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So did Rix LJ, although it is not clear whether his reasoning was precisely the same. Ratio |
It may be significant that Moses LJ disposed of this issue of DCCs debit before grappling with the issue of its credit, and he did not revisit it in the context of his observations on the cancelling function of the deemed income flows (which I regard as an important insight). Ratio |
I respectfully doubt Moses LJs analysis of section 84(1) as containing two criteria, one of which he required to yield to the other (para 71 Moses LJ had put down markers about these criteria in paras 13, 22 and 34). Ratio |
I agree with the proposition (finally, I think, adopted by both sides in argument) that the crucial words in section 84(1) must be construed as a composite whole. Ratio |
Statutory hypotheses Ratio |
As DCCs printed case notes (paragraph 34), Parliament has now swept away the statutory provisions with which the Court is concerned in this appeal. Ratio |
There is a new code, introduced by the Finance Act 2007 and now re-enacted as Part 6 of the Corporation Tax Act 2009. Ratio |
DCCs printed case suggests that one of the reasons for the new code was to get away from the almost inevitable problems arising from [statutory] fictions. Ratio |
It is in fact the problems raised by statutory fictions that give this appeal such general importance as it has, despite the repeal of the legislation. Ratio |
It is therefore appropriate to refer to some well-known authorities on that topic. Ratio |
In the courts below Mr Furness cited several authorities on the construction of statutes, including the decisions of the Court of Appeal (1993) 67 TC 56 and the House of Lords [1995] 1 AC 148 in Marshall v Kerr. Ratio |
That was a case about the effect of a deed of family arrangement varying (within two years of his death) the will of a testator who died domiciled and ordinarily resident overseas. Ratio |
Section 24(11) of the Finance Act 1965 provided that in such a case the earlier provisions of the section should apply as if the variations made by the deed . . . Ratio |
were effected by the deceased A settlement made by an overseas testators will would have had tax advantages, which the deed of variation was trying to obtain. Ratio |
In the Court of Appeal Peter Gibson J considered a number of authorities, including at p 76 some observations by Nourse J in Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637, 646: When considering the extent to which a deeming provision should be applied, the court is entitled and bound to asce... |
It will not always be clear what those purposes are. PRE |
If the application of the provision would lead to an unjust, anomalous or absurd result then, unless its application would clearly be within the purposes of the fiction, it should not be applied. PRE |
If, on the other hand, its application would not lead to any such result then, unless that would clearly be outside the purposes of the fiction, it should be applied. PRE |
Peter Gibson J (with whom Balcombe and Simon Brown LJJ agreed) then stated this principle 67 TC 56, 79 (the same passage also appears at p 92 but with five words accidentally omitted): For my part, I take the correct approach in construing a deeming provision to be to give the words used their ordinary and natural mean... |
I further bear in mind that, because one must treat as real that which is only deemed to be so, one must treat as real the consequences and incidents inevitably flowing from or accompanying that deemed state of affairs, unless prohibited from doing so. PRE |
In the House of Lords (which reversed the Court of Appeal on a point not taken below) Lord Browne-Wilkinson approved this passage as the correct approach: [1995] 1 AC 148, 164. PRE |
Neuberger J developed this reasoning in a passage in Jenks v Dickinson [1997] STC 853, 878 that I find helpful: It appears to me that the observations of Peter Gibson J, approved by Lord Browne-Wilkinson, in Marshall indicate that, when considering the extent to which one can do some violence to the words and whether o... |
This is not to say that normal principles of construction somehow cease to apply when one is concerned with interpreting a deeming provision; there is no basis in principle or authority for such a proposition. PRE |
It is more that, by its very nature, a deeming provision involves artificial assumptions. PRE |
