Re Lynall, decd
| Jurisdiction | England & Wales |
| Judge | Lord Reid,Lord Morris of Borth-y-Gest,Viscount Dilhorne,Lord Donovan,Lord Pearson |
| Judgment Date | 27 October 1971 |
| Judgment citation (vLex) | [1971] UKHL J1027-2 |
| Date | 27 October 1971 |
| Court | House of Lords |
[1971] UKHL J1027-2
House of Lords
Lord Reid
Lord Morris of Borth-y-Gest
Viscount Dilhorne
Lord Donovan
Lord Pearson
Upon Report from the Appellate Committee, to whom was referred the Cause Lynall and another against Commissioners of Inland Revenue, that the Committee had heard Counsel, as well on Monday the 5th, as on Tuesday the 6th, Wednesday the 7th, Thursday the 8th, Monday the 12th and Tuesday the 13th days of July last, upon the Petition and Appeal of Alan Herbert Lynall, of 17 Luttrell Road, Four Oaks, Warwickshire and Donald Geoffrey Lynall, of Park House, Snitterfield, Stratford-on-Avon, Warwickshire, 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 29th of July 1969, 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 Case of the Commissioners of Inland Revenue, lodged in answer to the said Appeal; 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 29th day of July 1969, complained of in the said Appeal, be, and the same is hereby, Discharged, and that the Judgment of the Honourable Mr. Justice Plowman of the 17th day of July 1968 thereby Discharged, be, and the same is hereby Restored: And it is further Ordered, That the Respondents do pay, or cause to be paid, to the said Appellants the Costs incurred by them in the Court of Appeal, 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 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,
Mrs. Lynall died on 21st May, 1962. At her death she owned 67,886 shares in Linread, a private company whose Articles contained restrictions on the right of shareholders to sell their shares. The question at issue in this case is the proper value of these shares for estate duty purposes. At first the Executors suggested £2 per share. The Revenue claimed on the basis of a value of £4 per share which figure on obtaining further information they increased to £5 10s. 0d. Plowman J. fixed a value of £3 10s. 0d. On appeal the Court of Appeal increased this to £4 10s. 0d. Now the Appellants claim that the value should be fixed at £1 or alternatively £3 10s. 0d. per share.
Linread began on a very modest scale in 1925. It prospered greatly but remained a family concern. At Mrs. Lynall's death there were only five shareholders. She held 28 per cent. of the share capital: her husband held 32 per cent.: each of their two sons held 20 per cent.: and the Manager only held 200 shares. All five were directors. Both she and her husband were elderly and it had been realised that there would be financial difficulties if they died without steps being taken to avoid that. So in 1959 Messrs. Thomson McLintock were asked to carry out a survey with a view to a public issue. They recommended that course and in March, 1962, a report was obtained from Messrs. Cazenoves as to the best method of flotation. No decision about this had been taken by Linread before Mrs. Lynall's death but the company was then ripe for "going public".
The shares must be valued as provided by section 7 (5) of the Finance Act, 1894:
"(5) 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;"
But neither Mrs. Lynall nor her Executors were entitled to sell these shares in the open market. Linread's Articles of Association provided:
"8. The Directors may in their absolute and uncontrolled discretion refuse to register any proposed transfer of shares and Regulation 24 of Part I of Table 'A' shall be modified accordingly and no Preference or Ordinary Share in the Company shall be transferable until it shall (by letter addressed and delivered to the secretary of the Company) have been first offered to Ezra Herbert Lynall so long as he shall remain a Director of the Company and after he shall have ceased to be a Director of the Company to the Members of the Company at its fair value. The fair value of such share shall be fixed by the Company in General Meeting from time to time and where not so fixed shall be deemed to be the par value. The Directors may from time to time direct in what manner any such option to purchase shares shall be dealt with by the Secretary when communicated to him."
No fair value had been fixed by the Company. So the position at Mrs. Lynall's death was that the shares were not transferable until they had been first offered to her husband at £1 per share and even if he did not want them they were only transferable to a purchaser accepted by the Directors.
