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CHANCERY DIVISION [1975] STC 372, 50 Tax Cas 229, 54 ATC 99, [1975] TR 93 HEARING-DATES: 3, 4, 5, 6, 7, 10, 11 MARCH, 16 APRIL 1975 16 April 1975 CATCHWORDS: Income tax - Capital or income - Profits or gains - Receipts in capital form - Repayment of loan - Repayments related to profits accruing under service contract with actress - Tax avoidance scheme - Acquisition of beneficial interest in service contract by taxpayer company - Alienation of interest for lump sum to company - Loan of proceeds of sale to third party to acquire benefit of contract from company - Instalments of loan money to be released to taxpayer company as actress's earnings accrued to third party - Transactions carried out in accordance with pre-arranged scheme - Transactions effected by means of circular payments - Whether sums received by taxpayer company from third party capital or income - Whether taxable as annual profits or gains not chargeable under any other head - Income Tax Act 1952, ss 122, 123 (Sch D, Case VI) . HEADNOTE: On 14th December 1965 a settlor, as part of a tax avoidance scheme devised by the advisers of C, a film actress, created three settlements. G Ltd was the trustee of the first settlement whilst the taxpayer company and S Ltd were the trustees of the second and third settlements respectively. By the first settlement G Ltd was directed to hold a trust fund on trust for a term of 21 years and to pay the income thereof to the taxpayer company as trustee of the second settlement. G Ltd was forbidden by the express terms of the first settlement to sell any property comprised in its trust fund without the consent of the persons who were for the time being entitled to the income from its trust fund. That trust fund initially consisted of £ 75, contributed by the settlor. By the second settlement the taxpayer company was directed to hold the interest in income vested in it under the first settlement on trust for sale and to stand possessed of the net proceeds of sale on discretionary trusts for beneficiaries who included C. By the third settlement S Ltd was directed to hold a trust fund on trust for beneficiaries other than C. That trust fund, which initially consisted of £ 25, was also contributed by the settlor. The three trustee companies were controlled by C's advisers. On 16th December R Ltd entered into an agreement with G Ltd ('the principal option agreement') whereby, in consideration of £ 25 paid by G Ltd, R Ltd agreed to procure C to enter into a service agreement for seven years at a salary of £ 7,500 rising to £ 13,500 per annum. Under the service agreement C was to work for R Ltd, allowing R Ltd to exploit and receive the benefit of C's professional services as an actress. If C entered into the service agreement with R Ltd, G Ltd was to have an option to acquire for £ 500 a transfer agreement whereby, for an annual fee of £ 750, R Ltd would procure C to perform her services under the service agreement for or at the direction of G Ltd. R Ltd was also a company controlled by C's advisers. By a conditional sale agreement dated 17th December, G Ltd agreed to sell to CE Ltd for £ 150 the benefit of the principal option agreement. The property held by G Ltd and comprised in the trust fund of the first settlement then included the benefit of the principal option agreement and accordingly the sale to CE Ltd was expressly made conditional on the consent of the taxpayer company. CE Ltd were acting as agents for U Ltd. By an agreement ('the Univats option agreement') dated 15th December, U Ltd had for £ 20 granted D Ltd an option to acquire the benefit of the transfer agreement for £ 476,130. The companies CE Ltd, U Ltd, and D Ltd were acting at the behest of a firm ('the financiers') which provided the finance necessary to set the tax avoidance {373} scheme in motion. On 17th December the taxpayer company entered into an agreement with S Ltd ('the advance offer') whereby if the taxpayer company sold its income interest under the first settlement, it would lend the proceeds of sale up to a maximum of £ 475,000 free of interest to S Ltd. The liability of S Ltd to repay the loan was limited to the amount which could be raised from time to time out of assets of the third settlement. By an agreement ('the Cymbeline cross-option agreement') dated 17th December CE Ltd agreed to use its best endeavours to acquire the benefit of the transfer agreement and granted S Ltd an option, exercisable at any time thereafter, to acquire the benefit of the transfer agreement, i e rights to the professional services of C ('the Christie Rights'), for a sum of £ 484,250, less a part, roughly 82 1/2 per cent, of the profits from the Christie Rights received by CE Ltd prior to the exercise of the option. S Ltd agreed that as soon as CE Ltd acquired the Christie Rights, S Ltd would deposit with B Ltd a sum of not less than £ 479,050 and would procure a guarantee for a further sum of £ 5,200 to secure payment of the option price. B Ltd was to release the deposit to S Ltd as and when CE Ltd received profits from the Christie Rights and the option price became less than the deposit for the time being held by B Ltd. On 20th December, the financiers agreed to provide S Ltd with a guarantee for £ 5,200, required by the Cymbeline cross-option agreement and also agreed to lend S Ltd £ 4,050, when S Ltd became liable to deposit £ 479,050 with B Ltd. S Ltd agreed that as the deposit with B Ltd was released, S Ltd would repay the financiers' loan of £ 4,050 and the £ 150 required by CE Ltd to acquire from G Ltd the benefit of the principal option agreement, and thereafter pay the financiers out of the deposit released by B Ltd sums equal to 32 1/2 per cent of the profits from the Christie Rights received by CE Ltd from time to time. B Ltd agreed to lend the £ 479,050 deposited by S Ltd under the Cymbeline cross-option agreement to W Ltd, and W Ltd agreed to lend that sum to D Ltd to enable D Ltd to pay the purchase price under the Univats option agreement. B Ltd and W Ltd were acting at the behest of the financiers. On 20th December C entered into the service agreement with R Ltd. Two days later, a meeting of all the parties to the agreements outlined above was held. At that meeting the agreements were carried into effect, payments being made by drafts provided by K, a banker, who was present at the meeting by arrangement with the financiers. On the completion of the agreements the banker's drafts were all returned to K. In 1966, profits from Christie Rights began to flow from CE Ltd and the appropriate sums derived therefrom were received by the taxpayer company in the form of repayments of its loan to S Ltd. The question then arose whether those receipts were income or capital in the hands of the taxpayer company and it income whether the taxpayer company was assessable in respect of those receipts, by virtue of ss 122 na , 123 nb and 148 nc of the Income Tax Act 1952, under Sch D Case I, Case II or Case VI. The taxpayer company claimed that on the evidence it was established that the receipts arose from the sale of its income interest in the first settlement which it had lent to S Ltd and which S Ltd repaid in pursuance of the terms of the loan and that in those circumstances the receipts were capital and not therefore liable to tax. na Sections 122, so far as material, provides: 'Schedule D... 1. Tax under this Schedule shall be charged in respect of - (a) the annual profits or gain arising or accruing -... (ii) To any person residing in the United Kingdom from any trade, profession, or vocation, whether carried on in the United Kingdom or elsewhere.' nb Section 123(1), as amended by s 73(7) of and Part 1 of Sch 12 to the Finance Act 1963, so far as material, provides: 'Tax under Schedule D shall be charged under the following Cases respectively, that is to say - Case I - tax in respect of any trade carried on in the United Kingdom or elsewhere; Case II - tax in respect of any profession or vocation not contained in any other Schedule... Case VI - tax in respect of any annual profits or gains not falling under any other Case of Schedule D and not charged by virtue of Schedule B, Schedule C or Schedule E...' nc Section 148, so far as material, provides: 'Tax under Schedule D shall be charged on and paid by the persons receiving or entitled to the income in respect of which tax under that Schedule is in this Act directed to be charged.' {374} Held - (i) The transactions entered into by the taxpayer company could not be viewed in isolation without regard to the consequences of other transactions; the scheme as a whole had to be considered since each step therein was dependent on others being carried out. Thus viewed, the sum of £ 475,000 paid by CE Ltd to the taxpayer company on the disposal of its income interest in the first settlement did not represent the true purchase price of that interest for that money was disappearing money invented by C's advisers for performing a circle of payments which began and ended with K. The only result of the transactions was the difference in the destination of the profits accruing from Christie Rights and, so far as the taxpayer company was concerned, the only legal effect was to confer on it the right to receive a part of the profits from the Christie Rights or sums equal thereto and derived therefrom. In those circumstances, the receipts accruing to the taxpayer company had the characteristics of income and not capital (see p 416 b and f and p 417 f, post). (ii) The profits accruing to the taxpayer company as a result of the transaction were income receipts taxable under Sch D, Case VI, being annual profits or gains, not falling within any other Case of Sch D or chargeable under any other schedule (see p 418 e, post). NOTES: For taxability of capitalised future earnings generally, see Simon's Taxes, E1.301. For the Income Tax Act 1952, ss 122, 123 and 148, see 4 Simon's Income Tax (2nd Edn) 82, 83, 100. For 1970-71 and subsequent years of assessment, ss 122, 123 and 148 have been replaced by the Income and Corporation Taxes Act 1970, ss 108, 109 and 114(1) respectively. CASES-REF-TO: Coren v Keighley (Inspector of Taxes) [1972] 1 WLR 1556, 48 Tax Cas 370, [1972] TR 75. Disderi & Co, Re (1870) LR 11 Eq 242, 40 LJCh 248, 23 LT 694, 9 Digest (Repl) 474, 3098. Gray v Lewis, Parker v Lewis (1873) 8 Ch App 1035, 43 LJCh 281, 9 Digest (Repl) 651, 4331. Greenberg v Inland Revenue Comrs, Tunnicliffe v Inland Revenue Comrs [1971] 3 All ER 136, [1972] AC 109, 47 Tax Cas 240, [1971] 3 WLR 386, [1971] TR 213, HL; affg [1970] 1 All ER 526, [1971] Ch 286, [1970] 2 WLR 362, CA, 28(1) Digest (Reissue) 492, 1759. Inland Revenue Comrs v Duke of Westminster [1936] AC 1, [1935] All ER Rep 259, 104 LJKB 383, 153 LT 223, sub nom Duke of Westminster v Inland Revenue Comrs 19 Tax Cas 490, HL, 28(1) Digest (Reissue) 507, 1845. Inland Revenue Comrs v Wesleyan and General Assurance Society [1948] 1 All ER 555, 30 Tax Cas 11, [1948] TR 67, 41 R & IT 182, [1948] LJR 948, HL, 28(1) Digest (Reissue) 264, 860. Ransom (Inspector of Taxes) v Higgs [1974] 3 All ER 949, [1974] STC 539, [1974] 1 WLR 1594, HL. Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 2 All ER 1073, [1968] 1 WLR 1555, [1968] 2 Lloyd's Rep 289, Digest (Cont Vol C) 98, 2580a. Timbrell v Lord Aldenham's Executors (1946) 28 Tax Cas 293, [1947] LJR 1234, 176 LT 413, 28(1) Digest (Reissue) 306, 1056. CASES-CITED: Barry v Cordy [1946] 2 All ER 396, sub nom Smith Barry v Cordy (Inspector of Taxes) 28 Tax Cas 250, HL. Bishop (Inspector of Taxes) v Finsbury Securities Ltd [1966] 3 All ER 105, 43 Tax Cas 591, [1966] 1 WLR 1402, HL. Carson v Cheyney's Executor [1958] 3 All ER 573, [1959] AC 412, 38 Tax Cas 240, HL. {375} Cohan's Executors v Inland Revenue Comrs (1923) 12 Tax Cas 602. Cooper (Inspector of Taxes) v Stubbs [1925] 2 KB 753, 10 Tax Cas 29, CA. Crossland (Inspector of Taxes) v Hawkins [1961] 3 All ER 812, [1961] Ch 537, 39 Tax Cas 493, CA. Edwards (Inspector of Taxes) v Bairstow [1955] 3 All ER 48, [1956] AC 14, 36 Tax Cas 207, HL. Hale v Shea (Inspector of Taxes) [1965] 1 All ER 155, 42 Tax Cas 260, [1965] 1 WLR 290. Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945, [1974] STC 88, 49 Tax Cas 149, [1974] 1 WLR 325. Hobbs v Hussey (Inspector of Taxes) [1942] 1 All ER 445, [1942] 1 KB 491, 24 Tax Cas 153. Housden (Inspector of Taxes) v Marshall [1958] 3 All ER 639, 38 Tax Cas 233, [1959] 1 WLR 1. Household v Grimshaw (Inspector of Taxes) [1953] 2 All ER 12, 34 Tax Cas 366, [1953] 1 WLR 710. Inland Revenue Comrs v Mallaby-Deeley [1938] 4 All ER 818, 23 Tax Cas 153, CA. Inland Revenue Comrs v Mills [1974] 1 All ER 722, [1974] 2 WLR 325, [1974] STC 130, HL. Jones (Inspector of Taxes) v Leeming [1930] AC 415, 15 Tax Cas 333, HL. Norman (Inspector of Taxes) v Evans [1965] 1 All ER 372, 42 Tax Cas 188, [1965] 1 WLR 348. Paget v Inland Revenue Comrs [1938] 1 All ER 392, [1938] 2 KB 25, 21 Tax Cas 677. Pilkington v Randall (Inspector of Taxes) (1965) 42 Tax Cas 662, CA. Snook v London and West Riding Investments [1967] 1 All ER 518, [1967] 2 QB 786, CA. Trustees of Earl Haig v Inland Revenue Comrs 1939 SC 676, 22 Tax Cas 725, CS. INTRODUCTION: Case stated At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 28th to 30th October, 2nd to 6th November, 16th to 18th November (being all inclusive dates), 30th November, 1st December 1970 and 27th January 1972, Black Nominees Ltd ('the taxpayer company') appealed against the following assessments to income tax: 1965-66 - £ 475,000; 1966-67 - £ 40,000; 1967-68 - £ 44,000. The commissioners understood the questions raised in those appeals to be: (a) whether by virtue of the provisions of s 148 of the Income Tax Act 1952 the taxpayer company was assessable under Case II of Sch D as being the person receiving or entitled to the annual profits or gains arising or accruing from a profession carried on by Miss Christie or alternatively under Case VI as being the person receiving or entitled to any annual profits or gains arising to Miss Christie and not falling under any other Case of Sch D and not charged by virtue of Sch A, Sch B, Sch C or Sch E; and, if not, (b) whether the taxpayer company was assessable under Case I of Sch D in respect of the annual profits or gains arising or accruing in respect of a trade carried on by it or alternatively under Case VI of Sch D in respect of annual profits or gains accruing to it and not falling under any other Case of Sch D and not charged by virtue of Sch A, Sch B, Sch C or Sch E. The determination of those questions depended on the effect of a complicated scheme designed to enable Miss Christie to avoid paying income tax and surtax on a large part of her earnings as a film actress. PART I 1. The tax avoidance scheme known as an open commercial trust scheme was invented by Mr Jones (see p 377, post) in the hope of enabling a high-earning taxpayer to escape liability to income tax and surtax on part of his earnings. The essence of the scheme was to divest a taxpayer of earnings on which he would have to pay a high rate of direct taxation in exchange for receipts created out of those earnings which, by the supposed alchemy of the law operating on a variety of transactions, were to be transmuted into capital receipts. The capital receipts were less than the earnings to the extent of the commissions and costs of the various begetters, sellers and operators of the scheme. {376} 2. The essentials of the scheme were: the creation of three trusts by a settlor who contributed a modest sum (L100 in the present instance) as the capital of the first and third trusts and then took no further part in the scheme; and the securing of the services of the taxpayer in return for a modest salary. 3. The income for a period of years (21 years in the present instance) from the capital being part of the settlor's contribution, of the first trust, was settled on the trustees of the second trust ('the second trustees') and no disposition of the trust property of the first trust could be made without the consent of the second trustees or their successors in title to the ownership of the income of the second trust. By the second trust the income for a period of years, which was the sole property settled, was directed to be held on trust for sale, the proceeds invested and the investments held on discretionary trusts. One of the objects of the discretionary trusts was the taxpayer. Under the third trust the remainder of the settlor's contribution was settled on discretionary trusts for the benefit of individuals other than the taxpayer. 4. The trustees of the first trust ('the first trustees') acquired as trust property an option to have transferred to them the future services of the taxpayer if the taxpayer thereafter made them over to a company. The trustees of the third trust ('the third trustees') entered into an agreement for the ultimate purchase by them for a substantial sum of the right to the services covered by that option acquired by the first trustees, which option had been acquired by another company (which represented the middlemen in the scheme). The purchase price payable by the third trustees was a sum calculated by reference to the expected substantial future earnings of the taxpayer less a percentage thereof for the middlemen. The purchase price was to fall as receipts accrued to the vendor from the exploitation of the taxpayer's services. The third trustees were required to deposit with a stakeholder the maximum price payable by them but as the price fell with the accrual of the taxpayer's earnings the excess amount deposited was to be returned to the trustees. The third trustees borrowed the sum they were required to deposit from the second trustees, whose consent was, of course, necessary to the sale by the first trustees of their trust property, namely, the option on the services of the taxpayer. The second trustees obtained the substantial sum which they lent to the third trustees by selling that trust property to the middlemen's company which, of course, was the vendor to the third trustees. The substantial sum of money paid, borrowed and deposited in those transactions went round in a circle. The only substantial money outside the circle of the scheme came from the earnings of the taxpayer which, as they accrued, were to be used by the middlemen's company (after the appropriate commission etc had been deducted) in reducing the sum deposited by the third trustees. The sums received by the latter were to be used in repaying the sum borrowed from the second trustees. The sums so received by the second trustees would, it was expected, be tax free capital receipts in their hands and as such available, in the second trustee's discretion, to advantage the taxpayer. PART II The following is an alphabetical list of persons concerned with the open commercial trust scheme. After each person there is inserted in brackets a name by which he is called in the succeeding parts of the case. Aquarius Trust Ltd ('Aquarius') - a charitable company limited by guarantee and not having a share capital; the ultimate beneficiary under the first trust. Black, Jack ('Mr Black') - solicitor of the Supreme Court, a partner in Heald Johnson & Co, solicitor to Miss Christie and Mrs Metcalfe; a director of and secretary to the taxpayer company; secretary to Godmour, and a director of and secretary to Swanlack. Black Nominees Ltd ('the taxpayer company') - the appellant, a company with an issued capital of £ 2 and trustee of a declaration of trust (the second trust). {377} Budd Nominees Ltd ('Budd') - stakeholder under the cross-option agreement; 'owned' and directed by friends of Mr Crewe. Burgess, Anthony Jack ('Mr Burgess') - a notary public. Christie, Julie Frances ('Miss Christie') - an actress. Crewe, James Colin ('Mr Crewe') - a director of and shareholder of Crewe, the settlor of trusts of which the trustees were Downer, Watkins and Rhodes. Crewe and Partners Ltd ('Crewe') - a company with an issued share capital of £ 10 owned in equal shares by Mr Crewe and his wife. Cymbeline Enterprises Ltd ('Cymbeline') - formed by partners in Stanley Gorrie Whitson & Co, accountants. Downer, David Towers ('Mr Downer') - a director of Budd and a friend of Mr Crewe. Downer Nominees Ltd ('Downer') - a company with an issued capital of £ 3 which acted as trustee for a settlement made by Mr Crewe. Gemini Trust Ltd ('Gemini') - a charitable company limited by guarantee and not having a share capital. Goddard, George Kelsey ('Mr Goddard') - solicitor of the Supreme Court, a partner in Heald Johnson & Co and a director of Godmour. Godmour Nominees Ltd ('Godmour') - a company with an issued share capital of £ 2 and trustee of the first trust. Stanley Gorrie & Partners ('the financiers') - a firm of finance providers which took an active part in the selling and operation of the open commercial trust scheme. Stanley Gorrie Whitson & Co ('the accountants') - accountants. Gorrie, Stanley ('Mr Gorrie') - a partner in Stanley Gorrie & Partners and Stanley Gorrie Whitson & Co, the introducer of Mrs Metcalfe to the open commercial trust scheme and a director of Cymbeline. Gorrie, Sylvia Marjorie ('Mrs Gorrie') - the wife of Mr Gorrie and a partner in Stanley Gorrie & Partners. Grindley, Clive ('Mr Grindley') - a director of Downer. Harding, Olive ('Miss Harding') - theatrical agent and a director of the taxpayer company and London Artists which acted as theatrical agents to Miss Christie. Heald Johnson & Co - solicitors whose partners included Mr Black who advised Mrs Metcalfe and Miss Christie, Mr Goddard and Mr Swan. Heasman, Sidney R ('Mr Heasman') - a partner in Stanley Gorrie & Partners and Stanley Gorrie Whitson & Co and a director of Cymbeline. Jackson, Michael ('Mr Jackson') - a director of Univats. Jones, Timothy Angus ('Mr Jones') - a solicitor of the Supreme Court, a one time partner in George & William Webb and Beer & Co, the inventor of the open commercial trust scheme and the solicitor, as a partner in Beer & Co, who acted for Cymbeline, Budd and Stanley Gorrie & Partners. Knowsley & Co Ltd ('Knowsley') - merchant bankers, a subsidiary of Nealville Investments Ltd. Kimble, Bernard Henry ('Mr Kimble') - a partner in Stanley Gorrie Whitson & Co and Stanley Gorrie & Partners. Kukac, Leonard Charles ('Mr Kukac') - an employee of Stanley Gorrie Whitson & Co and a director of Rosebroom. London Artists Ltd ('London Artists') - theatrical agents. Metcalfe, Elsie ('Mrs Metcalfe') - an acquaintance of Mr Gorrie and the settlor of the first trust, the second trust and the third trust. Rhodes Nominees Ltd ('Rhodes') - a company limited by guarantee and not having a share capital, trustee of a trust set up by Mr Crewe. Rosebroom Ltd ('Rosebroom') - a company with an issued share capital of £ 2 held by employees of Stanley Gorrie & Whitson & Co, the employees of which also provided the only two directors - the company to which Miss Christie pledged her services as an actress. Sandelson, Brian Henry ('Mr Sandelson') - managing director of Knowsley. {378} Swan, Richard Roland Seymour ('Mr Swan') - a solicitor of the Supreme Court, a partner in Heald Johnson & Co and a director of Swanlack. Swanlack Nominees Ltd ('Swanlack') - a company with an issued capital of £ 2 and trustee of the third trust. Univats Ltd ('Univats') - a subsidiary of Gemini. Vic Films Ltd ('Vic') - a film making company. Vineyard Films Ltd ('Vineyard') - a film making company. Wagner, Raymond ('Mr Wagner') - a film maker. Warwick, B J ('Mr Warwick') - a certified accountant and auditor to the trustees of the second trust and also to the trustees of the third trust. Watkins Nominees Ltd ('Watkins') - a company limited by guarantee and not having a share capital - the trustee of a trust made by Mr Crewe. Woods Nominees Ltd ('Woods') - a company 'owned' and directed by friends of Mr Crewe. Woods, N J ('Mr Woods') - a friend of Mr Crewe and a director of Woods. PART III The following documents were proved or admitted before the commissioners and in the succeeding parts of the case stated were referred to by the names inserted in brackets. 'A. Deed of settlement made between Mrs Metcalfe and Godmour on 14th December 1965 ('the first trust'). 'B. Deed of settlement made between Mrs Metcalfe and the taxpayer company on 14th December 1965 ('the second trust'). 'C. Appointment dated 14th December 1965 by Godmour supplemental to the first trust ('the Godmour appointment'). 'D. Deed of settlement made between Mrs Metcalfe and Swanlack on 14th December 1965 ('the third trust'). 'E. Appointment dated 14th December 1965 by Swanlack supplemental to the third trust ('the Swanlack appointment'). 'F. Abstract of an option agreement made between Rosebroom and Godmour on 16th December 1965 ('the principal option agreement'). 'G. Abstract of conditional sale agreement made between Godmour and Cymbeline on 17th December 1965 ('the conditional sale agreement'). 'H. Abstract of Cross-Option Agreement made between Cymbeline and Swanlack on 17th December 1965 ('Cymbeline cross-option agreement.)' 'J. Letter of authority dated 17th December 1965 from Swanlack to the accountants pursuant to the Cymbeline cross-option agreement (document H) with form of undertaking countersigned by accountants dated the same day ('the Swanlack authority'). 'K. Letter dated 17th December 1965 from the taxpayer company to Swanlack offering advance of £ 475,000 ('the advance offer'). 'L. Abstract of option agreement made between Rosebroom and Swanlack on 20th December 1965 ('the Rosebroom option agreement'). 'M. Abstract of service agreement made between Rosebroom and Miss Christie on 20th December 1965 ('the service agreement'). 'N. Notice dated 20th December 1965 by Rosebroom to Godmour of execution of the service agreement ('the Rosebroom notice'). 'O. Letter dated 20th December 1965 from Swanlack to the financiers relating to financial facilities in connection with the Cymbeline cross-option agreement ('Swanlack's financial facilities application'). 'P. Letter dated 20th December 1965 from Cymbeline to Swanlack approving the financiers as guarantors for the Cymbeline cross-option agreement ('the Cymbeline approval'). {379} 'Q. Offer for sale by the taxpayer company to Cymbeline dated 22nd December 1965 ('the Black nominees offer'). 'R. Receipt dated 22nd December 1965 by Swanlack for £ 475,000 paid by the taxpayer company ('the Swanlack receipt'). 'S. Consent dated 22nd December 1965 by Cymbeline to Godmour ('the Cymbeline consent'). 'T. Abstract of transfer agreement between Rosebroom and Cymbeline dated 22nd December 1965 ('the transfer agreement'). 'V. Receipt dated 22nd December 1965 by Swanlack for £ 4,050 paid by the financiers ('the Swanlack second receipt'). 'W. Deed of guarantee made between Mr Gorrie and others, Swanlack and Cymbeline on 22nd December 1965 ('the guarantee deed'). 'X. Receipt dated 22nd December 1965 by Budd for £ 479,050 deposited by Swanlack ('the Budd Receipt'). 'Y. Statutory declaration dated 1st February 1966 by Mr Burgess ('the first statutory declaration'). 'Z. Minutes of board meeting of Downer on 15th December 1965 ('the Downer minutes'). 'A1. Minutes of board meeting of Watkins on 20th December 1965 ('the Watkins minutes'). 'B1. Minutes of board meeting of Rhodes on 21st December 1965 ('the Rhodes minutes'). 'C1. Abstract of cross-option agreement between Univats and Downer dated 15th December 1965 ('the Univats cross-option agreement'). 'D1. Letter dated 16th December 1965 from Cymbeline to Crewe ('the Cymbeline offer'). 'E1. Letter dated 16th December 1965 from Downer to Crewe relative to previous letter ('Downer's authorisation'). 'F1. Appointment dated 16th December 1965 between Univats and Cymbeline relative to the conditional sale agreement ('the Univats appointment'). 'G1. Appointment dated 16th December 1965 between Downer and Crewe relating to the Cymbeline cross-option agreement ('the Downer appointment'). 'H1. Abstract of sub-agency agreement between Crewe and Cymbeline dated 16th December 1965 supplemental to the Downer Appointment ('the sub-agency agreement'). 'J1. Letter dated 16th December 1965 from Crewe to Budd, Woods and Downer relative to finance ('the Financial arrangements letter'). 'K1. Appointment dated 22nd December 1965 between Univats and Cymbeline relative to Black Nominees Offer ('the Univats second appointment'). 'L1. Notice dated 22nd December 1965 by Univats to Downer ('the Univats notice'). 'M1. Receipt dated 22nd December 1965 by Woods for £ 479,050 advanced by Budd ('the Woods receipt'). 'N1. Acknowledgment dated 22nd December 1965 by Downer for indebtedness to Woods ('the Downer acknowledgment'). 'O1. Acknowledgment dated 22nd December 1965 by Crewe relating to fee of Budd ('the Crewe acknowledgment'). 'P1. Acknowledgment dated 22nd December 1965 by Crewe relating to fee of Woods ('the Crewe second acknowledgment'). 'Q1. Abstract of option agreement made between Downer and Watkins and dated 22nd December 1965 ('the Watkins option agreement'). 'R1. Abstract of option agreement made between Watkins and Rhodes and dated 22nd December 1965 ('the Rhodes option agreement'). 'S1. Appointment dated 22nd December 1965 between Watkins and Crewe ('the Watkins appointment'). {380} 'T1. Abstract of sub-agency agreement between Crewe and Cymbeline dated 22nd December 1965 ('the second sub-agency agreement'). 'U1. Abstract of agency agreement dated 22nd December 1965 between Rhodes and Crewe ('the Rhodes agency agreement'). 'V1. Abstract of sub-agency agreement made between Crewe and Cymbeline dated 22nd December 1965 ('the Crewe sub-agency agreement'). 'W1. Letter of authority dated 22nd December 1965 from Rhodes, Watkins, Downer, Woods and Budd to Crewe ('the joint authority'). 'C2. A bundle of correspondence relating to the formation of Black Nominees, Swanlack and Godmour ('the formation correspondence'). 'F2. Mr Jones's notes for the steps to be taken to carry out the open commercial trust scheme devised for Miss Christie ('the Christie steps'). 'G2. Mr Jones's notes for the steps to be taken by Crewe and its associates to carry out their participation in that scheme ('the Crewe steps'). 'T2. Accounts of Swanlack as trustees of the third trust for the period ended 5th April 1967 and the two years ended 5th April 1968 and 1969 respectively ('the third trust accounts'). PART IV As a result of the evidence both oral and documentary adduced before them the commissioners found the following primary facts proved or admitted. 1. The open commercial trust scheme, invented by Mr Jones in or about the year 1961, was sold to potentially high-earning individuals as a scheme which it was hoped would reduce the tax payable on their earnings. It was sold by the accountants who through the financiers could make available the necessary financial arrangements and through Mr Jones's firm, the required documents, all of which were ready in draft form. The accountants were also in touch with Mr Crewe and his associates who through their companies could, it was hoped, by judicious manipulation of receipts and payments flowing from the scheme, secure favourable taxation results and enable the accountants to quote more favourable terms to the person to whom the scheme was being sold. That was possible because the arranged treatment of the results for Mr Crewe's companies for taxation purposes enabled the financiers to be satisfied with a lesser figure of commission for themselves and their associates than would be the case if Mr Crewe and his associates were not brought into the scheme. 2. In the autumn of 1965 Mr Gorrie of the accountants was approached by Miss Harding to see if he could produce a tax avoidance scheme for Miss Christie who was by then a reasonably successful film actress and likely to become a star. London Artists had for some years been theatrical agents to Miss Christie and had looked after her affairs through Miss Harding, one of its directors. For a few years prior to 1965 Miss Christie had employed an accountant but in the autumn of that year Miss Harding thought Miss Christie's earnings were likely to rise to such a level that she ought to take steps to avoid if possible some of the charge to tax on those earnings. Miss Christie had just made a film called 'Dr Zhivago' which was likely to be very successful and negotiations were taking place for her to make a film for which she would be paid at least us/100,000. Miss Harding suggested to Miss Christie one or two names of individuals (including that of Mr Gorrie) who might help Miss Christie to avoid some of the charge to tax on her earnings. She selected Mr Gorrie and Miss Harding approached him to ask if he had a scheme to 'minimise the tax problems' of a young actress, namely, Miss Christie. Mr Gorrie recommended, as suitable for the purpose, Mr Jones's open commercial trust scheme which Mr Gorrie expounded to Miss Harding, who accepted it on behalf of Miss Christie. 3. Mr Gorrie then enquired of Miss Harding if Miss Christie had a good friend who would be prepared to enter into the settlements necessary to get the scheme going. Miss Harding could not think of any such friend and Mr Gorrie bethought himself of Mrs Metcalfe, an old acquaintance of his, who, because of her interest in the arts, {381} might be an ideal person to be the settlor for the three trusts necessary to get the scheme off the ground. Mr Gorrie thereupon telephoned Mrs Metcalfe 'out of the blue'. There was some conflict in the evidence of Mr Gorrie and Mrs Metcalfe as to what was said between them. Having seen both of them as witnesses the commissioners found that the conversation on the telephone was probably to the following effect. Mr Gorrie asked Mrs Metcalfe if she would make a gift of £ 100 for the benefit of an up and comming young actress, Miss Christie, who, Mr Gorrie explained, would be a worthy object of Mrs Metcalfe's generosity. Mr Gorrie sketched in Miss Christie's background and achievements and said it would be a charitable act on the part of Mrs Metcalfe to make a gift for Miss Christie. Mrs Metcalfe agreed to make the gift asked for. 4. At the time of the approach by Mr Gorrie Mrs Metcalfe had never heard of Miss Christie. Mr Gorrie presumed to make the approach to Mrs Metcalfe because he knew she was interested in films and repertory and it was because of this interest and Mr Gorrie's request that Mrs Metcalfe agreed to give away £ 100 to help Miss Christie. No mention was made in that first conversation of Mrs Metcalfe making settlements with her gift. She was subsequently asked to make three settlements and to make her gift of L100 by way of two cheques, one of £ 75 as the corpus of the first trust and one of £ 25 as that of the third trust. 5. Once the scheme had been sold to Miss Christie and once Mrs Metcalfe had been laid on as the potential settlor to inaugurate the scheme, Mr Jones was alerted by Mr Kimble, a partner in the accountants and the financiers, to set the ball rolling. That was on 17th November 1965. Mr Jones's instructions were to organise the scheme for the benefit of Miss Christie and from the point of view of every party in it and to draft the necessary documents which were to be supplied to the parties in the scheme or their advisers. Mr Kimble also asked Mr Black, whose firm occupied offices in the same building as the accountants, if Mr Black would be prepared to act as solicitor for Miss Christie and for Mrs Metcalfe in the scheme and whether he and his partners would act as directors of trustee companies in the scheme. Mr Black was aware of the general outlines of the open commercial trust scheme from gossip over the years with Mr Kimble who had shown him the draft documents for the scheme. Mr Black stipulated that if he was to act as a director of a trustee company he should have as a co-director someone who knew Miss Christie and the other beneficiaries, namely her family. 6. On 24th November there was held a meeting at the offices of the accountants at which were present Miss Christie, her accountant, Miss Harding, Mr Black, Mr Gorrie, Mr Kimble and Mrs Metcalfe. By that date Mr Black had agreed to act for Miss Christie and Mrs Metcalfe; he and his partners had agreed to act as directors of trustee companies; and Mr Black had approved Miss Harding (who was suggested by Mr Kimble) as a suitable individual to be his co-director. Also by that time Mrs Metcalfe had been asked and had agreed to create three settlements instead of making a straight gift of £ 100. Mrs Metcalfe had also been informed that Mr Black would advise her. The open commercial trust scheme was explained in detail at the meeting. 7. Two days later, on 26th November, Mr Jones gave instructions to his partner, Mr Webb, to form three more trust companies for their client, Heald Johnson & Co, and for the bill to be delivered to them. Mr Black had given instructions so to proceed to Mr Kimble. The three companies, Godmour, the taxpayer company and Swanlack were incorporated on 8th December. The cost of forming them was £ 59 15s 8d. Mr Jones thought that that cost had been borne by Heald Johnson & Co, but Mr Black said no bill had ever been rendered for it. Meanwhile, following instructions from the financiers, arrangements were made for Cymbeline to be formed - which was done on 6th December 1965. Cymbeline, besides being the vehicle to provide the financiers with their commission, was the link with Mr Crewe and his companies and was to be used as an agent for undisclosed principals in dealings with those representing Miss Christie's interests. Mr Black did not become aware of those {382} undisclosed principals before 22nd December and then did not need to concern himself with them. As far as he was concerned he was dealing with Cymbeline, and the persons standing behind Cymbeline were of no importance or interest to him. Mr Black was only concerned to carry out the scheme as devised and arranged by Mr Jones. 8. By 4th December 1965 Mr Jones had drawn up a plan of campaign to implement the open commercial trust scheme for Miss Christie. That plan was in two parts: firstly, the actions to be taken in relation to Cymbeline (as agent for undisclosed principals) ('the Christie steps') (document F2); and secondly the actions to be taken in relation to Cymbeline's undisclosed principals in connection with the scheme for Miss Christie ('the Crewe steps') (document G2). As previously stated, Mr Jones had ready prepared the draft documents for the scheme which had to be adapted to meet the particular requirements of the scheme for Miss Christie. When he supplied, as he did, each participant in the scheme (or his adviser) with the draft or engrossment of a document, Mr Jones indicated on it its place in the Christie or Crewe steps. Mr Black scrutinised all the drafts of documents to be signed by Miss Christie, Godmour, the taxpayer company, Swanlack and Mrs Metcalfe to make sure the transactions they embodied were proper transactions to be entered into by his clients and that the documents were in the appropriate form to effect the various steps in the scheme. Occasionally Mr Black found it necessary to suggest minor amendments to the drafts submitted to him by Mr Jones. Mr Jones, instructed by the financiers and then by Cymbeline and Mr Crewe's companies, supervised the preparation and carrying into effect of the scheme which took place as shown in the next following paragraphs. 9. On 29th November 1965 Mr Jones wrote to Mr Kimble enclosing drafts of documents A to E inclusive (see p 378, ante) with spare copies for Mr Black. Mr Kimble passed on these by letter of the same date to Mr Black. Mr Kimble wrote to Mr Jones giving particulars of what Miss Christie's advisers wanted incorporated in the service agreement (document M). On 1st December Mr Jones sent a draft of the service agreement to Mr Kimble. On 2nd December Mr Kimble sent a copy of this draft to Mr Black. On 3rd December Mr Jones sent to Mr Black amendments to riders to documents B and D and revised drafts of documents A, B and D. Those were discussed between Mr Black and Mr Jones. Mr Jones telephoned Mr Goodman of Bartlett and Gluckstein to discuss the money payable to Univats if it took part in the Christie scheme. On 7th December Mr Black replied to Mr Jones about those suggested amendments. Mr Jones sent to Mr Kimble and to Mr Black a copy of the Christie steps and drafts of documents F to X inclusive. Mr Jones also sent extra copies of those drafts of documents and documents in relation to a Jersey company which the financiers had it in mind to form. (That company was never formed.) Mr Jones settled Univats's fee at £ 500 with Mr Goodman. On 8th December Mr Jones sent the engrossment of the service agreement to Mr Black for signature by Miss Christie and copies to Mr Black and Mr Kimble. Mr Jones sent to Mr Black copies of riders to documents B and D. On 9th December Mr Black sent the engrossment of the service agreement to Miss Harding for Miss Christie to sign over a 6d stamp. It was to be returned as soon as possible to Mr Black to hold and in due course exchange it for the engrossment signed by Rosebroom. On 10th December the engrossment signed by Miss Christie was returned to Mr Black. It would have required some act on the part of Miss Christie to countermand Mr Black's authority to exchange that document for Rosebroom's part of the contract. On 13th December Mr Black received from Beer & Co the seals, certificates of incorporation and copies of documents filed with the registrar for Godmour, the taxpayer company and Swanlack. Mr Jones sent to Mr Black a proposed timetable for the completion of the scheme and a proposal for a completion meeting. Mr Jones also sent a copy of the proposal for the completion meeting to Mr Crewe. Mr Jones sent to Mr Kimble copies of the proposed timetable and proposal for completion meeting. Mr Jones sent to Mr Kimble calculations of figures relating to the sums payable to the financiers and Mr Crewe and his associates as {383} money was earned by the exploitation of Miss Christie's services. By 13th December 1965 all the invitations to individuals to attend the completion meeting on 22nd December 1965 had been issued by Mr Jones. 10. By 14th December 1965 the scheme had been worked out in detail and the plans for its completion had been settled and a start was able to be made on entering into the many and varied legal relationships which, it was hoped, would bring the tax avoidance scheme to effective reality. (a) The first and most important events on 14th December were the creation of the three trusts by Mrs Metcalfe. Those trusts were admitted by the Crown to be valid trusts. The documents creating the first trust (document A), the second trust (document B) and the third trust (document D) were executed by Mrs Metcalfe in Mr Black's office. Mrs Metcalfe was advised by Mr Black as her solicitor and he explained to her the broad effect of the various documents she was to sign, after recalling her willingness to make a gift of £ 100 which, he understood, she had no objection to settling in accordance with the terms of the deeds. Mr Black also explained in general terms that the deeds were to take their part in a scheme to enable Miss Christie to avoid tax. Mrs Metcalfe was, not unnaturally, worried, having regard to the volume and complexity of the documents she was asked to sign, that their signature by her might involve her in liability in excess of her £ 100 gift. Mr Black assured her on this point and made the assurance doubly sure by writing to her the next day. (b) Having signed the three documents Mrs Metcalfe dropped right out of the picture. No bill was sent to her by Mr Black for the services rendered to her. Mrs Metcalfe having agreed to make a gift of £ 100 and then to settle the money - both at the request of the financiers to enable them to earn money and Miss Christie to save tax - Mr Black, not perhaps unnaturally, thought it would have been inappropriate and inviting a dusty answer to have sent to Mrs Metcalfe a bill for the services he rendered to her as her solicitor. In fact, the bill for the cost of preparing and executing the three settlement and advising Mrs Metcalfe was paid by the taxpayer company as trustee of the second trust. (c) When she gave evidence before the commissioners Mrs Metcalfe could not recollect asking Mr Black to act as her solicitor in relation to the three settlements; or going through the settlements with him (although she said Mr Black must have gone through them with her); or the contents of the deeds of settlement. In view of the passage of time - five years - and the fact that Mrs Metcalfe had apparently had nothing whatever to do with the operation of the settlements and had not been kept in touch with that by the trustees, her lack of recollection was not surprising. Moreover, the commissioners were satisfied that Mrs Metcalfe never at any time had any idea of the nature or extent of the ramifications of Miss Christie's open commercial trust scheme. (d) The first trust, the second trust and the third trust were all executed by Godmour, the taxpayer company and Swanlack on 14th December 1965. On that same day Godmour and Swanlack also executed the Godmour and Swanlack appointments respectively (documents C and E). (e) Thus, on 14th December 1965 Godmour was established as trustee of the first trust, and vested with power under the trust deed to carry on business and had by the Godmour appointment irrevocably appointed that the whole of the trust fund (L75) should be employed as circulating capital in that business, which it proposed to carry on. Under the first trust Godmour was to hold the trust fund (L75) to pay the income to the taxpayer company as trustee of the second trust for 21 years and, subject thereto, to hold the trust fund for Aquarius, a charitable company. Further, Godmour was forbidden to sell the trust property without the consent