Ramsay (W T) Ltd v Commissioners of Inland Revenue
| Jurisdiction | England & Wales |
| Judgment Date | 24 May 1979 |
| Judgment citation (vLex) | [1979] EWCA Civ J0524-5 |
| Docket Number | 1977 No. 45 |
| Court | Court of Appeal (Civil Division) |
| Date | 24 May 1979 |
[1979] EWCA Civ J0524-5
Lord Scarman
Lord Justice Ormrod and
Lord Justice Templeman
In The Supreme Court of Judicature
Court of Appeal
On Appeal from The High Court of Justice
Chancery Division
(Revenue Paper) (Final List)
MR BRIAN DAVENPORT (instructed by the Solicitor of Inland Revenue) appeared on behalf of the Appellants.
MR D.C. POTTER, Q.C. and MR DAVID MILNE (instructed by Messrs Slowes) appeared on behalf of the Respondents.
(reserved)
I shall ask Lord Justice Templeman to deliver the first judgment.
LORD JUSTICS TEMPLEMAN: This is a Revenue appeal from Mr Justice Goulding. The facts as set out in the Case Stated by the Special Commissioners demonstrate yet another circular game in which the taxpayer and a few hired performers act out a play; nothing happens save that the Houdini taxpayer appears to escape from the manacles of tax.
The game is recognisable by four rules. First, the play is devised and scripted prior to performance. Secondly, real money and real documents are circulated and exchanged. Thirdly, the money is returned by the end of the performance Fourthly, the financial position of the actors is the same at the end as it was in the beginning save, that the taxpayer in the course of the performance pays the hired actors for their services. The object of the performance is to create the illusion that something has happened, that Hamlet has been killed and that Bottom did don an asses head so that tax advantages can be claimed as if something had happened.
The audience are informed that the actors reserve the right to walk out in the middle of the performance but in fact they are the creatures of the consultant who has sold and the taxpayer who has bought the play; the actors are never in a position to make a profit and there is no chance that they will go on strike. The critics are mistakenly informed that the play is based on a classic masterpiece called "The Duke of Westminster" but in that piece the old retainer entered the theatre with his salary and left with a genuine entitlement to his salary and to an additional annuity.
The game now under appeal was put on the market by the tax consultants Dovercliffe Consultants Ltd. and was bought by the taxpayer W.T. Ramsay Ltd The taxpayer arranged to borrow money from the bankers Slater Walker ltd. on terms that the money should be used only for the performance and with safeguards which ensured that the bankers would be reimbursed.
The taxpayer and the consultants revolved and exchanged money through companies controlled by them or their directors and thereby at negligible cost to the taxpayer and without earning a gain or suffering a loss created for the taxpayer a claim for a non-taxable gain and for a tax deductible loss, thus achieving no result save a manufactured claim to entitlement to tax relief.
The Revenue assumed that the majority decision of this court in Floor v. Davis (1978 3 WLR 360) was indistinguishable and precluded them from relying on the fact that nothing happened in the present case except the manufacture of a tax advantage. They reserve the right to argue otherwise in the House of Lords. Therefore I concentrate on the capital gain as though it was independent of the capital loss and inspired by commerce.
The taxpayer acquired a company called Caithmead Ltd. and provided it with capital of £622,534 consisting of £185,034 subscribed for shares and £437,500 in monies advanced. The monies advanced were paid in accordance with a written offer dated 23rd February 1973, whereby the taxpayer wrote to Ceithmede as follows: "Dear Sirs, We write to advise you that we are prepared to make two loans to you (hereinafter referred to as 'L1' and 'L2' respectively) on the terms and conditions set out below: (1) Each of L1 and L2 is to be for the sum of £218,750. (2) We shall be entitled to demand repayment of LI at par 30 years from the date hereof and L2, also at par, 31 years from the date hereof. (3) You shall be at liberty to repay either LI or L2 at any earlier time than that mentioned in the last preceeding ( sic) paragraph and you will be obliged to repay both LI and L2 if the company goes into liquidation before our right to demand repayment arises. (4) If either L1 or L2 is repaid by you prematurely (ie before 30 years from the date hereof in the case of L1 and before 31 years from the date hereof in the case of L2) the amount to be repaid will be whichever is the higher of:-(i) the face value of the loan (£218,750) or (ii) the market value of the loan on the assumption that it would remain outstanding for the full period of 30 or 31 years. (5) Each of L1 and L2 is to carry interest at the rata of 11% per annum payable quarterly on the 1 March, 1 June, 1 September, 1 December in each year, the first of such payments to be made on March 1st 1973. (6) We reserve unto ourselves the right, exercisable on one occasion only and only while both LI and L2 remain in our beneficial ownership, to decrease the interest rate on one of the loans and to increase correspondingly the interest rate on the other. If you wish to accept this offer on the terms set out in this letter please signify your acceptance orally to us and upon receipt of your oral acceptance we will arrange for the necessary finance to be made available in order to pay you the amounts due in respect of each of LI and L2. Yours faithfully."
