Pickersgill v Motley; Ransom v Higgs; Lees and another v Grant; Dickinson v Downes; Kilmorie (Aldridge) Ltd v Dickinson
| Jurisdiction | UK Non-devolved |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Lord Wilberforce,Lord Simon of Glaisdale,Lord Cross of Chelsea |
| Judgment Date | 13 November 1974 |
| Judgment citation (vLex) | [1974] UKHL J1113-5 |
| Court | House of Lords |
[1974] UKHL J1113-5
Lord Reid
Lord Morris of Borth-y-Gest
Lord Wilberforce
Lord Simon of Glaisdale
Lord Cross of Chelsea
House of Lords
Upon Report from the Appellate Committee, to whom was referred the Cause Pickersgill and another (Trustees of a Settlement dated 29th March 1961 by Freda Gwendoline Higgs) against Motley (Inspector of Taxes) and Ransom (Inspector of Taxes) against Higgs [Consolidated Appeals], that the Committee had heard Counsel, as well on Thursday the 13th, as on Monday the 17th, Tuesday the 18th, Wednesday the 19th, Thursday the 20th and Monday the 24th, days of June last, upon the Petition and Appeal of Gwendoline Stella Pickersgill and Harold Josiah Jenkins (Trustees of a Settlement dated 29th March 1961 by Freda Gwendoline Higgs), 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 12th of April 1973, 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 Petitioners 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 Petition and Appeal of Eric Ransom (one of Her Majesty's Inspectors of Taxes) of Somerset House, The Strand, London W.C.2, 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 12th of April 1973, 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 (which said Appeals were, by an Order of this House of the 26th day of July 1973, ordered to be consolidated); as also upon the Case of William George Motley (one of Her Majesty's Inspectors of Taxes); and also upon the Case of Alan Edward Higgs, lodged in answer to the said Appeals; 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 of the 12th day of April 1973, complained of in the said first Appeal Pickersgill and another (Trustees of a Settlement dated 29th March 1961 by Freda Gwendoline Higgs) against Motley (Inspector of Taxes), be, and the same is hereby, Reversed, and that the Judgment of Mr. Justice Megarry of the 26th day of November 1971, thereby reversed, be, and the same is hereby Restored: And it is further Ordered, That, in respect of the said first Appeal, the Respondent do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Courts below, and also the Costs incurred by them in respect of the said Appeal to this House, the amount of such last mentioned Costs to be certified by the Clerk of the Parliaments: And it is further Ordered, That the said Order of Her Majesty's Court of Appeal of the 12th day of April 1973, complained of in the said second Appeal Ransom (Inspector of Taxes) against Higgs be, and is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That, in respect of the said second Appeal, the Appellant do pay, or cause to be paid, to the said Respondent the Costs incurred by him in the Courts below, and also the Costs incurred by him in respect of the said Appeal to this House, the amount thereof to be certified by the Clerk of the Parliaments: And it is also further Ordered, That the Cause be, and the same is hereby, remitted back to the Chancery Division of the High Court of Justice, to do therein as shall be just and consistent with this Judgment.
My Lords,
Yours Lordships heard five appeals in two groups: first two which I shall call the Higgs' cases and then three which I shall call the Downes' cases. All arose out of two elaborate schemes devised by the same finance company for the purpose of tax avoidance.
In the Higgs' cases there was argument about the proper interpretation of the findings of fact of the Special Commissioners. I do not think it necessary to deal with this matter. I shall try to state the facts in the manner most favourable to the Revenue because even so I am of opinion that their case cannot succeed on the issues which we have to determine.
Mr. and Mrs. Higgs owned and controlled a number of companies. Several, which I shall call the Higgs' Companies, owned parcels of land ripe for development. Another, called Coventry, was engaged in land development. If there had been no scheme for tax avoidance the natural course would have been for the Higgs' Companies to have transferred the land to Coventry which would then have carried out the development. The lands held by the Higgs' Companies had been bought by them at prices amounting in all to about £80,000. It was expected that development would yield a profit of about £200,000. In the absence of this scheme tax would have had to be paid on this profit.
But it was suggested to Mr. Higgs by a representative of a finance company, Harlox, that matters could be arranged in such a way that after paying to Harlox a fee of £30,000 the remaining £170,000 would come into the hands of trustees of a discretionary trust for the Higgs family free of liability to tax.
Mr. Higgs, who had no connection with Harlox, agreed to carry out their scheme. He did not fully understand it but he must be held responsible for its implementation, in that he procured the co-operation of all those companies and individuals who played parts in the scheme.
The case for the Revenue as presented to your Lordships was that in procuring the steps taken by the companies and individuals, Mr. Higgs was carrying on a trade within the meaning of the Income Tax Acts and that the £170,000 which under the scheme was to go to the family trustees was a profit of that trade which was assessable to tax. So the question to be determined is whether that contention can be sustained.
I must now briefly describe the operation of the scheme. Admittedly, Mr. Higgs took no direct part in its operation. He never owned any of the land and he never handled any of the money. First he obtained the consent of his wife to his acting on her behalf in respect of her interests.
The first step in the scheme was to form a partnership called H.L.N, consisting of Mrs. Higgs and two of Harlox's subsidiary companies in which Mrs. Higgs had a 90 per cent. interest. The capital of this partnership was I think £100 and then the partnership entered into some trifling transactions.
Next Mrs. Higgs assigned to the family trustees her whole interest in the partnership. The validity of the assignment has not been questioned. Then the Higgs' Companies sold their lands to the partnership for £87,000 which was considerably less than the market value. But we do not know what the true market value then was. No money was paid to the Higgs' Companies.
Then Harlox bought from the trustees their interest in the partnership for £170,000, a sum far in excess of its value at that time. It was part of the scheme that the trustees should receive a cheque for that amount but should immediately give their cheque for that amount to Coventry. The trustees accordingly received no money but Coventry owed them £170,000. Harlox then joined the partnership in place of Mrs. Higgs. The partnership then sold the land to Harlox for £87,000 the price which they had paid for it. Again it seems that no money was paid.
Then Harlox sold their whole interest to a subsidiary, Harley Street, for £286,000. There were some other transactions between subsidiaries of Harlox the purpose of which is not very clear. In the end another Harlox subsidiary, Downry, bought the land for £286,750.
Downry then made what is called an agency agreement with Coventry. The Special Commissioners say that they did not fully understand this, and I do not quite understand how it dealt with the cheque which the trustees had given to Coventry, but its main purpose seems to have been that Coventry were to develop the land by building houses on it and when from time to time they sold these houses they were to pay the sums which they received less their own expenses to Downry up to a maximum of £287,000. If the development yielded more than that Coventry were to keep the excess.
I hope that I have described the operation of the scheme accurately but the details do not matter. The net result is clear enough. If all went well Downry were to receive and to pass on to Harlox £287,000. That would enable Harlox to retain their fee of £30,000, to pass on £87,000 to the Higgs Companies and to pass on £170,000 to the Higgs' family trust. If the development brought in less than was expected the family trust would not receive the full sum of £170,000.
Confronted by this labyrinth the Revenue were in some difficulty. Whom should they assess? For what profit? In what year of assessment? It was said in argument that there were five possibilities apart from the course which they ultimately took. The Higgs' Companies had sold below market value. So they might be assessable. The partnership, the trustees, Harlox and Coventry were also possibly liable to be assessed. I do not think it right to say more about these possibilities than that if the Revenue fail in the present appeal it by no means follows that the...
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