Re Hollebone's Agreement

JurisdictionEngland & Wales
JudgeLORD JUSTICE JENKINS,LORD JUSTICE ROMER,LORD JUSTICE ORMEROD
Judgment Date23 March 1959
Judgment citation (vLex)[1959] EWCA Civ J0323-3
CourtCourt of Appeal
Date23 March 1959

[1959] EWCA Civ J0323-3

In The Supreme Court of Judicature

Court of Appeal

Before

Lord Justice Jenkins

Lord Justice Romer and

Lord Justice Ormerod

Re Hollebone's Agreement

Hollebone
Plaintiff
Respondent
and
W.J. Hollebone & Sons. Ltd.
Defendants
Appellants

MR F.N. BUCHER, Q.C, and MR E.I. GOULDING (instructed by Messrs Slaughter & May) appeared as Counsel for the Appellants.

THE HON. CHARLES RUSSELL, Q.C., and MR PETER ROWLAND (instructed by Messrs Trower, Still & Keeling) appeared as Counsel for the Respondent.

LORD JUSTICE JENKINS
1

: This is an appeal by the Defendant Company, W, J. Hollebone & Sons Limited., (hereinafter called "the Company") from a Judgment of Mr Justice Upjohn dated the 11th July, 1958, whereby he decided substantially in favour of the Plaintiff, Ernest Charles Hollebone, (hereinafter called "the Vendor") a dispute concerning the incidence as between the vendor and the Company of certain income tax and surtax on the sale by the vendor to the Company under the agreement, to which I am about to refer, of the stock-in-trade and other assets of the business of a wholesale wine and spirit merchant theretofore carried on by the vendor.

2

Also before the Court is a Respondent's Notice served by the vendor stating his intention to contend that the learned Judge's Order should be varied in certain respects in which, as it stands, it is adverse to the vendor.

3

By an Agreement dated the 14th July, 195t;, and made between the vendor of the first part, the Company of the second part, and Shorts Limited. (who are not concerned in the present dispute) of the third part, after recitals (inter alia) "A", that the vendor had for many years past carried on business as a wholesale wine and spirit merchant at 19, Southampton Place, Blcomsbury in the County of London under the style or firm of W.J. Hollebone & Sons, and "B", that the Company had been forced under the Companies Act, 1948, with a view, amongst other things, to the acquisition of the property thereby agreed to be said, it was (so far as material for the present purpose) agreed as follows: (By Clause 1) "The vendor shall soil and the Company shall purchase the whole of the tangible assets (including without prejudice to the generality of that expression all the stock-in-trade implements utensils plant fixtures and fittings and vehicles and the leasehold promises known as 19, Southampton Place and 31 Barter Street (adjoining) (and including cash in hand or at the bank as on the thirty first March One thousand nine hundred and fifty two) belonging to the vendor in connection with the said business and all the book and other debts due to him in connection therewith and the full benefit of all securities there for together with the exclusive right to use the name W.J. Hollobone & Sons as part of the name of the Company and the exclusive right to represent the Company as carrying on business in continuation of and as successor to the vendor and all trade marks connocted with the said business and the full benefit of all ponding contracts engagements and orders in connection therewith". (By Clause 3) That part of the consideration for the said sale should be the sum of £52,556-0-4d. which should be paid and satisfied (a) as to the sum of £22,536-0-4d. in cash payable (together with interest there on at the rate of 5 per cont. per annum from 1st April, 1952, to the date of actual payment) forthwith on the signing of the Agreement, and (b) as to the balance of £30,000 by the issue of certain debentures carrying interest at the rate of 5 per cont. per annum as from 1st April, 1952. (By Clause;) That as the residue of the consideration for the said sale "the Company shall undertake to pay satisfy discharge and fulfil all the debts liabilities contracts and engagements of the vendor in relation to the said business and indemnify him against all proceedings claims and demands in respect there of". (By Clause 6) That the purchase should be completed on the 14th August, 1952, (By Clause 3) That "Possession of the promises hereby sold shall be retained by the vendor until the date of actual completion of this agreement and in the meantime he shall carry on the said business in the same manner as heretofore so as to maintain the same as a going concern but he shall be deemed as from 1st April last to have been carrying on and he shall henceforward carry on the said business as agent for the Company and he shall account and be entitled to be indemnified accordingly". (By Clause 10) That the whole of the consideration aforesaid was the consideration for the sale of the goods chattols and other effects capable of manual delivory and forming part of the purchased property.

4

The said was actually completed on the 14th July, 1952, that Is to say, on the same day as the signing of the Agreement. Whoever was responsible for the preparation of that unfortunate document appears to have performed his task by the wholesale adoption of a well known common form without due regard to the circumstances of the particular ease. The result has boon to involve the parties in an interminable disputo, which nearly seven years after the signing of the Agreement, is still unresolved. It is clear from the terms of the Agreement that as between the vender and the Company, the sale was to be treated as taking effect as from the 31st March, 1952, and I think it is logitimato and, indeed, necessary to have regard to the contents of the balance sheet of the business as at that date as part of the surrounding circumstances by reference to which the Agreement is to be construed.