It will frequently be difficult or unrealistic to expect the legislature to be able satisfactorily to [prescribe] the precise limit to the circumstances in which, or the extent to which, the artificial assumptions are to be made. PRE |
Conclusions RPC |
I must try to follow these principles in applying section 737A(5) of ICTA 1988 and sections 97(2) and (4) and 84(1) of FA 1996. Ratio |
But it may be helpful to consider a less abstract example. Ratio |
If a 40-something woman says to her teenage daughter, If you were my age you would see things differently, you could not be sure that the mother was referring to anything more specific than the experience or disillusionment that is supposed to come with the advance of middle age. Ratio |
Of course, if she added something like Because then you would have lived through the miners strike (or other words giving some real-life context) the hypothesis becomes more specific. Ratio |
But there would almost certainly be no contextual grounds for taking the mothers hypothesis as implying that they would no longer be seeing things as mother and daughter (as they were hypothetically the same age) or alternatively that the mother herself must have been born a generation before her actual birth. Ratio |
Either implication would be taking the hypothesis further than was warranted. Ratio |
The language of an enactment may be expected to be considered more carefully than informal family exchanges. Ratio |
But the hypothesis in section 737A(5), as applied by section 97, is puzzling. Ratio |
Under section 737A(5) DCC is to be supposed to make a payment on the last day of the repo period representative of the coupon that has accrued during that period. Ratio |
Section 97(4) repeats the reference to a payment representative of interest under [the gilts] relationship, and in effect applies section 97(2). Ratio |
It is therefore to be treated (under subsection (2)(a)) as interest under a new, hypothetical relationship (under which DCC is the debtor and the creditor is unidentified). Ratio |
That is all we can get from the statute. Ratio |
But Norris J and the Court of Appeal all seem to have supposed that the only possible conclusion, even if it made commercial nonsense, was to treat this hypothetical payment under a hypothetical relationship as accruing (in its entirety) during the repo period of 18 days (see especially Norris J at para 48 and Moses LJ... |
They seem to have overlooked that section 84(1) of FA 1996, as applied to deemed interest by section 730A(6)(b) of ICTA 1988, requires the uniform application of an accruals basis, and on that basis only a small part of the coupon had accrued during the repo period. Ratio |
Mr Holgate seems to have recognised that the result reached in the courts below was not inevitable. Ratio |
In paragraph 7.23 of his report he made it clear that his view was based on his understanding that the legislation may be making an assumption that the deemed interest . . Ratio |
. Ratio |
was payable in respect of a period for which DCC was a party to that loan relationship. Ratio |
That assumption may have been warranted, but it was unwarranted to assume that the hypothetical section 97(2)(a) loan relationship lasted no longer than the repo period. Ratio |
What we do get from the statute is that the payment was representative of a gilts coupon, and what we get from the real world is that that coupon accrued during a period of six months, but that DCCs interest in it, on an accruals basis, lasted (in the averaged model) for only 18 days. Ratio |
Mr Gardiner QC submitted that para 51 of Moses LJs judgment was a complete answer to the Revenues reliance (as its first fall-back position) on DCC being treated, under section 84(1), as having a debit of an apportioned sum of 2.9m. Ratio |
He submitted that this position was unacceptable because it involved 25.9m (the balance of the deemed manufactured interest) as having simply vanished into the ether. Ratio |
I do not see that as a convincing argument. Ratio |
Under section 84(1) the concern is to identify the sums, whether credits or debits, in respect of all DCCs loan relationships, actual or hypothetical, which in accordance with an authorised accounting method [the accruals basis] and when taken together, fairly represent . . . Ratio |
(b) all interest under the companys loan relationships If the credit from an actual relationship under which DCC is a creditor is a time- apportioned sum, the debit under a hypothetical relationship under which DCC is a debtor making a payment representative of interest must also be a time- apportioned sum, with the ap... |
