L M Tenancies 1 Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE MORRITT,LORD JUSTICE WALLER,SIR JOHN BALCOMBE |
| Judgment Date | 28 January 1998 |
| Judgment citation (vLex) | [1998] EWCA Civ J0128-17 |
| Docket Number | CHRVF 96/0091/B |
| Court | Court of Appeal (Civil Division) |
| Date | 28 January 1998 |
[1998] EWCA Civ J0128-17
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT
CHANCERY DIVISION
(MR JUSTICE CARNWATH)
Royal Courts of Justice
Strand
London W2A 2LL
Lord Justice Morritt
Lord Justice Waller
Sir John Balcombe
CHRVF 96/0091/B
MR CHRISTOPHER McCALL QC and MR ROGER THOMAS (instructed by Messrs Taylor Vintners, Cambridge) appeared on behalf of the Appellant (Plaintiff).
MR LAUNCELOT HENDERSON QC and MR MICHAEL FURNESS (instructed by the legal services of Commissioners of Inland Revenue, London WC2R 1LB) appeared on behalf of the Respondent (Defendant).
On Saturday 14th August 1993 the relevant authorities of St. John's College, Cambridge granted to the appellant, L M Tenancies 1 Ltd, two leases, respectively of premises at the Warehouse, Bridge Street, Cambridge, and 4 Richmond Terrace, Thompson's Lane, Cambridge, for terms of 99 years from 24th June 1993. The consideration therefor was an annual rent and a premium each of which was ascertainable in accordance with a formula. The formula applicable to the rent was linked to the net letting income of the property for the year in question. With regard to the premium Clause 3 in each lease provided for its calculation in accordance with the following formula:
"a x b where "a" is Four thousand one hundred and seventy nine (4,179) and "b" is the price at close of business on the twenty fifth business day following the execution of this Lease of 13 3/4% Treasury Loan Stock 1993…"
The formula in the second lease was in the same terms save that the figure of 833 was substituted for the figure of 4179. In accordance with clause 4 in each lease the premium was payable on the third working day after the calculation thereof.
The figures included in clause 3 of each lease were based on "target values", which had been agreed by landlord and tenant in advance as representing the appropriate market premium. The figures represented the multiplicands necessary to secure that value, taking account of what was expected to be the price of the relevant stock (which would mature on 23rd November 1993) at the anticipated date. It is not disputed that the formula was adopted as part of a scheme to avoid liability to stamp duty. I should note that stamp duty avoidance schemes such as this could not work after 7th December 1993 for s.242 Finance Act 1994 deems the consideration to be market value if it cannot otherwise be ascertained. But the issue on this appeal remains of importance in the case of instruments executed after 7th December 1993, as well as those executed before that date, in determining whether, for the purposes of that section, the consideration cannot, apart from the section, be ascertained.
It has been common ground at all times that no duty was payable in respect of the annual rent because though the covenant to pay it was of value it was impossible to ascertain any letting value as at the date of the lease so as to identify any amount. But the Commissioners took the view that the leases were chargeable with ad valorem duty in respect of the premiums in accordance with Schedule 1 of the Stamp Act 1891. The relevant provision of the Schedule is that dealing with "Lease or Tack". Paragraph (3) refers to a lease for any definite term:
"where the consideration or any part of the consideration moving either to the lessor or to any other person consists of any money… "
The duty is chargeable "in respect of such consideration" and is "the same duty as a conveyance on a sale for the same consideration." Duty chargeable on a conveyance on sale is imposed by s.55 Finance Act 1963 "by reference to the amount or value of the consideration for the sale at" the rates prescribed by that section.
The Commissioners sought to ascertain the consideration moving to the lessor by applying the formulae to the closing price of the stock on Friday, 13th August 1993, as being that prevailing on the date of execution of the lease (14th August being a Saturday). That process produced figures for the premiums on which ad valorem duty of 1% was to be assessed of £425,735 and £84,861 respectively. The appellant, being dissatisfied with the consequential assessments, required the statement of a case for the opinion of the Court as to the duty chargeable. The Case Stated was heard by Carnwath J. He upheld the assessments. The appellants contend that he was wrong.
