Whittles v Uniholdings Ltd (No. 2)
| Jurisdiction | England & Wales |
| Judgment Date | 21 October 1993 |
| Date | 21 October 1993 |
| Court | Chancery Division |
Chancery Division.
Jonathan Parker J.
Andrew Thornhill QC and Giles Goodfellow (instructed by Herbert Smith) for the company.
Launcelot Henderson (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
Consolidated Goldfields plc v IR Commrs TAX[1990] BTC 263
Craven (HMIT) v White TAX[1989] BTC 268
Ensign Tankers (Leasing) Ltd v Stokes (HMIT) TAX[1992] BTC 110
Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300
This was an application by the taxpayer company to remit a case stated to a special commissioner to clarify the facts found.
On 14 May 1982 the company borrowed the equivalent of some £14m in US dollars (US$25.5m) at the rate then prevailing from a bank, repayable on 15 March 1983. On the same day the company purchased the same amount, $25.5m, from the same bank for completion on 15 March 1983 at a price payable on that date of slightly under £14m. The purpose of the second transaction was to eliminate the risk of a currency loss when the loan became repayable.
In the event the value of sterling fell between May 1982 and March 1983. Some £17.5m was required to repay the loan while the US dollars agreed to be purchased under the forward contract were worth a similar amount. The loss on the dollar borrowing was, as intended, cancelled by the gain on the forward contract.
Meanwhile, in December 1982 the company was able to obtain an interest-free loan of $7m, repayable on the same day as the bank loan, from its parent and repaid that amount to the bank leaving $18.5m of the bank loan outstanding.
The company never received the dollars under the forward contract. Instead the forward contract was modified orally so that, by arrangement between the bank, the company, and its parent, the company's right to receive the $25m purchased under the forward contract was replaced by the right to have extinguished an equivalent amount of the dollar loans.
The Revenue claimed that the company had realised a chargeable gain of the difference between the price paid for the dollars under the forward contract in May 1982 (under £14m) and a disposal price of £17.5m.
At a hearing before a special commissioner, the company's primary submission was that the only gain on the two transactions was a small commercial profit represented by the difference between the sterling value of the dollar loan on 14 May 1982 and the price payable for the same amount of dollars under the forward contract. That contention was based on the proposition that the dollar loan and the forward contract represented a single composite transaction to which the principle enunciated by the House of Lords in W T Ramsay Ltd v IR CommrsELR[1982] AC 300 applied. The commissioner held that although the loan agreement and the forward contract were each "part and parcel of a composite transaction", nevertheless the Ramsay principle did not apply to limit the gain as the company contended. However, the appeal was allowed on the basis that the gain realised under the forward contract was a gain on the disposal of a debt which was not a debt on a security for the purposes of Capital Gains Tax Act 1979 section 134 subsec-or-para (1)sec. 134(1) of the Capital Gains Tax Act 1979.
The commissioner had found that when the company obtained an interest-free loan from its parent, it repaid the bank loan in part but "decided to leave" the forward contract in place (in order to pay off both loans on the due date). That appeared to be inconsistent with the uncontradicted evidence of the chief executive of the UK group of which the company was a member that the company could not have dealt with the forward loan in any way other than to cover the liability under the first loan, at least not without renegotiating it with the bank.
The Revenue appealed against the commissioner's decision and the company, intending to advance the Ramsay argument before the court, sought an order that the case stated be remitted to the commissioner for further findings of fact and amendment in relation to his findings on the Ramsay point. The company contended that the commissioner's findings were unclear and inconsistent. In view of the evidence that the company regarded itself bound to deal with the forward contract only in connection with the loan, the commissioner must have intended to find that there was a pre-ordained composite transaction although he had also indicated that there was no such transaction.
The Revenue opposed the application contending that two of the necessary conditions for remitting a case to the commissioners were not satisfied. First, the further findings sought by the company would be inconsistent with a particular finding in the commissioner's decision that the company "decided to leave" the forward contract in place on obtaining the loan from its parent. That suggested that the company had a choice in the matter which was inconsistent with an arrangement or understanding amounting to a pre-ordained composite transaction. The Revenue further contended the Ramsay argument advanced by the company was not tenable because that principle applied only to tax avoidance transactions.
Held, remitting the case to the commissioner:
1. Since the parties were completely at odds as to the meaning of the expression "composite transaction" in the decision, and given the widely different interpretations placed on the commissioner's decision, it was appropriate to remit the case so that the factual basis for his conclusion could be established.
2. The application would not be refused on the ground that the application of the Ramsay principle was limited to tax avoidance cases. A much closer examination of the Ramsay case and the other authorities would be necessary to reach a conclusion one way or the other.
