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Issues Involved:
1. Determination of the proper valuation method for shares in a private company for estate duty purposes. 2. Consideration of the extent of information available to hypothetical purchasers. 3. Evaluation of the impact of confidential information on share valuation. Detailed Analysis: 1. Determination of the Proper Valuation Method for Shares in a Private Company for Estate Duty Purposes: The principal issue revolves around the valuation of shares for estate duty purposes under section 7(5) of the Finance Act, 1894. The section stipulates that the principal value of any property shall be estimated as the price which, in the opinion of the commissioners, such property would fetch if sold in the open market at the time of the deceased's death. The court acknowledged the precedent set by Attorney-General v. Jameson and Inland Revenue Commissioners v. Crossman, which established that the valuation must assume that a purchaser would be entitled to transfer the shares notwithstanding any restrictions in the articles of association. This hypothetical sale must be considered as one between a willing vendor and a willing purchaser. 2. Consideration of the Extent of Information Available to Hypothetical Purchasers: Three possibilities were debated regarding the information available to a hypothetical purchaser: - Published Information Standard: The purchaser would have access only to the company's accounts and any other information made available to shareholders or the public. - Holt Standard: In addition to published information, the purchaser would have any information the board of directors would have provided upon inquiry. - Crown's Standard: The purchaser would have all information that would normally be made available to a genuine intending purchaser, including confidential information that a willing purchaser would require. The court ultimately rejected the Holt Standard, which depends on the subjective willingness of the board to disclose information, as it could lead to inconsistent and unreliable valuations. The court favored the Crown's Standard, asserting that a prudent purchaser would make all reasonable inquiries and receive true and factual answers. 3. Evaluation of the Impact of Confidential Information on Share Valuation: The court examined whether confidential information, such as interim monthly statements and prospects of the company going public, should be considered in the valuation. The evidence showed that substantial blocks of shares in private companies are often sold with the board providing confidential information to prospective purchasers to facilitate the sale. The court concluded that excluding such information would not reflect the true market value of the shares. It was determined that the hypothetical purchaser should be deemed to have access to all relevant information, including confidential reports that would affect the valuation. Conclusion: The court decided in favor of the Crown's appeal, establishing that the proper price for the shares should include the value of confidential information. Consequently, the valuation of the shares for estate duty purposes was set at lb4 10s per share, reflecting a more accurate market value considering all relevant information. Separate Judgments: - Harman L.J.: Emphasized the importance of assuming the purchaser would have access to all relevant facts, including confidential information, to ensure a fair valuation. - Widgery V. L.J.: Supported the Crown's Standard, highlighting the need for a valuation method that reflects the true market conditions and the information a prudent purchaser would require. - Gross L.J.: Criticized the Holt Standard for its reliance on subjective board decisions and endorsed the Crown's Standard for providing a more realistic and consistent basis for valuation. Final Orders: - Appeal allowed with costs in the Court of Appeal. - No order as to costs below. - Application by appellants for a certificate for three counsel refused. - Leave to appeal to the House of Lords granted.
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