COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
Jonathan Parker J
Strand, London, WC2A 2LL
Friday 26 January 2001
B e f o r e :
LADY JUSTICE ARDEN
SIR MARTIN NOURSE
| ROGER STONE
(HM Inspector of Taxes)
|- and -
|(1) RICHARD HENRY HITCH
(2) THOMAS HENRY HITCH
(3) IAN GEOFFREY HANDY
Smith Bernal Reporting Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr Leolin Price QC, Ms Penelope Reed and Mr John Smart (instructed by Messrs Gregory, Rowcliffe & Milners appeared for the Respondent)
Crown Copyright ©
LADY JUSTICE ARDEN
'As regards the contention of the plaintiff that the transactions between himself, Auto-Finance, Ltd. and the defendants were a "sham", it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the "sham" which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. One thing I think, however, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v. Maclure ((1882) 21 Ch D 309); Stoneleigh Finance, Ltd. v. Phillips ( 1 All ER 513, 2 QB 537), that for acts or documents to be a "sham", with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.'
The issues arising on this appeal
Was the Special Commissioners' finding that the 1984 Agreement was a sham such as to be capable of being set aside on the ground of unreasonableness?
Did the Special Commissioners make any finding as to whether or not the 1984 Deed was a sham?
As a matter of law, can an instrument which in part fulfils the requirements of a sham for the purposes of the Snook test be held, as respects such part, to be a sham notwithstanding that the balance of the instrument is not shown to be a sham?
If the Special Commissioners were (a) not in error on finding that the 1984 Agreement was a sham and (b) in error in not making a finding as to whether the 1984 Deed was a sham, is a finding that the 1984 Deed was (so far as it was an internal document) a sham in fact the only finding that they could have properly made on the question of sham as regards that Deed?
The factual background
(i) Negotiations with British Car Auctions
(ii) Start of Mr Taylor's involvement
(iii) Appearance of Crest
(iv) The 1984 Agreement
(v) Some of the detailed provisions of the 1984 Agreement
(vi) Sealing and dating of the 1984 Agreement
(vii) Mr Taylor visits the Hitch family
"No satisfactory explanation has been given to us for Mr Taylor's visit to the taxpayers on 16 April 1984 before his negotiations with Crest. Mr Taylor's base at that time was in Cheshire and his meeting with Crest was in Surrey. A visit to the taxpayers in Wiltshire necessitated a considerable detour and the only explanation which has been offered to us was that he wished to show the taxpayers the completed sealed agreement. We believe that it is more likely that Mr Taylor wished to agree with the taxpayers the terms which he should try to negotiate with Crest. That belief is supported by the fact that Mr Taylor telephoned Henry Hitch on the 17 April to report the success of his negotiations. If the 1984 agreement was genuine the taxpayers could have little interest in the outcome of Mr Taylor's negotiations. Henry Hitch's evidence was that Mr Taylor had to secure a better deal from Crest than that on offer from British Car Auctions. Again if the 1984 agreement was genuine there was no need for British Car Auctions' terms to be bettered, insofar as the taxpayers were concerned."
(viii) Negotiations with Crest
(ix) Grant of an annuity by Conteglade to Monarch and assignment of the annuity by Monarch to Munificence
(x) The deed dated 22 June 1984
(xi) Enlargement of Crest's leasehold interest
(xii) Mr Edwards' fee note
(xiii) Ascertainment of rent payable to the Hitch family
(xiv) Date for payment of rent brought forward
(xv) Sale of parts of the green land
(xvi) Mr Peel's evidence
(xvii) Benefits received by Mr Hitch's children and others
Conclusions of the Special Commissioners
A. The taxpayers wanted to sell Abbey Farm and had no wish to retain it.
B. Mr Hitch's evidence made it clear that he regarded the decisions to sell Beech Cottages and to pay Mr Taylor's fees as decisions made by the Hitch family.
C. Mr Taylor's inaccuracies, including the inaccuracies in the narrative describing Mr Edwards' services and in answers which he advised Mr Hitch to give to the Revenue.
D. The 1984 Agreement contained numerous errors and blanks and did not incorporate any standard conditions of sale.
E. Various aspects of the 1984 Agreement had not been performed as provided in the 1984 Agreement, namely: the lease to Conteglade was not completed on the following day; Conteglade had not served notice nominating Munificence as the assignee of the benefit of the 1984 Agreement, and there had been no valuation of Abbey Farm with planning permission (or agreement as to such value) as required by the 1984 Agreement for the purpose of fixing the annuity under the sixth schedule.
F. The fact that (as the Special Commissioners inferred) Mr Taylor visited the Hitch family on 16 April 1984 for the purpose of obtaining instructions as to the terms he was to negotiate with Crest. The Special Commissioners took the view that if the 1984 Agreement was genuine the taxpayers had little interest in the outcome of Mr Taylor's negotiations.