Jonathan Parker J: On 12 March 1992 Mr D C Potter, QC sitting as sole special commissioner, gave his decision on an appeal by Uniholdings Limited ("the company") against an assessment to corporation tax on chargeable gains for the calendar year 1983. He allowed the appeal in principle and adjourned it for figures to be agreed. In the event the figures were agreed and the assessment reduced to nil.
On 15 May 1992 the Revenue expressed dissatisfaction and requested the commissioner to state a case for the opinion of the High Court. In due course the commissioner provided a draft case to the parties, and Messrs Herbert Smith, the company's solicitors, invited him to make certain amendments to the draft case by including certain additional findings of fact which the company considered ought to be included in the case so as to permit a proper determination of all the contentions intended to be advanced on the appeal on behalf of the company. The Revenue agreed to some, but not all, of the proposed amendments.
In the signed case, the commissioner included the amendments which had been agreed between the parties but refused to make any further amendments. The commissioner gave no reasons for such refusal.
Now, by the amended notice of motion which is before me, the company seeks an order that the case be remitted to the commissioner for further findings of fact and for amendment. In the event, the parties have come to an agreement in relation to all except one of the matters in respect of which the company seeks such an order.
Mr Andrew Thornhill, QC appears on this motion with Mr Giles Goodfellow for the company, and Mr Lancelot Henderson appears for the Crown.
The facts which give rise to the company's appeal may be very briefly summarised as follows.
The company required to make a payment of £14,056 on 14 May 1982. To enable it to make that payment, it borrowed from a bank, on that day, at interest the US dollar equivalent of that sum (amounting to $25,625,493.60, at a spot rate of some $1.82 to the pound) repayable on 15 March 1983. It thereupon exchanged the dollars for sterling, and applied the sterling proceeds (amounting to £14,056) in making the required payment.
At the same time it agreed with the bank for the purchase from the bank of the equivalent number of US$ (that is to say $25,625,493.60) on 15 March 1983 for the price of £13,911,770.20 (representing a forward rate of some $1.84 to the pound). The effect of this forward contract was to provide a hedge against changes in the exchange rate between the US$ and the pound over the period of the loan.
In December 1982 the company borrowed $7m from its parent company, repayable on the same day as the dollar loan from the bank, that is to say 15 March 1993. It immediately applied that sum in part repayment of the dollar loan from the bank. It took no action at that stage in relation to the forward contract, which accordingly continued to subsist in unaltered terms. From that point, therefore, the company owed $7m to its parent company and $18,625,493.60 to the bank, and the company continued to enjoy the benefit of the forward contract.
Between 14 May 1982 and 15 March 1983 the pound depreciated substantially against the dollar, with the result that on 15 March 1983 the sterling equivalent of the dollars purchased under the forward contract was £17,006,565 (at a spot rate of some $1.50 to the pound). This was, of course, balanced by a corresponding increase in the sterling equivalent of the outstanding dollar loans (that is to say both the original dollar loan from the bank and the subsequent loan of $7m from the company's parent company).
In the event (according to the findings of the commissioner) the company never received the dollars under the forward contract. Instead, on or about 12 March 1983, the forward contract was modified orally so that, by arrangement between the bank, the company and its parent, the company's right to receive the $25,625,493.60 purchased under the forward contract was replaced by the right to have extinguished an equivalent amount of the dollar loans. In the event...
To continue reading
Request your trial
-
Whittles (Inspector of Taxes) v Uniholdings Ltd (No 3)
...BTC 56 Marren (HMIT) v Ingles WLR[1980] 1 WLR 983 Ramsay (WT) Ltd v IR Commrs ELR[1982] AC 300 Whittles (HMIT) v Uniholdings Ltd TAX[1993] BTC 388 Whittles (HMIT) v Uniholdings Ltd (No. 2) TAX[1993] BTC 460 Corporation tax - Chargeable gains - Forward contract to purchase dollars to protect......
-
Whittles (Inspector of Taxes) v Uniholdings Ltd (No 3)
...(WT) Ltd v IR Commrs ELR[1982] AC 300 Rose and Frank Co v J R Crompton & Bros Ltd ELR[1923] 2 KB 261 Whittles (HMIT) v Uniholdings Ltd TAX[1993] BTC 388 Whittles (HMIT) v Uniholdings Ltd (No. 2) TAX[1993] BTC 460 The following cases were referred to in the judgment on costs: Department of H......
-
Able (UK) Holdings Ltd v Skelton (HMIT)
...Johnson v Scott (HMIT)TAX (1978) 52 TC 383 Tersons v Stevenage Development CorpELR [1965] 1 QB 37 Whittles (HMIT) v Uniholdings LtdTAX [1993] BTC 388 Income tax - Compensation - Income or capital - Appeal - Case stated - General commissioners dismissing appeal against notice of amendment - ......
- Whittles v Uniholdings Ltd (No. 2)