Unit Construction Company Ltd v Bullock (Inspector of Taxes)

JurisdictionEngland & Wales
CourtCourt of Appeal
JudgeLORD JUSTICE JENKINS,LORD JUSTICE ROMER
Judgment Date12 February 1959
Judgment citation (vLex)[1959] EWCA Civ J0212-1
Date12 February 1959

[1959] EWCA Civ J0212-1

In The Supreme Court of Judicature

Court of Appeal

Before:

Lord Justice Jenkins

Lord Justice Romer

Lord Justice Pearce

Between:
Vernon William Bullock (H. M. Inspector of Taxes)
Appellant
and
The Unit Construction Company, Limited
Respondents

(Appeal of the Respondents, The Unit Construction Company, Limited)

Mr ROY BOKNEMAN, Q. C., Mr ALAN S. ORR and Mr J. R. PHILLIPS (instructed by The Solicitor of Inland Revenue, Somerset House, Strand, W. C. 2) appeared as Counsel on behalf of the Appellants.

Mr HEYWORTH TALBOT, Q. C. and MR J. CREESE (instructed by Messrs. Herbert Smith &, Co., 62, London Wall, London, E. C. 2) appeared as Counsel on behalf of the Respondents.

LORD JUSTICE JENKINS
1

: The judgment which is about to be read by Lord Justice Romer is the judgment of the Court in this case.

LORD JUSTICE ROMER
2

The question on this appeal is whether three wholly owned subsidiary companies of Alfred Booth & Co., Ltd., namely Booth & Co. (Africa) Ltd., Booth & Co., Ltd. and Bulleys Tanneries I, td. (hereinafter collectively referred to as "the Subsidiaries"), were in 1952 and 1953 resident in the United Kingdom for the purposes of Section 20 of the Finance Act, 1953. The Special Commissioners held that they were, but their decision was reversed by Mr Justice Wynn-Parry on the ground that it was wrong in law. The Unit Construction Co. Ltd., who concerned to uphold the decision of the Special Commissioners, have appealed to this Court against the learned judge's order.

3

It was admitted on behalf of the Unit Construction Co. Ltd. before the Commissioners that the Subsidiaries were at all material times resident in East Africa. We think it is quite clear that this admission was rightly made and as every possible step was taken, when the Subsidiaries were incorporated in 1948 and 1949, to ensure bey and possibility of doubt that their residence should be regarded as being in East Africa, and as their Articles of Association were never altered, it would have been virtually impossible for the Unit Company to have contended to the contrary. As the learned judge observed in his judgment: "Not only were all those companies registered in East Africa but they carried on business there; the members of the respective Boards were resident there; and the Articles of Association provided in each case that the Board Meetings and General Meetings of the company concerned could be held anywhere except in the United Kingdom."

4

The fact that in 1952 and 1953 the Subsidiaries were resident in East Africa is naturally somewhat embarrassing to the contention that in those years they were resident in the United Kingdom. It is not, however, in any way destructive of that contention because ever since the decision of the House of Lords in The Swedish Central Railway Company v. Thompson (9 Tax Cases, page 342) it has been well established that, for income tax purposes, a company can simultaneously have two "residences" in different countries. The view of the Special Commissioners that during the relevant period the Subsidiaries could properly be regarded as resident in the United Kingdom as well as in East Africa was based upon their finding that each of these companies was controlled and managed by the Parent Company, Alfred Booth & Co. Ltd., which is incorporated and resident in England, "We find", the Commissioners say in the Stated Case, "that the position was at the material times that the Boards of Directors of the African Subsidiaries (who ore the people one would have expected to find exercising control and management) were standing aside in all matters of real importance and in many matters of minor importance affecting the central management and control, and 7/e find that the real control and management was being exercised by the Board of Directors of Alfred Booth & Co. Ltd. in London.… We find the controlling power and authority, which according be the constitution of each of the African Subsidiaries is vested in its. Board of Directors, is actually exercised, to a very substantial degree, by the Board of Alfred Booth & Co. Ltd. in London." The reason. for these findings, and the facts on which they are based, are stated with -great care and clarity in the Case, and there is no doubt but that the findings are fully warranted. The only question before the learned judge, as it is before us, was whether those findings justified the Commissioners conclusion in law that the Subsidiaries had a residence in the United Kingdom. Having found as a fact that the controlling power and authority over the Subsidiaries was actually exercised by the Parent Company in London the Commissioners held, on their understanding of the authorities, that "it is not necessary to go further and enquire whether such power and authority is exorcised under the constitution of the Company concerned by the officers to whom such constitution gives it." it is upon that issue of law that the learned judge differed from the Special Commissioners and it is that issue which has been brought to this Court for decision.

5

The question, in its briefest form, may be illustrated and posed as follows:- Company resident in one country, is de facto, but not de. jure, managed and controlled by Company B, which is resident in another. Is a dual residence to be attributed to Company A by reason of this de facto management and control? The Special Commissioners in effect answered this question in the affirmative. the learned judge came to a different conclusion and he expressed it in a judgment with which we so wholly agree that we would be content to adopt it as our own, both in its reasoning and in its language. Out of deference, however, to the arguments which were addressed to us by Mr Heyworth Talbot and Mr Creese for the Appellants, we will state as shortly as possible in our own words the reasons why, as it seems to us, the appeal must fail.

6

Mr Talbot submitted in support of his case the following three propositions:-

7

1. The powers of shareholders as such do not invest them with the central management and control of the Company's business.

8

2. But where a Company is a wholly owned subsidiary the powers of the Parent Company with regard to the dismissal of directors and the provision of finance upon which the conduct of the subsidiaries' business may depend put the Parent Company in a position to assume and exercise de facto the management and control of the Company's business.

9

3. Whether or not the Parent Company assumes an exercise de facto of the management and control of the subsidiary's business is a question of fact.

10

For our part we are prepared to accept each of these propositions as correct. The first of them is clearly established by the decision of this Court in Stanley v. The Gramophone & Typewriter Ltd. (5 Tax Cases, page 358). Mr Justice Wynn-Parry referred to this case in his judgment and cited extracts from the judgments of Sir Herbert Cozens-Hardy, Master of the Rolls, and of Lord Justice Buckley. We need not repeat them, but would refer only to a few passages from the judgment of Lord Justice Fletcher Moulton, which are perhaps of equal interest and relevance.

11

"This legal proposition", said the Lord Justice at page 376 of the report, "that the legal corporator cannot be held to be wholly or partly carrying on the business of the Corporation is not weakened by the fact that the extent of his interest in it entitles him to exercise a greater or less amount of control over the manner in which that business is carried on. Such control is inseparable from his position as a corporator and is a wholly different thing both in fact and in law from carrying on the business himself. The directors and employees of the Corporation are not his agents and he has no power of giving directions to them which they must obey.… (The Shareholders') course is to obtain the requisite majority to remove the directors and put persons in their place who agree to their policy. This shows that the control of individual corporators is something wholly different from the management of the business itself."

12

The Lord Justice then proceeded to examine what he described as "a more difficult question", namely, the position which arises when one individual owns the whole of the shares in a corporation - which is permissible under German law, or was at all events permissible when Stanley's case was decided. He said, at page 377 of the Report:-

13

"Treating it as an abstract proposition of law, I am of opinion. that the acquisition of the whole of the shares of a...

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