G. No satisfactory reason had been given for the advancement of the date for the payment of rent to the Hitch family.
H. The fact that the lease provided for the rent to be paid as and when Monarch required rather than on regular dates.
I. Mr Taylor received a 10% fee on moneys produced by dealings with Abbey Farm lands and this was consistent with his acting as an agent and banker rather than as a family solicitor. The Special Commissioners said: "We also find, despite Mr Taylor's equivocation on the point, that he receives 10% of moneys produced by dealings with Abbey Farm lands. If he was really acting only as the family's solicitor and not as their agent and banker he would have submitted fee accounts to them for professional charges. That did not happen." In my judgment, notwithstanding Mr Price's submissions to the contrary, that finding is a finding that Mr Taylor was acting as agent and banker for the Hitch family, and the same would apply to any of the companies which he managed and controlled, there being no contrary evidence to indicate that they were acting independently of him.
J. There was no explanation for the taxpayers agreeing to release the Beeches Cottages or the remainder of the green land from the liability to rent for nil consideration.
K. The explanation that in providing houses to Mr Hitch's daughters Mr Taylor's companies were making charitable donations to the poor and needy could not be accepted as the true explanation.
L. The investment by Mr Taylor's companies in the skiing business, and acquisition of the second chalet, at Mr Hitch's request, was consistent with the existence of some wider financial arrangement between the Hitch family and Mr Taylor. The Special Commissioners said: "We are asked [sc. by the taxpayers] to accept that Henry Hitch has only to ask for financial assistance, for whatever reason, and such request is granted. Mr Sutcliffe testified to Mr Taylor's reputation as a very tough negotiator: (Day 11, page 23, line 28). Bearing this in mind we do not accept that a mere request for funds would result in the immediate production of funds without there being a wider financial arrangement such as is suggested by the Crown."
"(2) [The Hitch family] have agreed prior to the date herof to demise the land shown edged red and green on the plan annexed to Conteglade
(3) Conteglade has agreed prior to the date hereof to procure the demise of the land edged red on the said plan to [Munificence]"
Judgment of Jonathan Parker J
"The Revenue submits that by necessary implication (that is to say, as a necessary consequence of the findings that the 1984 Agreement and the 17 April Internal Agreement were shams) clause 2 of the 1984 Deed and the Schedules referred to in that clause must also have been found by the Special Commissioners to be shams. Mr Vallance QC submitted that the omission of any reference in the Decision to clause 2 of the 1984 Deed as being also a sham must have been accidental. He even went so far as to submit that what the Special Commissioners (impliedly) found was not merely that clause 2 of the 1984 Deed was a sham but that the true arrangement between the Hitch family and Mr Taylor was and is as submitted by the Revenue to the Special Commissioners, viz. that Mr Taylor (both personally and via his companies) has at all times acted as agent or banker for the Hitch family, and that Mr Taylor (or his companies) hold the proceeds of the realisation of the farm land on (in effect) a bare trust for the Hitch family.
As to the submissions that there is to be implied into the Decision a finding that clause 2 of the 1984 Deed was a sham, in my judgment the mere fact that the Special Commissioners expressly referred only to two of the recitals in the 1984 Deed as being "shams" is enough in itself to dispose of the submission that they impliedly intended to refer in the same way to some other part or parts of the 1984 Deed. In any event I would be very loath to attribute to any tribunal (especially one consisting of Special Commissioners as experienced as those who heard this case), by a process of so-called implication, a finding which it has not chosen to express in terms. It is also perhaps relevant to note that although the Revenue had the opportunity, in the normal course, to suggest revisions or additions to the case stated, it did not raise this point at that stage.
I accordingly proceed on the footing that the only parts of the 1984 Deed which the Special Commissioners found to be "shams" are the two recitals."
Submissions by the Revenue
The benefits to the Hitch family include the provision of the three houses for Mr Hitch's daughters, the investment in the skiing business, acquisition of a second chalet at Tignes and the payment of Mr Edwards' fees. There may be other benefits of which the Revenue does not know.
Submissions for the taxpayers
Issue 1 - Was the Special Commissioners' finding that the 1984 Agreement was a sham such as to be capable of being set aside on the ground of unreasonableness?
"As I see it, the reason why the courts do not interfere with commissioners' findings or determinations when they really do involve nothing but questions of fact is not any supposed advantage in the commissioners of greater experience in matters of business, or any other matters. The reason is simply that, by the system that has been set up, the commissioners are the first tribunal to try an appeal and, in the interests of the efficient administration of justice, their decisions can only be upset on appeal if they have been positively wrong in law. The court is not a second opinion, where there is reasonable ground for the first. But there is no reason to make a mystery about the subjects that commissioners deal with, or to invite the courts to impose any exceptional restraints on themselves because they are dealing with cases that arise out of facts found by commissioners. Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and, if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado."
Issue 2 - Did the Special Commissioners make any finding as to whether or not the 1984 Deed was a sham?
Issue 3 - As a matter of law, can an instrument which is in part fulfils the requirements of a sham for the purposes of the Snook test be held, as respects such part, to be a sham notwithstanding that the balance of the instrument is not shown to be a sham?
Issue 4 - If the Special Commissioners were (a) not in error on finding that the 1984 Agreement was a sham and (b) in error in not making a finding as to whether the 1984 Deed was a sham, is a finding that the 1984 deed was (so far as it was an internal document) a sham in fact the only finding that they could have properly made on the question of sham as regards that Deed?
SIR MARTIN NOURSE:
LORD JUSTICE KAY: