TMI Blog1939 (1) TMI 12X X X X Extracts X X X X X X X X Extracts X X X X ..... out in the case, but I must give a short summary of them in order to make this judgment intelligible. The Company (to whom I will refer as Scammells) carry on business as motor engineers, and at the relevant time when the story begins they had as directors, Mr. Hood Barrs, a Mr. England and a Mr. Scott; Mr. Hood Barrs held by far the larger part of the issued share capital of Scammells. In February, 1932, Mr. Hood Barrs acquired a considerable shareholding in a company called Blue Belle Motors, Ltd., whose business appears to have been that of running motor coaches. That purchase put him into a position to control Blue Belle Motors de facto, and the first thing that seems to have happened is that Mr. Hood Barrs, Mr. England and Mr. Scott became directors of Blue Belle Motors, and a Mr. Toms, who had been a director and remained a substantial shareholder in Blue Belle Motors, was treated by the new board as though he had ceased to be a director, and office which he had previously held. It appears from the Minutes which are annexed to the case, and indeed one would have expected it, that one of the objects of Mr. Hood Barrs in acquiring that shareholding was to benefit Scammells by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Hood Barrs, Mr. England, Mr. Scott and Blue Belle Motors, claiming a variety of relief. No copy of the writ is annexed to the Case, but we have sent for a copy of it, and it appears that in that action Mr. Toms was suing on behalf of himself and all other shareholders in Blue Belle Motors except the defendants, Messrs. Hood Barrs, Scott and England. I should say that Messrs. Scott and England had got, I think it was, one share or, at any rate, a qualifying share in Blue Belle Motors from Mr. Hood Barrs. Of course, in so far as Mr. Toms was suing on behalf of all other shareholders in Blue Belle Motors, the relief that he was seeking was relief not for himself but for Blue Belle Motors. The plaintiff in what is commonly called a minority shareholder's action is enforcing the rights of his company and not his individual rights; but in the present case Mr. Toms was also seeking to enforce certain rights which he claimed belonged to him as an individual. In his writ he sought to have set aside or declared invalid, firstly, the management agreement under which Scammells were appointed managers of Blue Belle Motors; secondly, what is referred to as a transfer of thirteen coaches belo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er into a compromise with Mr. Toms, as otherwise the Appellant Company would lose the balance of the said account owing to them by Blue Belle Motors, Limited. It appears from the Minutes and from the finding of the Commissioners that Mr. Toms was willing to compromise and get rid of all those claims and disputes on certain terms. I need not rehearse them in detail because I shall have to examine in a moment the actual deed of compromise, but he was insisting on having transferred to him for a consideration the shares in Blue Belle Motors which Mr. Hood Barrs and his co-directors held, he was insisting that the slander action against himself should be discontinued, and he was insisting on the cancellation of the debentures held by Scammells and Blue Belle Motors. On those terms (among others) being satisfied, he was prepared to consider the discharge, if not of the whole, at any rate of a substantial part of the indebtedness of Blue Belle Motors to Scammells. Now, that being the state of affairs, in order that a compromise of that description might be implemented, it was obviously necessary that Mr. Hood Barrs and his co-directors should be brought into it, because the acquisit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s silent, and we cannot draw, it seems to me, an inference about it, but the result of the account is to shown a balance due to Scammells of 13,739 8s. 8d. The accountants have then reduced that by an item By credit to was one of the things on which Mr. Toms was insistent, and also because those three gentlemen were the plaintiffs in the slander action. Accordingly, any compromise, if it was to be effective, had to provide for those two matters. Now Mr. Hood Barrs took a serious view of the slander which it was alleged had been uttered against him by Mr. Toms. His two co-directors were more easy going about it, but Mr. Hood Barrs insisted that it was a serious matter and he was not prepared to give up his claim to damages for slander except for some substantial consideration. Accordingly, the Company (Scammells), in so far as they were anxious to have a compromise which would result in securing payment, if not of the whole, at any rate of a substantial part of Blue Belle Motors' debt to themselves, found themselves bound to come to a deal with Mr. Hood Barrs in connection with the slander action. Mr. Hood Barrs demanded a sum of 7,500 before he would consent to give up ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r with this class of relationship might have entertained. But the recital which I have referred to and the other provisions in the document make it clear that Mr. Toms had investigated the whole of the position, and had satisfied himself that there was nothing of the kind to which exception could properly be taken. Accordingly, the deed on the face of it shows that there was nothing of real substance in any suggestion of that description. Then it recites in recital 18: An account of the transactions matters and things between the Motor Company and Scammells has been prepared by the Accountants (C.F. Middleton Co.) acting on behalf of the parties hereto of the first second third and fourth parts and has been agreed by the Accountants (Barnes Bryant Co.) acting on behalf of Mr. Toms and the Motor Company and it has been agreed by and between the parties hereto that the said account shall be accepted by them and each of them as a final settlement of account and adjustment of all transactions matters and things as between the Motor Company and Scammells and that the said account shall be annexed to this Deed and from part thereof........................ . Then,-in the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of all the books and documents of Blue Belle Motors relative to all transactions matters and things which have taken place between that company and Scammells and to the conduct of the affairs of Blue Belle Motors, Ltd., generally from the 18th February, 1932, up to the 30th June, 1932, and was satisfied with and accepted them. Then, consequential upon that, he undertakes that he will not in his individual capacity or as a director or debenture holder or shareholder in Blue Belle Motors make any claim in respect of any such matters, and there is an adjust; 3,176 18s. 8d. , leaving a balances of 10,562 10s. 0d. which is the sum of cash paid by Blue Belle Motors to Scammells, as stated in clause I of the deed. Now I shall have something more to say with regard to that account in a moment, but I must return to the facts as found by the Commissioners. It will be remembered that the Commissioners, in paragraph 5 of the Case, found that in April there was a liability of Blue Belle Motors to Scammells on trading account of 12,779 13s. 10d. There is no suggestion in the Case that any part of that trading debt has even been repaid. The debentures which were issued in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its argument whether or not the of those items represented what the 12,779 owing in April represented, namely a real trading account. It is quite impossible for us to regard that account on any other basis. It seems to me not only that the Crown could not now turn round and invite us to discover in that account some capital colour or ask us to send the matter back to the Commissioners in order to have the account further investigated: the Crown deliberately selected the argument upon which it wished to stand and we must take the matter as we find it. The proper inference, in so far as the Commissioners have found a fact about it, seems to me to be this : if one starts with a figure admittedly owing in April on trading account, if one then proceeds to the fact that there is no finding that any penny of that had ever been repaid, and when we find that that indebtedness has by June gone up by 1,000 or so, and when we find in the finding of the Commissioners in paragraph 15 the balance of account referred to as the balance of account resulting from that (trading) relationship it seems to me that we would not be justified in treating the sum of 10,562 10s. 0d. as anything more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the minimum sacrifice of the balance of account resulting from that relationship . Now, with great respect to the Commissioners, it seems to me that they have put the matter the wrong way round. It was not Scammells who were seeking to terminate a trading relation, a phrase which I understand to be intended to cover the de facto business situation of the two companies vis-a-vis one another, as well as their existing contractual relationships. It was Mr. Toms, on behalf of Blue Belle Motors, and in his individual capacity, who was seeking to determine that trading relation. That was the main object of his action; it was that that he was demanding; it was he, not Scammells, who insisted, as a term of coming to any agreement, that the shares in Blue Belle Motors held by the directors should be sold to himself, Scammells were defending, Mr. Toms and Blue Belle Motors were attacking them. What Scammells were anxious about-and on the evidence it appears abundantly clear, and, in fact, the Commissioner themselves in a paragraph to which I have referred (paragraph 9) have a finding to that effect-was the balance of their account, and, in order to obtain payment of as much of that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant Company's trade. It was also said that it was open to the Crown here to argue, as we were informed they had argued before the Commissioners, that although the object of the payment might be for the purpose of trade, yet it was of a capital nature. It seems to me that, if we assume that the object was to terminate the trading relation, we must treat matter giving proper force to the word 'trading'. The relation to which the Commissioners are referring is a trading relation, and, therefore, in so far as there were any other relations which were not of a trading nature, the finding of the Commissioners negatives the idea that one of the objects was to get rid of them; it was trading relations, and trading relations only. Therefore, we find this Company finding itself in a situation of trading relationship with another company which it wishes to get rid of because it is inconvenient to it. On that basis, and giving full force to the qualifying word trading , it seems to me that the conclusion to which the Commissioners have come, namely, that a compromise directed to obtaining the termination of such a relationship was not for the purposes of the Appellant Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the company is undesirable is properly treated as a revenue payment and a deductible expense. The other case was Anglo-Persian Oil Co. Ltd. v. Dale [1931] 16 Tax Cas. 253 where the payment was a payment made in order to terminate an agency agreement which was proving disadvantageous to the company. In the present case, if the trading relation was one that was disadvantageous to the Company and, in order to get rid of it, the company had to enter into an agreement with Mr. Toms and Blue Belle Motors, and if, in order to secure that the agreement should be effective, it was necessary to make a payment to a third party, to wit, Mr. Hood Barrs. who was in a position to block the agreement because his consent was necessary and there was no means of compelling him to give it, the payment made to Mr. Hood Barrs was, it seems to me, a payment that was made for and was directly connected with the procuring by the Company of the advantage of terminating that trading relation and, as such, was wholly and ex- clusively laid out for the purposes of the Company's trade. That deals with the 7,500. The other, two sums can be very shortly dealt with. One was the sum of 53 10s. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
