Judgment - Ingram and Another v. Commissioners of Inland Revenue   continued

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    The argument advanced on behalf of the Commissioners was, in essence, that the leases purported to have been granted by Mr. MacFadyen to Lady Ingram were a nullity, because a nominee cannot effectively grant a lease to his principal. In consequence no leases were in existence when the freehold given by Lady Ingram vested in the trustees, but the trustees and the beneficiaries were subject to an equitable obligation in favour of Lady Ingram to give effect to the purported leases. Therefore the gift made by Lady Ingram was a grant of the whole fee simple with the obligation to make a lease back to Lady Ingram being a reservation out of the benefit of the gift rather than a grant of the property shorn of the leasehold interest which remained in the hands of Lady Ingram and which she had not given.   

    In the High Court Ferris J. accepted the first part of the Commissioners' argument and held that the leases purportedly granted by Mr. MacFadyen to Lady Ingram were a nullity. But he rejected the second part of the argument and he stated [1995] S.T.C. 564, 580D:   

     "It appears to me that, whether Lady Ingram took her leasehold interests in equity or by the operation of section 65 of the Law of Property Act, what the trustees and the beneficiaries under the declarations of trust have finished up with is the property subject to those leasehold interests. Unless it can be said that there was a period or point of time at which the trustees and beneficiaries had a more extensive interest out of which the leasehold interests were carved, the subject matter of the gift made by Lady Ingram was the property shorn of those leasehold interests. In deciding whether or not this could be said two things appear to me to be of cardinal importance. First Lady Ingram never intended to give the property to the trustees and beneficiaries free from the leasehold interests which it is common ground that she had. Secondly the creation and existence of these leasehold interests was not in any way dependent upon the concurrence of the trustees and beneficiaries, still less upon the performance by them of some positive act. In terms of substance, Lady Ingram had her leasehold interests from the very same moment that the trustees and beneficiaries had the property subject to those interests."   

    In the Court of Appeal Nourse and Evans L.JJ. held (Millett L.J. dissenting), first, that the leases purportedly granted by Mr. MacFadyen to Lady Ingram were a nullity but, secondly, following the obiter dictum of the Court of Appeal in In re Nichols decd. [1975] 1 W.L.R. 534, 543C, they held that the leasehold interest was comprised in the gift itself and was a part of it, so that Lady Ingram's equitable right to the leasehold constituted a reservation from the gift for her benefit. In his dissenting judgment Millett L.J. held that a nominee may grant an effective lease to his principal and accordingly that the leases granted by Mr. MacFadyen to Lady Ingram were valid. In consequence Lady Ingram created two separate interests in the property and made a gift of only one of them which was the freehold reversion subject to the lease. In addition Millett L.J. went on to consider the case on the footing that the leases were invalid and stated that the beneficiaries were given only what was left after the trustees had fulfilled their equitable obligation to grant the leases to Lady Ingram. Therefore the property given was enjoyed to the entire exclusion of Lady Ingram.   

    My Lords, even if the leases granted by Mr. MacFadyen were a nullity, I consider that the gift did not fall within section 102 for the reasons stated by Ferris J. These reasons have to be considered in the context of the conflicting opinions of Walton J. and the Court of Appeal in In re Nichols decd. on the question whether a donor can make a gift of the freehold shorn of the leasehold interest which he retains and which never comprises part of the property which he gives. In the High Court [1974] 1 W.L.R. 296, 299D Walton J. stated:   

     "If I consider the matter in principle, it appears to me that if a donor D conveys property to a trustee T to hold upon trust as to some interest therein for a beneficiary B and as to the remainder of the property for the donor D himself, all that the donor has given to the beneficiary is the property shorn of the rights to be held in trust for D. So that, for example,if in Lang v. Webb (1912) 13 C.L.R. 503 Mrs. Henrietta Lang had conveyed the land to a trustee upon trust to grant thereout a lease back to herself, and subject thereto to hold the various parcels of land upon trust for the sons absolutely, I do not think it could have been seriously argued that in each case the gift made by her was other than a gift of the reversion only. The case would be indistinguishable from Munro v. Commissioner of Stamp Duties (N.S.W.) [1934] A.C. 61, a decision of the Privy Council. Now, suppose that there is no intermediate trustee, but that B takes the property directly but burdened with the equitable obligation to grant the lease back. Does this make any difference? In my opinion, the answer must be in the negative. For in such a case, in very truth, B takes the property as trustee, and the coincidence in identity of B and T cannot make any real difference to the legal analysis."