of the taxpayer company, or the owner for the time being of the 21 year interest in the income of the first trust. The directors of Godmour were Mr Goddard and Mr Swan, partners of Mr Black who was secretary to the company. {384} (f) On the same date the taxpayer company was established as trustee of the second trust. The trust property of the second trust was the 21 year interest in the income of the first trust. That trust property was directed to be held on an ordinary trust for sale, with power in the trustees to postpone sale. The beneficial trust of the second trust was a discretionary trust for a class of objects comprising Miss Christie and various members of her family. Mr Black and Miss Harding were directors of the taxpayer company, the trustee of the second trust, and Miss Harding was appointed 'protector's under the provisions of the second trust. When she gave evidence before the commissioners Miss Harding had no recollection that she was the protector. (g) On the same day, namely, 14th December, Swanlack was installed as trustee of the third trust. That trust settled £ 25 (the balance of Mrs Metcalfe's gift for Miss Christie) on discretionary trusts for the benefit of Miss Christie's family but not of Miss Christie herself. Miss Harding was appointed a protector under the third trust but she had no recollection of that. Mr Black and his partner, Mr Swan, were directors of Swanlack. By the Swanlack appointment Swanlack, on 14th December 1965, irrevocably appointed that the whole of the trust fund (L25) should be employed as circulating capital in the business which it was authorised, and had resolved, to carry on. The third trust accounts (document T2) did not show any trading and/or profit and loss accounts relating to any trade carried on by Swanlack as trustee of the third trust. Mr Black thus held office in all the companies which acted as trustee in the scheme and was legal adviser to the settlor of all the settlements, namely, Mrs Metcalfe, as well as to Miss Christie, the amelioration of whose taxation position was the object of the whole elaborate exercise embodied in the open commercial trust scheme. (h) Meanwhile, Mr Jones had also been active on 14th December 1965. He sent to Messrs Ba-lett and Gluckste&n, December 1965. He sent to Messrs Bartlett and Gluckstein, solicitors to Univats, inter alia an engrossment of the Univats cross-option agreement (document C1) with a note that it was to be exchanged on 15th December. He sent to Mr Kimble a copy of the Rosebroom notice (document N) and Rhodes Minutes (document B1). He wrote to Mr Burgess, a commissioner for oaths, to confirm arrangements for Mr Burgess to attend the completion meeting for the open commercial trust scheme at Grosvenor House on 22nd December 1965. It was Mr Burgess who in due course produced the first and second statutory declarations (documents Y and X1). He wrote to Knowsley arranging for a representative to attend the completion meeting at Grosvenor House on 22nd December. (Knowsley provided eight of the nine banker's drafts which circulated at the completion meeting: see paras 18 and 19 below.) He sent to Mr Black, inter alia, the engrossments of documents A to E inclusive. (i) To complete the events of 14th December 1965, Mr Black notified Mr Jones that at the completion meeting at Grosvenor House the trustee companies would be represented as follows: Godmour by Mr Swan; Black Nominees by Miss Harding; Swanlack by Mr Black. 11.At midnight on 14th December 1965 therefore, the three trusts were in being with trustees all operating from Mr Black's offices and Godmour and Swanlack had designated their £ 75 and £ 25 respectively as circulating capital of businesses they proposed to carry on, presumably from Mr Black's offices.Those first steps having been taken, the way was then open for the financiers and Mr Crewe and his associates to take their appropriate steps. On 15th December (a) Downer, Watkins and Rhodes each resolved that as trustee of a settlement made by Mr Crewe and as part of the business it carried on, it could take part in the Christie scheme (documents Z, A1 and B1). (b) Mr Black wrote his letter of assurance to Mrs Metcalfe. (c) Mr Jones sent to Bartlett and Gluckstein: the draft Univats appointment (document F1) for execution on 16th December and a draft of the principal option agreement; the Univats cross-option agreement signed on behalf of Downer together with Downer's cheque for £ 20 to Univats, with a note that the Univats cross-option agreement was to be exchanged with the part signed by Univats. Bartlett and Gluckstein sent to Mr Jones, {385} inter alia, the part of the Univats cross-option agreement signed by Univats which they had exchanged for the part signed by Downer. Mr Jones confirmed with the Grosvenor House Hotel the reservation of a suite in which to hold the completion meeting on 22nd December 1965. Mr Jones sent to Mr Black the engrossment of the principal option agreement for execution by Godmour on 16th December. (d) The Univats cross-option agreement was made between Univats and Downer, as trustee of a trust made by Mr Crewe for the benefit of his family. The agreement recited that Univats contemplated the acquisition of the benefits of a transfer agreement relating to the professional services of Miss Christie, through the agency of Cymbeline, and in consideration of £ 20 gave Downer a call option on those benefits at a price of £ 476,130 and Univats a put option at the same price. Crewe was designated as Downer's agents and Cymbeline was designated as sub-agent under the agreement. Univats was a company which was brought into the scheme on the basis that it would make a quick profit of £ 500. The Univats cross-option agreement was made in contemplation of the execution on the following days of documents under which Univats would appoint Cymbeline as its agent; Cymbeline would enter into the conditional sale agreement; Godmour would enter into the principal option agreement with Rosebroom; and Miss Christie would enter into the service agreement with Rosebroom.Univats made its profit of £ 500 and the contemplated executions took place. The arithmetic of the price of £ 476,130 for the Christie rights under the Univats cross-option agreement might, therefore, be set out in relation to the agreement and the subsequently executed documents. The framers of the scheme had determined that (subject as mentioned below): £ 475,000 was to find its way to the taxpayer company for the sale of its term interest under the first trust. That figure of £ 475,000, which was not the subject of any negotiations, represented the estimated maximum net proceeds from Miss Christie's services over the next seven years after taking into account her agents' commission and the salary under the service agreement. The taxpayer company would only receive the full£ 475,000 if Miss Christie's services yielded that estimated maximum figure. Rosebroom was to have and retain £ 500 on the exercise by Godmour of its option under the principal option agreement; £ 150 was to be paid to and retained by Godmour for the sale to Cymbeline of its option under the principal option agreement by virtue of the conditional sale agreement. Those payments totalled £ 475,650 (L475,000 + £ 500 + £ 150). If from the price for the rights under the Univats cross option agreement namely £ 476,130 was deducted that figure of £ 475,650, the resulting balance left with Univats would be £ 480. That with the payment of £ 20 from Downer under the Univats cross-option agreement would leave Univats with its agreed profit of £ 500. 12. On 16th December 1965 (a) Mr Jones sent by hand to Mr Kimble the following documents to be signed and if possible returned to him by midday on that day: the principal option agreement; the Cymbeline offer (document D1); Downer's authorisation (document E1); the sub-agency agreement (document H1); draft of Swanlack authority (document J) and financial details. Mr Jones sent to Mr Black: the Swanlack authority with a note that that should be dated the same day as the Cymbeline cross-option agreement (document H) and financial details. Bartlett and Gluckstein sent to Mr Jones an authority signed that day by a director of Univats and appointing Cymbeline the agent of Univats in relation to the acquisition of the Christie rights. (b) The Cymbeline offer was executed. That offer provided in the event of the scheme proceeding that Cymbeline should be sub-agents to Downer; Cymbeline should recover its costs to date not exceeding £ 7,025; and Cymbeline's commission should be fixed by reference to the net proceeds of exploiting the rights to Miss Christie's services. Cymbeline up to that time had been commercially responsible for getting the Christie scheme organised. It was liable for the costs of that work and the Cymbeline offer loaded the expense on to Downer, one of Crewe's companies. Downer's authorisation was also executed on that day, as were Univats's appointment of Cymbeline as its agent in the scheme, the Downer appointment constituting Crewe {386} as agents for Downer and the sub-agency agreement constituting Cymbeline as subagent to Crewe. Cymbeline as the agent of Univats and as the sub-agent to Crewe as agent for Downer thus became the executive operator of the scheme. On the same date the financial arrangements letter (document J1) was executed. That bound Budd, Wood and Downer to make arrangements for the circulation of drafts and other financial details in connection with events planned to take place under the scheme. That document made it clear that instead of, as might be supposed from the face of the Cymbeline cross-option agreement, the deposit of £ 479,050 remaining with the stakeholder Budd, it was to return to Knowsley via Wood; Knowsley being the bank which would be the original provider of the £ 479,050 going to Wood through the taxpayer company and Swanlack. The only assets of Budd and Wood were debts created in other schemes of a similar nature to those created in the Christie scheme. At that stage in the proceedings Cymbeline, acting through Mr Kimble, was poised to take the necessary steps in relation to the three trustees Godmour, the taxpayer company and Swanlack acting through Mr Black. As already indicated, Mr Black at that stage had no idea that Cymbeline was a cover for all the interests of Mr Crewe and his associates as well as the financiers. It was the general policy of the financiers, and Mr Jones was so instructed, not to let the taxpayer in an open commercial trust scheme know about, or have contact with Mr Crewe and his associates in case an attempt was made to exclude the financiers from the enjoyment of the commission taken from the earnings of the taxpayer as the price of - hopefully - reducing his liability to tax. (c) The last act, performed on 16th December, was the execution of the principal option agreement. Under that agreement Godmour sank one third of its trust capital of £ 75 in acquiring an option on the transfer to it of the benefit of the service agreement if Rosebroom by using its best endeavours succeeded in persuading Miss Christie to enter into it. In the event of Rosebroom so succeeding Godmour was on payment of £ 500 to be bound, as was Rosebroom, by the transfer agreement (document T), which in draft was attached to the principal option agreement, and provided for the transfer of the benefit of Miss Christie's 'professional services'. Under the principal option agreement Rosebroom, who had nothing to do with the first trust, agreed with Godmour that Godmour would hold the option on the trusts of that trust. At the time the principal option agreement was executed, Mr Black was, of course, holding the engrossment of the service agreement signed by Miss Christie. Godmour had paid away £ 25 of its trust capital to secure an option on Miss Christie's services which it could exercise only on paying £ 500, a sum beyond its resources which were then £ 50, namely Mrs Metcalfe's part gift of £ 75 less the £ 25 paid for the option. 13. (a) On 17th December 1965 Mr Jones sent to Mr Kimble engrossments of the conditional sale agreement and the Cymbeline cross-option agreement for signature and return to him by midday. (b) He sent to Mr Black engrossments of: the conditional sale agreement, the Cymbeline cross-option agreement, the Swanlack authority and advance offer (document K), as well as various documents relating to the appointment of Knowsley as bankers to the taxpayer company and Swanlack and requests for bank drafts by the latter companies. (c) The conditional sale agreement was executed on 17th December 1965. Under that agreement Godmour sold for £ 150 to Cymbeline the option which it had acquired under the principal option agreement. That sale was conditional on the consent of the taxpayer company or its assigns, which consent was necessary under the terms of the deed setting up the first trust. Mr Jones advised Cymbeline to enter into the conditional sale agreement on the following basis: it was committing itself to an immediate payment of £ 150 which if the scheme did not go through, would be lost. The sum was small in relation to the legal expenses already incurred in getting the Christie scheme started. If the scheme went through as expected, Cymbeline would get 17 1/2 per cent of Miss Christie's net earnings over seven years which had been estimated to be likely to be up to £ 475,000. Cymbeline with the expertise of the {387} financiers and Mr Crewe and his associates behind it was now in a position to acquire the option on Miss Christie's services if Mr Black (as solicitor to Miss Christie) would proceed to exchange the signed engrossment of the service agreement which he held and which she had instructed him to exchange and (as director of the taxpayer company) to give his consent under the first trust to the transfer of the option on Miss Christie's services, to Cymbeline. (d) The next deed executed on 17th December 1965 was the Cymbeline cross option agreement. That formidable document gave to Swanlack an option on the professional services of Miss Christie which Cymbeline undertook to do its best to procure. It gave to Cymbeline a put option enabling it to insist that Swanlack buy the rights to Miss Christie's services. The price payable was £ 484,250 less a deduction of the aggregate of the following: (1) 100 per cent of the first £ 9,400 of the net proceeds of the Christie rights; (2) 90 per cent of the next £ 28,200 of those net proceeds and (3) 82 1/2 per cent of the amount by which the net proceeds exceeded £ 37,600. Thus, as Cymbeline obtained cash from exploiting Miss Christie's services, the purchase price payable by Swanlack would go down. Under that agreement, Swanlack, on being notified that Cymbeline had acquired the rights to Miss Christie's services, was required to deposit with Budd, free of interest, the purchase price payable thereunder by it for those rights at the time of the deposit. Again, somewhat unusually, Cymbeline, who had nothing to do with the third trust, agreed with Swanlack that Swanlack should hold the option and benefit of the agreement on the trusts of that trust. Under the Swanlack authority the accountants were appointed to give any consent to be given by Swanlack under the Cymbeline cross-option agreement. The Cymbeline cross-option agreement left Cymbeline to enjoy part of the proceeds of Miss Christie's services as long as Swanlack did not exercise its option. If Swanlack did not exercise that option Cymbeline got for itself 17 1/2 per cent of Miss Christie's earnings in excess of £ 37,600. If those earnings were not as high as Cymbeline expected, it could call on Swanlack to acquire the rights to Miss Christie's services. Swanlack had to deposit with Budd either the purchase price of £ 484,250 or else £ 479,050 plus a guarantee for the difference of £ 5,200, but the deposit was to be repaid as the Christie proceeds were collected. Swanlack would be unlikely to exercise its call option because if it did it might be taxable on the Christie proceeds as profits of a trade in view of the Swanlack appointment. It was expected, therefore, that Swanlack would be content to take repayments of the deposit with Budd, which repayments, it was hoped, would not be taxable receipts of its trade. The arithmetic of the Cymbeline cross-option agreement was arrived at as follows: the financiers estimated Miss Christie's earnings over the seven years for which she would be tied to Rosebroom. From that they deducted agents' commission and expenses, the yearly payments to Rosebroom and Miss Christie's salary. The resulting figure was scaled down by the commission which Cymbeline expected to earn, namely 17 1/2 per cent, leaving a figure of £ 475,000. The purchase price payable by Swanlack, namely £ 484,250, was arrived at as follows:
(e) The remedying of Swanlack's impecuniosity was effected by the taxpayer company which, on 17th December 1965, offered in the advance offer to lend the proceeds of sale or £ 475,000 thereof to Swanlack if it, the taxpayer company, sold its term interest under the first trust. That loan was expressed to be free of interest and repayable only on demand and Swanlack's liability to repay the loan was to be limited to its trust capital at the time of any demand for repayment. Not surprisingly Swanlack accepted the offer. Mr Black regarded it as in the interest of the beneficiaries of the second trust to make the advance offer. He, as a director of the taxpayer company, was contemplating selling the trust properrty of the second trust, namely the term interest, to Cymbeline at a very advantageous figure of £ 475,000. Mr Black knew that Cymbeline would not be prepared to clinch the sale unless the terms of the Cymbeline cross-option agreement, of which Mr Black was well aware, were complied with. One of those terms was the deposit of £ 479,050 by Swanlack. Mr Black knew Swanlack, as trustee of the third trust, had only £ 25 and could only make the deposit if it could get the wherewithal elsewhere and elsewhere in this case would, in his view, be clearly a loan from the taxpayer company. It was, therefore, in the interest of the taxpayer company to make the loan to Swanlack, to enable Swanlack to make the deposit in the sure hope that the major part of Miss Christie's earnings would, under the scheme, filter back to Swanlack which would use them to repay the loan and enable Mr Black and his co-trustee to administer the loan repayments as the corpus of the second trust. Swanlack, as trustee of the third trust, having lived its fiduciary {389} life for three days with £ 25 of trust capital, thus found itself on the brink of administering some £ 475,000; and Mr Black, a director of Swanlack, knew that he, Mr Black, as a director of the taxpayer company, expected to sign an agreement on 22nd December 1965 to sell the term interest, being the trust capital of the second trust, to Cymbeline for £ 475,000. The second trust contained provisions to permit the making of such an unusual loan. And it was in the interest of the beneficiaries of the second trust that the loan should be made because it would enable the taxpayer company to exact a high price for the sale of the term interest, since Cymbeline would pay a high price if it could largely recover that price from Swanlack in the event of its estimate of the likely future earnings of Miss Christie proving excessive. (f) Also on 17th December 1965, Mr Jones wrote to Knowsley, the bankers in the scheme, with a list of the banker's drafts that would be necessary to satisfy the financial obligations arising when the scheme was brought to fruition on 22nd December, and with documents necessary for the appointment of Knowsley as bankers to the taxpayer company and Swanlack respectively. Having acted previously in such matters, Knowsley was familiar with the monetary arrangements which were necessary to complete an open commercial trust scheme. Indeed at the proposed completion meeting on 22nd December Knowsley was to act as bankers in relation to the completion of open commercial trust schemes other than that arranged for Miss Christie. 14. (a) On 20th December 1965: Mr Jones wrote to Mr Black enclosing engrossments of the Rosebroom option agreement (document L) and the Rosebroom notice together with financial details of the scheme. (b) He wrote to Mr Crewe enclosing requests for banker's drafts for use at the completion meeting to be signed by Downer, Budd and Wood and returned to him by 21st December together with the Watkins Minutes (document A1) and the Rhodes minutes (document B1) if those had been signed by then. (c) Mr Black sent to Mr Jones the following completed documents: (1) first trust; (2) second trust; (3) Godmour appointment; (4) third trust; (5) Swanlack appointment; (6) principal option agreement; (7) conditional sale agreement; (8) Cymbeline cross option agreement; (9) Swanlack authority; (10) advance offer plus duplicate and banking documents consisting of requests for Knowsley to act as bankers to the taxpayer company and Swanlack and requests for banker's drafts for cash in the sums of £ 475,000 and £ 479,050 respectively. (d) Mr Jones wrote to Mr Kimble enclosing an engrossment of the guarantee deed (document W) to be signed and sealed by Cymbeline and returned to Mr Jones by 21st December after, if convenient, Mr Kimble had arranged for the document also to be sealed by Swanlack. The document was needed for use at the completion meeting on 22nd December. (e) Mr Jones wrote again to Mr Kimble enclosing engrossments for execution and return to him by midday or, alternatively, for exchange with Mr Black if preferred. Those engrossments were: Rosebroom option agreement; service agreement; Rosebroom notice; counterpart of Swanlack's financial facilities application (document O) Cymbeline approval (document P) together with financial details of the sharing of commission under the scheme. Those details (see pp 390, 391, post) showed what would be the cut of those taking part in the scheme out of the profits to be earned by Miss Christie. (f) The Rosebroom option agreement was executed on 20th December 1965 between Rosebroom and Swanlack. The basic purpose of that agreement was to ensure that if the service agreement was executed Rosebroom would not, by any accident, be able to exploit Miss Christie's professional earnings to its own advantage. The Rosebroom option agreement recited the principal option agreement under which Godmour acquired an option to require Rosebroom to enter into the transfer agreement (see para 12(c) above) and secured to Swanlack an option to require Rosebroom to transfer the benefit of Miss Christie's services to Swanlack. That option was to be {390} Cymbeline re Christie Apportionment of Discount
* N.B. - The percentages of Watkins and Downer are approximate: but their combined percentages = 4% (or 6%) exactly. {391} Cymbeline re Christie Table of Commissions, Royalties etc.
