Thomson v Gurneville Securities Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Morris of Borth-y-Gest,Lord Guest,Viscount Dilhorne,Lord Donovan,Lord Simon of Glaisdale |
| Judgment Date | 21 October 1971 |
| Judgment citation (vLex) | [1971] UKHL J1021-3 |
| Date | 21 October 1971 |
| Court | House of Lords |
[1971] UKHL J1021-3
House of Lords
Lord Morris of Borth-y-Gest
Lord Guest
Viscount Dilhorne
Lord Donovan
Lord Simon of Glaisdale
Upon Report from the Appellate Committee, to whom was referred the Cause Thomson (one of Her Majesty's Inspectors of Taxes) against Gurneville Securities Limited, that the Committee had heard Counsel, as well on Thursday the 24th, Monday the 28th, Tuesday the 29th and Wednesday the 30th, days of June last, as on Thursday the 1st day of July last, upon the Petition and Appeal of Ian Douglas Thomson, of York House, Kingsway, London, W.C.2 (one of Her Majesty's Inspectors of Taxes), 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 18th of December 1969, except so far as regards the words (" other than the costs of the hearing in the Chancery Division relating to the Respondent's cross-appeal"), might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order, except so far as aforesaid, might be reversed, varied or altered, and that the Petitioner might have the relief prayed for in the Appeal, or 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 Gurneville Securities Limited, 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 18th day of December 1969, complained of in the said Appeal, be, and the same is hereby, Reversed, and that the Judgment of the Honourable Mr. Justice Goff of the 26th day of March 1969, 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 Appellant the Costs incurred by him in the Court of Appeal, and also the Costs incurred by him 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,
This is a further case in which the issue which arose for decision was whether certain transactions formed part of the trade of a dealer in shares. The Respondent Company, Gurneville Securities Ltd. (which I will call G.S.) made claims under section 341 of the Income Tax Act, 1952, in respect of losses alleged to have been sustained in a trade of share dealing. The claims related to the year 1956-57 and to the year 1957-58.
Certain transactions were entered into under which G.S. acquired the shares of a company called Bishopsgate Investment Co. Ltd. (which I will call B.I.). Did G.S. acquire and deal with the shares of B.I. as stock-in-trade of and in its trade of share dealing? In order to answer that question it is necessary to examine the arrangements that were made. They were made, as the Case Stated records, pursuant to a scheme which was devised. When the scheme is considered and the various transactions by which it was implemented, is what is revealed the trading activity (albeit with complicated ramifications) of a dealer in shares or is what is revealed something which cannot fairly and rationally be so described?
In the recent appeal of F.A. & A.B. Limited v. Lupton I had occasion to record my conclusions as to the lines of approach to a question such as that which is raised in this appeal. I need not repeat what I there said. Each case must depend upon its own facts and decision can only be reached when all the facts are surveyed. Only then can the shape and structure and nature of what has been created be seen in perspective.
The Case Stated, which is of some thirty pages in length, sets out in detail the arrangements that were made. Various members of a group who were called the Colman group owned a great deal of real property. There were in fact some 102 property companies. These were subsidiary companies of B.I. The members of the Colman group owned all the issued shares of B.I. The properties had increased in value. The values exceeded the book values. It was in this setting that as the Case Stated finds a scheme was devised. It was undoubtedly a scheme of great ingenuity and originality. Two other companies were to be closely involved in the scheme. One was G.S. (the Respondent company) which was incorporated on the 9th March, 1954. It had a share capital of £100 divided into 100 shares of £1 each. It was established to carry on the business or businesses of stock and share dealers. Ten shares were issued and these were beneficially owned by a company called Stormgard Ltd. The company did carry on business as share dealers. Its first Profit and Loss Account (for the period from 1st December, 1955, to 31st March, 1957), showed that in that period —and apart from the transaction in issue in this appeal which involved the acquisition of the B.I. shares at a cost of £1,797,094—there were eight purchases of shares at a total cost of £3,193. The other company involved in the scheme was a company called Bishopsgate Properties Ltd. (which I will call B.P.). That company was incorporated on the 20th April, 1954. All its shares were held by B.I.
If the various properties had been sold by the various property companies there would have been considerable profits which would attract income tax. The Colmans would be entitled (through B.I.) to the balance of these profits—but presumably surtax would be payable by the members of the Colman group. The scheme involved the introduction of B.P. B.P. was to acquire all the properties at book-value. B.P. was to dispose of the properties by way of trade. The profits earned by B.P. were to be paid as dividends to B.I. G.S. was to purchase all the B.I. shares owned by the Colman group. The dividends received by B.I. were in turn to be passed on as dividends to G.S. A further part of the scheme was that B.P. was to make very large profits in the year ending the 7th May, 1956, and was to cease to trade just before the 5th April, 1958, with the result that a great saving of the payment of income tax would be effected. Yet a further part of the scheme was that as a result of the dividend payments to be made by B.I. to G.S. the value of the shares in B.I. owned by G.S. would fall and G.S. would incur a loss and would in respect of that loss make a claim for repayment of income tax. Yet a further part of the scheme was that it should be designed to produce financial profit which irrespective of fiscal advantage could be described as commercial profit.
The Case Stated refers to and describes the numerous documents and the steps and stages of the complicated transactions by which these massive operations were mounted. There was an elaborate document recording the terms of sale of the B.I. shares. The agreement (made on the 23rd December, 1955) was between the various owners of the shares of the first part, the purchasers of the second part, and Stormgard Limited of the third part. For some reason G.S. were not the purchasers. A company—Willrose Financial Investments Ltd. (a wholly owned subsidiary of Stormgard Limited) were the purchasers. Though the agreement did not so recite they were agents for G.S. The agreement recited that B.I. was a company with a nominal capital of £20,000 (in £ shares) and that 11,202 shares had been issued and were paid up. The purchasers agreed to purchase those shares for the sum of £16,803 together with such further sum as should be ascertained in accordance with the provisions of the agreement. Completion was to take place seven days after the date of the agreement when the £16,803 was to be paid. The shares were, of course, of very high value. The balance of the price was to be computed as follows. The net assets of B.I., on a particular date, were to be ascertained. The date chosen was the 7th May, 1956. The significance of that date will be noted having regard to the plan for the operations of B.P. When the amount of the net assets was ascertained the excess over the sum of £16,803 already paid would be ascertained and the purchasers were to pay 95 per cent. of the amount of that excess. It is fair to suppose that this gave the purchasers a very confident assurance of profit even if their expectations of fiscal advantages did not mature. The net assets of B.I. (and consequently the price receivable by the vendors for their shares) would increase as a result of the planned method of operation of B.P.
The Sales Agreement contained a great many supplementary provisions which need not be detailed. Some of these related to the period of three years from the 7th May, 1956, and the purchasers undertook that until there was a final certificate in reference to the accounts of B.I. certain of the vendors should continue as directors of B.I.
A company called Granleigh Financial Holdings Ltd. (Granleigh) was introduced to take the place of the vendors and on the 4th May, 1956, a Quantification Agreement was entered into as a result of which it was agreed that the further sum payable for the shares should be quantified at the sum of £1,769,000. There were elaborate further provisions and the result of them was that the purchasers were to pay and the vendors were to receive 94 per cent. rather than 95 per cent. of the net assets value. Granleigh warranted that the aggregate assets (less liabilities) of B.I. and its subsidiaries as at the 7th May, 1956, would be not less than £1,900,000 and if the warranty was broken Granleigh...
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