And at p. 300H:   

     "Now, both the speech of Lord Radcliffe [in St. Aubyn v. Attorney General] and the passages I have cited from Dymond's Death Duties [15th ed., (1973), p. 358] are encrusted with the language of the statute with which I have not so far dealt, but I think it is quite plain from such speech and such comments that there is no legal impediment to regarding simultaneous transactions (e.g. conveyance and reservation of rent charge, conveyance and lease back) as only giving the donee the property as so charged in the one case, or the reversion expectant on the lease in the other case. Equity, of course, looks upon that as done which ought to be done, so that if there is an immediate equitable obligation upon the donee to grant a lease back, this can, in equity, be looked upon as if it had happened at the very moment of the conveyance itself."

But in its judgment, delivered by Goff J., the Court of Appeal stated at [1975] 1 W.L.R. 534, 543:   

     "Having thus reviewed the authorities, we return to the question what was given, and we think that a grant of the fee simple, subject to and with the benefit of a lease back, where such grant is made by a person who owns the whole freehold free from any lease, is a grant of the whole fee simple with something reserved out of it, and not a gift of a partial interest leaving something in the hands of the grantor which he has not given. It is not like a reversion or remainder expectant on a prior interest. It gives an immediate right to the rent, together with a right to distrain for it, and, if there be a proviso for re-entry, a right to forfeit the lease. Of course, where, as in Munro v. Commissioner of Stamp Duties (N.S.W.) [1934] A.C. 61, the lease, or, as it then may have been, a licence coupled with an interest, arises under a prior independent transaction, no question can arise because the donor then gives all that he has, but where it is a condition of the gift that a lease back shall be created, we think that must, on a true analysis, be a reservation of a benefit out of the gift and not something not given at all.

     In our judgment, however, it is not necessary to reach a final conclusion on this point, since there are in our view two unanswerable reasons why this case is caught by the statutory provision, each independent of the other and sufficient in itself."

    My Lords, I consider that on this point the opinion of Walton J., rather than the opinion of the Court of Appeal, was correct. In my opinion, whether the equitable obligation to grant a lease back to Lady Ingram is regarded as imposed on the trustees or on the beneficiaries, this obligation arose as soon as the freehold vested in the trustees. In the present case there never was a time when, in equity, the donees held the property free from the donor's leasehold interest, and I am in agreement with the observation of Ferris J. at p. 580F that: "In terms of substance, Lady Ingram had her leasehold interests from the very same moment that the trustees and beneficiaries had the property subject to those interests." As a matter of conveyancing law, the leasehold interest is carved out of the freehold. This point was made by Isaacs J. in Lang v. Webb (1912) 13 C.L.R. 503, 515 where he said that the transaction of gift "had to be complete before the donee could execute to (the donor) the lease of the property. A lease is a conveyance; and it is more than form, it is substance, when the donor's interest has to be vested in the donee before the donee can convey a smaller interest." But in this case, where the equitable obligation arose as soon as the freehold was given to the trustees, to determine the point in accordance with conveyancing law would be to depart from the approach which should be followed and which was stated by Palles C.B. in In re Cochrane [1905] 2 I.R. 626, 637:   

     "as in these questions of revenue, matters of mere conveyancing form are immaterial; as we are to view the substance only of the transaction, and as 'gift' in the context means 'beneficial gift,' so, too, in the actual case before us, should it be held that the reservation of the ultimate trust to Sir Henry Cochrane cannot, per se . . . render the entire capital subject to duty."

Accordingly, viewing the substance of the transaction, I consider that what was comprised in the gift made by Lady Ingram was the freehold shorn of the leasehold interest, and section 102 does not apply.   

    Therefore in my opinion the appeal should succeed and it becomes unnecessary to decide whether the leases granted by Mr. MacFadyen to Lady Ingram were a nullity, but as this question was argued I state that in my opinion the leases were valid for the reasons fully set out in the judgment of Millett L.J. in the Court of Appeal and I am also in agreement with the observations of my noble and learned friend Lord Hoffmann on this part of the case.   

    As I am of opinion that the gift made by Lady Ingram did not come within section 102 even if the leases were a nullity it is unnecessary to consider the Ramsay principle and I do not discuss it.   

    For the reasons I have given I would allow the appeal.

 
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