United Kingdom House of Lords Decisions

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Cite as: [1905] UKHL 576, 43 ScotLR 576

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SCOTTISH_SLR_House_of_Lords

Page: 576↓

House of Lords.

(On Appeal from the Court of Appeal in England.)

Friday, December 15 1905.

(Before the Lord Chancellor (Halsbury), Lords Robertson and Lindley.)

43 SLR 576

Underground Electric Railway Company of London

v.

Commissioners of Inland Revenue.

Subject_Revenue — Stamp Duty — Conveyance on Sale — Ad valorem Duty — Periodical Payment — Payment Contingent on Profits — Stamp Act 1891 (54 and 55 Vict. c. 39), secs. 56 and 57.
Facts:

Sec. 56 (2) of the Stamp Act 1891 provides as follows:—“Where the consideration, or any part of the consideration, for a conveyance on sale consists of money payable periodically for a definite period exceeding twenty years or in perpetuity, or for any indefinite period not terminable with life, the conveyance is to be charged in respect of that consideration with ad valorem duty on the total amount which will or may, according to the terms of sale, be payable during the period of twenty years next after the day of the date of the instrument.”

By an agreement by which a company's business was sold it was provided that part of the consideration payable to the sellers was to be the annual payment out of profits of a sum equal to a dividend of 3 per cent. on the amount for the time being paid up on such of the original ordinary share capital in the new company as should for the time being have been issued; such payment was however postponed to the payment of a cumulative annual dividend of 5 per cent. to the ordinary shareholders. At the date of the agreement the whole ordinary share capital had been issued, but only about a quarter of it paid up.

Held that under sec. 56 ad valorem duty fell to be paid on a sum representing 3 per cent. on the amount of ordinary share capital paid up at the time of the agreement (that being “money payable periodically … in perpetuity, or for an indefinite period …”) multiplied by twenty, and that it was immaterial that the amount payable periodically was subject to the contingency of there being sufficient funds to pay the 5 per cent. dividend.

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Per Lord Lindley—“There is nothing in sec. 57 which either cuts down or excludes sec. 56.”

Headnote:

Appeal from a judgment of the Court of Appeal ( Collins, M.R., Stirling and Mathews, L.JJ.), who had reversed a judgment of Channell, J., upon a case stated by the Commissioners of Inland Revenue.

Sec. 56 (2) of the Stamp Act 1891 is quoted in the rubric.

Sec. 57 provides—“Where any property is conveyed to any person in consideration, wholly or in part, of any debt due to him, or subject either certainly or contingently to the payment or transfer of any money or stock, whether being or constituting a charge or incumbrance upon the property or not, the debt, money, or stock is to be deemed the whole or part as the case may be of the consideration in respect whereof the conveyance is chargeable with ad valorem duty.”

The Underground Electric Railway Company of London acquired by purchase the undertaking of the Metropolitan District Electric Traction Company, Limited, and the bargain between them as to the price to be paid was concluded in an agreement which contained, inter alia, the following provision—“Article 3—The profits of the new company (the appellants) available for dividend in respect of each year shall be applied in the following order and manner—that is to say, First, in payment of a cumulative dividend at the rate of 5 per cent. per annum up to the end of such year on the amount for the time being paid up on any shares for the time being issued by the new company; and, secondly, in paying to the Traction Company or its assigns as a further part of the consideration for the said sale such a sum as shall be equal to a dividend of 3 per cent. for such year on the amount for the time being paid up on such of the original ordinary snare capital of £5,000,000 in the new company as shall for the time being have been issued by the new company.”

Under sec. 59 (1) of the Stamp Act 1891 the above agreement was equivalent quoad ad valorem duty to an actual conveyance on sale.

At the date of the agreement the whole of the ordinary share capital of £5,000,000 had been issued, and £1,300,000 had been paid thereon. Upon this sum a dividend of 3 per cent. for the year would be £39,000.

