9911796707
TMI Blog1939 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... ion are of a rather complicated nature ; they are set out in the case, but I must give a short summary of them in order to make this judgment intelligible. The Company (to whom I will refer as Scammells) carry on business as motor engineers, and at the relevant time when the story begins they had as directors, Mr. Hood Barrs, a Mr. England and a Mr. Scott; Mr. Hood Barrs held by far the larger part of the issued share capital of Scammells. In February, 1932, Mr. Hood Barrs acquired a considerable shareholding in a company called Blue Belle Motors, Ltd., whose business appears to have been that of running motor coaches. That purchase put him into a position to control Blue Belle Motors de facto, and the first thing that seems to have happened is that Mr. Hood Barrs, Mr. England and Mr. Scott became directors of Blue Belle Motors, and a Mr. Toms, who had been a director and remained a substantial shareholder in Blue Belle Motors, was treated by the new board as though he had ceased to be a director, and office which he had previously held. It appears from the Minutes which are annexed to the case, and indeed one would have expected it, that one of the objects of Mr. Hood Barrs in acq ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use on the 13th May, 1932, he issued a writ against Scammells, Mr. Hood Barrs, Mr. England, Mr. Scott and Blue Belle Motors, claiming a variety of relief. No copy of the writ is annexed to the Case, but we have sent for a copy of it, and it appears that in that action Mr. Toms was suing on behalf of himself and all other shareholders in Blue Belle Motors except the defendants, Messrs. Hood Barrs, Scott and England. I should say that Messrs. Scott and England had got, I think it was, one share or, at any rate, a qualifying share in Blue Belle Motors from Mr. Hood Barrs. Of course, in so far as Mr. Toms was suing on behalf of all other shareholders in Blue Belle Motors, the relief that he was seeking was relief not for himself but for Blue Belle Motors. The plaintiff in what is commonly called a minority shareholder's action is enforcing the rights of his company and not his individual rights; but in the present case Mr. Toms was also seeking to enforce certain rights which he claimed belonged to him as an individual. In his writ he sought to have set aside or declared invalid, firstly, the management agreement under which Scammells were appointed managers of Blue Belle Motors; s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided that it would be in the interests of the Appellant Company to enter into a compromise with Mr. Toms, as otherwise the Appellant Company would lose the balance of the said account owing to them by Blue Belle Motors, Limited." It appears from the Minutes and from the finding of the Commissioners that Mr. Toms was willing to compromise and get rid of all those claims and disputes on certain terms. I need not rehearse them in detail because I shall have to examine in a moment the actual deed of compromise, but he was insisting on having transferred to him for a consideration the shares in Blue Belle Motors which Mr. Hood Barrs and his co-directors held, he was insisting that the slander action against himself should be discontinued, and he was insisting on the cancellation of the debentures held by Scammells and Blue Belle Motors. On those terms (among others) being satisfied, he was prepared to consider the discharge, if not of the whole, at any rate of a substantial part of the indebtedness of Blue Belle Motors to Scammells. Now, that being the state of affairs, in order that a compromise of that description might be implemented, it was obviously necessary that Mr. Hoo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... items of liability to which they were appropriated, if indeed they ever were appropriated, the Case is silent, and we cannot draw, it seems to me, an inference about it, but the result of the account is to shown a balance due to Scammells of £ 13,739 8s. 8d. The accountants have then reduced that by an item "By credit to was one of the things on which Mr. Toms was insistent, and also because those three gentlemen were the plaintiffs in the slander action. Accordingly, any compromise, if it was to be effective, had to provide for those two matters. Now Mr. Hood Barrs took a serious view of the slander which it was alleged had been uttered against him by Mr. Toms. His two co-directors were more easy going about it, but Mr. Hood Barrs insisted that it was a serious matter and he was not prepared to give up his claim to damages for slander except for some substantial consideration. Accordingly, the Company (Scammells), in so far as they were anxious to have a compromise which would result in securing payment, if not of the whole, at any rate of a substantial part of Blue Belle Motors' debt to themselves, found themselves bound to come to a deal with Mr. Hood Barrs in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at any rate, that Scammells had been exploiting Blue Belle Motors for the benefit of themselves. That is the sort of suspicion that, as I say, anyone familiar with this class of relationship might have entertained. But the recital which I have referred to and the other provisions in the document make it clear that Mr. Toms had investigated the whole of the position, and had satisfied himself that there was nothing of the kind to which exception could properly be taken. Accordingly, the deed on the face of it shows that there was nothing of real substance in any suggestion of that description. Then it recites in recital 18: "An account of the transactions matters and things between the Motor Company and Scammells has been prepared by the Accountants (C.F. Middleton & Co.) acting on behalf of the parties hereto of the first second third and fourth parts and has been agreed by the Accountants (Barnes Bryant & Co.) acting on behalf of Mr. Toms and the Motor Company and it has been agreed by and between the parties hereto that the said account shall be accepted by them and each of them as a final settlement of account and adjustment of all transactions matters and things as betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n subject to each party paying their own costs". Then in clause 3(1) come certain covenants by Mr. Toms with Scammells, Mr. Hood Barrs, Mr.Scott and Mr. England. Firstly, he covenants that he has made a full examination of all the books and documents of Blue Belle Motors relative to all transactions matters and things which have taken place between that company and Scammells and to the conduct of the affairs of Blue Belle Motors, Ltd., generally from the 18th February, 1932, up to the 30th June, 1932, and was satisfied with and accepted them. Then, consequential upon that, he undertakes that he will not in his individual capacity or as a director or debenture holder or shareholder in Blue Belle Motors make any claim in respect of any such matters, and there is an adjust; £ 3,176 18s. 8d.", leaving a balances of £ 10,562 10s. 0d. which is the sum of cash paid by Blue Belle Motors to Scammells, as stated in clause I of the deed. Now I shall have something more to say with regard to that account in a moment, but I must return to the facts as found by the Commissioners. It will be remembered that the Commissioners, in paragraph 5 of the Case, found that in April ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for present purposes an against any capital expenditure in the shape of financial assistance given by Scammells to Blue Bells Motors and questions of that kind might have arisen. But the Crown fought the case before the Commissioners upon the footing that it did not matter to its argument whether or not the of those items represented what the £ 12,779 owing in April represented, namely a real trading account. It is quite impossible for us to regard that account on any other basis. It seems to me not only that the Crown could not now turn round and invite us to discover in that account some capital colour or ask us to send the matter back to the Commissioners in order to have the account further investigated: the Crown deliberately selected the argument upon which it wished to stand and we must take the matter as we find it. The proper inference, in so far as the Commissioners have found a fact about it, seems to me to be this : if one starts with a figure admittedly owing in April on trading account, if one then proceeds to the fact that there is no finding that any penny of that had ever been repaid, and when we find that that indebtedness has by June gone up by £ 1,00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the purposes of the Appellant Company's trade". The reasons were that those payments were made to secure a compromise, and the securing of that compromise was not, it is said, "for the purposes of the Appellant Company's trade, but to enable it to terminate a trading relation which it found inconvenient with the minimum sacrifice of the balance of account resulting from that relationship". Now, with great respect to the Commissioners, it seems to me that they have put the matter the wrong way round. It was not Scammells who were seeking to terminate a trading relation, a phrase which I understand to be intended to cover the de facto business situation of the two companies vis-a-vis one another, as well as their existing contractual relationships. It was Mr. Toms, on behalf of Blue Belle Motors, and in his individual capacity, who was seeking to determine that trading relation. That was the main object of his action; it was that that he was demanding; it was he, not Scammells, who insisted, as a term of coming to any agreement, that the shares in Blue Belle Motors held by the directors should be sold to himself, Scammells were defending, Mr. Toms and Blue B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rlocked boards, the chairman of one holding a controlling interest in the other, a management agreement made, a hiring agreement made, loans, debentures issued, and so forth and so on a payment for the purpose of getting rid of that complex relationship is not one which can be said to be wholly and exclusively laid out for the purposes of the Appellant Company's trade. It was also said that it was open to the Crown here to argue, as we were informed they had argued before the Commissioners, that although the object of the payment might be for the purpose of trade, yet it was of a capital nature. It seems to me that, if we assume that the object was to terminate the trading relation, we must treat matter giving proper force to the word 'trading'. The relation to which the Commissioners are referring is a trading relation, and, therefore, in so far as there were any other relations which were not of a trading nature, the finding of the Commissioners negatives the idea that one of the objects was to get rid of them; it was trading relations, and trading relations only. Therefore, we find this Company finding itself in a situation of trading relationship with another compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and was to sell his shareholding to his co-directors and surrender certain valuable participating notes. I need not quote from the judgments in that case,but this, I think, emerges from it with great clearness, that a payment made in circumstances of that kind to terminate the employ- ment of somebody in the service of the company whose continuance with the company is undesirable is properly treated as a revenue payment and a deductible expense. The other case was Anglo-Persian Oil Co. Ltd. v. Dale [1931] 16 Tax Cas. 253 where the payment was a payment made in order to terminate an agency agreement which was proving disadvantageous to the company. In the present case, if the trading relation was one that was disadvantageous to the Company and, in order to get rid of it, the company had to enter into an agreement with Mr. Toms and Blue Belle Motors, and if, in order to secure that the agreement should be effective, it was necessary to make a payment to a third party, to wit, Mr. Hood Barrs. who was in a position to block the agreement because his consent was necessary and there was no means of compelling him to give it, the payment made to Mr. Hood Barrs was, it seems to me, a pay ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