The language of section 84(1) is in my view amply wide enough to enable that to be done, and unless it is done, the subsections requirement of fair representation cannot be satisfied. Ratio |
The spare 25.9m may vanish into the ether as a hypothetical sum, but 25.9m is (or would be but for its non-residence) taxable in the hands of the Bank (see paragraphs 7.30 and 8.7 of Mr Holgates report). Ratio |
In short, I consider that the majority of the Court of Appeal were right to see the overwhelming need for a symmetrical solution: that is the essential statutory function of the deemed flows of income referred to in paras 69 and 71 of the judgment of Moses LJ. Ratio |
If the statutory wording had been such that it was impossible to argue that DCCs credit under section 84(1) was any sum other than 28.8m, I might have been able to struggle to the same conclusion as Rix and Moses LJJ, although with a good deal more difficulty than they encountered. Ratio |
But it seems to me that the correct answer is that on the accruals basis mandated by section 84(1) (as affected by section 730A(6)(b)), both the credit and the debit should be 2.9m the former by a simple process of time-apportionment of the coupon, the latter by a corresponding time-apportionment of DCCs notional payme... |
For these reasons I would dismiss the appeal and affirm the order of the Court of Appeal, although on different grounds. RPC |
The appellants, Mr Francis John Wilson and his wife, Mrs Annette Wilson, are the proprietors of a house at 100 Dalum Grove, Loanhead, which is also now their home. FAC |
On 12 July 1991 they granted a standard security over the house in favour of the respondent, the Royal Bank of Scotland (the Bank). FAC |
The standard security was recorded in the Register of Sasines on 3 December of the same year. FAC |
The appellants, Mr John Patrick McCormack Wilson and Mrs Norma Wilson, are the proprietors of the neighbouring house at 98 Dalum Grove, Loanhead, which is also now their home. FAC |
On 28 November 1991 they granted a standard security over the house in favour of the Bank. FAC |
The standard security was recorded in the Register of Sasines on 4 December 1991. FAC |
Since it is accepted that material circumstances in the two appeals are the same, for the sake of convenience, I shall concentrate on the appeal by Mr Francis John Wilson and Mrs Annette Wilson (Mr and Mrs Wilson), the result in which will be determinative of the appeal by Mr John McCormack Wilson and his wife. FAC |
The standard security granted by Mr and Mrs Wilson included the personal obligation in respect of which it was granted, in accordance with Form A in Schedule 2 to the Conveyancing and Feudal Reform (Scotland) Act 1970 (the 1970 Act). FAC |
The personal obligation was in these terms: WE, FRANCIS JOHN WILSON and MRS ANNETTE WILSON, residing at Sixty Three Park Avenue, Loanhead, Midlothian (hereinafter referred to as the Obligant) hereby undertake to pay to THE ROYAL BANK OF SCOTLAND plc (hereinafter referred to as the Bank, which expression includes its su... |
The deed went on to declare that the interest was to be at the rate(s) agreed between the Bank and the Obligant or (failing such agreement) determined by the Bank and shall be payable at such dates as may be so agreed or determined by the Bank. FAC |
After further declarations, the deed continued: For which sums the said Francis John Wilson and Mrs Annette Wilson hereby grant a Standard Security in favour of the Bank over the house at Dalum Grove. FAC |
It is worth noting that the deed contained a declaration in terms of which the expression, the Obligant, was to mean both the persons who granted the security together and/or any one or more of them; and in all cases the obligations hereby undertaken by the Obligant shall bind all person(s) included in the expression t... |
It follows that Mr Wilson, as an individual, and Mrs Wilson, as an individual, were undertaking both a joint and a several obligation to pay the sums in question. FAC |
In particular, Mrs Wilson was undertaking to pay any indebtedness of her husband to the Bank. FAC |
I refer to the discussion by the House of Lords of a comparable term in AIB Group (UK) Ltd v Martin [2002] 1 WLR 94. FAC |
But, in addition, together with her husband, Mrs Wilson was granting the standard security in respect of both her own indebtedness under the personal obligation and the indebtedness of her husband under that obligation. FAC |