It is apparent from the assessments that the Commissioners applied the formula contained in each of the leases to the value of the relevant stock on Friday 13th August, namely the day before the execution of the leases, rather than, as expressly required by the formula, to the value of the stock on the day 25 working days after the execution of the leases.The justification advanced by the Commissioners in the Case Stated was that:
(i) the relevant charge on the amount of the consideration "applies to any amount which is ascertainable from the terms of the lease and the circumstances in existence at the date of its execution without having regard to any contingencies to which the payment of that consideration or its amount may be subject"
(ii) "the formula for calculating the premium payable under the leases was capable of solution when the leases were executed by reference to the price of the Stock at that time"
(iii) "the fact that the closing price of the Stock on the 25th business day following the execution of the leases may differ from the price of the Stock on the date of execution is a contingency which falls to be ignored".
The Commissioners relied on the principle described by Viscount Radcliffe in Independent Television Authority v IRC [1961] AC 427 which both parties labelled "the Contingency Principle". At p.443 Viscount Radcliffe said
"I take it therefore to be a well settled principle that the money payable is ascertained for the purposes of the charge without regard to the fact that the agreement in question may itself contain provisions which will in certain circumstances prevent it from being payable at all. If that is so, there is at least no better reason for adopting a different principle when there are found clauses which merely vary the amount to be paid according to specified contingencies. Nor does it matter for this purpose whether the effect of such a clause is to make it possible for the sum to be increased or to be diminished….. What is necessary is that it should be possible to ascertain from the agreement that there is some specified sum agreed upon as the subject of payment which may perhaps fairly be called the prima facie or basic payment. Even that minimum condition may have to be re-stated in relation to certain kinds of securities, such for example as guarantees, in which the ad valorem charge is calculated according to the maximum sum contingently payable or, to put it another way, the amount of the guarantee…". (emphasis added).
The appellant has contended throughout that that principle could have no application in this case because it is not possible to ascertain from the leases that there is some specified sum agreed upon as the subject of payment as at the date of their execution; the only sum agreed on was only ascertainable 25 days later. The judge rejected this submission. He considered that it was established in Underground Electric Railways Co of London v IRC [1906] AC 21 that the specified sum might be ascertained not simply from the terms of the agreement but by reference to external factors. His conclusion was
"If that is the correct interpretation of the first Underground Electric Railways case, then the same reasoning is, in my view, applicable here. Although the formula used by the agreement cannot in terms be applied as at the date of the instrument, since it refers to a date 25 days thereafter, nonetheless it is possible to ascertain the price of the relevant Treasury Stock as at that date (subject to one point to which I will come). The ordinary principle, as confirmed by the Cory case, requires one to ascertain the consideration by reference to the circumstances at the date of the instrument. In the first Underground Electric Railways case it was accepted that that involved looking at the amount of issued capital on that date, even though the contract itself anticipated calculation by reference to the paid up capital at a later date. So, in this case, it is consistent with that approach to take the closing price applicable at the date of the instrument, even though the agreement itself specifies a later date. As Mr Furness submits, relying on the first Underground Electric Railways case:
"… provided an amount of consideration can be ascertained in the circumstances existing at the date of the instrument (i.e. by applying the formula as at that date rather than the date or dates envisaged in the instrument) stamp duty is chargeable on the figure produced."
For the reasons given, I accept this submission.
I should add that, although in an area as technical as this one may not be able to attach too much weight to the wording of the statute itself, I am comforted by the fact that this conclusion seems to me to accord to the language and intention of the Stamp Act. The question under the Act is whether there is consideration consisting of money. That wording has to be applied in a context where it is necessary to ascertain the amount at the date of the instrument. Common sense would suggest that the substantive question—whether there is consideration in money—would not be affected by the date at which the formula is to be applied; but that in calculating the amount...
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