Westminster Bank Executor and Trustee Company (Channel Islands) Ltd v National Bank of Greece S.A.
| Jurisdiction | England & Wales |
| Judge | THE MASTER OF THE ROLLS,LORD JUSTICE SACHS,LORD JUSTICE KARMINSKI |
| Judgment Date | 25 June 1969 |
| Judgment citation (vLex) | [1969] EWCA Civ J0625-1 |
| Date | 25 June 1969 |
| Court | Court of Appeal (Civil Division) |
[1969] EWCA Civ J0625-1
The Master of The Rolls (Lord Denning)
Lord Justice Sachs and
Lord Justice Karminski.
In The Supreme Court of Judicature
Court of Appeal
Appeal by defendants from judgment of Mr. Justice Donaldson on 24th July 1968.
Mr. F. HEYWORTH TALBOT, Q.C. and Mr. JOHN SILBERRAD (instructed by Messrs. Stibbard Gibson & Co.) appeared on behalf of the Defendants Appellants.
Mr. DESMOND MILLER, Q. C., and Mr. JOHN CREESE (instructed by Messrs. Herbert Smith & Co.) appeared on behalf of the Respondents Plaintiffs.
Mr. J. P. WARNER (instructed by the Solicitor of Inland Revenue) appeared as amicus curiae on behalf of the Commissioners of Inland Revenue.
I do not propose in this case to go through the history of the litigation between the bondholders and the National Bank of Greece. Those who are interested can read it all in the judgments in Metliss v. National Bank of Greece, S. A., 1957 2 Q. B. page 33; 1958, A. C. page 509; Adams v. National Bank of Greece, S. A., 1961 A. C. 255; U. G. S. Finance Limited v. National Bank of Greece, S. A., 1964 1 Lloyds List, 446.
The only facts needed for this case are these:-
In 1927 the National Mortgage Bank of Greece (a company incorporated under Greek law) issued £2,000,000 sterling mortgage bonds, interest payable half-yearly. The indebtedness was secured on properties in Greece, Payment was to be made in sterling "at the offices of Hambros Bank Ltd., or Erlangers in London, England, or at the option of the holder at the National Bank of Greece in Athens, Greece, by cheque on London".
Each bond contained this guarantee by the guarantor- the National Bank of Greece - which was a Greek Company:-
"The National Bank of Greece hereby unconditionally guarantees the due payment of the principal moneys and interest and the due performance of all the conditions of this bond".
Each bond had coupons attached to it for interest every half-year.
Each coupon said:-
"This coupon is payable in sterling in London at the offices of Hambros Bank Ltd., or Erlangers Ltd., or in Athens at the offices of the National Bank of Greece by cheque on London. This coupon will be forfeited if not presented within six years from due date".
In 1941 the Germans captured Athens and occupied Greece, and in the result the principal debtors - the National Mortgage Bank of Greece - were left with nothing with which to pay the bonds. The properties on which the bonds were secured were taken over or in some way disappeared, so as to be no longer available. In 1949 the Government of Greece passed a lawsuspending all obligations on the bonds. It imposed a moratorium. It has continued ever since. It was, and is, illegal by Greek law for the principal debtors or the guarantors to pay either principal or interest. For all practical purposes, the liability of the principal debtors and guarantors has become extinguished in Greece and the securities have gone with it. In 1953 the Guarantors, the National Bank of Greece, were amalgamated with the National Bank of Athens so as to become one new company, the National Bank of Greece and Athens S.A. This new company was the universal successor of the original guarantors. It is a Greek company and carries on business in Greece. But it also has an office in England and carries on business here.
In 1955 an English bondholder sued the universal successor of the guarantors in England on the bonds, and succeeded: because its obligations were governed by English law. Four days later the Greek Government tried to save the universal successor from liability in England by passing a decree so as to exempt this guarantee from the succession. But this device did not succeed either. Another English bondholder sued the universal successor in England and succeeded, despite the new decree.
So it is now clearly established by decisions of the House of Lords that the National Bank of Greece, S. A. (as the universal successor of the original guarantors) is liable to pay the principal and interest on the bonds, such liability being enforceable by action in the English Courts and recoverable by execution against its assets in England.
