TMI Blog1957 (5) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... on for the remuneration of the directors had to be limited in accordance with paragraph 11. The following facts were proved or admitted: (a) The company was incorporated in 1912 and carried on the business of merchanting agricultural machinery. The issued share capital was 5,000 divided into 100 shares of ?5 each. At all material times these shares were registered in the following names: Ludwig Elsass 300 shares, Sophus [1943] A.C. 335; 59 T.L.R. 91; [1943] 1 All E.R. 13; 29 T.C. 49; T.R. Suppl. 29 Finance Act, 1937, 4th Sch., para. 11 (as amended by the Finance Act, 1952,s. 34): In the case of a trade or business carried on in a chargeable accounting period by a company the directors whereof have a controlling interest therein, the deduction to be allowed in respect of the remuneration of the directors..........shall not exceed certain specified amounts. Berendsen A/S 590 shares, P.L. Burgin 1 share, E. Hertel 100 shares A. Elsass 9 shares. (b) Each share carried one vote at meetings of the company. (c) Sophus Berendsen A/S (hereinafter called the Danish company ) was a company incorporated in Denmark. The Danish company and E. Hertel owned the shares registered in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [1951] 1 All E.R. 703; 29 T.C. 491 the ratio decidendi was that it is not permissible to look beyond the company's share register at the persons who may be beneficially entitled to shares, nor to take into consideration either the character in which the registered member may hold the shares or what Lord Simonds.........described as the 'external control' to which he may be amenable. We do not think that we would be acting contrary to the principle of Bibby's case 29 T.C. 167 in addressing our minds to the question whether (without investigating the character in which the Danish company holds its shares) the directors in fact (and without the interposition of any trust) control the company by virtue of the votes conferred by the shares registered in their own names together with those registered in the name of the Danish company, and in so doing, to take into consideration the shareholding of one director in the Danish company, itself. We find nothing in Silverts' case [1951] Ch. 521 which prevents us from considering this question, and we think that the British American Tobacco case [1943] A.C. 335 requires us both to consider it and to answer it in the affirma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he opinions in the House of Lords that the controlling interest was the power to carry a resolution at a general meeting by the exercise of the voting rights as those rights appeared on the register. In Silverts' case [1951] Ch. 521 the Court of Appeal thought the ratio decidendi in Bibby's case 29 T.C. 167 was that in accordance with well established principles relating to limited companies the question of the rights of membership vis-a-vis the company (such as that of voting control under its regulations) was to be determined by reference, and by reference only, to the share register, beyond which (save possibly in the case of mere nominee shareholders) it was not permissible to look. Where the name on the register is that of a body corporate, the principle involved is the same, though the question posed may be different. On the question whether one may look beyond the name on the register and inquire what are the interests of a body corporate appearing on the register, Bibby's Case 29 T.C. 167 says that one must not, and that the inquiry must stop at the register; and following that case the Court of Appeal in Silverts' case [1951] Ch. 521 held that where a ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impossible to adopt the view that a person who by having the requisite voting power in a company could make the ultimate decision how and where the business should be carried on was not a person of whom it could be said that he had in this connexion got a controlling interest in the company. It is admitted that in many cases that may be a crude test. In case of trustees registered as members but liable to submit to the control of beneficiaries one cannot there look at the beneficial interest, but it is an inaccurate way of putting it that one cannot go beyond the register. The position of trustees on the register does not cut across the principles applicable where there are companies on the register. If the name of a company appears on the register of another company, one does not stop at the register when asking who has the controlling interest. A company is body which has to be controlled; it does not act or vote by itself and one is bound to see who are the persons controlling it and to inquire who would in fact exercise the votes. In either, case, whether it is a trustee of a company, it is the voting power which counts. Where there is a difference between the beneficial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by all the courts, including the House of Lords. I will borrow my statement of the point which was raised in Bibby's case 60 T.L.R. 369; [1944] 1 All E.R. 548, C.A.; affirmed 61 T.L.R. 430; [1945] 1 All E.R. 667; 29 T.C. 167; 14 I.T.R. Suppl. 