Re Lynall, decd
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE HARMAN,LORD JUSTICE WIDGERY,LORD JUSTICE CROSS |
| Judgment Date | 29 July 1969 |
| Judgment citation (vLex) | [1969] EWCA Civ J0729-3 |
| Date | 29 July 1969 |
| Court | Court of Appeal (Civil Division) |
[1969] EWCA Civ J0729-3
In The Supreme Court of Judicature
Court of Appeal
(Civil Division)
(From: Mr. Justice Plowman)
Lord Justice Harman
Lord Justice Widgery and
Lord Justice Cross
In the Matter of the Estate of Nellie Lynall deceased
-and-
In the Matter of Section 10 of the Finance Act 1894:
SIR MILNER HOLLAND, Q.C., Mr. JEREMIAH HARMAN, Q.C. and Mr. LEONARD HOFFMAN (instructed by Solicitor of Inland Revenue) appeared on behalf of the Appellants (Defendants).
Mr. W.A. BAGNALL, Q.C. and Mr. PETER GIBSON (instructed by Messrs. Warren, Murton & Co., Agents for Messrs. Pinsent & Co., Birmingham) appeared on behalf of the Respondents (Plaintiffs).
Mrs. Nellie Lynall, with whose estate this appeal is concerned, died on the 21st May, 1962. Her age was in the middle 70s. Her principal asset was a large holding representing about 28% of the issued capital of a private limited company called Linread Ltd. This was an old-established and prosperous concern having its headquarters in Birmingham and being engaged in the manufacture of what are known as cold-forged fasteners - things in the nature of screws, nuts and bolts used in the aircraft and motor industries. The company was a private company and the shares were held entirely in the family, the chairman, Mrs. Lynall's husband, owning 32% and two sons owning 20% each. All four were directors of the company, though Mrs. Lynall was not an executive director.
Under the Articles of Association the shares of the company were very severely restricted in transfer; the directors had an absolute right to refuse to register, and a would-be seller must first offer his shares to Mr. Lynall and, after he ceased to be chairman, to the other members of the company, at the fair value, which at all material times was fixed at par. At the very lowest estimate the shares were worth double that figure, but in effect a would-be transferor had nothing to sell but the par value. In these circumstances a familiar difficulty arose of valuing the shares for estate duty purposes under section 7 (5) of the Finance Act, 1894, which is in these terms:
"The principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased".
It has been the law since the case of Re Jameson (1905 2 Irish Reports 218), the decision of a very strong Court of Appeal in Ireland, which was followed and confirmed in the House of Lords in Inland Revenue Commissioners v. Crossman (1937 Appeal Cases 26), that the meaning to be given to this section is that for the purpose of estimating the price of such shares, price being under the section the criterion of value, it must be assumed that a purchaser would be entitled notwithstanding the restrictions to be registered as the holder, but would take his holding subject to the restrictions on transfer imposed by the Articles of Association. This view of the law is admittedly binding on this Court, but the respondent taxpayer desired to reserve the point, in case the matter went to the House of Lords, that the minority view expressed by Lords Russell and Macmillan in Crossman's case was the right one and that the true value of shares such as these is par and no more.
The company had a conservative dividend record, but during the last two years of Mrs. Lynall's life a dividend of 15% had been paid, no doubt under the pressure exercised by the Revenue, which of course had in its hands the weapon of a surtax direction on the members. Moreover, this was a company in which two persons holding 60% of the capital were about 70 years old and inevitably the question must arise how the very heavy estate duties which would become payable on their deaths could be found, and it is notorious that in order to raise the duty many such companies have been obliged to offer a certain proportion of their shares by an issue to the public, which of course involves the sweeping away of the restrictions on transfer and becoming a public company. This would have the result of very much enhancing the price which the shares would fetch, and the chance of its happening must necessarily be in the mind of any purchaser, who would so long as the company remained a private company in effect be locking up his capital.