(g) On the same date, 20th December, the Swanlack financial facilities application was made. By this application, which was agreed to, Mr Black, as a director of Swanlack, applied to the financiers for £ 4,050 which with the £ 475,000 to be advanced by the taxpayer company under the advance offer would enable Swanlack to deposit£ 479,050 with Budd under the Cymbeline cross-option agreement. In addition, application was made and agreed to for a guarantee by the financiers in respect of the difference between £ 484,250 and £ 479,050 as required by the Cymbeline cross-option agreement. On the same day the Cymbeline approval was given whereby the financiers (who included Mr Heasman) were approved of by Mr Heasman, acting as a director of Cymbeline, as guarantors under the Cymbeline cross-option agreement, in respect of the difference between the £ 484,250 and the£ 479,050. (h) At that stage of proceedings on 20th December the position was: The three trusts had been set up but Miss Christie's signed counterpart of the service agreement had not been exchanged. Godmour, trustee of the first trust, had under the principal option agreement paid Rosebroom £ 25 for an option over Miss Christie's services exercisable only if Miss Christie entered into the service agreement with Rosebroom. Cymbeline, under the conditional sale agreement, had contracted to purchase that option from Godmour for £ 150, conditional on the consent of the taxpayer company or their assigns as owner of the term interest settled under the second trust. If Mr Black exchanged Miss Christie's counterpart of the service agreement and if the taxpayer company or its successor gave its consent, Cymbeline would be able to acquire Miss Christie's services by entering into the transfer agreement. Cymbeline would have to pay £ 500 to exercise its option in addition to the £ 150 paid to secure it. Cymbeline's rights to Miss Christie's services would be subject to Swanlack's option under the Cymbeline cross-option agreement, which was an option to purchase the right to Miss Christie's services for £ 484,250, less various deductions by reference to Cymbeline's cut from Miss Christie's earnings, Cymbeline having a put option on the same basis. If Cymbeline acquired the Christie rights, that is if the transfer agreement were entered into, Swanlack would be bound under the Cymbeline cross-option agreement to deposit at least £ 479,050 with Budd and provide a guarantee for the balance of the £ 484,250 specified in that agreement. If the taxpayer company sold its trust property under the second trust, namely, the term interest in the income of the first trust it had bound itself under the advance offer to lend Swanlack a sum equal to the proceeds of sale but not exceeding £ 475,000. To obtain the extra £ 4,050 necessary to enable it to deposit £ 479,050 with Budd under the Cymbeline cross-option agreement, Swanlack made the Swanlack's financial facilities application. All the arrangements had been made for the carrying out of the remaining steps of the scheme and the stage was, therefore, set for Mr Black to exchange the signed counterpart of the service agreement. If he did that and Cymbeline became entitled to exploit Miss Christie's services, the financiers and Mr Crewe and his associates would enjoy some 32 1/2 per cent of her net earnings as they arose. The balance of 67 1/2 per cent would, as it arose, be released by Budd to Swanlack which would repay it to the taxpayer company in reduction of the loan advanced to Swanlack to enable it to make the major part of the deposit with Budd. The taxpayer company receipts from Swanlack would, subject to the ultimate outcome of the proceedings arising on that case, be free of tax in its hands. (i) Not surprisingly the next act was the execution of the service agreement between Miss Christie and Rosebroom. The agreement provided for Miss Christie to serve Rosebroom exclusively as an actress for seven years at a salary of£ 7,500, rising by annual increments of £ 1,000 to £ 13,500. Rosebroom was bound to employ Miss {393} Christie and to pay her expenses of carrying on her profession. Rosebroom took power to dispose of its right to Miss Christie's services. The salary for Miss Christie was fixed, after consultation with her, in figures which, it was thought, would give her enough to live on, without recourse to any other income, but would be well below her expected earnings. (j) Following the execution of the service agreement Rosebroom, by the Rosebroom notice, notified Godmour under the principal option agreement. 15. On 21st December 1965 (a) Mr Black sent by hand to Mr Jones his parts of the following documents: Rosebroom option agreement; service agreement; Rosebroom notice; Swanlack's financial facilities application and Cymbeline approval. (b) Mr Kimble sent to Mr Jones his parts of the Rosebroom option agreement, the service agreement and the Swanlack financial facilities application. He reported that the Rosebroom notice and the Cymbeline approval had been signed and given to Mr Black. (c) Mr Jones sent to Mr Kimble a schedule of payments to be made at the completion meeting and a copy of a joint opinion by counsel dated 20th December 1965. (d) He sent to Bartlett and Gluckstein the Univats Second Appointment (document K1) to be brought undated to the completion meeting. (e) He sent to Knowsley the appointments of that company as bankers to the taxpayer company and Swanlack. (f) He sent by hand to Mr Black copies of two joint opinions by counsel dated 14th, 15th December and 20th December 1965 respectively, and engrossment of Black Nominees offer (document Q) to be brought, undated, to the completion meeting. (g) The accountants sent, probably on 21st December 1965 to Mr Jones, Cymbeline's exchanged parts of the conditional sale agreement and the Cymbeline cross option agreement. 16. (i) 22nd December 1965 was the day on which Miss Christie's tax avoidance scheme was completed at a meeting in the Grosvenor House Hotel. The instigators of the scheme took the precaution of having two statutory declarations by a notary public to evidence the events which took place. The first statutory declaration recorded the events insofar as they were of interest to Miss Christie's advisers. The second statutory declaration recorded those same events as well as further happenings which were of concern to the financiers and Mr Crewe and his associates. Mr Jones had prepared a script so that everyone present at the completion meeting knew what he had to say in the event of his being minded to say it. Mr Black, Miss Harding and Mr Swan had a script which covered only the transactions in the first statutory declaration; they did not see the script which covered all the transactions in the second statutory declaration. The individuals who, acting for corporations, were to enact the various transactions, had been summoned to appear by Mr Jones who was present to see that everything done was done in orderly and proper fashion. Mr Jones addressed all present at the completion meeting before they went into action. He told them that they each had a script of what it was contemplated everyone would say and do. He explained that if they did what was expected of them their actions and words would have certain effects in law. Mr Jones said that everyone present was free to do what he wished except insofar as he was bound by prior binding agreement. Anyone in doubt was advised to consult Mr Black or Mr Jones in their respective capacities as solicitors. (ii) The second statutory declaration which had the fuller record of the happenings at the meeting read as follows: 'I ANTHONY JACK BURGESS of 5 Fenchurch Street in the City of London Notary Public by Royal Authority duly admitted and sworn DO SOLEMNLY AND SINCERELY DECLARE as follows: - '1. I was present on the 22nd December 1965 at Grosvenor House, Park Lane, London, W.1., with the following persons, namely: - (a) Richard Roland Seymour Swan, of 9 Cavendish Square, London, W.1., who stated that he was a director of [Godmour] and present in that capacity (and whom I will call "Mr Swan"); (b) {393} Miss Olive Harding, of 27 Charlbert Court, Regent's Park, London, N.W.8., who stated that she was a director of [the taxpayer company] and present in that capacity (and whom I will call "Miss Harding"); (c) Jack Black, of 9 Cavendish Square, London W.1., who stated that he was a direct or of [Swanlack] and present in that capacity (and whom I will call "Mr Black"); (d) Leonard Charles Kukac, of 45 Warwick Road, New Barnet, Hertfordshire, who stated that he was a director of [Rosebroom] and present in that capacity (and whom I will call "Mr Kukac"); (e) Sidney Roland Heasman, of 48 Baronsmede, Gunnersbury Avenue, Ealing, London, W.5., who stated that he was a director of [Cymbeline] and present in that capacity (and whom I will call "Mr Heasman"); (f) David Towers Downer, of Homewood Cottage, Portsmouth Road, Esher, Surrey, who stated that he was a director or [Budd] and present in that capacity (and whom I will call "Mr Downer"); (g Michael Jackson, of 81 Brookland Rise, Hampstead Garden Suburb, London, N.W.11., who stated that he was a director of [Univats] and present in that capacity (and whom I will call "Mr Jackson"); and (h) Clive Grindley, of 134a Crayford Road, Crayford, Kent, who stated that he was a director of [Downer] and present in that capacity (and whom I will call "Mr Grindley"). '2. The events hereinafter deposed to took place in my presence and in the order in which they are hereinafter set out. Each of the bank drafts hereinafter referred to was dated the 22nd December 1965 and was drawn by [Knowsley]. '3. An Appointment in counterpart was produced to me, which was dated the 22nd December 1965 and appeared to have been signed on behalf of [Univats] and [Cymbeline] respectively, whereby [Univats] appointed [Cymbeline] to be their agents (inter alia) to enter into an agreement with [the taxpayer company] by accepting any offer which might be made by them in the terms of a draft Offer annexed thereto. '4. Miss Harding produced a written Offer and handed it to Mr Heasman, saying: "On behalf of [the taxpayer company], I am handing this Offer to you, for [Cymbeline], as an offer which [the taxpayer company] are now making to [Cymbeline], and I am authorised to receive any acceptance of this Offer." '5. Mr Heasman perused the said written Offer and said to Miss Harding: "On behalf of [Cymbeline] I now accept this Offer." '6. Mr Jackson handed to Mr Heasman a bank draft drawn for the sum of £ 475,000 in favour of [the taxpayer company], saying: "On behalf of [Univats], I am handing this to you, to be applied in payment of the purchase price payable to [the taxpayer company] under the agreement created by your acceptance of their Offer." '7. Mr Heasman handed the said bank draft to Miss Harding, saying: "This draft is in payment of the purchase price payable under the agreement between [the taxpayer company] and [Cymbeline] created by my acceptance of the Offer which you handed to me." '8. Miss Harding said to Mr Heasman: "On behalf of [the taxpayer company], I accept this draft in payment of the purchase price you refer to." '9. Miss Harding said to Mr Swan: "On behalf of [the taxpayer company], I now give notice to you, for [Godmour], as trustees of Mrs Elsie Metcalfe's Settlement of £ 75 dated the 14th December 1965, that [the taxpayer company], as trustees of Mrs Metcalfe's Declaration of Trust of the same date, have sold to [Cymbeline] all the interest vested in [the taxpayer company] under the Settlement in the income arising under the Settlement, and that [Cymbeline] are now entitled to receive that income, to the extent of the former interest of [the taxpayer company] therein." '10. Mr Swan said to Miss Harding: "On behalf of [Godmour], I accept the notice which you have just given to me". 11. Mr Heasman handed to Mr Swan a written Consent, saying: "On behalf {395} of [Cymbeline], I am handing this Consent to you, for [Godmour], as trustees of the Settlement which Miss Harding has just referred to." '12. Mr Swan said to Mr Heasman: "On behalf of [Godmour] I accept this Consent." '13. Mr Jackson handed to Mr Heasman a bank draft drawn for the sum of £ 150 in favour of [Godmour], saying: "On behalf of [Univats], I am handing this to you, to be applied in payment of the purchase price payable under the Conditional Sale Agreement dated the 17th December 1965 between [Godmour] of the one part and [Cymbeline] of the other part." '14. Mr Heasman handed the said bank draft to Mr Swan, saying: "The Conditional Sale Agreement dated the 17th December 1965 between [Godmour] of the one part and [Cymbeline] of the other part has now become unconditional. On behalf of [Cymbeline], I am handing this draft to you, for [Godmour], in payment of the purchase price payable under the Conditional Sale Agreement." '15. Mr Swan said to Mr Heasman: "On behalf of [Godmour] I accept this draft in payment of the purchase price you refer to." '16. Mr Swan said to Mr Kukac: "On behalf of [Godmour], I now give notice to you, for [Rosebroom], that [Godmour] have sold to [Cymbeline] the benefit of the Option Agreement dated the 16th December 1965 between [Rosebroom] of the one part and [Godmour] of the other part, relating to the Services of Miss Julie Frances Christie, and also the option thereby granted." '17. Mr Kukac said to Mr Swan: "I accept this notice on behalf of [Rosebroom]." '18. Mr Heasman said to Mr Kukac: "On behalf of [Cymbeline], I now give notice to you, for [Rosebroom], that [Cymbeline] now exercise the option granted by the Option Agreement between [Rosebroom] and [Godmour] which Mr Swan has just referred to." 19. Mr Kukac said to Mr Heasman: "I accept this notice on behalf of [Rosebroom]." '20. Mr Jackson handed to Mr Heasman a bank draft drawn for the sum of £ 500 in favour of [Rosebroom], saying: "On behalf of [Univats], I am handing this to you, to be applied in payment of the sum of £ 500 payable to [Rosebroom] on the exercise of the option granted by the Option Agreement between [Rosebroom] and [Godmour] which you have just referred to." '21. Mr Heasman handed the said bank draft to Mr Kukac, saying: "On behalf of [Cymbeline], I am handing this draft to you, for [Rosebroom], in payment of the sum of £ 500 payable on the exercise of the option granted by the Option Agreement between [Rosebroom] and [Godmour] which I have just referred to." '22. Mr Kukac said to Mr Heasman: "On behalf of [Rosebroom] I accept this draft in payment of the sum you refer to." '23. Mr Kukac and Mr Heasman produced counterparts, which appeared to have been signed respectively on behalf of [Rosebroom] and [Cymbeline], of a Transfer Agreement expressed to be made between [Rosebroom] of the one part and [Cymbeline] of the other part. Mr Kukac said to Mr Heasman: "I am authorised by [Rosebroom] and am ready to exchange my part of this Transfer Agreement with yours so as to bring it into effect. Are you authorised by [Cymbeline] and ready to do so?" Mr Heasman said to Mr Kukac: "I am." Mr Kukac and Mr Heasman exchanged the said counterparts and each part was dated the 22nd December, 1965. '24. Mr Jackson handed to Mr Grindley a written Notice, saying: "On behalf of [Univats], I am handing this Notice to you, for [Downer]." '25. Mr Grindley said to Mr Jackson: "I accept this Notice on behalf of [Downer]." '26. Mr Grindley said to Mr Jackson: "I refer to a Cross-Option Agreement dated the 15th December, 1965 between [Univats] of the one part and [Downer Nominees] of the other part, relating to rights to the services of Julie Frances {396} Christie. On behalf of [Downer], I now give notice to you for [Univats], pursuant to Clause 2 of the Cross-Option Agreement, that [Downer] now exercise the option granted to them by the Cross-Option Agreement to purchase the Christie rights referred to in the Cross-Option Agreement." '27. Mr Jackson said to Mr Grindley: "I accept this notice on behalf of [Univats]." '28. Mr Grindley handed to Mr Jackson a bank draft drawn for the sum of £ 476,130 in favour of [Univats], saying: "On behalf of [Downer], I am handing this draft to you, for [Univats], in payment of the purchase price payable under the agreement for sale created by the notice which I have just given to you." '29. Mr Jackson said to Mr Grindley: "On behalf of [Univats] I accept this draft in payment of the purchase price you refer to." '30. Mr Jackson said to Mr Heasman: "On behalf of [Univats], I now give notice to you, for [Cymbeline], that [Univats] have sold to [Downer] the benefit of the Transfer Agreement dated today, made between [Rosebroom] of the one part and [Cymbeline] of the other part." '31. Mr Heasman said to Mr Jackson: "I accept this notice on behalf of [Cymbeline]." '32. Mr Heasman handed to Mr Black a written Notice, saying: "On behalf of [Cymbeline], I am handing this Notice to you, for [Swanlack]." '33. Mr Black said to Mr Heasman: "I accept this Notice on behalf of [Swanlack]." '34. Mr Black handed to Mr Downer a bank draft drawn for the sum of £ 479,050 in favour of [Budd], saying: "On behalf of [Swanlack], I am handing this draft to you for [Budd], pursuant to Clause 9 of the Cross-Option Agreement dated the 17th December, 1965 between [Cymbeline] of the one part and [Swanlack] of the other part." '35. Mr Downer said to Mr Black: "On behalf of [Budd] I accept this draft in payment of the sum you refer to." '36. Mr Black handed to Mr Heasman a Deed dated the 22nd December, 1965 expressed to be made between Stanley Gorrie and others of the first part, [Swanlack] of the second part, and [Cymbeline] of the third part, which appeared to have been executed by all the parties of the first and second parts, and Mr Black said to Mr Heasman: "This Deed is the Guarantee referred to in Clause 9 of the Cross-Option Agreement which I have just referred to." '37. Mr Heasman perused the said Deed and said to Mr Black: "On behalf of [Cymbeline] I accept this Deed as being the Guarantee you refer to, and as satisfying Clause 9 of the Cross-Option Agreement." '38. Certain documents were exchanged by certain persons, and the following documents were then produced to me, each document appearing to have been executed by the necessary parties or party thereto and each being dated the 22nd December, 1965, namely: - (a) An Option Agreement between [Downer] of the one part and [Watkins] of the other part, relating to the Christie rights, with a counterpart thereof; (b) An Option Agreement between [Watkins] of the one part and [Rhodes] of the other part, relating to the services of Miss J F Christie, with a counterpart thereof; (c) An appointment between [Watkins] and [Crewe], with a counterpart thereof; (d) A Sub-Agency Agreement between [Crewe] of the one part and [Cymbeline] of the other part, with a counterpart thereof; (e) An Agency Agreement between [Rhodes] of the one part and [Crewe] of the other part, relating to the services of Miss J F Christie, with a counterpart thereof; and (f) Another Sub-Agency Agreement between [Crewe] of the one part and [Cymbeline] of the other part, also relating to the services of Miss J F Christie, with a counterpart thereof.' Paragraph 39 referred to the photographic copies of the documents shown to Mr Burgess, his declaration and signature before E S Gillett, commissioner for oaths, {397} All the documents executed on 22nd December 1965 had been engrossed prior to the completion meeting. (iii) Once the taxpayer company had made the Black Nominees' offer Cymbeline was bound by the Cymbeline cross-option agreement to accept it and the making of that offer crystallised the obligations of all the other parties under the agreemenets enterd into before 22nd December 1965 and set out in the preceding paragraphs; so that the remainder of the transactions at the completion meeting were really done in performance of existing contractual obligations. Mr Black and Miss Harding regarded the price of £ 475,000 in the Black Nominees' offer as a very good one. Mr Black didn't know of anyone else who would have offered the trustee of the second trust such a price. Indeed, such a price was, obviously, only likely to be offered in the context of the open commercial trust scheme; for, in the open market, and without the elaborately contrived structure of the scheme, the term interest in the income arising from £ 75 could hardly have been worth more than £ 75. (iv) The Appointment referred to in para 3 of the second statutory declaration is the Univats second appointment. That was executed at the Grosvenor House Hotel just prior to the start of the events recorded in the second statutory declaration. Between the events recorded in paras 10 and 11 of the second statutory declaration the taxpayer company handed a banker's draft for £ 475,000 to Swanlack and obtained the Swanlack receipt (document R). Mr Jones advised Cymbeline to accept the Black Nominees' offer because he knew, and it knew, that the draft for £ 475,000 paid under the contract, by virtue of the advance offer, would be passed on to Swanlack, which, in turn, was bound to deposit it with Budd under the Cymbeline cross-option agreement. The agreement, the execution of which was recorded in para 23 of the second statutory declaration, was the transfer agreement where under Rosebroom's title to Miss Christie's services under the service agreement was transferred to