5

That balance sheet shows the following assets at the following amounts or values respectively: Stock at cost £28,196. 15s.6d. (including a small item of £11. 10s.0d. stock of fodder in stables); fixtures £250; cash at office and at bank £3,909. 6s.2d.; and book debts £774. 12s.7d.: Total £33,130. 14s.3d. On the liabilities side the items to be noticed are: Debts owing at 31st March, 1952, £594. 13s.11d.; income tax due 1st July 1952 £960. 16s.6d. and Executers of the late H.W. Hollebone £11,200. The purchase price appears on these figures to have boon arrived at by doducting from the total assets of £33,130., 14s.3d. the amount owing to creditors £594. 13s.11d. '(which left £32,536. 0s.4d) and then adding £20,000 to the balance shoot value of the stock, thus making the value of the stock £48,196. 15s.6d, and the total assets £52,536. 0s.4d., this last figure, together with the Company's undertaking contained in Clause 4 (which admittedly extended to the debts of £594. 13s.11d. above referred to), being taken as the consideration for the sale.

6

The purchase consideration so arrived at clearly included a profit to the vendor of £20.000 on the figures appearing in the balance sheet of 51st March, 1952, by reason of the addition of that amount to the value placed on the stock in such balance shoot. The item of £960. 16s.6d. in respect of income tax appearing in the balance shoot of 31st March, 1952, was described by the vendor in his affidavit in support of the originating summons as the second instalment of the income tax on the profits of the business for the year of assessment ended the 5th April, 1952, based on the profits for the year ended 31st March, 1951. This sum the vendor paid out of his own pocket on the 15th July, 1952, having already paid the first instalment of the income tax in question on a date prior to the 31st March, 1952.

7

There was no evidence of the origin of the item of £11,200 shown in the balance sheet as dub to the Executors of the late H.W. Hollebone, but I understand it to represent a sum, or the balance of a sum, payable by the vendor in respect of the interest of some predecessor of his in business. Be that as it may, this sum, like the sum duo for income tax, was excluded from the calculation of the purchase price. The statement of the consideration for the sale attached by the Company to the Agreement when sent to the Stamp Duty Office for stamping contained no reference to the £960. 16s.6d, or to any other liability for income tax or surtax.

8

Mr Bucher, for the Company, relied on the payment by the vendor of the £960. 16s.6d. out of his own pocket, and on the omission of any reference to income tax or surtax in the statement to which I have just referred as showing that neither party regarded income tax or surtax as included in the liabilities which the Company by Clause 4 of the Agreement undertook to discharge. Those matters undoubtedly point to that conclusion, though it is to be remembered that the sum duo for income tax wag a debt for which the vendor was personally liable to the Revenue. There is, however, no claim for rectification. The case, accordingly, depends entirely upon the true construction of the Agreement, and I agree with the learned Judge that for the I purposes of construction, those matters must be regarded as wholly irrelevant.

9

The notional back-dating of the sale to the 31st March, 1953, provided for by the Agreement, of course had no foundation in fact, though it was an arrangement which the vendor and the Company could, as between themselves, readily carry out by appropriate adjustments in their accounts. It was, however, an arrangement which could not affect the position as between the vendor and the Revenue with respect to income tax and surtax. From the point of view of the Revenue the liability of the vendor income tax on the profits of the business is to be computed in accordance with the actual facts of the ease. In actual fact the vendor carried on the business as his own from the 51st March, 1953, down to the 14th July, 1952, and discontinued it on the latter date when the sale to the Company was completed. In these circumstances the tax position as between the vendor and the Revenue was that the vendor was liable under Section 130 of the Income Tax...

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2 cases
  • Moore v R J. Mackenzie & Sons Ltd
    • United Kingdom
    • Chancery Division
    • 20 Diciembre 1971
    ...190 Ross v. Ross ELR[1930] A.C. 1 Hillingdon Estates Co. v. Stonefield Estates Ltd. ELR[1952] Ch. 627 In re Hollebone's Agreement WLR[1959] 1 W.L.R. 536 9. We, the Commissioners who heard the appeal, gave our decision orally as follows. We considered the evidence, and referred particularly ......
  • Moore (HM Inspector of Taxes) v R.J. Mackenzie & Sons Ltd
    • United Kingdom
    • Chancery Division
    • 20 Diciembre 1971
    ...190 Ross v. Ross ELR[1930] A.C. 1 Hillingdon Estates Co. v. Stonefield Estates Ltd. ELR[1952] Ch. 627 In re Hollebone's Agreement WLR[1959] 1 W.L.R. 536 9. We, the Commissioners who heard the appeal, gave our decision orally as follows. We considered the evidence, and referred particularly ......

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