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.

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.). 2 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 97

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