauricio Gonzalez-Gordon Diez and Alfredo Gonzalez Diez who all lived in Spain.
5. The Crown has agreed with John that his shares should be valued as at 31 March 1982 in proportion to the value ascribed to Nicholas's shares.
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(a) Geoffrey and Nicholas gave evidence before us. In addition, Peter Fergusson and Graham John Hines gave evidence on behalf of the Appellants. Christopher Gerrard Glover MSc FCA, gave expert evidence on their behalf. Mr Glover has practised independently as a share valuation specialist for the past fourteen years, having been an investment analyst with Phillips & Drew for ten years followed by eight years specialising exclusively in the valuation of unquoted shares with Ernst & Young. He is the author of "Valuation of Unquoted Companies" (1986, 1992, 2nd Edn.).
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(b) The Crown called two expert witnesses, namely John Robert Baker, a Principal in the Shares Valuation Division of the Capital Taxes Office, and John Reginald Gillum who has had a career of more than 32 years in the City of London as a corporate finance merchant banker.
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(2) Putting aside, for the moment, the Cayman Islands aspect, Gonzalez Byass is the well known producer of sherry which is made in and only in a defined area in southwest Spain of which the principal towns are Jerez de la Frontera, called Jerez, El Puerto de Santa Maria and Sanlucar de Barrameda. The business was founded in 1836 by Manuel Gonzalez. He exported sherry to England. In the 1850s his London agent was Robert Blake Byass whom he took into partnership. In 1863 the firm became Gonzalez Byass. In 1886 an English limited company was formed. The company acquired the partnership business in exchange for preference shares and 10,000 ordinary shares which were issued equally between Manuel Gonzalez and Robert Blake Byass. In 1982 the members of Gonzalez Byass were descendants of Manuel Gonzalez or Robert Blake Byass. The Byass family ceased to own 50% of the ordinary shares on or possibly before the death of Geoffrey's grandfather, Robert William Byass, who died in 1958, aged 96, since he gave some of his shares to the Marquess of Torre Soto, a descendant of Manuel Gonzalez.
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(3) Gonzalez Byass became the largest producer of sherry and its brand named Tio Pepe was the world's No.1 Fino Sherry. It produced other brands of sherry. The UK was the principal overseas market for its sherry which was imported in bulk, bottled and distributed by, in recent years, a wholly owned UK subsidiary company. Holland particularly and Germany provided other appreciative markets. The market for sherry in Spain was much lower than in the UK. Gonzalez Byass also produced and sold brandy, Soberano, a three star brandy which accounted for 25% of the Spanish market. It also produced two five star brandies. 90% of the brandy produced in Spain was consumed in Spain. The Gonzalez Byass operations centred on Jerez. There was a sales and distribution organisation in each of the provinces of Spain. It was diffuse largely owing to Spain's geography. There were few supermarkets (in 1982). Most goods were sold through smaller wholesale or retail units, individual shops and bars.
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(4) The group structure of Gonzalez Byass is set out in Mr Glover's report at page 47 and in Mr Baker's report at tab. 2 as at 31 March 1982. For the purposes of clarity we omit certain companies and confine ourselves to the main skeleton as it was in March 1982. At page 50 of Tab 2 Vol. A of the documentary evidence there is the Group Structure as it was in 1988.
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(5) Gonzalez, Byass and Co. Limited was incorporated in 1896. It was known during the proceedings as "UK1". It had some unique Articles of Association which are mirrored in those of its holding company, GB Cayman, which was incorporated in 1972. Gonzalez Byass & Co. Limited was the only trading company for many years. Its operations in Spain were carried out by a branch. The registered office of this company was in England. The Head Office, being the principal office of the company for the time being outside the United Kingdom, was at such place outside the United Kingdom as the directors determined. This was in Jerez.
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(6) The branch of UK1 in Spain where the sherry was produced in due course became Gonzalez Byass SA, a wholly owned Spanish subsidiary of UK1. In 1981, after several years of negotiation, the Spanish authorities finally permitted the assets of UK1 situated in Spain to be transferred to Gonzalez Byass SA ("GBSA"). The transfer took place on 1 November 1981. UK1 had another wholly owned subsidiary company formed in 1958 namely Gonzalez Byass (UK) Ltd ("UK2") which conducted the English or UK trade, that is, the importation of sherry in bulk, bottling and selling it in the UK.
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(i) The original ordinary shares in GB Cayman numbered 10,000 of £7 each, as did those in UK1. Pursuant to an agreement dated 24 November 1981 to which we refer later, 1000 of these shares became 10800 of 70p each. There were preference shares, but they are not material in the present context. They were redeemed in 1982.
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(ii) Under the Articles of Association, there were no restrictions on the transfer of ordinary shares to other ordinary shareholders or to any lineal descendant of the Gonzalez or Byass families (article 28). Geoffrey and John, whose mother was a Byass, and their respective lineal descendants were deemed to be Byass by birth. With minor exceptions, any other type of transfer was subject to the directors' right in their absolute discretion to refuse to register such transfer. Any proposed share transfer not falling within article 28 (broadly speaking, a transfer to another member) was subject to the pre-emption provisions of article 29. Under this article a transfer notice was required and the ordinary shares were to be offered at a fixed price to the other ordinary shareholders pro rata to their existing holdings. The fixed price was to be determined every year by the Company in general meeting. If no buyers could be found among existing members, the shares could be transferred to a non-member at a price no less than the fixed price, but always subject to the directors' right to refuse to register the transfer if they saw fit. Article 29 also obliged the directors to refuse to register any transfer of shares where, in their opinion, the transferee was in any way connected with a competitor. The current fixed price was £42 per share when 10,000 were in issue.
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(iii) Under article 85 of the Articles of Association the ordinary shareholders had power to appoint one director for every 1000 ordinary shares held by him or them. Only a male person whose surname was Gonzalez or Byass (including Geoffrey and John and their descendants as above) could be appointed director. The number of directors could not exceed ten.
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(iv) It follows that if a shareholder held 2000 original ordinary shares, he could appoint himself and one other as directors. If he held, say, 1500 such shares, he could use 1000 for the purpose of appointing himself and use 500 to support some other shareholder or 100 shares to support five other shareholders as directors.
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