7 from the judgment of Evershed M.R. in the latter case of Inland Revenue Commissioners v. Silverts Ltd. [1951] Ch. 521; [1951] 1 T.L.R. 593; [1951] 1 All E.R. 703; 29 T.C. 491 He said [1951] Ch. 521, 527: In the Bibby case 29 T.C. 167 the question was, as in the present case, whether the directors of the company held a controlling interest therein. The question arose in fact under section 13(9) of the Act of 1939, whereby for the purpose of excess profits tax, the profits of the company increase or decrease by a statutory percentage in relation to the capital employed in the business, and in that case it was in the interest of the company to show that its directors did hold a controlling interest therein. The answer to the problem depended upon whether there should be included as part of the 'controlling interest' shared held by directors not in their own right but as trustees under a settlement of the ordinary kind. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tes the decisions which will bind the company in the shape of resolutions passed by the shareholders in general meeting. In other words, the test which is to exclude a company's business from subsection (9)(a) and include it in (9)(b), is the voting power of its directors, not their beneficial interest in the company. Later he said Ibid 180: The words, 'controlling interest' mean 'controlling voting power': that is the interest in view, not beneficial interest. As at present advised, I agree with the Court of Appeal in the view that there is no half-way house between a construction which restricts the controlling interest to shares which are in the absolute beneficial ownership of the trustees and a construction which includes all shares of which the directors are registered holders. Lord Macmillan, in the course of his speech, said 29 T.C. 167, 181: The control of a company resides in the voting power of its shareholders. In the respondent company the ordinary shares alone confer a right to vote at a general meeting. The directors are the registered proprietors of a majority of the ordinary shares. It would therefore appear to follow that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... That language makes it clear beyond doubt that the Court of Appeal in Silverts' case [1951] Ch. 521 were laying down (and, as I see it, intending to lay down as a general proposition following from Bibbys' case 29 T.C. 167 that in answering such question as that before me the register of members is conclusive. The Court of Appeal in that case had to consider two earlier cases which have been analysed before me: they are, first, F.A. Clark Son Ltd. v. Inland Revenue Commissioners [1941] 2 K.B. 270; 57 T.L.R. 624; [1941] 2 All E.R. 651; 29 T.C. 49; 10 I.T.R. Suppl. 67, and secondly, British American Tobacco Co. Ltd. v. Inland Revenue Commissioners [1943] A.C. 335; 59 T.L.R. 91; [1943] 1 All E.R. 13; 29 T.C. 49; 11 I.T.R. Suppl. 29. It is essential to bear in mind that the questions in those two cases were different although, as I have said, they were heard together both before Lawrence J. and the Court of Appeal. Again, for the purpose of stating the facts, I will borrow from the judgment of Evershed M.R. in Silverts Ltd. [1951] Ch. 521, 527. He said: In the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 20 the question before the court arose und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5; 11 I.T.R. Suppl. 20 and Bibby 29 T.C. 167 cases, or, perhaps more accurately, upon the correct appreciation of the scope of those decisions. Having examined the two cases he came to this conclusion [1951] Ch. 532: In our opinion, this result involves no conflict with the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29. Although (as already stated) the formula 'controlling interest' ought to be treated as being used in the same sense in both the Act of 1937 and of 1939, namely, in the ordinary sense of the English language, yet (as observed by Romer J.) the question posed in the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29 and in the Bibby case 29 T.C. 167 were different. In neither case was the question the general one ' who controls the company?' In the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29the question was whether (in the ordinary and proper sense of the words) company A held a controlling interest in company C, though the control was exercised not directly but indirectly through the agency of company B. If the question were raised under some other taxing provision 'Has company B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The two directors had then sold their respective interest in the shares to another company (the 'Phoenix' company) so that the Phoenix company became absolutely entitled to the shares. The two directors between them held (admittedly) a controlling interest in the Phoenix company. As part of the sale agreement, the two directors undertook to execute such transfers of the shares as the Phoenix company might require