The sale envisaged by the section is, as is agreed, not areal "but a hypothetical sale and must be taken to be a sale between a willing vendor and a willing purchaser - see, for instance, the speech of Lord Guest in Re Sutherland (1963 Appeal Cases 262). It is true that the so-called willing vendor is a person who must sells he cannot simply call off the sale if he does not like the price; but there must be on the other side a willing purchaser, so that the conditions of the sale must be such as to induce in him a willing frame of mind.
The controversy which has arisen here is extraordinarily free from authority, which is strange, as valuations under the section have been going on since 1894. The dispute is, what information about the company and its past history and future prospects is to be assumed to be in the possession of the purchaser at the date of the sale. Three possibilities were canvassed. First, that which was reached by the learned judge below, namely, that the purchaser must be taken to be in possession, apart from what I call published documents, of all such further information (if any) as on the evidence in this case a member of the board applied to would have afforded. This evidence was given by one of the two sons of the family, who alleged that the board if asked would have been extremely uncommunicative. The judge himself did not favour this result but he felt constrained to it by a decision of Mr. Justice Danckwerts (as he then was) in ( Re Holt 1953 1 Weekly Law Reports 1488).
The second view, which the judge would have preferred had he felt himself free, is the "published information" footing, namely, that the purchaser would have had only such information as had before the date of the death been communicated by the board to the shareholders and no confidential information such as was within the knowledge of the board.
The third possibility, which was, at any rate in this Court, supported by the Crown, was that, the purchaser must be supposed to have in addition to the published information such further information as would in practice, on a sale of an important block of shares such as these, have been confided by the board either to the purchaser or perhaps more probably in confidence to his financial advisers.
As a matter of history what happened was that the executors, in the Inland Revenue affidavit upon which probate was obtained, put in a valuation of the shares made by the Secretary, who stated the value at £2 a share. The Commissioners, having considered the matter, formed the opinion that the true value following the Jameson principle was £4 a share. This the executors were unwilling to pay and, being aggrieved by the decision, appealed to the High Court under section 10 of the 1894 Act. The Crown then applied for discovery of documents. Now of course the executors being directors themselves had in their possession or power material beyond the published information and would have been bound to include it in their affidavit on discovery. By way of compromise, the documents which have been called the "B" documents were disclosed by the executors without prejudice to the question whether they would have been bound to make them available to the Crown or whether they could have objected to disclosing their contents on the ground that they only had this information as members of the board and were entitled to withhold it. This information was of two kinds. First, the interim monthly statements in the possession of the members of the board showing the progress of the company during the nine months which had passed since the period covered by the last information in the hands of the shareholders, which was that contained in the accounts for 1961. Second, such facts as there were in the knowledge of the board to show the prospects or the likelihood of the company going public. Both these matters would have been of the utmost importance to a purchaser, but it was said that, not being published information, that is to say information available to the shareholders at the date of death, they must be ignored.
Before Mr. Justice Plowman there was elaborate evidence of experts giving their opinions as to the value of the shares. None of these questions arose before us and this judgment is shortened accordingly Mr. Justice Plowman, weighing the opinions on the two sides, came to the conclusion that the proper price was £3. 10s. 0d. With this the taxpayer is content. The experts, however, all agreed that if the buyer was entitled to be informed upon the two points, namely the last nine months' profits and the indications of the board's intentions as to a public offer, there would have to be added a pound to the value of each share.
Before us, therefore, only one point was argued, namely, whether Mr. Justice Plowman's valuation of £3. 10s. 0d. should stand or whether it should have a pound added to it, as, on the evidence, would happen if the further information were disclosed.
There is an extraordinary dearth of authority on this point. In Jameson's case no question of valuation arose because the Commissioners had not arrived at a valuations the only thing settled was the basis of the valuation. That case, therefore, is of no help. Re Jameson was followed in Scotland by Lord Fleming in The Trustees of Salvesen v. Commissioners of Inland Revenue (9 Annotated Tax Cases 43) in the Outer House of the Court of Session. The shares...
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