The offer was orally accepted and the sum of £437,500 was duly advanced. The taxpayer was provided with a Statutory Declaration or a copy of a Statutory Declaration in the following terms: "I George William Livingston of 2 Ash Grove Gainsborough, Lines, do solemnly and sincerely declare as follows:-(1) I am a Director of Caithmead limited (hereinafter called 'the Company'). (2) ON the 23rd day of February 1973 a letter of offer (a copy of which is annexed hereto and marked 'A') addressed by W.T. Ramsey ( sic) limited to the Company and dated the said 23rd day of February 1973 was received by the Company." Of course the letter of offer was the letter I have already read.
"(3) ON the 23rd day of February 1973 at a Board Meeting at which I was present the Directors of the Company resolved that, the offer contained in such letter should be accepted orally by any one Director. The Board Meeting was then adjourned. (4) ON the said 23rd day of February 1973 I orally informed Mr R.B Ramsey on behalf of W.T. Ramsey Limited that the Company accepted the offer. Following such oral communication of acceptance the Board Meeting of the Company resumed and at such resumed Meeting Mr R.B. Ramsey (who is also a director both of the Company and W.I. Ramsey Limited) was present and he produced a letter to Slater Walker who had agreed to mate the necessary finance available to W.T. Ramsey Limited to pay to the Company's bank account an amount of £437,500 being the amount payable by W.T. Ramsey Limited upon acceptance of its offer. AND I MAKE this solemn Declaration conscientiously believing the same to be true and by virtue of the provisions of the Statutory Declarations Act 1835."
By a letter dated 2nd March 1973 addressed th Caithmead the taxpayer altered the rate of interest payable on the loans to Caithmead. The letter reads: "Dear Sirs, Loans L1 and L2 Reference is made to our letter of offer relating to LI and L2 which was orally accepted by you on the 23rd day of February 1973 In exercise of the right which we reserved unto ourselves under paragraph number 6 of our letter we hereby direct that the rate of interest on L1 shall be reduced to nil and that the rate of interest on L2 shall be correspondingly increased to 22). Kindly acknowledge receipt of this letter and at the same time confirm to us that you will act in accordance with the direction herein contained. Yours faithfully."
On the same day Caithmead replied as follows: "Dear Sirs, Loand L1 and L2. We acknowledge receipt of your letter to usdated the 2nd day of March 1975 wherein you directed that the rate of interest on L1 should be reduced to nil and that the rate of interest on L2 should be correspondingly increased to 22;. We write to confirm that the Company will act in accordance with the direction received from you."
On 2nd March 1975 the taxpayer offered co sell the loan 12 to Masterdene Finance Ltd. The offer was in these terms; "Dear Sirs, We enclose herewith a copy of Mr Robert Bicket Ramsay's Statutory Declaration dated the 2nd day of March 1973" - that is the one I have read - "together with the exhibits 'A' 'B' 'C' and 'D' therein referred to" - and those exhibits were copies of all the documents I have read - "and your attention, is drawn to exhibit A and to the loans therein offered to be made which are therein and are hereinafter save where the context otherwise requires referred to as L1 and L2. We are informed that the market value of l2 is £393,750 and we hereby offer to sell to you the benefit of the right to repayment of L2 at that price less a discount of the aggregate of 5% thereof and £300. This offer remains open for acceptance for a period of seven days and thereafter will lapse. L2 is subject to a charge in favour of Slater Walker Limited and we enclose a copy of a letter from the bank undertaking to release its charge upon payment of the amount therein specified. We undertake to use so much of the purchase consideration as the mortgagee requires to release L2 from such charge. We declare that nothing herein contained imposes upon us any obligation to procure the debtor company to repay 12 to you. If you wish to accept this offer on the term set out in this letter please signify your acceptance orally to us and transfer the sum of £391,481 to Slater Walker Limited for the credit of our account with them. Yours faithfully."
The offer was accepted and the purchase price...
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