Westminster Bank, Ltd v Riches
| Jurisdiction | England & Wales |
| Judgment Date | 21 March 1947 |
| Date | 21 March 1947 |
| Court | Chancery Division |
NO. 1375-HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
HOUSE OF LORDS-
Income Tax, Schedule D - Interest - Action on contract - Interest awarded under Section 3 of Law Reform (Miscellaneous Provisions) Act, 1934 - Whether "interest of money" within the meaning of the Income Tax Acts - Income Tax Act, 1918 (8 & 9 Geo. V, c. 40), Schedule D, Paragraph 1(b); Rule 21 of the Rules applicable to Schedules A, B, C, D and E.
In a previous action heard in 1943 brought by R against the W Bank as judicial trustees of X's estate, R claimed to be entitled under an agreement made in 1936 to a half share of the profits realised by X on the purchase and resale of certain shares, and the Court awarded R the sum of £36,255 as representing the balance due to him. After judgment application was made on R's behalf to the Court to exercise its discretion under Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, which empowers the Court, in any proceedings for the recovery of any debt or damages, to order "that there shall be included in the sum "for which judgment is given interest at such rate as it thinks fit on the whole or any "part of the debt or damages for the whole or any part of the period between the date "when the cause of action arose and the date of the judgment". In exercise of this discretion the Court awarded R the further sum of £10,028, representing interest on the £36,255 at 4 per cent. from 14th June, 1936, to 14th May, 1943. The material part of the formal judgment was: "It is adjudged that the Plaintiff "recover from the Defendant £36,255 with £10,028 interest making together the "sum of £46,283."
The present action was brought by the Bank for a declaration that the Bank had satisfied the judgment in the earlier action by paying R the amount adjudged to be due less £5,014, the latter sum representing Income Tax on the interest awarded. The interest in question was not payable wholly out of profits or gains brought into charge to Income Tax.
Held, that the £10,028 was "interest of money" within Schedule D and General Rule 21 of the Income Tax Act, 1918, and that Income Tax was accordingly deductible therefrom.
The case came before Evershed, J., in the Chancery Division on 7th, 8th, 9th and 12th March, 1945, when judgment was reserved. On 28th March, 1945, judgment was given in favour of the Bank, with costs.
Evershed, J.-The short point raised in this action is whether a sum of money awarded for interest pursuant to Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934, and included, as provided by the same Section, in the total sum for which judgment was pronounced in favour of the Defendant against the Plaintiffs in another action between the same parties, is or is not "interest of money" within the meaning of Schedule D to the Income Tax Act, 1918, and subject, as such, to the impost of tax. Although the power for a Judge or a jury in an action for debt to award "interest" has existed under Section 3 of the 1934 Act, or under the some what similar provisions of Section 28 of the Civil Procedure Act, 1833, for over a hundred years, it does not appear that the point now raised has ever before come before the Courts.
The material facts may be shortly stated. In the spring of the year 1936 one Ernest Bramwell Ridsdel made a large profit on the purchase and resale of certain shares, and pursuant to a previous agreement between Mr. Ridsdel and Mr. Riches, the present Defendant, the former was liable to pay to the latter one-half of such profit. Certain sums were paid by Mr. Ridsdel to Mr. Riches, who accepted them in full satisfaction of his claim on the faith of Mr. Ridsdel's representation that such sums constituted in fact one-half of the profit made.
After Mr. Ridsdel's death, Mr. Riches brought an action in the King's Bench Division of this Court against the present Plaintiffs, the Westminster Bank, Ltd., as judicial trustees of Mr. Ridsdel's estate, for an account of his half share of the true profit made on the transaction and for consequential relief. The Bank, by way of defence, relied upon Mr. Riches' acceptance of the sums paid to him in full settlement of his claim; to which defence Mr. Riches pleaded in reply that his acceptance had been induced by the fraudulent representation of Mr. Ridsdel that the sums so paid in fact constituted one-half of the full amount of profit.
At the trial of the action before Oliver, J., the learned Judge found in favour of Mr. Riches on his plea in reply, thereby disposing of the defence of settled account. Mr. Riches became, accordingly, entitled to judgment for the sum of £36,255, which was at the trial admitted to be the difference between one-half of the profit in fact made by Mr. Ridsdel and the aggregate of the sums previously paid by him to Mr. Riches.