Cymbeline in consideration of the latter paying £ 750 per annum to Rosebroom and re-imbursing Rosebroom's expenses incurred in connection with Miss Christie's services. Between the events recorded in paras 33 and 34 of the second statutory declaration the financiers paid £ 4,050 to Swanlack and received the Swanlack second receipt (document V). The payment of £ 479,050 by Swanlack to Budd recorded in paras 34 and 35 was acknowledged in the Budd receipt (document X). The deed referred to in para 36 was the guarantee deed (document W). That deed embodied the guarantee which was required under the Cymbeline cross-option agreement (document H) in addition to the deposit of £ 479,050 by Swanlack with Budd. By the guarantee deed the financiers guaranteed the balance of £ 5,200, being the difference between the purchase price of £ 484,250 and the deposit with Budd of £ 479,050. The documents referred to in para 38 were: (a) Watkins option agreement (document Q1). Downer, having exercised its option under the Univats cross-option agreement, by that agreement gave Watkins an option on the Christie rights subject to certain specified conditions. The purpose of that document in the scheme of things was to enable Downer, for the taxation purposes of Downer, to dispose of to Watkins what Downer had itself acquired, namely the rights to Miss Christie's services. (b) Rhodes option agreement (document R1). Under that agreement Watkins granted to Rhodes an option on the services of Miss Christie. For its taxation purposes Rhodes wished to exploit Miss Christie's services, not rights to those services. When Cymbeline entered into a performance contract for Miss Christie it would do so as an agent of Rhodes (by virtue of the Rhodes agency agreement (document U1) see (e) below). At or about that time it would be necessary for its taxation purposes for Rhodes to acquire from Watkins sufficient services or rights to services to enable Rhodes to perform its part of the performance contract, that is to make Miss Christie's services available. Rhodes would do that by exercising its option under the Rhodes option agreement. Another effect of the Watkins and Rhodes option agreement was to split between Downer, Watkins and Rhodes, each of which was a trustee of a trust made by Mr Crewe, the total cut from Miss Christie's services which was to be enjoyed by Mr Crewe's {398} companies. (c) Watkins Appointment (document S1). By this appointment Watkins appointed Crewe to be its agent for the purposes of executing and doing all such instruments and acts as were referred to in the Watkins Option Agreement. (d) Second Sub-Agency Agreement (document T1). Crewe by that agreement appointed Cymbeline to be sub-agent of Watkins for the purposes of the sub-agency agreement between Crewe and Cymbeline. The Watkins appointment and the Second Sub-Agency Agreement linked Cymbeline, Crewe and Watkins in the exploitation of the rights to Miss Christie's services. (e) Rhodes agency agreement. (f) Crewe Sub-Agency Agreement (document V1). The last two documents similarly linked Cymbeline, Crewe and Rhodes in the exploitation of Miss Christie's services. (v) There was also given on 22nd December 1965 at the Grosvenor House Hotel the Woods receipt (document M1). That acknowledged the loan by Budd to Woods of the £ 479,050 deposited by Swanlack with Budd bearing 6 per cent interest only from the date its return was demanded, such demand being limited to the amounts which Budd would from time to time have to release under the Cymbeline cross-option agreement. That loan was effected by Mr Downer passing to Woods's representative a banker's draft drawn on Knowsley in favour of Woods in the sum of £ 479,050 after Mr Downer had passed to the representative of Knowlsey the draft for the same amount passed to him by Mr Black. (vi) On the same day, 22nd December, Downer acknowledged its liability to Woods for a bank advance of £ 479,050. That carried interest at the rate of 6 per cent only from the date of demand for repayment until the actual date of repayment and acknowledged that payment would not be demanded unless and to the extent that Budd demanded payment for its loan to Woods. With the £ 479,050 borrowed from Woods, Downer was able to return to Knowsley what Knowsley had provided to enable the 'big' money to start circulating, namely, the draft for £ 476,130 in favour of Univats. (vii) By the Crewe acknowledgment (document O1) and the Crewe second acknowledgment (document P1) both made on 22nd December 1965 Crewe bound itself to pay £ 105 each to Budd and Wood for their services in the scheme. (viii) The final document executed at the Grosvenor House Hotel on 22nd December 1965 was the joint authority (document W1). That authorised Crewe to make the necessary arrangements for the following payments: (a) by Rhodes to Watkins under the Rhodes option agreement; (b) by Watkins to Downer under the Watkins option agreement; (c) by Downer to Woods under the Downer acknowledgment (document N1); (d) by Woods to Budd under the Woods receipt; (e) by Budd of releases under the Cymbeline cross-option agreement; (f) by Downer of all legal costs, expenses and stamp duties to be borne by Downer. That empowered Crewe to set up and activate the means of getting to Mr Crewe's companies their share of the earnings of Miss Christie and to start the flow to the taxpayer company of sums released by Budd to Swanlack under the Cymbeline cross-option agreement. 17. After 22nd December 1965 there had thus finally been set up the scheme to avoid tax on Miss Christie's earnings; and it was to work in this way. By virtue of the transfer agreement and the service agreement Cymbeline would be able to enter into contracts to exploit Miss Christie's services. Out of the payments for those services Cymbeline would pay to Rosebroom amounts sufficient to cover Miss Christie's expenses and salary and the annual payments to Rosebroom and take its commission under the Crewe sub-agency agreement. The balance would then pass up the line under the joint authority to Rhodes, Watkins, Downer, Woods, Budd and Swanlack leaving with Rhodes, Watkins and Downer their appropriate profits and enabling Swanlack, after paying the financiers their commission, to start repaying its loan from the taxpayer company. Cymbeline operated from the offices of, and was controlled by, the partners in the accountants. Cymbeline or Swanlack (the registered office of which was in the same building as the accountants) were, under the Cymbeline cross-option agreement, empowered to request the accountants to set in motion the release {399} of an appropriate part of the deposit with Budd. Moreover, the financiers, who had a financial interest in seeing that machinery set in motion, were peopled by partners in the accountants so, in effect, the accountants had de facto control of the receipts from the exploitation of Miss Christie's services and the sharing of those receipts among the various participants in the scheme. 18. At the completion meeting on 22nd December 1965, a Mr Treasure, a representative of Knowsley, was present. Knowsley carried on a bona fide banking business recognised as such by the Board of Inland Revenue. Mr Jones had ordered from Knowlsey the drafts necessary for the completion meeting, had arranged if necessary for accounts with Knowsley to be opened for the participants and had arranged for the necessary documents of authority to Knowsley to be signed by the participants and lodged with Knowsley. Once the necessary formalities had been attended to Knowsley was prepared to join in the scheme on the footing that once (drafts) for Univats had been drawn there would be a chain of contractual obligations which, if performed, would result in a series of banker's drafts being issued by and largely returned to Knowsley in a manner which at the end of the completion meeting would leave no one in debt to Knowsley. Knowsley drew on its experience of the successful conclusion of similar open commercial trust schemes and its reliance on the integrity of Mr Jones's partner, Mr Beer, in deciding to provide drafts for Miss Christie's scheme. Knowsley was paid £ 1,050 for its participation in that scheme. In Knowsley's experience every completion had been carried through in the way originally envisaged and the drafts for the completion were provided in the firm expectation that every draft would be duly handed on to the next in line and so on until the circle was complete and Knowsley's cost position was balanced. Mr. Sandleson regarded the risk Knowsley ran as minimal and the sum paid to Knowsley (as above) for its participation was only a nominal charge. Mr Treasure brought with him to the completion meeting eight banker's drafts drawn on Knowsley by the persons and for the amounts shown. (i) Univats - £ 475,000; (ii) the taxpayer company - £ 475,000; (iii) Univats - £ 150; (iv) Univats - £ 500; (v) Woods - £ 479,050; (vi) Downer - £ 476,130; (vii) Swanlack - £ 479,050; (viii) Budd - £ 479,050. Mr Treasure also brought with him the requests for those drafts signed by the representatives of the companies listed above in (i) to (viii) and paying in slips. In addition, there was produced at the completion meeting a draft drawn by the financiers on their own bank for £ 4,050. The movement of drafts was as follows: (A) Mr Treasure handed draft (i) to Mr Jackson (Univats) who handed it to Mr Heasman (Cymbeline) who handed it to Miss Harding (the taxpayer company) who handed it back to Mr Treasure. A paying in slip was made out crediting the £ 475,000 to the taxpayer company's account with Knowsley. It was a term of the issue of draft (i) that it should be used by Univats only for the purpose of the Chrisite scheme and be handed to Cymbeline. (B) Mr Treasure handed draft (ii) to Miss Harding (the taxpayer company) who handed it to Mr Black (Swanlack) who handed it back to Mr Treasure. A paying in slip was made out crediting the £ 475,000 to Swanlack's account with Knowsley. (C) Mr Treasure handed draft (iii) to Mr Jackson (Univats) who passed it to Mr Heasman (Cymbeline) who passed it to Mr Swan (Godmour) who took it away from the meeting. (D) Mr Treasure handed draft (iv) to Mr Jackson (Univats) who handed it to Mr Heasman (Cymbeline) who handed it to Mr Kukac (Rosebroom) who took it away from the meeting. (E) Mr Treasure handed draft (v) to Mr Woods (Woods) who handed it to Mr Grindley (Downer) who handed it back to Mr Treasure. A paying in slip was made out crediting the £ 479,050 to Downer's account with Knowsley. (F) Mr Treasure handed draft (vi) to Mr Grindley (Downer) who handed it to Mr Jackson (Univats) who handed it back to Mr Treasure. A paying in slip was made out crediting the £ 476,130 to Univats, thus cancelling its indebtedness for drafts (i), (iii) and (iv) and leaving it with a credit of £ 480, which with the £ 20 paid by Downer on the execution of the Univats cross option agreement made up Univats fee of £ 500 for appearing in the scheme. (G) The financiers' draft was handed by a representative of the financiers to Mr Black (Swanlack) who handed it to Mr {400} Treasure. A paying in slip was made out crediting £ 4,050 to Swanlack's account with Knowsley. (H) Mr Treasure handed draft (vii) to Mr Black (Swanlack) who handed it to Mr Downer (Budd) who handed it back to Mr Treasure. A paying in slip was made out crediting £ 479,050 to Budd's account with Knowsley, putting Budd in funds to make the next payment. (J) Mr Treasure handed draft (viii) to Mr Downer (Budd) who handed it to Mr Woods (Woods) who handed it back to Mr Treasure. A paying in slip was made out crediting £ 479,050 to Wood's account with Knowsley and thus wiping out the indebtedness created by the issue of draft (v). Save for the draft (i) issued to Univats none of the other drafts had any fetter on its use specified by Knowsley; Knowsley would have honoured the drafts whatever the bank account into which they were paid and no security was required by Knowsley for the over-drafts granted at the completion meeting. It was the expectation of Knowsley that all drafts would be used as they in fact were. 19. At the end of the completion meeting Knowsley was not standing out of any money. The indebtedness of Univats to Knowsley for drafts (i), (iii) and (iv) was cancelled except for £ 20 by the paying in of draft (vi). The indebtedness of the taxpayer company for draft (ii) was satisfied out of the crediting of draft (i). Wood's indebtedness for draft (v) was satisfied by the credit of draft (viii). Downer's indebtedness for draft (vi) was met out of the credit of draft (v). Swanlack's indebtedness for draft (vii) was met out of the credit of £ 479,050 (draft (ii) and the financier's draft). Budd's indebtedness for draft (viii) was met out of the credit of draft (vii). At the completion meeting Downer paid Knowsley a cheque for £ 1,050 in payment of its charges for providing drafts and paid Beer & Co £ 1,250 to meet counsel's fees and out of pocket expenses - those payments being made by virtue of the liability to do so arising under the Cymbeline cross-option agreement. Downer was able to make those payments out of its credit with Knowsley in respect of draft (v) £ 479,050 less its liability for draft (vi) £ 476,130, i e a credit of £ 2,920; that credit stemmed from the only draft not produced by Knowsley, namely that of £ 4,050 provided by the financiers which went to Knowsley via the credit for Swanlack for that draft and draft (ii). The financier's draft of £ 4,050 was, in effect, used to finance the payment of £ 480 to Univats as the balance of their fee and the drafts of£ 150 (draft (iii)) £ 500 (draft (iv)) which Mr Swan (Godmour) and Mr Kukac (Rosebroom) did not return to Knowsley but took away from the completion meeting. 20. Mr Jones arranged that there should be gaps in the execution of documents between 14th and 16th December and between 17th and 20th December and between 20th and 22nd December in order that it should be seen that all the parties to the scheme had had time to consider whether they would go on with it. Mr Jones made sure that the dating of documents was accurate. If a document bore a date it was executed before midnight on that day and after midnight on the previous day. Mr Jones was not aware of any agreements entered into by any of the parties to the scheme whereby they undertook to proceed with it. Mr Jones had no reason to suppose that any of the parties to any of the documents did not intend them to take effect according to their tenor. 21. Mr Black felt himself free to exercise, in the interest of his beneficiaries, his discretion as an officer of one or other of the three trust companies whether or not to enter into the transactions involving Godmour, the taxpayer company or Swanlack. 22. In open commercial trust schemes similar to that devised for Miss Christie, Mr Jones had known one instance when the actor involved, after agreeing to participate, had refused to sign the equivalent of the service agreement so that the scheme had had to be abandoned; and another instance when the taxpayer involved, after agreeing to participate, had required an alteration to be made at the final stage of bringing the scheme to completion. Mr Jones did not doubt their respective rights to do so. 23. Mr Black regarded the documents executed by Godmour, the taxpayer company and Swanlack as having the effect which he thought those documents purported to have. Mr Black thought that the directors of Swanlack and the taxpayer company {401} had always acted in accordance with the documents which they had executed. Mr Black was not aware of the existence and contents of documents Z to X1 inclusive until shortly before the proceedings before the commissioners. 24. The taxpayer company, as trustee of the second trust, had not acquired or disposed of any equitable interests other than the term interest in the income of the first trust. 25. Cymbeline and Vineyard entered into an agreement on 28th January 1966 providing for Vineyard to engage Miss Christie as a film artiste to act in a film called 'Fahrenheit 451' from 31st January 1966. The terms of that agreement had been negotiated before 22nd December 1965 (document S). Under that agreement Miss Christie's services were to earn guaranteed remuneration of the sterling equivalent of $100,000 for the period of eight weeks from 31st January 1966. Further valuable contracts with Vic in respect of Miss Christie's services speedily ensued. Those covered several films including the highly successful 'Far From The Madding Crowd'. On 25th January the accountants sent to Beer & Co a copy of that agreement. On 25th January the accountants sent to Beer & Co a copy of that agreement. On 11th February 1966 Beer & Co sent to the accountants drafts of consents, which appeared as undated letters from the accountants, purporting to acknowledge sufficient notice of the afore-mentioned agreement for the purposes of the service agreement and consent to the execution of the first-mentioned agreement for the purposes of the Cymbeline cross-option agreement. On 14th February Beer & Co wrote to Mr Crewe telling him it would be necessary for the directors of Rhodes, Watkins and Downer to make the usual declaration before a notary in connection with the Vineyard and Cymbeline agreement. On 11th March Mr Burgess made another statutory declaration recording the following events: '1. I was present at the offices of Messrs. Beer & Co. 5A, Wardrobe Place Carter Lane, E.C.4., in the City of London, on the 4th day of March 1966 with the following persons, namely: - (a) Euan Douglas Graham of Lower Woodford Manor, Salisbury, Wiltshire, (whom I will call "Mr. Graham"); (b) David Harvey Evers of 30 Carlyle Square, London, S.W.3., (whom I will call "Mr. Evers"); and (c) David Towers Downer of Warling Dean, New Road, Esher, Surrey, (whom I will call "Mr. Downer"). '2. The events hereinafter deposed to took place in my presence and in the order in which they are hereinafter set out. '3. Mr. Graham said to Mr. Evers: "I refer to an Option Agreement dated the 22nd day of December 1965 and made between [Watkins] of the one part and [Rhodes] of the other part relating to the services of Julie Frances Christie and other rights. On behalf of [Rhodes] I now give notice to you for [Watkins] pursuant to Clause 2 of the conditions annexed to the Option Agreement that [Rhodes] are desirous of acquiring so much of the services of Miss Christie as may be necessary to enable [Rhodes] or [Cymbeline] as their sub-agents to enter into and observe and perform and procure the performance of and to obtain the full benefit and advantage of an Agreement between [Cymbeline] and Vineyard Films Limited for the provision of the services of the said Julie Christie from the 24th day of January 1966 for a film provisionally entitled 'Fahrenheit 451'. On behalf of [Rhodes] I now give notice to you for [Watkins]: - (a) So far as services may have been rendered by the said Julie Christie pursuant to the said Agreement prior to the date hereof, offering to treat such option as having been exercised on the footing that we will pay to you such sum as would otherwise have been liable to pay if the option had been exercised to that extent; (b) So far as services may be required to be rendered after the date hereof, exercising to that extent the option granted by the Option Agreement." '4. Mr. Evers said to Mr. Graham: "On behalf of [Watkins] I accept the offer and notice which you have just given me to." '5. Mr. Evers said to Mr. Downer: "I refer to an Option Agreement dated the {402} 22nd day of December 1965 and made between [Downer] of the one part and [Watkins] of the other part relating to the services of Julie Frances Christie and other rights, and on behalf of [Watkins] I now give notice to you for [Downer] pursuant to Clause 2 of the conditions annexed to the Option Agreement that [Watkins] are desirous of acquiring so much of the services of Miss Christie as may be necessary to enable [Watkins] or persons claiming through or under them to enter into and observe and perform and procure the performance of and obtain the full benefit and advantage of the Agreement between [Cymbeline] and Vineyard Films Limited, and on behalf of [Watkins] I now give notice to you for [Downer] as follows: - (a) So far as services may have been rendered by the said Julie Christie pursuant to the said Agreement prior to the date hereof, offering to treat such option as having been exercised on the footing that we will pay to you such sums as we would otherwise have been liable to pay if the option had been exercised to that extent; (b) So far as services may be required to be rendered after the date hereof, exercising to that extent the option granted by the Option Agreement." '6. Mr. Downer said to Mr. Evers: "On behalf of [Downer] I accept the offer and notice which you have just given to me."' The events recorded purported to be the exercise of options under the Watkins and Rhodes option agreements but the exercises were, of course, effected long after Miss Christie's engagement with Vineyard had commenced. Similarly, in five other instances, undated consents were issued by the accountants and the exercise of options by Rhodes and Watkins was treated as having occurred by letters issued long after the contracts were entered into by Cymbeline for the exploitation of Miss Christie's services. 26. Not long after the meeting on 4th March 1966, recorded in Mr Burgess's statutory declaration there was received the first payment in respect of Miss Christie's services which fell to be dealt with under the open commercial trust scheme and the machinery was set in motion to divide that receipt among those entitled to it under the scheme. On 24th March the Accountants gave the following two certificates: 'Re: Cross Option Agreement dated 17th December 1965 between [Cymbeline] (i) and [Swanlack] (ii) We, Stanley Gorrie, Whitson & Company at the request of [Cymbeline], hereby certify that for the purposes of Paragraph 2 of the schedule to the abovementioned cross-option agreement, the amount of the price which would be payable under the said cross-option agreement if the option therein mentioned had occurred on the date of this certificate calculated in accordance with the particulars set out below is £ 462,510. 13. 7d. 'PARTICULARS '(1) Calculation of the vendor's net proceeds under Clause 6(b) of the cross-option agreement: Amount of Proceeds actually received since 17th December 1965 27,892. 8. 11. Less: The following incurred or expended since 17th December 1965
