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«THE HAMLYN LECTURES Thirty-Third Series INTOLERABLE INQUISITION? REFLECTIONS ON THE LAW OF TAX H. H. Monroe STEVENS THE HAMLYN LECTURES THIRTY-THIRD ...»

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Lord Justice Templeman disagreed. "A purchase of a controlling interest in shares of a company pregnant with dividend is a transaction whereby the dividend is subsequently delivered and received.

No other construction [of the relevant paragraph of the section] is consistent with the express words and object of the paragraph." The object? Ought the Lord Justice to have looked at that? Ought he not merely to have regarded the words used—"a transaction whereby"?

The second example is to be found in Berry v. Warnett.16 In consideration of a payment by B, A transferred property to C to be held on certain trusts. Was A's transfer covered by the words in the statute, "a gift in settlement"? Lord Justice Oliver analysed the argument of Counsel for the Revenue as an invitation to read the words "a gift in settlement" simply as meaning "a settlement" or "the making of a settlement." "That," he said, "would make much more sense if one has regard to what the legislation was trying to achieve, but it is not what the Act says, and unless the Court is Berry v. Wamett July 15, 1980 Court of Appeal decision summarised in [1980] S.T.I. 514.

54 The Judges'Role entitled to put a gloss on the term in order to bring within the subsection a transaction of a type which the draftsman almost certainly did not contemplate, I do not think either that the reference to a gift can be simply ignored or that the word can be given a meaning which it does not naturally bear. That approach to construction is not, as I understand the authorities, permissible in the case of a taxing statute."

Lord Justice Ackner duly referred to the authorities which require a taxing act to be construed by looking merely at what is clearly said. There is no room for any intendment. No equity. No presumption. And, seemingly, no logic. This last suggestion the Lord Justice accepted from Counsel. It is not immediately apparent why the hope of finding logic in an Act passed as recently as 1965 should be abandoned without even a search. But there it is. My purpose is not to quarrel with the conclusion, merely to illustrate the rules by which the judges find themselves constrained.

Lord Justice Buckley took a different view. Whether he was on the side of the angels in this case or in the earlier case I would

hesitate to say. That would be flying too high. What he said was:

"[Counsel for the taxpayer] has submitted that we should not concern ourselves with what the apparent design or policy of the statute is. He has reminded us... that in construing a taxing statute one has to look merely at what is said without regard to intendment. When what is said is clearly said, this is no doubt so;

but I do not think that the expression 'a gift in settlement' is a clear one. One must first construe the Act in order to discover what it says in this respect, and for that exercise the context of the enactment as a whole is, in my opinion, clearly not only a legitimate aid but one to which the Court is bound to have regard."

This, then appears to be the judge's dilemma. If looking for the meaning of a taxing statute, he must reject as indications the intendment of the Act, the scheme of the Act, the purpose of the Act, the logic of the Act. His eyes must be fixed on the words, and the words alone, which he is called on to construe. If the words are clear, his task is over. He takes them, he applies them; down tumbles the sky, but the rules of the game have been observed. If, however, the words are blurred, if they are not clear, then he may, nay he must, look at the context in which they are found and construe the Act as a whole.

Have you, I wonder, ever stood on the deck of a small boat when making a landfall and scanned the horizon? To one observer The Judges'Role 55 the distant headland will be'ar a striking resemblance to Bolt Head.

To another it will appear as Berry Head. To yet another all will be obscure in the absence of other points of reference. To the captain, who headed the boat towards Ireland in the first place, the headland will appear uncommonly like the Old Head of Kinsale.

How is the judge to distinguish between words which lack clarity and some, perhaps temporary, dimness in his own vision?

Or should one decently cease to ask questions, acknowledge that clarity like beauty is in the eye of the beholder and rejoice that someone else, in his wisdom, has to discharge the judicial function and declare either in favour of the words or in favour of their meaning in the context?

There are exceptions to the plain words rule. One of these is where the taxpayer is at risk of having imposed upon him a liability so far-fetched and so fantastic that the suggestion cannot be entertained that such a severe result is what Parliament intended. Lord Cairns had said that if the taxpayer was within the letter of the law, tax must be enacted however ruffling to judicial equanimity the process might be. Happily in Commissioners of Inland Revenue v.

Luke11 the judges would have none of it. The relevant section imposed liability in respect of any expense incurred by a company in or in connection with the provision, for any director, of living or other accommodation or of other benefits or facilities of whatsoever nature. In Luke's case the director occupied as tenant and paid rent for a house owned by the company. During the tenancy the company effected substantial repairs. The expenditure involved not only repairs to walls, chimneys, roof and fences, but also the supply of a new hothouse boiler and of a fireplace and the laying of a new water main, coupled with the renewing of plumbing in the mansion house and the chauffeur's cottage. To the Lord President in the Court of Session it appeared clear that the expenses in question fell within the ambit of the statutory words. The House of Lords found an escape route. "If it is right," said Lord Reid, "that, in order to avoid imputing to Parliament an intention to produce an unreasonable result, we are entitled and indeed bound to discard the ordinary meaning of any provision and adopt some other possible meaning which will avoid that result, then what I am looking for in examining the obscure provision at the end of [the relevant section] is not its ordinary meaning (if it has one) but some possible meaning which will produce a reasonable result. I think that the





I7 f 1963] A.C. 557, 40 Tax Cas. 630.56 The Judges'Role

interpretation which I have given is a possible interpretation and does produce a reasonable result, and therefore I adopt it." Lord Pearce, without comment and without shame, also searched for and found the same reasonable result: "Prima facie, one would expect the intention [of two of the relevant subsections] to be that where the body corporate retains the ownership of the asset—in this case the house or the 'living accommodation'—the expenses that go to acquiring or producing the 'living accommodation' shall not be charged against the director as a benefit in kind, but the annual value of it, enhanced, of course, as it will be by any renewals or repairs, shall be charged against him. That would be a fair and sensible intention." And Lord Pearce went on to show how just such an intention could be extracted from the words used.