Now we have a bondholder who is resident in the Channel Islands and seeks to recover interest in full from the universal successor of the guarantors. The bondholder has duly presented the coupons for payment of interest due between December 1957 and June 1960. The total was £100 14s. 0d. The defendants admitted their liability but claimed to deduct income tax atthe standard rate. It came to £39 0s 5d., and they sent to the bondholder a certificate of deduction. The bondholder refused to allow the deduction and has sued for the full amount. The Revenue authorities are much interested in the outcome. They applied to the trial Judge for their Counsel to address the Court as amicus curiae. The trial Judge declined, but we allowed it. Since that time in Vandervell's case we have, I think, set a precedent for joining the Revenue whenever the justice of the case so requires.
It was common ground before us that if the income comes within Case III of Schedule D, it is the duty of the defendants to deduct the tax under Section 169 or 170 of the Income Tax Act, 1952. But if it comes within Case IV, the plaintiffs as foreign residents are entitled to the income clear of tax: and if tax is deducted, to recover it back. So the root question is whether the income comes within Case III or Case IV of Schedule D. These cases are delimited in Section 123 of the Income Tax Act, 1952, in these words:-
"Tax under Schedule D. shall be charged under the following Schedules, respectively, that is tosay….….
CASE III: Tax in respect of
(a) any interest of money, yearly or otherwise, or any annuity, or other annual payment, whether such payment is payable within or out of the United Kingdom…………………………………….….
CASE IV: Tax in respect of income arising from securities out of the United Kingdom.
1. DO THE PAYMENTS COME WITHIN CASE III?
The first question argued before us was whether the sums payable by the universal succssor come within the description (in Case III) of "any interest of money, whether yearly or otherwise, or any annuity, or other annual payment". I must say that when the guarantors pay under the guarantee, I think they pay "interest". They pay the interest due under the bonds whichthey have guaranteed. But the bondholder says that they do not. He says that when the guarantors pay under their guarantee, the indebtedness changes its character. He agrees that when the principal debtors pay the interest, it is truly interest of money: but he says that when the guarantors pay under their guarantee, they pay the like amount, but it is not then a payment of interest. It is payment of a debt due under the guarantee. The bondholder relies for this proposition on Inland Revenue Commissioners v. Holder 1931, 2 K. B. page 81: 1932, A.C. page 624: and particularly on the observation of Lord Justice Romer in 1931, 2 K.B. at page 101:
"I must now consider whether the respondents can truly be said to have paid interest to the bank. In my opinion they cannot. What they paid to the Bank was the debt due from them under the guarantee. The debt became due, no doubt, because the company had failed to discharge its own indebtedness to the Rank, and part of that indebtedness consisted of interest. But the respondents owed no interest to the Bank".
I donot accept the bondholder's contention. Holder's case was a decision on the words in Section 36(1) of the 1918 Act: "……….the person by whom the interest is paid". It is not an authority on the words "interest of money" in Section 123, 169 and 170 of the 1952 Act. Rather than follow Lord Justice Romer, I would follow Lord Atkin, who said ( 1932 A.C. at page 628):
"There can be no doubt, I think that as the result of the sum of money paid by the guarantor, the interest due from the principal debitor was in fact paid, and that, if the principal debtor were sued, he could support a plea of payment".
So here the guarantors unconditionally guaranteed the due payment of the principal moneys and interest. When they pay under the guarantee, they pay the interest which the principal debtor should have paid. The indebtedness for interest is then discharged. So the payment is truly payment of "interest".
Even if I am wrong about this, I think that payment by the universal successor was an "annual payment". It fulfilledall the requisites laid down by Lord Justice Jenkins in the Commissioners of Inland Revenue v. Whitworth Park Coal company Limited Case, ( 1958 38 Tax Cases 531). But the defendants denied this. They said that it lacked the quality of "recurrence" because the guarantors did not have to make their payments annually. They had only to pay in case the principal debtors defaulted: and then only to the amount left unpaid. But this argument cannot stand in the face of Moss Empire v. Inland Revenue Commissioners, 1937 A.C. page 785. Lord Macmillan said at page 793: "It was argued for the appellants that the payments were not annual payments, inasmuch as they were casual, independent, not necessarily recurrent, and, therefore, subject to a contingency. This argument commended itself to Lord Moncreiff, but I am unable to accept it………….…. The fact that the payments were contingent and variable in amount does not affect the character of the payments as annual payments".
So here, although the payments by the guarantors were contingent and variable, nevertheless, they were annual payments.
In my opinion, therefore, the payments by the universal successor come within the description "interest of money…… or other...
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