By a partnership letter dated 8 October 1992 Mr Wilson, along with his brother and his son, became jointly and severally responsible to the Bank for the repayment of any indebtedness or liability of the firm of F J Wilson Associates, and interest and charges thereon. FAC |
By a further partnership letter dated 15 October 1993 Mr Wilson, along with his brother, became jointly and severally responsible to the Bank for the repayment of any indebtedness or liability of the firm of Wilson Brothers, and interest and charges thereon. FAC |
On 20 June 1995 Mr Alistair Henderson, Assistant Recoveries Manager in the Banks Insolvency Unit, wrote to Mr Wilson in these terms: Our Penicuik Branch I regret to learn that your indebtedness to the Bank as undernoted at our above Branch is not being repaid in accordance with arrangements and I have therefore to advi... |
Such proceedings will involve expense for which you will be liable and it is therefore in your own interest to give this matter your immediate attention. FAC |
The note showed that the Business Current Account of Wilson Brothers was overdrawn in the sum of 22,250.61 excluding accrued interest and charges, while the equivalent sum for the Business Current Account of F J Wilson Associates was 26,211.88. FAC |
There was a further indebtedness of 854.07 on a Business Term Loan to F J Wilson Associates. FAC |
Mr McIlvride, who appeared for the Bank, accepted that, when they sent this letter, the Bank were demanding payment of Mr Wilsons debt under his personal obligation in the standard security and were intending to exercise their powers under the standard security, to take possession of the house at Dalum Grove and to eje... |
But the sheriff found that, when Mr Wilson received and read the letter, he did not understand this. FAC |
He thought that the Bank were merely seeking the sums of money from him. FAC |
Mrs Wilson did not see the letter until early in 2007 and no similar letter was ever sent to her. FAC |
No part of any of the sums mentioned in the letter of 20 June 1995 has been repaid to the Bank. FAC |
A certificate of default dated 3 February 2006 indicates that, by then, the indebtedness in respect of Wilson Brothers had reached 141,247.52, including accrued interest of 1,865.85, and in respect of F J Wilson Associates it had reached 99,172.81, including accrued interest of 1,310.05. FAC |
These proceedings FAC |
In April 1998 the Bank began proceedings in Edinburgh Sheriff Court against Mr and Mrs Wilson. FAC |
Besides the usual crave for expenses, the initial writ contained two craves. FAC |
In the first crave, which constituted an application under section 24(1) of the 1970 Act, the Bank asked the court: To grant warrant to the pursuers in terms of section 24(1) of the Conveyancing and Feudal Reform (Scotland) Act 1970 to enter into possession of [the house at Dalum Grove] being the subjects described in ... |
In the initial writ as originally drafted the Bank went on to crave removing of Mr and Mrs Wilson with a view to selling the subjects. FAC |
But in the course of the hearing of an earlier appeal relating to a defence raised by Mrs Wilson, the Second Division granted leave to Mr McIlvride for the Bank to amend the crave to one for ejection: Royal Bank of Scotland v Wilson 2004 SC 153, 157, para 14. FAC |
The second crave is now in these terms: To grant warrant to officers of court summarily to eject the defenders, and their family, goods, gear, and effects, from the said subjects, and to make the same void and redd, that the pursuers, or others in their name, may enter thereto and peaceably possess and enjoy the same. ... |
On 27 April 1998 the initial writ was served on Mr and Mrs Wilson. FAC |
This was the first time that she became aware that the Bank were seeking to repossess her home and eject herself and the family. FAC |
The action has been in one court or another for over twelve years. FAC |
After Mrs Wilsons particular defence was rejected by the Second Division in Royal Bank of Scotland v Wilson 2004 SC 153, a proof before answer was allowed. FAC |
Eventually, it took place in February 2007 and on 2 May 2007 Sheriff Stoddart assoilzied Mr and Mrs Wilson. FAC |
The Bank appealed to the Court of Session and on 5 May 2009 an Extra Division (Lord Nimmo Smith, Lord Reed and Lord Drummond Young) allowed the appeal and granted decree as craved: Royal Bank of Scotland Plc v Wilson 2009 SLT 729. FAC |
In effect, therefore, the Bank were granted a decree for the ejection of Mr and Mrs Wilson from their home. FAC |
The Wilsons appeal against that interlocutor. FAC |
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