A blunt way of describing what the judges did in Luke's case is to say that they legislated; they legislated for the particular circumstances of the case before them. They presumed that Parliament intended a reasonable result. They looked at the relevant section of the code—the cluster of sections dealing with benefits in kind—and considered the scheme. They sought to give a meaning to the code which would be logical, harmonious and fair. In the process they said that the words used did not carry their plain meaning but conveyed a modified meaning to be understood from the context. They asked what Parliament meant, not what Parliament had said. Interpretation or legislation? Does it matter? Will any refrain from applauding the result?

If there is to be justice for the individual taxpayer, have we, the individual taxpayers who pick up the bill when tax is avoided, any claim when the boot is on the other foot?

The second example I would cite of adherence to the plain words rule being set aside is the recent Vestey decision.18 Two interpretations of the relevant section were possible. The one, arrived at by looking at the preamble to the section and reading the section as a whole, would confine the application of the section. The section, said Lord Wilberforce, on that basis would be "directed against persons who transfer assets abroad; who by means of such transfers avoid tax, and who yet manage when resident in the U.K. to obtain or to be in a position to obtain benefits from those assets." The alternative interpretation was to give the whole section an extended meaning, so as to embrace all persons, born or unborn, who in any way may benefit from assets transferred abroad by others. Two

8 Vestey v. I.R.C. (Nos. 1 and 2) [1980] S.T.C. 10. The Judges' Role 57

circumstances add piquancy to the unanimous selection by the House of Lords of the narrower interpretation, that the taxpayer to be taxed is the person who deliberately puts his assets outside the tax net. The first consideration is that the House of Lords had to reverse their own earlier decision in the Congreve case, a case which had in the meantime received the express approval of the 1955 Royal Commission. The second is that it is well known, (though, of course, not a matter of which the House of Lords could take note or to which they would have attached any particular significance if they could), that when the relevant section was introduced in Parliament in 1936 any intention to visit on the children the sins of the fathers was expressly disclaimed. In that discussion, too, it must be observed, at least one voice was raised in favour of just such a result since on any other basis, it was suggested, the section would have but transitory effect.

The Vestey case shows that even where the legislation is aimed at dispositions which have tax avoidance as their sole or principal objective, even where the House of Lords has declared in favour of a wide interpretation, if an alternative view is possible, reason and fairness can ultimately prevail in at least the favour of an individual taxpayer.

There is by way of postscript, one other moral to be drawn from the Vestey story, a tale with a happy ending indeed so long as no unhappy legislative sequel arrives to disturb the equable sense of euphoria currently prevailing. When the 1955 Royal Commission expressed concern about the obscure wording of much antiavoidance legislation,21 it referred in terms to the section which was in point in the Vestey and Congreve cases. The prophetic comment is made in the Report: "We doubt if many lawyers could expound with confidence the effect of the 26 sections that make up Part XVIII of the Act ('Special provisions for taxation of settlors, etc. in respect of settled or transferred income')." And part of the relevant section is then quoted. The remedy suggested was expressed in these terms: "We think that, now that the main lines of this legislation are to be regarded as fully developed and the administration of them has had time to settle down, the opportunity should be taken in the course of the next few years to conduct an expert review of the enactments as a whole. The only kind of body that »« [1948] 1 All E.R. 948, 30 Tax Cas. 163.

2° Hansard 1936 Vol. 313 Col. 688.

Cmd. 9474, para. 1029.

58 The Judges' Role could supply the combination of skill and experience required for the work would be one which contained representatives of the Parliamentary Draftsman's office, of the Board, and lawyers and accountants who are familiar with this specialised branch of work.

The purpose of the review would be (a) to enquire to what extent, if any, the relevant legislation may have been shown, in the light of experience, to have been drawn too widely for its purpose, (b) to recommend any modifications of the legislation that will make it shorter, briefer, and more precise." Perhaps, the House of Lords in Vestey has covered (a). It would be encouraging to have reason to suppose that (b) has not been overlooked.

Just how difficult it is to distinguish between words that are clear and words that are not too clear, between deciding what statutory words mean and whether they apply to particular circumstances, between legislating, (an "offside" activity) and interpreting, (an "O.K." thing to do), is illustrated by yet another recent House of Lords decision, Commissioners of Inland Revenue v. Plummer.2^ The case concerned a straightforward tax avoidance scheme. "Straightforward" in the sense that it lacked the usual complexity, subtlety and window-dressing associated with such schemes. A charity purchased an annuity from an individual. If the bargain whereby the individual made annual payments to the charity was a "settlement," the scheme failed. The bargain did not look very like a settlement but the statute gave to the term an extended meaning: "any disposition, trust, covenant, agreement or arrangement." Just how far did the extension go? "This raises a question of some difficulty and general importance," said Lord Wilberforce, "Are the words of the definition to be given the full unrestricted meaning which apparently they have, or is some limitation to be read into them, and if so what limitation? If given the full unrestricted meaning, the section would clearly cover the present agreement, and would also cover a large number of ordinary commercial transactions.

My Lords, it seems to me to be clear that it is not possible to read into the definition an exception in favour of commercial transactions whether with or without the epithet 'ordinary' or 'bona fide.' To do so would be legislation not interpretation: if Parliament had intended such an exception it could and must have expressed it. But it still becomes necessary to enquire what is the scope of the words 'settlement' and 'settlor' and of the words which are included in 'settlement' in the context in which they appear. If I.R.C. v. Plummer [1979] S.T.C. 793.



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