so as to vest in the Phoenix company the legal estate in the shares. But the shares in fact (as already stated) remained at all material times registered in the names of the two directors, who may accordingly be said to have been bare trustees thereof for the Phoenix company. The clark company sought to maintain (as do Silverts Ltd. in the present case) that the directors did not have a controlling interest in the company; and the argument for the company rested on the assertion that, in the circumstances of the case, the control was in the Phoenix company and that no regard should be paid to the fact that the Phoenix company was itself controlled by the two directors. This court rejected that argument, holding (as in the British American Tobacco case [19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs 4 and 11, and I agree with him. In each case the decision must depend on the meaning of the phrase. In my opinion it contemplates, when standing in the context of any one of the three paragraphs, such a relationship as brings about a control in fact, by whatever machinery or means that result is affected. This appeal also must be dismissed. That was the judgment in which the other members of the court concurred. It is not, perhaps, an easy task for a judge of first instance to decide how to deal with the problem with which I am faced, having regard to the explanation of the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29, which is set out in the judgment of Evershed M.R. in the later case of Silverts Ltd. [1951] Ch. 521 and the expression by scott L.J. in Clark's case [1941] 2 K.B. 270, 281 that the phrase when standing alone in the context of any one of the three paragraphs means the same. It is perfectly clear that on the analysis of the British American Tobacco Company's case [1943] A.C. 335; 11 I.T.R. Suppl. 29 by Evershed M.R. that that case has nothing to do with the problem with which I am faced today; and the position is that similar pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;s case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67, I think that I must come to the conclusion that the Court of Appeal did not accept the proviso which Mr. Pennycuick was putting forward as part of his proposition. Faced as I am with this difficulty created by the apparent conflict between Silverts' case [1951] Ch. 521 following Bibby 29 T.C. 167, on the one hand, and the judgment of Scott L.J. in Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67, on the other, and bearing in mind that Scott L.J. dealt with the problem in Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67 at the end of his judgment on the British American Tobacco Company's case [1943] A.C. 335; 11 I.T.R. Suppl. 29 which raised a totally different problem, I come to the conclusion that I have to follow the judgment of the Court of Appeal in Silverts Ltd. [1951] Ch. 521 and to accept as of general application the proposition that, in answering a question such as that which is raised before me, the register ought to be treated a conclusive and that I ought not to go behind it. There is no question in this case of any attempt at tax evasion; that situation is expressly provided for by section 32 of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Up to December 23 the persons on the register of the company were trustees, and two of them were directors of Clark's company, but thereafter until the end of the year the Phoenix company was on the register and that company was controlled by the directors of Clark's. In that case both Lawrence J. and the Court Appeal rejected the contention that regard should be had only to the company's register. In Silverts' case [1951] Ch. 521 Evershed M.R. rightly said that Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67 was not in point and that Bibby's case 29 T.C. 167, so far as that case was concerned, stood alone. Bibby's case 29 T.C. 167 decided that it is the voting rights that matter, not the beneficial interest. The case was not concerned with voting power. Reference was made to the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29 and it was not sought to put any limitation on it. It would be a misapplication of the decision in Bibby's case to say that it decided that regard should only be had to the register in every case. The House of Lords was of opinion that the directors were masters of the voting power and it was not relev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ough the register and find out who controls that company. If it be found that the directors have shares in the intermediate company, then it is necessary to ask whether they have a controlling interest within the meaning of the Act. It has not yet been decided whether account should be taken of nominee shares; it seems that it must be so, but that is not in issue in this case. A controlling interest means, in effect, control by being registered as a shareholder. On the authorities: the British American Tobacco case [1943] A.C. 335; 11 I.T.R. Suppl. 29 decided that controlling interest as used in paragraph 7 is not limited to registered shareholding. Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67 was direct authority under paragraph 2 and it binds this court. Wynn-Parry J. may have been misled by the misstatement of the facts of that case in Silverts' case [1951] Ch. 521 into thinking that Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67 had decided something other than it had in fact decided. In truth it decided that control through the Phoenix company gave control of the company, and that is precisely this case. Nothing said in Bibby's case 29 T.C. 167 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The onus is on the Crown to show control and prove its case affirmatively. In the British American Tobacco case ( [1943] A.C. 335; 11 I.T.R. Suppl. 29 ) paragraph 7 and 11 were treated as requiring the same test. The object is to equalize the position, whether profits are taken out by way of dividend or by way of directors' remuneration: Copeman v. William Flood Sons Ltd. ( 24 T.C. 53, 56 ) The object of paragraph 11 is to limit the remuneration of directors controlling a company, so that such remuneration does not exceed 15 per cent. of the profits. The position under sections 12, 13, 14, 17(1) and 19(1) and (2) of the Finance (No. 2) Act, 1939, is that companies are grouped and treated as a whole. National defence contribution and profits tax are identical conceptions. In the case of trading with the enemy, the rule was to look to see the characteristics of the shareholders: Daimler Co. Ltd. v. Continental Tyre and Rubber Co. (Great Britain) Ltd. ( [1916] 2 A.C. 307; 32 T.L.R. 624 ) Section 32 of the Finance Act, 1940, is dealing with remuneration for services performed. It is submitted that the Bibby case ( 29 T.C. 167 ) applies as well to paragraph 11 as to paragraph 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y bearing on the construction of the Finance Act, 1937. The problem before the court is a straight problem of the construction of paragraph 11 in Schedule IV of the Act of 1937. That paragraph was introduced for the protection of the revenue. The company contends that the British American Tobacco case [1943] A.C. 335; I.T.R. Suppl. 29 does not apply here. The question is what is meant by looking outside the register. In paragraph 11 cases the register of the taxpaying company is the relevant register. In paragraph 7 case it is the register of some other company. Once that distinction is remarked, the same question arises: do you look outside the register? The same answer applies in both cases. There is nothing in paragraph 7 or in the British American Tobacco case [1943] A.C. 335; I.T.R. Suppl. 29 that one should look outside the register. That case is the present case. That is the authority to be applied here. It is not necessary to go beyond it. Clark's case [1941] 2 K.B. 270; 10 I.T.R. Suppl. 67 was decided on the point whether the directors' interest in an intermediate company controlled the taxpaying company. Reliance is placed on the observations of Lord Russell of Ki ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion were put, let us say, by a man seeking to do business with S. Berendsen Ltd., or (to take the illustration Sir Reginald Hills took) by man whose son or nephew was offered a post in the business of S. Berendsen Ltd., Who controls S. Berendsen Ltd.? the answer would appear to be fairly plain. It would be: Ludwig Elsass, or (alternatively) Ludwig Elsass and E. Hertel, both being directors of the company. But it is pointed out that the question, which I have so far posed and answered, namely, Who controls the company? , is not the question which the court is asked to answer in this appeal, a point which was similarly made in the judgment of this court in Inland Revenue Commissioners v. Silverts Ltd. [1951] Ch. 52; [1951] 1 T.L.R. 593; [1951] 1 All. E.R. 703; 29 T.C. 491 The question is: Is this company one the directors whereof have a controlling interest therein? I have referred to paragraph 11 of the Fourth Schedule to the Finance Act, 1937. It may be convenient, before I proceed further, to refer also the terms of paragraph 7 in that schedule. I am taking the citation from the schedule as it was originally enacted, which deals with the case of income from investment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dition to holding a majority of the votes in the Danish company in general meeting, was also entitled, as a director of the Danish company, to will and order how the Danish company, through its nominees, dealt with the affairs of the English company. For my part, I think it was clearly assumed that the shareholding control that Ludwig Elsass had in the Danish company carried with it the consequence that he (Elsass) was the person who spoke on behalf of the Danish company in every relevant sense. I draw that deduction, first, from the way in which the matter was put by the Commissioners of Inland Revenue, when the case came before the Special Commissioners. It was contended on behalf of the commissioners--and I am reading from the case-- that the Danish company's shareholding in the company because be added