The Commissioners of Inland Revenue being of opinion that the contingent annual dividend payable under article 3 was part of the consideration for the sale, and that it was payable either in perpetuity or for an indefinite period within the meaning of sec. 56 (2) of the Stamp Act of 1891, assessed the ad valorem duty at 10s. per cent. (sec. 56 (4)) on £39,000 multiplied by 20, bringing out the figure of £3900.

The Underground Electric Railway Company argued that the sum in question being payable on a contingency fell within section 57 of the Stamp Act 1891, and not within section 56.

Channell, J., held that no duty could be assessed in respect of any part of the annual sum payable under sub-clause 2 of article 3 of the agreement, on the ground that the amount payable was unascertainable.

The Court of Appeal reversed this decision.

The Electric Railway Company appealed to the House of Lords.

Their Lordships having considered their opinions gave judgment as follows:—

Judgment:

Lord Chancellor (Halsbury)—I have had an opportunity of reading the opinion upon this case which Lord Lindley has written. I quite concur in it, and have nothing to add.

Lord Robertson—I think that the judgments given in the Court of Appeal were perfectly right.

Lord Lindley—When the stamp duty payable on the conveyance in this case had to be ascertained, part of the consideration for the sale was 3 per cent. of the then paid-up capital of the purchasing company. This sum was a minimum sum, and it was payable periodically for an indefinite time. The amount payable in future was liable to be increased, but, not to be diminished, except in certain events to which I will now refer. One of these events, and the only one in my opinion which creates any difficulty, was the possible insufficiency of the profits of the company to pay the amount referred to after paying a dividend of 5 per cent. on the paid-up capital of the company. That dividend of 5 per cent. had to he paid out of the profits of the new company to its shareholders before any further payment became payable to the selling company. The minimum sum payable periodically was so payable subject to a contingency, viz., the existence of a sufficiency of profits to pay, first, a dividend of 5 per cent., and then a further dividend of 3 per cent. We have, therefore, an ascertained minimum amount payable periodically as part of the consideration of the sale, but payable on a contingency. Is such a sum within sec. 56, clause 2, of the Stamp Act 1891? I need not read it again. Its language is very wide. It is contended that the words “money payable periodically” in that section do not apply to money payable on a contingency, because contingent payments are dealt with by sec. 57. I do not myself see how sec. 57 assists the appellants. Its effect seems to be that where the consideration for a sale consists of money payable on a contingency, such money is to be taken into account in ascertaining the stamp duty to be paid on the conveyance of the property sold. I see nothing in sec. 57 which either cuts down or excludes sec. 56. It is also contended that the words “money payable” in sec. 56 do not include money payable upon a contingency, because the contingency may never happen, and no money may be payable. But the words of sec. 56 appear to me to be wide enough to cover all moneys which may become payable, and the latter

Page: 578↓

part of clause 2 certainly favours this construction. Moreover, sec. 57 says that money payable on a contingency is to be taken into account, and that to my mind removes any doubt which might otherwise arise as to the inclusion of contingent payments in sec. 56. Then it is said that the purchasing company may be wound up, or may at some future time reduce its capital, and so reduce in future the minimum sum payable periodically to the selling company. No doubt these are possible events, but at most they are merely other contingencies on which the payment of the minimum sum depends. Unless the contingency of winding up or reducing the capital happens, the minimum sum continues to be payable. The fact that the minimum sum is payable on more contingencies than one is in my opinion quite immaterial. They only affect the ability of the purchasing company to pay, which is the only contingency of any importance. For these reasons I am of opinion that the decision of the Court of Appeal was correct, and that this appeal should be dismissed with costs.

Judgment appealed from affirmed, and appeal dismissed with costs.

Counsel:

Counsel for the Appellants— Roskill, K.C.—Austen-Cartmell. Agents— Bircham & Company, Solicitors.

Counsel for the Respondents— The Attorney-General (Sir R. Finlay, K.C.) and Row—latt, Sir E. Carson, K. C., with them. Agent— Sir F. C. Gore, Solicitor of Inland Revenue.
1905