The Gazette 1980

GAZETTE

JUNE 1980

execution of the instrument" in S. 19(2) to define the

precise moment of time at which the required degree of

association must be present and has rephrased the United

Kingdom legislation, which is drafted in the present tense,

in the past tense. It submitted that these departures from

the United Kingdom legislation are in no way material.

The bad news

Now for the bad news:—

The former legislation included a requirement whereby

it had to be further established, in addition to the

appropriate degree of association between the transferor

and transferee, that the transfer or conveyance had not

taken place pursuant to an "arrangement" whereby either:

(a) The "consideration" was to be "provided" "directly

or indirectly" by a "person" not associated to the

required degree with either the transferor or the

transferee (i.e. to the extent that either the transferor

or the transferee held not less than 90 per cent of the

issued share capital of the "person" providing the

consideration, or vice versa), or

(b) A "beneficial interest" in the subject matter of the

conveyance or transfer had been "previously

conveyed or transferred" by a person not associated

as mentioned in (a) above.

The expression "arrangement" (a favourite with the

Parliamentary draftsman) is "apt to describe something

less than a binding contract or agreement, something in the

nature of an understanding between two or more persons

— a plan arranged between them which may not be

enforceable at law". It comprehends "not only the initial

plan but also all the transactions by which it is carried into

effect":

Newton vs. C. ofT.{

1958) A.C. 450,465 per Lord

Denning.

The purpose of this additional requirement, which was

based on the former S.50(l) Finance Act 1938 (U.K.) in

the United Kingdom legislation (with the significant

omission of the words "for the transfer or conveyance"

after the word "consideration" in (a) above), was to

counter a device known as the 'dummy bridge company'

referred to by Lord Denning in

Escoigne Properties Ltd.

vs. IRC{

1958) A.C. 549,567:—

"They took advantage of section 42 by forming a

small company which was a puppet in their hands. It

was done in this way: If company A wished to sell

property to company B for £100,000 and avoid

stamp duty, company A would form a small 'bridge'

company of 100 £1 shares in which it held all the

shares. Company A would convey the property to

the 'bridge' company for £100,000 but the price

would be left owing. By reason of section 42 that

conveyance would be exempt from stamp duty. Then

company A would sell the 100 shares in the 'bridge'

company to company B for £ 100: and stamp duty of

a trifling amount would be paid on that transfer. The

'bridge' company would then convey the property to

company B for £100,000 on the terms that the

£100,000 should be paid direct to company A. By

reason of section 42 no stamp duty would be pay-

able on that conveyance. So the sale from company

A to company B was completed without paying any

stamp duty on the £100,000. The success of that

device was not due to any defect in section 42. It was

due to the cleverness of the persons who managed to

bring the conveyances within section 42 beyond any

doubt.

The object of section 50 was to put a stop to that

device: and it succeeded. If anyone were to resort to it

after 1938, both conveyances would be liable to

stamp duty. The first conveyance would be caught

by subsection (1) (a). The second by subsection

dXb)."

(The references to section 42, and to subsections (lXa)

and UXb) above must of course be read as references to

S.19 Finance Act 1952, as amended, and to (a) and (b)

referred to above).

Both (a) and (b) above have been restained in S. 19(3) in

the new legislation, which is modelled on S.27(3) Finance

Act 1967 (U.K.).

The words "or any part of the con-

sideration for the conveyance or transfer" have been

inserted after "consideration" in the new legislation and

the words "or received" after "provided" thus making the

new legislation identical in this respect with the current

United Kingdom legislation.

Escoigne Properties Ltd. vs. IRC(

1958) A.C. 549 is it-

self an example of the operation of (b) above. The facts

were simple. By an agreement for sale made in 1950 one

Samuel Cohen agreed to sell certain land to Samuel Cohen

(Properties) Ltd. ("the old company") in consideration of

the issue to him of 9,998 shares of £1 in the capital of the

old company. Subsequently a conveyance was executed

whereby Samuel Cohen's executors, by the direction of the

old company as beneficial owners, conveyed the land to

Escoigne Properties Ltd. in which the old company held

not less than 90 per cent of the issued share capital. The

Revenue contended that relief under the United Kingdom

equivalent to the former legislation was precluded by (b)

above. The appellant company replied that the beneficial

interest in the land had not been "previously conveyed or

transferred" to the old company by the late Samuel Cohen,

having vested in the old company by operation of law on

the execution of the agreement of sale.

The House of Lords was in no mood to listen to such a

technicality. " . . . when Cohen entered into the 1950

contract and received the consideration therefor, and

beneficial interest in the property accordingly passed to the

old company, it was his act by which it passed, and it

would be too narrow a construction to say that neverthe-

less it was not conveyed or transferred by him": 560 per

Viscount Simonds.

The decision was followed by Danckwerts J. in

Littlewoods Mail Order Stores Ltd. vs. IRC (

1961) Ch.

210, the facts of which, so far as relevant, were as follows.

A friendly society, the Independent Society of Oddfellows

("Oddfellows"), had on 8th December 1958 granted a

lease of Jubilee House, in Oxford Street, London, to the

appellant company ("Littlewoods") for a term of 22 years

and 10 days at a rent of £6 p.a. On 9th December 1958

Littlewoods assigned this lease to a wholly owned

subsidiary. Fork Manufacturing Co. Ltd. ("Fork").

Danckwerts J. upheld the Revenue's contention that the

assignment did not qualify for relief under the United

Kingdom equivalent to the former legislation on the ground

that the assignment failed to satisfy (b) above' Odd

fellows (which was not associated with either Littlewoods