(2) Deduction to be made from the sum of £ 484,250 in ascertaining the price referred to above: -
'Re: (1) Service Agreement dated 20th December 1965, between [Rosebroom] (i) and Julie Frances Christie (ii) and (2) Transfer Agreement dated 22nd December 1965 between [Rosebroom] (i) and [Cymbeline] (ii) 'We, Stanley Gorrie, Whitson & Co., hereby certify for the purposes of Clause 1(b) of the above-mentioned Transfer Agreement that the following sums have been actually paid or expended by [Rosebroom] after 22nd December 1965
On 25th March 1966, Mr Gorrie sent copies of those certificates to Mr Jones with the following calculations of the amount due from Cymbeline to Crewe and from Budd to the accountants for Swanlack. '1. The amount from [Cymbeline] to [Crewe] is £ 22,988. 3. od., made up as follows: -
'2. The amount due from [Budd] to Stanley Gorrie Whitson & Company (for [Swanlack] is £ 16,539. 6. 5d. made up as follows: -
On the same date Beer & Co wrote to the accountants acting for Mr Crewe's companies asking for the payment of £ 16,539 6s 5d, which was made by a cheque drawn in favour of the financiers on 31st March 1966. On the same day Mr Gorrie sent a cheque for£ 16,539 6d 5d to Mr Black, as a director of Swanlack. On 1st April, Mr Black sent to Mr Gorrie a cheque for £ 4,200 to meet the £ 4,050 provided by the financiers at the completion meeting on 22nd December 1965 and £ 150 to which they were entitled under the Swanlack's financial facilities application. The documents releative to releases of money deposited under the Cymbeline cross-option agreement also shows similar activity in respect of releases of two further amounts earned by exploiting Miss Christie's services. 27. The accounts of the taxpayer company as trustee to the second trust had been approved by the directors of the taxpayer company except for the accounts for the period to 5th April 1970 which were awaiting their approval. Before the commissioners Mr Black said he thought those accounts were incorrect because payments made by Swanlack had been debited in the accounts of the taxpayer company. The accounts showed the various investments made by the trustee and the income received and the expenses paid away. They also showed that no distributions had been made by the trustee up to 5th April 1970. The property in the balance sheets, 1 Selwood Terrace, was purchased by the trustee and occupied rent free by Miss Christie and her brother. Miss Harding and Mr Black considered a request to make an advance to Miss Christie's brother but turned it down on the ground that he should stand on his own feet. They also agreed to finance certain improvements to 1 Selwood Terrace but refused to finance others suggested by Miss Christie. The property 6A Gunter Grove, also shown in the balance sheets, was bought by the trustee at the request of Miss Christie for use by her as a studio and for occupation by a friend of hers. Mr Black and Miss Harding had not entered into any arrangement between themselves or jointly or severally with any other person that as directors of the taxpayer company the would exercise their discretion under the second trust in any particular way. The accounts showed the following amounts debited to the trustees capital account and described as 'Fees re cross-option agreement': 5th April 1967, L5,939. 17. 1; 5th April 1968, £ 11,942. 18. 0; 5th April 1969, £ 16,168. 1. 5. Those were sums equivalent to amounts paid away by Swanlack to the financiers out of releases by Budd uner the Cymbeline cross-option agreement. Mr Warwick, who certified the accounts, described the debits to the capital account as writing down the Swanlack loan each year to the figure at which, it was understood by him, it was certified to be worth; the commissioners saw no certificae and did not know who certified it. The accounts of Swanlack, as trustee of the third trust, showed that Mr Warwick included in its balance sheets at 5th April 1967, 1968 and 1969, its indebtedness to the taxpayer company at the same amounts as the figures to which the latter had written down its loans to Swanlack. Mr Warwick said the terms of the loan between the taxpayer company and Swanlack were unique in his experience. He had never come across such an unusual situation. The commissioners thought he had some difficulty in recording that unusual situation in the accounts of the two trustees; after cross-examination Mr Warwick produced draft revised accounts for both trusts. Those {405} revised drafts showed the way which, on reflection, Mr Warwick thought the accounts of the two trusts might have been drawn up for approval by the directors of the taxpayer company and Swanlack respectively. PART V 1. It was contended on behalf of the taxpayer company that: (i) in the relevant years it neither received nor was entitled to any of the annual profits or gains arising or accruing from any profession carried on by Miss Christie or, indeed, to any other annual profits or gains whether arising to Miss Christie or otherwise; (ii) it was not in those years carrying on any trade; and (iii) its receipts from Swanlack were not receipts of a trade but capital receipts giving rise to no liability to income tax. 2. It was contended on behalf of the Crown that: (i) The taxpayer company was assessable under Case II of Sch D as being a person receiving or entitled to, annual profits or gains arising or accruing from the profession of actress carried on by Miss Christie or, alternatively, under Case VI of Sch D as being a person receiving or entitled to annual profits or gains arising to Miss Christie and not falling under any other Case of Sch D and not charged by virtue of Schs A, B, C or E; or (ii) in the alternative, the taxpayer company was assessable under Case I of Sch D in respect of the annual profits or gains arising or accruing in respect of a trade carried on by it or, alternatively, under Case VI of that Schedule in respect of annual profits and gains arising to it and not falling under any other case of Sch D and not charged by virtue of Schs A, B, C, or E. PART VI [Part VI set out the cases n1 cited to the commissioners.] n1 Barry v Cordy [1946] 2 All ER 396, sub nom Smith Barry v Cordy (Inspector of Taxes) 28 Tax Cas 250; Baylis v Bishop of London [1913] 1 Ch 127; Benson v Counsell (Inspector of Taxes) [1942] 1 KB 364, 24 Tax Cas 178; Bishop (Inspector of Taxes) v Finsbury Securities Ltd [1966] 3 All ER 105, [1966] 1 WLR 1402, sub nom Finsbury Securities Ltd v Bishop (Inspector of Taxes) 43 Tax Cas 591; Brown v Inland Revenue Comrs [1964] 3 All ER 119, [1965] AC 244, 42 Tax Cas 42; Unit Construction Co Ltd v Bullock (Inspector of Taxes) [1959] 3 All ER 831, [1960] AC 351, sub nom Bullock (Inspector of Taxes) v Unit Construction Co Ltd 38 Tax Cas 712; Cohan's Executors v Inland Revenue Comrs (1923) 12 Tax Cas 602; Crookston Bros v Furtado (Surveyor of Taxes) (1910) 5 Tax Cas 602; Crossland (Inspector of Taxes) v Hawkins [1961] 2 All ER 812, [1961] Ch 537, 39 Tax Cas 493; Disderi & Co, Re (1870) LR 11 Eq 242; Edwards (Inspector of Taxes) v Barrstow [1955] 3 All ER 48, [1956] AC 14, 36 Tax Cas 207; Gray v Lewis, Parker v Lewis (1873) 8 Ch App 1035; Greenberg v Inland Revenue Comrs, Inland Revenue Comrs v Tunnicliffe [1970] 1 All ER 526, [1971] 1 Ch 286, 47 Tax Cas 240; Grosvenor Place Estates Ltd v Roberts (Inspector of Taxes ) [1961] 1 All ER 341, [1961] Ch 148, 39 Tax Cas 433, Holns v Hussey (Inspector of Taxes) [1942] 1 All ER 445; [1942] 1 KB 491, 24 Tax Cas 153; Inland Revenue Comrs v Castlemaine (Lady) [1943] 2 All ER 471, 25 Tax Cas 408; Inland Revenue Comrs v Duke of Westminster [1936] AC 1, sub nom Duke of Westminster v Inland Revenue Comrs 19 Tax Cas 490; Inland Revenue Comrs v Longmans Green & Co Ltd (1932) 17 Tax Cas 272; Inland Revenue Comrs v Mallaly-Deeley [1938] 4 All ER 818, 23 Tax Cas 153; Inland Revenue Comrs v Thompson [1936] 2 All ER 651, [1937] 1 KB 290, 20 Tax Cas 422; Jones (Inspector of Taxes) v Leeming [1930] AC 415, 15 Tax Cas 333; Kelley v Rogers [1935] 2 KB 446, 19 Tax Cas 692; Morely (Inspector of Taxes) v Tattershall [1938] 3 All ER 296, 22 Tax Cas 51; Paget v Inland Revenue Cormrs [1938] 1 All ER 392, [1938] 2 KB 25, 21 Tax Cas 677; Pott's Executors v Inland Revenue Comrs [1951] 1 All ER 76, [1951] AC 443, 32 Tax Cas 211; Ransom (Inspector of Taxes) v Higgs [1974] 3 All ER 949, [1974] STC 539, [1974] 1 WLR 1594; Reid's Trustees v Inland Revenue Comrs 1929 SC 439, 14 Tax Cas 512; Selangor United Rubber Estates Ltd v Craddock (No 3) [1968] 2 All ER 1073, [1968] 1 WLR 1555; Snook v London & West Riding Investments Ltd [1967] 1 All ER 518, [1967] 2 QB 786; Trustees of Earl Haig v Inland Revenue Comrs 1939 SC 676, 22 Tax Cas 725; Vince, Re [1892] 2 QB 478; Withers (Inspector of Taxes) v Nethersole [1948] 1 All ER 400, 28 Tax Cas 501. {406} PART VII 1. The commissioners who heard the appeal took time to consider their decision and gave it in writing on 3rd February 1971 as follows: '1. We understand the questions raised in these appeals to be: a. whether by virtue of the provisions of Section 148, Income Tax Act, 1952, [the taxpayer company] is assessable under Case II of Schedule D as being the person receiving or entitled to the annual profits or gains arising or accruing from a profession carried on by Miss Christie or alternatively under Case VI as being the person receiving or entitled to any annul profits or gains arising to Miss Christie and not falling under any other Case of Schedule D and not charged by virtue of Schedule A, Schedule B, SChedule C or Schedule E; and, if not, b.whether [the taxpayer company] is assessable under Case I of Schedule D in respect of the annual profits or gains arising or accruing in respect of a trade carried on by it or alternatively under Case VI of that Schedule in respect of annual profits or gains arising to it and not falling under any other Case of Schedule D and not charged by virtue of Schedule A, Schedule B, Schedule C or Schedule E. '2. The determination of these questions depends on the consideration of a series of complicated interlocking transactions which together constitute an "open commercial trust scheme" the object of which was to secure a reduction of the direct taxes payable in respect of Miss Christie's earnings as a film actress. Before turning to the specific issues arising from this scheme upon which turn the matters for determination in these appeal it seems desirable that we should formulate certain conclusions which we infer from the primary facts established before us. '3. The series of transactions with which we are concerned in these appeals is a particular manifestation of a scheme for tax avoidance which was conceived for the purpose of appealing to potentially high-earning entertainers like Miss Christie as providing a means of reducing their liability to tax. The scheme consisted of a series of transactions planned as a whole to achieve the object of tax avoidance and requiring to be carred out in a pre-ordained chronological order by the various parties to the scheme in order to achieve their preconceived common object. There was no agreement between the parties to the various transactions making up the scheme that all the transactions or any of them would be carried out. Apart, however, from Mrs Metcalfe, who was the only disinterested party in this scheme, all the parties to it were financially interested in seeing that it was brought to a successful conclusion. Once Mrs Metcalfe's acquiescence to act as a settlor had been obtained and she had executed the trust deeds prepared for her it was, we find, improbable that any party would fail to take the action which, under the scheme, it was planned from the beginning that he would take. '4. The situation which we have to examine, therefore, is one in which it can be postulated in relation to each transaction in the scheme that the parties thereto were free to enter into it or not, as they thought fit but, having regard to the purpose for which each transaction was planned in its appointed place in the overall scheme and to the financial advantages likely to accrue to the aarties, always excluding Mrs Metcalfe, in entering into them, it was, we find, most probable that each and every transaction would be carried through as planned. We further find that all the parties, saving and excepting Mrs Metcalfe, entered into their respective transactions in due order in the hope, expectation and near certainty that every projected succeeding transaction would be entered into for the achievement of the common purpose of all these parties. '5. The essence of the open commercial trust scheme was that the artiste taxpayer should bind himself to make his professional services available to a company in return for a modest competence and that by a series of transactions the value of those services, less that competence and the rewards due to the devisers {407} and the exploiters of the scheme should be transmuted into a capital asset which trustees could dispose of for a lump sum payable, in effect, out of the artiste's earnings; the transmuted earnings and the income from their investment being then held for the benefit of a class of individuals which included the artiste. The scheme was elaborately and ingeniously contrived so that, once the relevant trusts had been set up, each transaction thereafter to be entered into had a plausible commercial justification. Notwithstanding this justification many of the transactions had somewhat unusual features. '6. For example, the execution of the three deeds of trust with their elaborate provisions is not what we would normally expect to find as the usual consequence of a lady agreeing at the request of an acquaintance to make a gift of £ 100 for the benefit of an up-and-coming young actress who was unknown to the donor. The terms of the deeds were carefully drafted so that they would inter alia enable the trustees of the trusts thereby set up to undertake exceptional transactions as part of the open commercial trust scheme. '7. Again, the Service Agreement between Rosebroom and Miss Christie which bound her to make available her services in return for very modest remuneration appears on the face of it to provide that company, and its shareholders with a superb commercial bargain. This, as was proved before us, was not the intention of the parties to the scheme and, accordingly, when Rosebroom entered into that Service Agreement it was under an obligation under the Rosebroom Option Agreement to allow the trustee of the Second Settlement to acquire the valuable right to Miss Christie's services. '8. As a further example of commercial unorthodoxy we consider the loan made by [the taxpayer company] to Swanlack. This loan by its terms before no interest and was repayable only to the extent that assets came into the coffers of Swanlack. It is, perhaps, hardly surprising that the accountant who prepared the accounts of [the taxpayer company] and Swanlack described it as unique in his experience, adding that he had "never come across such an unusual situation"; or that in these accounts he treated the loan and the transactions relating thereto in a somewhat unusual way. '9. We may, therefore, summarise our findings by saying that while many of the transactions had a commercial justification they bore an air of contrived commerciality and might well, in our view, merit the description of "unique" as that word was applied by [the taxpayer company's] accountant to the loan made by it to Swanlack. '10. Against this background we have to consider whether [the taxpayer company] has established before us, by evidence satisfactory to us, that the disputed assessments ought to be set aside as being justified neither under Case II, Case I or Case VI. The fact that the transactions we have to consider formed part of a scheme to avoid paying income tax on a large part of Miss Christie's earnings and that great care was taken by the organisers of the scheme that everything was done in a proper manner at the proper time, do not warrant our ignoring the true character in law of the transactions entered into and searching for the substance of the matter. These facts do, however, in our view require us to consider with particular care whether [the taxpayer company] has discharged the onus laid upon it by Section 50 of the Taxes Management Act, 1970. '11. [The taxpayer company] contended that the evidence before us established that: a. it was the trustee of a trust the capital of which consisted of the right to receive income of the First Settlement for 21 years; b. it held that right upon trust for sale; c. it executed its trust for sale and sold its trust capital for £ 475,000; d. it lent the proceeds of that sale lawfully to Swanlack; and e. it received certain repayments from Swanlack in pursuance of the terms of the loan. These propositions made it clear, it was argued, that the receipts under headings (c) and (e) were receipts of capital and were receipts neither of profits from Miss Christie's {408} profession nor of incomings from a trade carried on by [the taxpayer company] nor of other annual profits or gains. The Crown attacked none of the transactions about which evidence was given as being other than what it purported to be. It did, however, fasten on the banker's drafts which were used to make payments at the completion meeting and submitted that no payments of £ 475,000 were in reality made. [The taxpayer company] countered this argument by submitting that the payments of £ 475,000 were in truth and in fact made at the completion meeting by drafts which were issued by a bona fide banker and were not subject to any restrictions on their use. '12. The Crown referred us to three cases, Re Disderi and Co n1, Gray v Lewis n2 and Selangor United Rubber Estaes Ltd v Cradock (No 3) n3 and in particular to the words of Ungoed-Thomas J in the Selangor case n4 where he deals with the question of satisfaction. The argument for the Crown backed by these three authorities was that looking at the transactions as a whole, there was a conduit pipe through which the pieces of paper, namely, the banker's drafts, passed and that there was in reality no payment to [the taxpayer company] at at all and equally no payment to Swanlack and no sale of a capital asset by [the taxpayer company] at a price of £ 475,000. By analogy, what happened at the completion meeting was as remote from any sale by a trustee of a capital asset in his beneficiaries' interest as what happened in Bishop (Inspector of Taxes) v Finsbury Securities Ltd n5 was remote from trading. It was argued for [the taxpayer company] that the cases of Re Disderi and Co n1, Gray v Lewis n2 and Selangor n3 had no application to the facts of the present case because [the taxpayer company] had unfettered control of the banker's drafts received and paid away by it, with the result that there was a valid sale of its trust property to Cymbeline for £ 475,000 which was in fact received and a valid loan of £ 475,000 by [the taxpayer company] to Swanlack. n1 (1870) LR 11 Eq 242 n2 (1873) 8 Ch App 1035 n3 [1968] 2 All ER 1073, [1968] 1 WLR 1555 n4 [1968] 2 All ER at 1148, [1968] 1 WLR at 1651 n5 [1966] 3 All ER 105, [1966] 1 WLR 1402, 43 Tax Cas 591 '13. It is clear that the transactions entered into by [the taxpayer company] with Cymbeline and with Swanlack cannot be dismissed as mere shams, but it is equally clear that there was an expectation that at the end of the completion meeting, all the banker's drafts would find their way back to Knowsley leaving it not out of pocket. We find that on the evidence before us there was not the remotest practical possibility of the directors of [the taxpayer company] (Miss Christie's agent and her solicitor) or the directors of Swanlack (her solicitor and his partner) walking out of the completion meeting on 22 December, 1965, with a bank draft for £ 475,000 and using it for any purpose other than that provided for in the scheme. While we accept that Knowsley provided the banker's drafts ordered and, except for the first one to Univats which was restricted, there was no fetter on them, we find that Knowsley regarded these banier's drafts as normal completion documents and expected that all of the £ 475,000 