Reed (HMIT) v Young
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE DILLON,LORD JUSTICE GRIFFITHS,LORD JUSTICE WALLER |
| Judgment Date | 01 November 1984 |
| Judgment citation (vLex) | [1984] EWCA Civ J1101-7 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | 84/0401 |
| Date | 01 November 1984 |
[1984] EWCA Civ J1101-7
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
(MR JUSTICE NOURSE)
Royal Courts of Justice,
Lord Justice Waller
Lord Justice Griffiths
Lord Justice Dillon
84/0401
1982 R. 15633
MR J. PARKER, Q.C., and MR R. CARNWATH (instructed by The Solicitor, Inland Revenue) appeared on behalf of the Appellant.
MR P. MILLETT, Q.C., and MR M. FLESCH, Q.C. (instructed by Messrs. Joelson Wilson & Co.) appeared on behalf of the Respondent.
This is an appeal from a decision of Nourse J., given on the 11th November, 1983, whereby he upheld a determination of the Special Commissioners for Income Tax of the 17th March, 1982, which had allowed an appeal by the taxpayer against the refusal of a claim for relief from income tax for the year 1977/78, that is to say the year ended on the 5th April, 1978. The matter in issue concerns the extent to which a limited partner can claim relief for tax purposes in respect of the losses of the partnership.
Limited partnership is a creature of statute, the Limited Partnerships Act 1907. The essence of the idea is that there are general partners or a general partner by whom the business of the partnership is carried on and limited partners or a limited partner who are precluded from playing any part in the management of the partnership business and have no power to bind the firm. The key provision of the Act is section 4 (2) which provides that the limited partners shall at the time of entering into the partnership contribute thereto a sum or sums as capital and shall not be liable for the debts and obligations of the firm beyond the amount so contributed.
In the present case, there was one general partner only, a company called South Street Films Ltd("South Street") and the business of the partnership was that of producing motion pictures, a very high risk business. That business was commenced by South Street in November 1977, when the first approaches were made to secure the film rights in the first story proposed to be filmed and to make contracts with necessary personnel. The terms of the partnership are set out in a document called a Partnership Agreement and dated the 13th March, 1978, executed by South Street to which the various limited partners subsequently adhered. There were in all 19 limited partners of whom the taxpayer is one. She became a limited partner on the 28th March, 1978, when she was accepted as a limited partner, having shortly before paid £10,000 to the firm as her contribution to capital. This limited partnership was called Monday Films (3). There were indeed two other limited partnerships, known as Monday Films (l) and Monday Films (2), which participated in the making of the same films, but that is not relevent to the issues on this appeal.
The relevant terms of the Partnership Agreement of Monday Films (3) dated the 13th March, 1978 are as follows:—
...By Clause 1 that the parties should be deemed to have been carrying on the business in partnership from the 2nd November 1977 and it should be a limited partnership within the meaning of the 1907 Act.
By Clause 2 that the partnership should continue so long as there should be at least two partners or until the 31st December 1987 whichever should be the shorter period.
By Clause 4 that limited partners should be admitted to the partnership solely by subscription and upon approval by the General Partner (that is to say South Street) on acceptance of a letter of subscription from the limited partner.
By Clause 5:—
by subclause (l) that the profits and losses of the partnership should belong to and be borne as to 5% thereof to or by the General Partner and as to 95% thereof to or by the limited partners.
by subclause (2) that in consideration of his initial contribution to the capital of the partnership each limited partner should be entitled to and should bear the same proportion of the 95% of the profits and losses of the business for the period to the 31st March 1978 (which was the initial accounting period for the partnership) as his contribution to capital should bear to the total capital of the partnership as at the 31st March 1978.
by subclause (3) that each limited partner should be entitled to and should bear on payment to the partnership of an amount equivalent to 50% of his initial contribution by way of a further contribution to the capital of the partnership on or before the 10th October 1978 the same proportion of the 95% of the profits and losses of the business for the period of one year commencing on the 1st April 1978 as his total capital contribution should bear to the total capital of the partnership as at the 31st October 1978.
by subclause (4) that each limited partner should be entitled to and should bear on payment to the partnership of an amount equivalent to 25% of his initial contribution by way of further contribution to the capital of the partnership on or before the 10th October 1979 the same proportion of the 95% of the profits or losses of the business for the period of 1 year commencing on the immediately preceding 1st April as his total capital contribution should bear to the total capital of the partnership as at the 31st October 1979, and so on year by year up to and including the 10th October 1986.
by subclause (5) that if a limited partner should not pay any of the further capital contributions referred to in subclauses (3) and (4) on or before 31st October in any year, time being of the essence, he should be deemed to have retired from the partnership on the preceding 31st March and should not be entitled to participate in any profits or losses of the partnership after that date (save at the discretion of the General Partner under subclause (6) which for present purposes is not relevant) and
by subclause (8), declared to be a term for the avoidance of doubt, that any proportion of the profits or losses of the partnership to which the limited partners or any of them should not be entitled should be credited or debited to the General Partner and By Clause 8 that each limited partner should sustain and be liable to bear losses in the proportions set out in Clause 5 to the fall extent of his interest in the partnership and where his interest in the partnership should for the time being be insufficient to meet the amount thereof in full any balance thereof should be debited to him and carried forward against his entitlement to any future profits and against all future capital contributions agreed to be made by him provided that no limited partner should be liable for the debts or obligations of the partnership beyond the amount of capital contributed by him.
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