to the directors of the company, Ludwig Elsass, held a majority of the shares in the Danish company and therefore controlled the voting power of the Danish company. There was no challenge on the part of the company of that statement, and the conclusion of the special commissioners, which was favourable to the Crown included this phrase: ...............The directors in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tobacco Company owned a certain percentage (say, 56.67 per cent.) in another company, company Y, which itself owned the entire shareholding (100 per cent.) of a third company, company X. Other illustrations could be taken, the point being whether the appellant company, the British-American Tobacco Co. Ltd., held via the intermediary Y a controlling interest in the third company, X, not itself subject to the revenue laws. The view of Lawrence J., before whom the case first came, of this court and of the House of Lords, was that on the facts of the cases, of which I have given an example, it was true to say that the English company did have a controlling interest via the intermediary in the third or foreign company. It is to be noted that both Lawrence J. and Scott L.J. based their conclusion upon the view that the words controlling interest were words of ordinary usage to be given a wide connotation, and were not intended to have a limited technical sense, confining their meaning to an interest of a particular legal or equitable character. In other words, the argument that the British-American Tobacco Company could not be said to have a controlling interest over company X, unless ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ell cover the relationship of one company towards another, the requisite majority of whose shares are, as regards their voting power, subject, whether directly or indirectly, to the will and ordering of the first mentioned company. If, for example, the appellants own one-third of the shares in company X, and the remaining two-thirds are owned by company Y, the appellants will none the less have a controlling interest in company X if they own enough shares in company Y to control the latter. Later Viscount Simon L. C. said Ibid. 339: I find it impossible to adopt the view that a person who (by having the requisite voting power in a company subject to his will and ordering) can make the ultimate decision as to where and how the business of the company shall be carried on, and who thus has in fact control of the company's affairs, is a person of whom it can be said that he has not in this connexion a controlling interest in the company. In reading the second passage I have somewhat emphasized the use by Viscount Simon L.C. of the words a person. In the case before him the person was a persona ficta, the British American Tobacco Co. Ltd.; but I have already refer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ustees had in fact also contingent beneficial interests under the sister's marriage settlement, in that they were entitled to the property subject to the settlement in the event of the sister dying without issue. At all relevant times the sister was still living. It was in this case in the interest of the company to contend that its directors had a controlling interest therein, and counsel for the company founded their contention on the simple proposition that the directors between them had 209,332 plus 57,500 shares registered in their names (as was the fact) and that, as the directors were between them the registered holders of that quantity of shares, it followed that they had a controlling interest in the company. It was the contention of the Crown that that was not so. It was the contention of the Crown that the interest of the three director trustees for this purpose could not count, for they did not have the beneficial interest, the complete beneficial interest, in the shares of which they were trustees, and could not, therefore, vote in respect of those shares exactly as they wished; they must abide by the obligations placed upon them by the trust. The contention, howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cially interested in the profits of the company as a going concern or in the surplus assets in a winding up, but the extent to which they have vested in them the power of controlling by votes the decisions which will bind the company in the shape of resolutions passed by the shareholders in general meeting. In other words, the test which is to exclude a company's business from sub-section (9)(a) and include it in (9)(b) is the voting power of its directors, not their beneficial interest in the company. Then the paused to observe that in that respect he was following the principles which underlay the conclusions of the House in the British American Tobacco case [1943] A.C. 335; 11 I.T.R. (Suppl.) 