would find its way back to Knowlsley by the end of the completion meeting because the various holders would be under contractual obligation with one another to complete the required transactions. We are fortified in this finding because we understand that Knowsley charged only what was described as a nominal charge for its services and required no collateral security for the "overdrafts" granted. '14. As we understand the authorities referred to and also that of Greenberg v Inland Revenue Comrs, Inland Revenue Comrs v Tunnicliffe n6, where a payment is made in unusual circumstances, that is, for example, in a business transaction unworthy of a schoolboy or a ridiculous farce, in a trilateral contrivance, a circular movement of cheques or as part of a tax avoidance scheme, it is necessary to {409} consider the question whether the purported payment constitutes satisfaction. "Such payments, if treated in isolation, would constitute satisfaction. But do they constitute satisfaction in the circumstances in which they were made? If these payments, amounting to £ 249,500, were only made as part of the three cheque circular movements, by which the payments to the plaintiff company were dependent upon corresponding payments out by the plaintiff company's directors from the plaintiff company's account to the payer, by a scheme in which the payer participates and without advantage to the plaintiff company, then the payer is giving with one hand what he at the same time takes away with the other. The plaintiff company has the satisfation of a conduit pipe... Satisfaction must be true and real satisfaction and not part of what makes satisfaction a mockery." (Ungoed-Thomas J in Selangor n1.) "A banker's draft for the consideration £ 11,000 was handed over to the taxpayer and a receipt therefor was given. But it is plain from the facts set out in the stated case that in no real sense did the taxpayer then receive this payment. It was part of the scheme and agreement that the draft should be at once used for the benefit of the purchaser in the manner there set out, and that the taxpayer should not in fact receive payment for the shares save in the deferred manner provided by the devised machinery." (Russell LJ, Inland Revenue Comrs v Tunnicliffe n2.) n6 [1970] 1 All ER 526, [1971] 1 CH 286, 47 Tax Cas 240 n1 [1968] 2 All ER at 1148, [1968] 1 WLR at 1651 n2 [1970] 1 All ER at 534, [1971] Ch at 316, 47 Tax Cas at 269 '15. In the present appeal we find that [the taxpayer company] has not satisfied us that in any real sense it received a payment of £ 475,000 from Cymbeline or that in a true and real way it paid £ 475,000 to Swanlack. In arriving at this conclusion we have looked at all the evidence and borne in mind that the transactions in dispute were embedded in the open commercial trust tax avoidance scheme. Although [the taxpayer company] and Swanlack each received a banker's draft for L475,000 we think it would be flying in the face of common sense to suppose that each received four hundred and seventy five thousand pounds sterling which its directors (who were agents of Miss Christie) thought they were free to deal with as they saw fit. It was part of the scheme for the benefit of Miss Christie that the so-called payments of £ 475,000 should be passed on as they were in fact passed on. We further find that [the taxpayer company] has not satisfied us that the payments made by Swanlack to it in purported part repayments of a loan in the circumstances in which they were made were not in reality profits of Miss Christie's profession passed on to [the taxpayer company]. We, therefore, confirm in principle under Case II the assessments appealed against. '16. If we are wrong in the finding set out in paragraph 15 we have to consider whether in selling for £ 475,000 the term interest to Cymbeline [the taxpayer company] was carrying on a trade. We think it was. Although looked at in isolation the disposal of the term interest has the attributes of a disposal of capital we find that looking at it as part of the open commercial trust scheme the transaction was in truth and in fact commercial. The sale was part of a scheme which comprised a series of varied transactions which from their surroundings took on a commercial character. The sale by the directors of [the taxpayer company] was, we find, an adventure in the nature of trade. '17. We find, therefore, that in either eventuality [the taxpayer company] has not discharged the onus laid upon it and we leave figures to be agreed between the parties in accordance with this our decision in principle.' 2. The parties were not able to agree figures in accordance with the commissioners' decision in principle and they heard further argument at an adjourned meeting on 27th January 1972. 3. (a) At the adjourned meeting it was contended on behalf of the taxpayer company that: (i) it was inherent in the decision in principle that the taxpayer company {410} was not beneficially entitled to the moneys paid to it by Swanlack in purported repayment of the latter's loan from the former; (ii) it was accountable to Swanlack for those moneys and was, accordingly, not assessable under Case II, Case VI or Case I in relation to the receipt of those moneys; (iii) if, which was denied, the taxpayer company was assessable under Case I of Sch D in respect of the profits of a trade, it must be the position that its trading stock was the term interest in the income of the first settlement, which interest must be deemed to have been appropriated as trading stock at its market value of £ 475,000, and thus no profits had arisen in such trade in the relevant years. (b) For the Crown it was contended that: (i) The taxpayer company had properly been held to be assessable in respect of the moneys passed to it by Swanlack which were truly profits of Miss Christie to which the taxpayer company was entitled and which were assessable on it either under Case II of Case VI of Sch D; (ii) if, in the alternative, the said sums were receipts of a trade carried on by the taxpayer company there was no warrant for the contention that the term interest in the income of the first trust was stock-in-trade of that trade appropriated thereto at a market value of £ 475,000. 4. It was agreed between the parties that: (a) in the event of the taxpayer company being assessable under Case II of Sch D the assessments appealed against should be adjusted as follows: 1965-66, nil; 1966-67, nil; 1967-68, £ 51,328; (b) in the event of the taxpayer company being assessable under Case I of Sch D in respect of the profits of a trade carried on by it the said assessments should be adjusted as follows: 1965-66, £ 12,134; 1966-67, £ 39,194; 1967-68, £ 39,194. 5. The commissioners, after considering the contentions advanced at the adjourned meeting, and after reviewing again the primary facts found by them and considering their decision in principle, particularly para 15 thereof, decided that the payments received by the taxpayer company from Swanlack were income of Miss Christie's profession in respect of which the taxpayer company was properly assessable under Case II. They accordingly discharged the assessments for the years 1965-66 and 1966-67 and increased the assessment for the year 1967-68 to £ 51,328. They also confirmed their alternative finding as set out in para 16 of their decision, rejecting the proposition that the taxpayer company's term interest in the income of the first trust was stock-in-trade appropriated to its trade at a market value of £ 475,000. They put on record that if the taxpayer company were properly assessable, not under Case II but under Case I of Sch D, they would have adjusted the assessments by reducing the assessment for the year 1965-66 to £ 12,134 and adjusting the assessments for each of the years 1966-67 and 1967-68 to £ 39,194. 6. Immediately after the determination of the appeal the taxpayer company declared its dissatisfaction therewith as being erroneous in point of law and the Crown immediately thereafter similarly expressed itself to safeguard the position should the commissioners be found to have erred in maintaining liability under Case II rather than Case I of Sch D. On 28th January 1972 and 17th February 1972 the representatives of the taxpayer company and the Crown respectively each required the commissioners to state a case for the opinion of the High Court pursuant to the Taxes Management Act 1970. 7. The question of law for the opinion of the Court was whether in making their findings as set out in paras 15 and 16 of the decision in principle and their determination recorded in para 4 above the commissioners had acted without any evidence or on a view of the facts which could not reasonably have been entertained. COUNSEL: Sir John Foster QC, Michael Fox QC and Andrew Park for the taxpayer company. G B H Dillon QC, D C Potter QC and Brian Davenport for the Crown. JUDGMENT-READ: Cur adv vult 16th April. PANEL: TEMPLEMAN J JUDGMENTBY-1: TEMPLEMAN JUDGMENT-1: TEMPLEMAN J delivered the following judgment. This is an appeal from the Special Commissioners by the taxpayer company against assessments to {411} income tax under Sch D. The taxpayer company contends that the sums assessed are capital and not income. It contends in the alternative that if the sums assessed are income they are assessable under Sch E and not Sch D. As a result of transactions which took place in December 1965, the taxpayer company received moneys which are now the subject of the assessments. Those transactions were organised by the advisers of Miss Christie, an actress, and by certain parties some of whom were referred to by the commissioners as 'the financiers'. I have in this judgment used that expression 'the financiers' to refer to all or some of the other parties who co-operated with Miss Christie and her advisers in the transactions under consideration. The object of the transactions appears from the commissioners' finding that Miss Christie was not allowed to know the identity of the financiers as a matter of policy 'in case an attempt was made to exclude the financiers from the enjoyment of the commission taken from the earnings of [Miss Christie] as the price of - hopefully - reducing (her) liability to tax.' By the first settlement dated 14th December 1965, Godmour Nominees Ltd ('Godmour') was directed to hold a trust fund on trust for a term of 21 years to pay the income to the taxpayer company as trustee of the second settlement or to its assignees of the term. Godmour was forbidden by the express terms of cl 4 of the first settlement to sell any property comprised in its trust fund without the consent of the persons for the time being during the 21 year term entitled (by assignment or otherwise) to receive the income of the first settlement trust fund. That trust fund was initially£ 75, and was settled like the second and third settlements by an acquaintance of one of the financiers at his request. By the second settlement or declaration of trust dated 14th December 1965, the taxpayer company was directed to hold the interest in income vested in it under the first settlement on trust for sale and to stand possessed of the net proceeds of sale and of the income received from the first settlement until sale on discretionary trusts for beneficiaries who included Miss Christie. By the third settlement dated 14th December 1965, Swanlack Nominees Ltd ('Swanlack') was directed to hold a trust fund on trust for beneficiaries other than Miss Christie. That trust fund was initially £ 25. The three companies - Godmour, the taxpayer company and Swanlack - were controlled by Miss Christie's advisers. The Crown concede that the subsequent actions of the three companies as trustees of the three settlements in December 1965 were authorised by powers contained in those settlements and were proper for the trustees to undertake. By the principal option agreement dated 16th December 1965, Rosebroom Ltd ('Rosebroom'), in consideration of £ 25 paid by Godmour, agreed to use its best endeavours to procure Miss Christie to enter into a service agreement for seven years at a salary of £ 7,500 rising to £ 13,500 per annum in return for Miss Christie working for Rosebroom and allowing Rosebroom to exploit and receive the benefit of her professional services as an actress. If Miss Christie entered into the service agreement in an agreed form Godmour was to have an option to acquire for £ 500 a transfer agreement in an agreed form whereby for an annual fee of £ 750 Rosebroom would procure that Miss Christie performed her services under the service agreement for or at the direction of Godmour or its assignees. Rosebroom was a company controlled by the financiers. By the conditional sale agreement dated 17th December 1965, Godmour agreed to sell to Cymbeline Enterprises Ltd ('Cymbeline') for £ 150 the benefit of the principal option agreement. The property held by Godmour and comprised in the trust fund of the first settlement then included the benefit of the principal option agreement, and accordingly the sale to Cymbeline was by cl 4 of the conditional sale agreement expressly made conditional on the consent of the taxpayer company or its assigns. Cymbeline was acting as agent for Univats Ltd ('Univats'). By the Univats option agreement dated 15th December 1965, Univats had for £ 20 granted Downer Nominees Ltd ('Downer') an option to acquire the benefit of the transfer agreement for £ 476,130. {412} The companies Cymbeline, Univats and Downer were acting at the behest of the financiers. By the Advance Offer dated 17th December 1965, the taxpayer company agreed that if it sold its income interest under the first settlement it would lend the proceeds of sale up to a maximum of £ 475,000 free of interest to Swanlack. The liability for Swanlack to repay the loan was limited to the amount which could be raised from time to time out of the assets of the third settlement. By the Cymbeline cross-option agreement dated 17th December 1965, Cymbeline as agent for Downer agreed to use its best endeavours to acquire the benefit of the transfer agreement and granted Swanlack an option, exercisable at any time thereafter, to acquire the benefit of the transfer agreement and any other rights to the professional services of Miss Christie (defined as 'the Christie rights') for a sum of £ 484,250 (cl 3(e)) less a part, roughly 82 1/2 per cent, of the profits from the Christie rights received by Cymbeline prior to the exercise of the option. Swanlack agreed that as soon as Cymbeline acquired the Christie rights Swanlack would deposit with Budd Nominees Ltd ('Budd') a sum of not less than £ 479,050, and would procure a guarantee for a further £ 5,200 to secure payment of the option price. The deposit was to be released to Swanlack as and when Cymbeline received profits from the Christie rights and the option price thereby became less than the deposit for the time being held by Budd. By the Swanlack financial facilities application dated 20th December, Stanley Gorrie & Partners ('Gorrie') agreed to provide Swanlack with the guarantee for £ 5,200 required by the Cymbeline cross option agreement, and also agreed to lend Swanlack £ 4,050 when Swanlack became liable to deposit £ 479,050 with Budd. This £ 4,050, together with the £ 475,000 from the taxpayer company pursuant to the advance offer, would enable Swanlack to deposit £ 479,050 with Budd. Swanlack agreed that, as the deposit with Budd was released, Swanlack would repay the loan of £ 4,050, pay the next £ 150 to Gorrie, retain £ 29,580 and thereafter pay to Gorrie out of the deposit released by Budd sums equal to 15 per cent of the profits from the Christie rights received by Cymbeline from time to time. This 15 per cent, plus the 17 1/2 per cent of the profits retained by Cymbeline pursuant to the Cymbeline cross-option agreement, amounted to 32 1/2 per cent of the profits from the Christie rights and provided the 'commission' required by the financiers. By a letter dated 16th December 1965, Budd agreed to lend Swanlack's deposit of L479,050 under the Cymbeline cross option agreement to Woods Nominees Ltd ('Woods') and Woods agreed to lend this sum to Downer to enable Downer to pay the purchase price under the Univats option agreement. Budd and Woods were acting at the behest of the financiers. On 20th December Miss Christie entered into the service agreement with Rosebroom. A meeting was organised for 22nd December. The financiers arranged that Knowsley & Co ('Knowsley') bankers, would, for a fee of £ 1,050, attend the meeting with drafts and paying-in slips for use in case the events then contemplated should occur. When the meeting took place, the taxpayer company offered to sell and Cymbeline orally agreed to purchase for £ 475,000 the income interest of the taxpayer company under the first settlement. Knowsley handed Univats a draft for £ 475,000 for their agent, Cymbeline, to hand to the taxpayer company to effect the purchase. This was done and the draft was returned to Knowsley. To comply with the advance offer Knowsley handed the taxpayer company who handed to Swanlack, a draft for £ 475,000. The draft was returned to Knowsley. Cymbeline paid Godmour £ 150 provided by the financiers and gave the consent necessary to procure completion of the conditional sale agreement. Cymbeline exercised the option in the principal option agreement, paid Rosebroom £ 500 provided by the financiers, and received the transfer agreement as agent for Univats. Downer exercised the option in the Univats option agreement and handed a draft of £ 476,130 provided by Knowsley to Univats. The draft returned to Knowsley. Swanlack handed a draft of £ 479,050 provided by Knowsley to Budd pursuant to the {413} Cymbeline cross-option agreement. Budd handed a similar draft to Woods, who performed a similar service for Downer. The drafts returned to Knowsley. Once Cymbeline agreed to purchase the interest of the taxpayer company under the first settlement, each participant at the meeting required to receive and pay £ 475,000; each participant received £ 475,000 and each participant paid away £ 475,000. No one began the meeting with £ 475,000 and no one left the meeting with £ 475,000 or with any asset remotely near that value. I assume that Knowsley were in a position to lend £ 475,000 when they arrived, but they departed without leaving any such sum on loan to anyone. In effect, £ 475,000 passed by Knowsley drafts from Knowsley to Univats to Cymbeline to the taxpayer company to Swanlack to Woods to Downer to Univats and back to Knowsley, pursuant to documents which divided the profits from the Christie rights between the financiers and the taxpayer company in the proportions of roughly 32 1/2 per cent and 67 1/2 per cent. The financiers provided £ 4,050 at the meeting in order that the payments of £ 150 to Godmour and £ 500 to Rosebroom could be made, and in order to pay Knowsley £ 1,050 for its services, to pay £ 1,250 on account of legal costs to Beer & Co and to see that Univats received £ 480 and that Downer received £ 620 for their services.The total of £ 4,050 was repaid by Swanlack after about three months, when the profits from the Christie rights enabled this sum to be released to Swanlack. The financiers would have been out of pocket to the extent of £ 4,050 and possibly some additional costs if Miss Christie had suffered a serious mishap and been unable to earn anything, but this risk was negligible. The financiers acquired the right to be paid for seven years 32 1/2 per cent of the profits from the Christie rights. The taxpayer company became entitled to the balance. The documents executed on 22nd December were so worded that the taxpayer company received part of the profits from the Christie rights. It was suggested in argument that the taxpayer company might have received more if the third settlement had acquired any assets other than the right to the release of the Budd deposit, but there was never any practical possibility of this occurring. This theoretical possibility and the £ 25 originally settled, even if it did not disappear in costs, did not alter the nature of the sums which were received by the taxpayer company. After 22nd December and for seven years, in consequence of the documents signed before and on 22nd December, not only the taxpayer company but every party in the contractual chain between Miss Christie and the taxpayer company only received and were only liable to pay profits derived from or sums equal to and derived from the Christie rights, and therefore dependent on the appearances of Miss Christie as an actress. As and when Miss Christie worked as an actress, her expenses and salary were paid, Rosebroom kept its annual fee of £ 750, the profits from the Christie rights were received by Cymbeline and 67 1/2 per cent reached the taxpayer company via Downer, Wood, Budd and Swanlack. In 1966 profits from the Christie rights began to flow from Cymbeline and the appropriate sums derived therefrom were received by the taxpayer company. Those receipts are the subject of the present disputed assessments. On behalf of the taxpayer company it was submitted that the taxpayer company pursuant to the offer sold to Cymbeline for a capital sum of £ 475,000 a 21 year interest in the income of the first settlement. The taxpayer company, pursuant to the advance offer, lent to Swanlack a capital sum of £ 475,000. The moneys now the