A similar situation occurred in C.I.R. v. Crossman [1937] A.C. 26. The Appellants asked us to reconsider that decision. I have done so and I agree with the decision of the majority in this House. They followed the Irish case of Attorney-General for Ireland v. Jameson [1905] 2 I.R. 218. The most succinct statement of the ground of decision is that of Holmes L.J.:
"Turning to the 7th section of the Act, I find therein the very test of value which I should have applied in its absence. "The principal value 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". The Attorney-General and the defendants agree in saying that in this case there cannot be an actual sale in open market. Therefore, argues the former, we must assume that there is no restriction of any kind on the disposition of the shares and estimate that would be given therefor by a purchaser, who upon registration would have complete control over them. My objection to this mode of ascertaining the value is that the property bought in the imaginary sale would be a different property from that which Henry Jameson held at the time of his death. The defendants, on the other hand, contend that the only sale possible is a sale at which the highest price would be £100 per share, and that this ought to be the estimated value. My objection is that this estimate is not based on a sale in open market as required by the Act. Being unable to accept either solution, I go back to my own, which is in strict accordance with the language of the section. I assume that there is such a sale of the shares as is contemplated by article 11, the effect of which would be to place the purchaser in the same position as that occupied by Henry Jameson. An expert would have no difficulty in estimating their value on this basis. It would be less than the Crown claims, and more than the defendants offer; but I believe that it would be arrived at in accordance not only with the language of the Act, but with the methods usually employed in valuing property."
The Appellants urged your Lordships to accept the view of the minority in Crossman's case. They appear to assume that there could be a sale by a shareholder of shares subject to a right of pre-emption. In my view it is legally impossible for the shareholder to sell such shares in the open market or otherwise without first obtaining from the holder of the right of pre-emption an agreement not to exercise that right. I agree with Lord Roche that sale means a transaction which passes the property in the thing sold. All that the shareholder could offer would be an undertaking that if the right of pre-emption was exercised he would assign to the "purchaser" his right to receive the pre-emption price and that if the right of pre-emption was not exercised he would transfer the shares to the purchaser so that if the directors registered the transfer the property in the shares would pass but if they did not he would hold the shares in trust for the purchaser. In my view that would not be a sale. I support the view of the majority on the ground that section 7 (5) is merely machinery for estimating value, that it will not work if section 7 (5) is read literally, that it must be made to work, and that the only way of doing that is the way adopted in Crossman's case.
If Crossman's case stands then the first submission of the Appellants fails. The parties admit that then the choice is between the valuation of £3 10s. 0d. and £4 10s. 0d. per share.
We must decide what the highest bidder would have offered in the hypothetical sale in the open market, which the Act requires us to imagine took place at the time of Mrs. Lynall's death. The sum which any bidder will offer must depend on what he knows (or thinks he knows) about the property for which he bids. The decision of this case turns on the question what knowledge the hypothetical bidders must be supposed to have had about the affairs of Linread. One solution would be that they must be supposed to have been omniscient. But we have to consider what would in fact have happened if this imaginary sale had taken place, or at least—if we are looking for a general rule—what would happen in the event of a sale of this kind taking place. One thing which would not happen would be that the bidders would be omniscient. They would derive their knowledge from facts made available to...
To continue reading
Request your trial
-
Crabtree v Hinchcliffe (Inspector of Taxes)
...shares would not be sold on the Stock Exchange at all. With regard to the latter I would refer to the very recent decision in this House of Lynall's case. It would then be necessary to imagine some other form of open market sale of that parcel on that day if the Respondent's submission on t......
-
UBS AG and DB Group Services (UK) Limited v The Commissioners for HM Revenue and Customs
...General v Jameson [1905] 2 IR 218, Salvesen’s Trustees v IRC (1930) SLT 387, IRC v Crossman [1937] AC 26 and In Re Lynall, deceased [1972] AC 680. 104. 10 15 20 25 30 35 40 Lord Walker then “23. All these cases … were concerned with the valuation of shares in private companies where the art......
-
Cravecrest Ltd v Trustees of the Will of the Second Duke of Westminster
...said that, apart from everything else, that was inconsistent with the notion of an open market transaction as discussed in Lynall v IRC [1972] AC 680 and Daejan Investments Limited v Cornwall Coast Country Club [1985] 1 EGLR 77. Discussion 59 The appeal raises an interesting issue under the......
-
Couch (Inspector of Taxes) v Administrators of the estate of Caton, deceased
...all the shares on the market at the same time. Following the decisions in IR Commrs v Crossman [1937] AC 26 and Lynall v IR Commrs (1972) 47 TC 375 the shares must be valued on the basis that no-one was excluded from purchasing the shares and that the purchaser would be registered as the ho......
-
Weekly Tax Update - Monday 1 October 2012
...the time of transfer, reversion or forfeiture (for example on a forced sale)." The UT cited Lord Walker's comments in Re Lynall deceased ([1972] AC680) as well established principles on the valuation of shares in companies, that meant that parliament's intention in s423(2)(c) must have been......