29. Later he said 29 T.C. 167, 180: Counsel for the appellants, --the Crown-- at one stage of the argument, suggested the shares registered in the name of a director but held by him as trustee might be included in reckoning the controlling interest in cases where the trustee had also what was described as a predominating beneficial interest in the shares. For myself I am unable to appreciate how these supposed different degrees of beneficial interest, or the existence in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the name of the National Provincial Bank Ltd. It appeared that the National Provincial Bank was in fact a custodian trustee under certain trusts, and that the management trustees behind, so to speak, the custodian trustees were certain of the directors. It was therefore contended, and successfully contended in the first court before Romer J., that the custodian trustee, for this purpose, was in the same position as a bare trustee. Accordingly, following the exception indicated by Lord Greene M.R. in Bibby 29 T.C. 167, the right answer to the problem was to say that you could neglect the appearance of the National Provincial Bank on the register and for the purpose in hand look to the persons, the management trustees, who were directors. In this court a different view was taken. It seemed to us that in the light of what had been said in the House of Lords, and since we thought that a custodian trustee could not in any case be treated as in the same position as a bare trustee or a mere nominee, it must follow that the ordering of this particular voting power of the shares in question lay with the National Provincial Bank, and that you could not inquire whether, in exercising tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the register was one of the two directors that would be the consequence. That fact is not alluded to in the judgments, and no point was ever made about it. What did happen, and what as considered in the case, was this: that these three trustees proceeded to sell their trust shares to a company called Phoenix, and beyond a doubt was a wholly controlled company, wholly controlled by directors of Clark. Notwithstanding the sale, no move was made to transfer the shares on the register to Phoenix until eight days before the end of the chargeable accounting period. Throughout the whole of the rest of the period the three trustees remained the registered shareholders, though they were, having regard to the contract for sale, in the position of holding them in equity for Phoenix absolutely. For the last 8 days of the chargeable accounting period Phoenix were on the register and, as I have said, there was no doubt that Phoenix was in fact wholly controlled by the Clark directors. It was the conclusion of Lawrence J. and this court in the Clark case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 that since the beneficial interest throughout the first 357 days of the year belonged to Phoenix, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nix company, came back to where you started, namely, the same two directors. Stating, therefore, that the Clark case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 gave no comfort to either side we, as it were, eliminated it as a relevant authority, leaving the Bibbys' case 29 T.C. 167; 14 I.T.R. (Suppl.) 7 standing alone. I think, for any part, that what was said in Silverts' case 29 T.C. 167; 14 I.T.R. (Suppl.) 7 about the Clark case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 does not in any degree affect the conclusion which this court reached in Silverts' case [1951] Ch. 521 but I think that Wynn-Parry J. may will have been misled by what is there stated and deflected from considering the bearing that Clark's case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 and the reasoning of this court in Clark's case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 properly has upon the conclusion in the present case. I now go back to read a passage from Scott L.J.'s judgment in its relation to Clark's case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67. I say in its relation to Clark's case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 because the greater part of Scott L.J.'s ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not a controlling interest within the meaning of the above-mentioned paragraphs. Then he referred to certain authorities, and said: I have come to the conclusion that the contention of the Crown is correct. I do not think that expressly a controlling interest direct or indirect, the legislature, when it spoke of 'a controlling interest ' simpliciter in 1937 meant only a direct controlling interest. What is the conclusion as a result of these authorities? In my judgment, they do not disable the conclusion which I have stated as the common sense conclusion, when the problem was posed as I posed it at the beginning of my judgment. It is, I think, clearly laid down that there is no different meaning or significance to be given to these two words controlling interest where they occur respectively in paragraphs 11 and 7 of the Schedule. It is quite true, as Mr. Bucher pointed out, that in a paragraph 7 case, the British American Tobacco type of case [1943] A.C. 335; 11 I.T.R. (Suppl.) 