subject of assessment were received by the taxpayer company in part repayment of the capital of the loan made to Swanlack, and are capital receipts. This submission ignores the fact that there were in existence, at the moment of offer by the taxpayer company to Cymbeline of the 21 year interest, binding agreements and effective arrangements which ensured that the taxpayer company received and only received 67 1/2 per cent of the profits from the Christie rights or sums equal thereto and derived therefrom. If it assigned the 21 year interest to Cymbeline, there was no practical possibility that the taxpayer company would or could receive {414} anything else of value for the assignment which it made or the loan which it was bound to make. In the event, the taxpayer company received its entitlement to part of the profits from the Christie rights or sums equal thereto and derived therefrom. In my judgment, such receipts have the characteristics of income and not capital. When the taxpayer company assigned its interest in the first settlement to Cymbeline and received a draft for £ 475,000, there existed contracts and arrangements which ensured that the taxpayer company would never enjoy the benefit of the £ 475,000 which it appeared to hold for one fleeting moment, but instead would enjoy the benefit of part of the profits from the Christie rights. It could not receive more in the aggregate than £ 475,000, but this cannot alter the nature of the receipts. When Swanlack received a draft for £ 475,000 from the taxpayer company, these same contracts and arrangements ensured that Swanlack would never enjoy the benefit of the £ 475,000 which it appeared to hold for one fleeting moment.All that Swanlack would enjoy was the benefit of a part of the profits from the Christie rights, but only if and when the taxpayer company had received £ 475,000 from those profits and the financiers had received their commission. It is said that apart from the first draft, which was produced by Knowsley and limited to payment of the purchase price of £ 475,000 paid by Cymbeline, no draft was fettered by Knowsley.But no one, even in theory, could walk out of the meeting with £ 475,000 without the contractual burden of paying at least £ 475,000 to someone else. Moreover, each draft was in fact fettered, though not by Knowsley. This was a carve up of the moneys hoped to be obtained from exploiting the talents of Miss Christie as an actress, and the meeting was not going to break up until the carve up was completed. The trustees participated because they were bound by contract or were being offered something for nothing by Miss Christie's service agreement and other arrangements. Everyone else was paid by or represented Miss Christie or the financiers. No one was going to walk out of the meeting with £ 475,000 jingling in his pocket, or with any other assets which could be sold for such a sum. The right of every payer and the liability of every recipient of £ 475,000 or more was contractually limited so that the payer would only be rewarded by and the recipient would only be made accountable for profits received or derived from the Christie rights. There would be nothing in the kitty unless Miss Christie performed. Each banker's order provided by Knowsley was only a baton stick which the holder for the time being on 22nd December was bound to hand over until the end of the race against the Revenue. The documents recorded the hand-over and accomplished the assignment of the benefit of the Christie rights, and imposed obligations to distribute the profits (if any) from the Christie rights so that 67 1/2 per cent reached the taxpayer company. The documents appeared to have the effect of buying and selling assets for £ 475,000 or more, and of lending, borrowing and depositing similar sums. But this was all a trick. The Revenue conceded that the transactions were not shams. The documents were not untrue, and they achieved the intended effect of distributing the profits of the Christie rights.But the money was a trick which disguised the fact that this distribution was the only effect of the documents. The money vanished whence it came - up the sleeve of Knowsley. The 'purchase price' was a fake. No one in his senses would in 1965 have handed over 475,000 undisputed, unrestricted, uninsured, uninflated pound notes for what the taxpayer company had to offer. The 'price' was not the value of the interest 'sold' or the value of the service agreement: it was a part, calculated by Miss Christie's advisers, of the maximum amount her performances could expect to earn during the ensuing seven years. The 'price' was fixed so that there was no danger of Swanlack (who could not benefit Miss Christie) obtaining any of those earnings unless and until they exceeded in seven years about £ 700,000. The trick deceived the authors and inventors of the scheme enshrined in the documents and deceived Miss Christie's advisers, but did not deceive the Revenue. It took five years for the Revenue to catch up with the trick, and has taken another five years to expose it. {415} It is said that there is authority which for present purposes confines the court to a consideration of the express terms of the assignment to Cymbeline of an interest under the first settlement as recorded in the offer and the express terms of the loan from the taxpayer company to Swanlack as recorded in the advance offer and the fact that drafts were handed over in conformity with those documents. In Inland Revenue Comrs v Duke of Westminster n1 sums payable under a deed of covenant were held to be an annuity and not remuneration although the covenant was by a master in favour of a servant and there were letters which showed that the servant was told he was expected to be content with correspondingly less remuneration. The House of Lords considered the legal effect of the covenant and the letters and rejected the doctrine that the Court might disregard the legal position and regard the 'substance of the transaction'. In the present case the transactions entered into before and on 22nd December must be considered in order to determine the legal effect of the transactions in which the taxpayer company took part. The legal effect was that the taxpayer company disposed of its rights and powers under the first and second settlements and acquired the right to a part of the profits from the Christie rights. That was the legal effect, not merely the substance. In the Westminster case n1 the legal effect was that the sums paid were an annuity because they were payable whether the servant continued in employment or not, although so long as he continued in employment it could be said that the sums he received were 'in substance' part of his remuneration. The Westminster case n1 did not involve a disappearing trick or a fake price. n1 [1936] AC 1, 19 Tax Cas 490 In the transactions which took place on 22nd December 1965 sums of £ 475,000 appear to have changed hands; but they all disappeared. Counsel for the taxpayer company argued that the same could be said where a vendor sells and accepts a mortgage for his purchaser for the full purchase price. But in that case the money does not vanish; the purchaser acquires the property and the vendor acquires the money, secured on the property: see Coren v Keighley n2. If a purchaser is wholly financed by the vendor's mortgagee for a sum precisely sufficient to discharge the vendor's mortgage, the money does not vanish. There are two and only two assets which exist at the beginning and the end of the transactions; namely, the property and the mortgage money. The only asset, the property and the mortgage money, change hands from the vendor to the purchaser. The mortgage money remains secured on the same property in fvour of the mortgagee, but is owed by a different debtor, the purchaser instead of the vendor. In the present case there was only one asset the Christie rights. The money was disappearing money which did not represent a true purchase price and which vanished leaving the original one and only asset, the Christie rights and certain documents which directed the distribution of the profits of the Christie rights for the next seven years and secured the receipt by the taxpayer company of part of the profits of the Christie rights or sums equivalent thereto and derived therefrom. n2 [1972] 1 WLR 1556, 48 Tax Cas 370 In Inland Revenue Comrs v Wesleyan and General Assurance Society n3, a policy-holder, in return for a premium of £ 500, became entitled on death to a sum equal to the aggregate of £ 4 18s 4d for each month between the date of the premium and the date of his death. He was entitled to borrow each month up to the amount which would be payable, less the borrowings, if he died at the date of the borrowing. It was held that the borrowed sums were loans, not an annuity. In the Wesleyan case n3 the policyholder might not borrow; if he borrowed, he might repay. Both possibilities were remote but existed and weighed with the House of Lords in distinguishing between a loan and an annuity. In the present case there is no difficulty in distinguishing between the receipts of profits and the repayment of a loan just because the former is tricked out to look like the latter. n3 [1948] 1 All ER 555, 30 Tax Cas 11 {416} In Ransom v Higgs n1 the House of Lords held that a settlor who procured trustees and others to trade was not himself trading. Counsel for the taxpayer company relied on this case to demonstrate that no special burden is placed on the author of or participant in a tax avoidance scheme. Such a scheme is successful if the Revenue fail to establish that moneys which they seek to tax fall within the ambit of the statute imposing the tax. It does not follow from this principle that the transactions entered into by the taxpayer company must be examined in isolation without regard to the consequences in the light of other transactions. Counsel for the Crown pointed out that in Ransom v Higgs n2 Lord Wilberforce said 'that it is legitimate to consider the "scheme as a whole" where there is evidence, as there is here, that each separate step is dependent on others being carried out'. n1 [1974] 3 All ER 949, [1974] 1 WLR 1594, [1974] STC 539 n2 [1974] 3 All ER at 965, [1974] 1 WLR at 1612, [1974] STC at 555 Counsel for the taxpayer company in his reply referred to Timbrell v Lord Aldenham's Executors n3. In that case a Chilean firm owed a London firm more than £ 24,000 on capital account and an Australian firm owed the London firm £ 24,000 on income account. The London firm were partners in the Chilean and Australian firms, but the compositions of the three firms were not identical. The London firm procured the Australian firm to lend £ 24,000 to the Chilean firm, which firm in turn reduced its capital debt to the London firm by £ 24,000. It was held that the £ 24,000 received by the London firm was not a remittance of income. n3 (1946) 28 Tax Cas 293 Counsel for the taxpayer company says that this is an example of income being converted into capital, and so it is. But there were real debts, real loans and real payments. At the end there was a different position from that which obtained at the beginning. There were no circular payments which began and ended with the same payer. No money disappeared. Between the beginning and the end the Chilean debt to London was reduced by £ 24,000, the Australian debt to London was discharged, and Chile incurred a debt to Australia of £ 24,000. The legal effect was that the London firm received in this country only £ 24,000 in part discharge of the capital of a debt owed to London by Chile. The trick in the present case is that the £ 475,000 disappeared. It did not belong to anybody when the performance began, and it did not belong to anyone when the performance ended. It was invented by Miss Christie's advisers for the purpose of performing a circle of payments which could only begin and end with Knowsley. The only difference between the beginning and the end was a difference in the destination of the profits from the Christie rights. So far as the taxpayer company is concerned, the only legal effect was to confer on it the right to part of the profits from the Christie rights or sums equal thereto and derived therefrom. Counsel for the Crown relied on three cases in which the court refused to accept that the passing of money drafts constituted 'payment' despite the vehement assertions of the documents and the parties to the contrary. In Re Disderi & Co n4 moneys paid by directors for qualification shares were held not to have been paid because the moneys themselves derived from a purchase by the directors on behalf of the company, and the directors had no power to effect such a purchase until after they were qualified. In Gray v Lewis n5 moneys paid by a company to a bank as a deposit were held not to have been paid because the moneys were immediately subject to a charge equal to the money deposited in favour of the bank, which nevertheless purported to certify that the monies had been paid and stood to the credit of the company. In Selangor United Rubber Estates Ltd v Cradock (No 3) n6 where cheques were handed over to the plaintiff in payment of a debt, Ungoed-Thomas J said n7 there was no satisfaction of the debt because - {417} 'If these payments... were only made as part of the three cheque circular movements, by which the payments to the plaintiff company were dependent upon corresponding payments out by the plaintiff company's directors from the plaintiff company's account to the payer, by a scheme in which the payer participates and without advantage to the plaintiff company, then the payer is giving with one hand what he at the same time takes away with the other' n4 (1870) LR 11 Eq 242 n5 (1873) 8 Ch App 1035 n6 [1968] 2 All ER 1073, [1968] 1 WLR 1555 n7 [1968] 2 All ER at 1148 [1968] 1 WLR at 1651 In the present case, the taxpayer company received no advantage from the £ 475,000 though it received from the transactions some advantage: namely, 67 1/2 per cent of the profits from the Christie rights. Gray v Lewis n1 and Selangor n2 involve fraud. There is no suggestion of fraud here. The instant case is therefore distinguishable from the cases cited by counsel for the Crown. But there is a relevant similarity. In the cases cited by counsel for the Crown circular payments hid the fact that nothing was being accomplished. In the present case circular payments disguised the fact that nothing was being accomplished save provision for the distribution of the profits of the Christie rights. n1 (1873) 8 Ch App 1035 n2 [1968] 2 All ER 1073, [1968] 1 WLR 1555 In Tunnicliffe v Inland Revenue Comrs n3 a company, Cavendish, agreed to buy shares and the vendor agreed to assist Cavendish. Cavendish borrowed the purchase price of £ 11,000 from a bank and received a banker's draft for this amount. The banker's draft was handed to the vendor in return for the shares. The vendor deposited the banker's draft with the bank as security for the loan. As and when Cavendish received dividends from the shares, they reduced their loan and a sum corresponding to the reduction was released by the bank to the vendor. It was held that the vendor did not receive payment for the shares when it received the banker's draft for £ 11,000: see Russell LJ n4 and Lord Morris of Borth-y-Gest n5. In Tunnicliffe n3 the court was not concerned with what the vendor received, but when he received it. Nevertheless, I agree with counsel for the Crown that Tunnicliffe n3 is another instance of the court refusing to consider a transaction in isolation, and refusing to be bamboozled by circular payments. n3 [1971] 3 All ER 136, [1972] AC 109, 47 Tax Cas 240 n4 [1970] 1 All ER 526 at 534, [1971] Ch 286 at 316, 47 Tax Cas 240 at 269 n5 [1971] 3 All ER at 155, [1972] AC at 144, 47 Tax Cas at 278 The authorities encourage me to give effect to the conclusion I reach on the true construction of the documents which were signed and the events which happened; namely, that the sums assessed to tax on the taxpayer company were profits or moneys equal to and derived from profits from the Christie rights, and were income receipts in the hands of the taxpayer company. On those receipts the Crown seek to charge income tax under Sch D, and rely on Case I, Case II or Case VI in the alternative. By ss 122 and 123 of the Income Tax Act 1952, tax under Case I is charged in respect of any trade. Godmour was given power to trade. Godmour proclaimed that it intended to trade with its £ 75 capital as circulating capital. Swanlack was given power to trade. Swanlack proclaimed that it intended to trade with its £ 25 capital as circulating capital. The taxpayer company was not given power to trade, and remained silent as to its intentions. It was submitted that in the course of December 1965 Godmour (who made next to nothing) and Swanlack (who made less) were trading in the exploitation of Miss Christie's services, while the taxpayer company (who began with next to nothing and finished with a right to part of the profits, not exceeding £ 475,000, of the exploitation of Miss Christie's services) was not trading in the exploitation of Miss Christie's services at all. The Special Commissioners not unnaturally concluded that all three were trading, and it is difficult to see how two of the triplets traded without involving the third. But in my judgment none of them was trading. They were all participating {418} in transactions and executing documents to procure, inter alia, that a part of the profits from the Christie rights would devolve and be held on the trusts declared by the settlement of which the taxpayer company was the trustee. This simple object was achieved in a complicated manner in the hope that the moneys thus received and held by the trustee company on those trusts would escape tax. But complications are not trading, and tax avoidance, whether successful or unsuccessful, is not by itself trading. Tax under Case II is charged on the profits or gains arising from the carrying on of a profession. On behalf of the Crown counsel submitted that Miss Christie never ceased to carry on her profession as an actress and that the moneys received by the taxpayer company were profits arising therefrom. This submission involved counsel for the Crown in attacking the service agreement, first on the ground that it did not create the relationship of master and servant between Rosebroom and Miss Christie and secondly on the alternative ground that Rosebroom was under the thumb of Miss Christie, or at any rate never played the role of an employer. In my judgment, however, if there was no sham, the service agreement must be taken at its face value, and so taken conferred rights and imposed obligations which established the relationship of master and servant between Rosebroom and Miss Christie.After the service agreement, Miss Christie ceased to carry on her profession as an actress earning profits and became an employee of Rosebroom, being paid a salary taxable in her hands under Sch E. The moneys received by the taxpayer company were derived from the profits of the exploitation of the Christie rights by Cymbeline, and were never profits arising from the carrying on by Miss Christie of a profession. Tax is charged under Case VI in respect of annual profits or gains not falling under any other Case or under any other Schedule. In my judgment, the moneys received by the taxpayer company in consequence of the transactions entered into in December 1965 fit within this description. If it were not for the trick with £ 475,000, no one would suggest that the moneys received by the taxpayer company were capital. Once the trick is exposed the moneys are seen to be what they are, namely annual profits or gains. They escape any other Case or Schedule and fall into Case VI. They are taxable in the hands of the taxpayer company because s 148 of the Income Tax Act 1952 provides that income taxable under Sch D shall be paid by the person who receives that income. Mr Fox for the taxpayer company sought to escape from the net of Case VI by arguing that if, contrary to the submissions made by leading counsel and himself, the moneys received by the taxpayer company were not capital, they were taxable under Sch E. The moneys were, said counsel, derived from the performance by Miss Christie of her duties in pursuance of the service agreement under which she was taxable under Sch E. Of course a master derives profit from the services of a servant. But Sch E deals with the salary of the servant and Sch D deals with the profits of the master. The sources of the moneys received by the taxpayer company were the contracts between Cymbeline as assignee of Rosebroom and the film or theatrical companies for the services of Miss Christie, not the contract between Rosebroom and Miss Christie which, together with the transfer agreement, enabled Cymbeline to fulfil its contractual obligations to the film and theatrical companies by making available the services of Miss Christie. The Special Commissioners upheld the assessment on the taxpayer company and I dismiss the appeal from the commissioners on the ground that the assessments were properly made under Sch D, Case VI. DISPOSITION: Appeal dismissed with costs. SOLICITORS: Beer, Dunnett & Co (for the taxpayer company); Solicitor of Inland Revenue. |
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