The learned Counsel for Mr. Riches then invited Oliver, J., in exercise of his power under Section 3 of the Act of 1943, to award to Mr. Riches interest on the sum for which he had been held entitled to judgment from the date on which such sum ought to have been paid over until the date of the judgment-a period of approximately seven years; and after hearing argument on both sides Oliver, J., exercised his discretion in Mr. Riches' favour by awarding to him an additional sum of £10,028, being the equivalent of interest at 4 per cent. per annum from 14th June, 1936, to 14th May, 1943. The material part of the judgment in the action, dated 17th May, 1943, is in the following terms: "It is…adjudged that the Plaintiff recover "from the Defendant £36,255 with £10,028 interest making together the "sum of £46,283." I have seen the transcript of the shorthand note taken of the argument on Mr. Riches' application under the Act of 1934, and it is clear that Oliver, J., was mainly influenced to exercise his discretion in Mr. Riches' favour by the circumstances that, as he had found, Mr. Riches had for seven years been deprived of his due share of the profit made by Mr. Ridsdel by the latter's fraud. "This gentleman", said the learned Judge of the Defendant, "has been cheated"; and later, "The view I have taken "is that this very large sum of money has been kept away from Mr. Riches, "to whom it ought to have been paid."
The Bank has paid over to Mr. Riches the amount due under the judgment, with the important exception that, as regards the amount of £10,028 included for "interest", the Bank has paid to Mr. Riches £5,014, or one-half only, claiming that such sum of £10,028 is "interest of money" within the meaning of Paragraph 1(b) of Schedule D to the Income Tax Act, 1918, and that in the circumstances they were bound under Rule 21 of the All Schedules Rules to deduct Income Tax therefrom at the rate of 10s. in the £ and account therefor to the Crown.
Mr. Riches having by Oliver, J.'s Order been given leave to levy execution in default of payment and having threatened so to do unless the full sum of £10,028 (which he claimed and claims not to be liable to any deduction for Income Tax) were paid to him, the Bank have instituted the present action for the purpose of having determined by the Court the question whether or no the item of £10,028 included in Oliver, J.'s judgment is liable to Income Tax.
The Crown, being interested in the question raised, was invited to attend the hearing, and I have had the advantage of hearing argument on behalf of the Crown by the Attorney-General and Mr. Hills as amici curiæ.
One other matter of fact must be stated. In respect of the year 1943-44 (which, upon the footing that the sum of £10,028 is liable to the charge of Income Tax, is the material year) the profits or gains of the Bank, as judicial trustees of Mr. Ridsdel's estate, brought into charge amounted to approximately £10,000. In respect of the same year the annual payments of the Bank in the same capacity were over £21,000, inclusive of the amount of £10,028 here in question. It is therefore conceded that, if the sum of £10,028 is subject at all to the charge of Income Tax, the proper Rule applicable to its collection is Rule 21 of the All Schedules Rules. Rule 19 is, on the facts I have stated, excluded.
The Law Reform (Miscellaneous Provisions) Act, 1934, is by the material part of its title described as "An Act…as to the awarding of interest "in civil proceedings." Section 3 is in the following terms: "(1) In any "proceedings tried in any court of record for the recovery of any debt or "damages, the court may, if it thinks fit, order that there shall be included "in the sum for which judgment is given interest at such rate as it thinks "fit on the whole or any part of the debt or damages for the whole or "any part of the period between the date when the cause of action arose "and the date of the judgment". Then there follow provisos, the first prohibiting the "giving of interest upon interest", and the second excluding the application of the Section to any debt on which "interest is payable as "of right whether by virtue of any agreement or otherwise". Sub-section (2) repeals Sections 28 and 29 of the Civil Procedure Act, 1833.
If the matter rested merely upon the language of Section 3 of the Act of 1934 I confess I should feel no difficulty in concluding that the language used meant what it said, that "interest" meant interest and that the sum awarded, being interest on the principal sum of £36,255 at 4 per cent. per annum from June, 1936, to May, 1943, was interest of money within the meaning of Paragraph 1 (b) of Schedule D of the Income Tax Act and Rule 21 of the All Schedules Rules.
But it has been argued, and argued forcibly by Mr. Grant and Mr. Mustoe, that the matter is not so simple as at first appears, and that the sum awarded, being upon a proper analysis damages or in the nature of damages, is not interest of money so as to be subject to the charge of Income Tax. It therefore becomes necessary for me to examine this...
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