29 one's attention is primarily directed to the control as it emerges according to the internal constitution of the company which one is looking at; whereas in the paragraph 11 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate to consider the interest of that external source. Put the other way, the National Provincial Bank, for the present purpose, votes not with the voice of the management trustees in question but with the voice of its own management, the shareholders and directors controlling. It is no doubt in some degree a fine distinction, and if it were necessary to do so, I would for my part adopt as correct the way in which Mr. Pennycuick is reported as arguing the case in Silverts [1951] Ch. 521, 529 before this court: Mr. Pennycuick, pinning himself to the Bibby decision 29 T.C. 167; 14 I.T.R. (Suppl.) 7, says that (save for the possible case a bare trustee) the matter is concluded by reference to the share register, subject only to this (and he claims so to reconcile the British American Tobacco Co. [1943] A.C. 335; 11 I.T.R. (Suppl.) 29 and Bibby 29 T.C. 167; 14 I.T.R. (Suppl.) 7 case) that were the registered shareholder is a body corporate, you may, at any rate for certain purposes, look beyond the register and seek the individuals who themselves control that body corporate. I agree: though I do not think that in truth any reconciliation is necessary between the British Ame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... base his decision, with all respect, he rightly so concluded, and further that we should be bound to follow Scott L.J.'s decision. One final point was made which may be put in the form: how far does this investigation of the controlling interest in bodies corporate go? My brother Morris put the case in the argument: supposing the majority shares in the Danish company were themselves held by a Norwegian company, and of the company the majority shares were vested in a Swedish company, and so on, until eventual you found one of the directtors at the end of an extremely long and complicated chain; it may be that in such a case, to use the picturesque phrase of Mr. Wilberforce, you would have to say that the man at the far end who pulls the lever would pull it in vain, because the mechanism was so complicated that no discernible effect would be seen at the other end of the machine. That is, however, in the judgment, a question of fact which does not arise in the present case. Here Ludwig Elsass, as the Special Commissioners quite clearly intended to find, controlled the Danish company, in the sense that his was the voice with which the Danish company spoke in its capacity as regi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11 I.T.R. (Suppl.) 29 the question was whether one body corporate had a controlling in interest in another body corporate. It was held that company No. 1 can have a controlling interest in company No. 3 by owing all the shares in company No. 2, which in turn owns all the shares in company No. 3 In the present case the question is whether the three directors had a controlling interest in the company itself, and in my judgment it must be said that Ludwig Elsass had the power of exercising the voting power resulting from the 300 shares in his own name on the register and also the voting power resulting from the 590 shares standing in the name of the Danish company. In the British American Tobacco case [1943] A.C. 335; 11 I.T.R. (Suppl.) 29 Viscount Simon L.C. said (Ibid. 339): I find it impossible to adopt the view that a person who (by having the requisite voting power in a company subject to his will and ordering) can make the ultimate decision as to where and how the business of the company shall be carried on, and who thus has in fact control of the company's affairs, is a person of whom it can be said that he has not in this connexion a controlling interest in the compan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or nearly the whole of the accounting period between April 1 and December 31 the voting rights of the 14,599 shares, which were in the names of the three trustees, were exercisable by F.C. Brown Clark, who was a director. But if this is assumed, it seems clear that the decision in the case involved that it could be said that the two directors of F.A. Clark Son Ltd. had a controlling interest in that company by reason of their holdings in the Phoenix Co. Scott L.J., in his judgment, said (Ibid 281): It is the same question as in the British American Tobacco Company's case, except that the phrase 'controlling interest' is applied to directors who control the company, instead of to one company controlling another. In my judgment, the reasoning in the Bibby case 29 T.C. 167; 14 I. T.R. Suppl. 7 is not inconsistent with this, and therefore does not overrule the reasoning upon which the decision in the Clark case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 was based. The decision in the Clark case [1941] 2 K.B. 270; 10 I.T.R. (Suppl.) 67 and the guidance of the British American Tobacco case [1943] A.C. 355; 11 I.T.R. (Suppl.) 7 lead me to the conclusion that the dire ..... X X X X Extracts X X X X X X X X Extracts X X X X
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