Conservative and Unionist Central Office v Burrell (Inspector of Taxes)
[1982] 2 All ER 1(Judgment by: Lawton LJ)
Between: Conservative and Unionist Central Office
And: Burrell (Inspector of Taxes)
Judges:
Lawton LJBrightman LJ
Fox LJ
Subject References:
Constitutional
Other Constitutional
Taxation
Corporation Tax
Unincorporated association
Requirements of an unincorporated association
Political party constituted by members of local constituency associations and both Houses of Parliament
Funds raised by party treasurers held by party's central office which provided administrative services to party
Expenditure of funds under control of party leader
Party leader providing link between members of party
Whether party an unincorporated association
Whether central office holding income from funds on behalf of an unincorporated association
Whether central office liable to corporation tax on income from funds
Legislative References:
Income and Corporation Taxes Act 1970 - 526(5)
Case References:
Recher's Will Trusts, Re, National Westminster Bank Ltd v National Anti-Vivisection Society Ltd - [1971] 3 All ER 401; [1972] Ch 526; [1971] 3 WLR 321; 8(1) Digest (Reissue) 297, 398
Bucks Constabulary Widows' and Orphans' Fund Friendly Society, Re, Thompson v Holdsworth - [1978] 2 All ER 571; [1978] 1 WLR 641
Caledonian Employees' Benevolent Society, Re - 1928 SC 633
Clarke v Dunraven (Earl), The Satanita - [1897] AC 59, HL
Forbes v Eden - (1867) LR 1 Sc & Div 568
General Assembly of Free Church of Scotland v Lord Overtoun, Macalister v Young - [1904] AC 515, HL
Gillingham Bus Disaster Fund, Re, Bowman v Official Solicitor - [1958] 2 All ER 749; [1959] Ch 62, CA
Harington v Sendall - [1903] 1 Ch 92I
Leahy v Attorney General of New South Wales - [1959] 2 All ER 300; [1959] AC 457, PC
Price, Re, Midland Bank Executor and Trustee Co Ltd v Harwood - [1943] 2 All ER 505; [1943] Ch 422
Rigby v Connol - (1880) 14 Ch D 482; [1874-80] All ER Rep 592
Smith, Re, Johnson v Bright-Smith - [1914] 1 Ch 937
Smith v Anderson - (1880) 15 Ch D 247; [1847-80] All ER Rep 1121, CA
Thackrah, Re, Thackrah v Wilson - [1939] 2 All ER 4
Judgment date: 10 December 1981
Judgment by:
Lawton LJ
This is an appeal by the Crown from an order of Vinelott J ([1980] 3 All ER 42, [1980] STC 400) made on 2 April 1980 whereby he adjudged on the hearing of an appeal by way of case stated from a decision of the Commissioners for the Special Purposes of the Income Tax Acts that such decision was erroneous and that assessments to corporation tax on the Conservative and Unionist Central Office for each of the five years ending on 31 March 1972 to 3I March 1976 be discharged. The Special Commissioners had decided that the Central Office was an unincorporated association and as such was chargeable to corporation tax on its profits under the provisions of ss 238(1) and 526(5) of the Income and Corporation Taxes Act 1970. Vinelott J adjudged that it was not such an association, so that corporation tax was not chargeable. It was agreed before us that the Central Office was nothing more than an administrative unit of the Conservative and Unionist Party (the party). No point has ever been taken by either side as to the name used for the purpose of the assessments. Both parties to this appeal asked the court to consider the legal nature of the party. If it is an unincorporated association, corporation tax has to be paid on the income identified in the Conservative and Unionist Party income and expenditure accounts for the relevant years as 'investment income and interest'. If it is not such an association, income tax will have to be paid on this income. We have not been concerned to decide who will have to pay income tax but we were told by counsel for the party that whatever income tax is payable will be paid out of the party's central funds. The reason why the party is contesting the assessments to corporation tax which have been made on it is that for the relevant years the rates at which corporation tax was charged were much higher than the rates for income tax.
The charging section of the Income and Corporation Taxes Act 1970, s 238(1), starts with these words: 'Corporation tax shall be charged on profits of companies ... ' Section 526 is an interpretation section. Subsection (5) defines 'company' as follows:
'"company" means, subject to subsection (6) below [which has no relevance in this case], any body corporate or unincorporated association, but does not include a partnership, a local authority or a local authority association.'
It is against this statutory background that a meaning has to be given to the words 'unincorporated association'. It is sufficiently like a 'company' for it to be put in the charging section witin the ambit of that word. The interpretation section makes it clear that the word 'company' has a meaning extending beyond a body corporate but not as far as a partnership or a local authority. I infer that by 'unincorporated association' in this context Parliament meant two or more persons bound together for one or more common purposes, not being business purposes, by mututal undertakings, each having mutual duties and obligations, in an organisation which has rules which identify in whom control of it and its funds rests and on what terms and which can be joined or left at will. The bond of union between members of an unincorporated association has to be contractual. This was accepted by the Special Commissioners and was the basis of their conclusion. The point of law which arises is whether on the facts they found they could properly have come to the conclusion which they did. The facts are set out fully in the case ([1980] 3 All ER 42 at 44-52). For the purposes of this judgment I need do no more than refer to those which I consider to be relevant to the point of law.
Since membership of an unincorporated association is based on agreement between the members, a starting point for examining the legal nature of the party is to consider how anyone can join it. To this there is a short answer: no one can join the party directly. Membership can be obtained either through a local constituency association or through the parliamentary party. Members of local constituency associations, and such associations themselves, have no constitutional links with the parliamentary party although there are many political links. These local associations choose their own parliamentary candidates from a list of candidates approved by the party's standing advisory committee. If a candidate of their choice is elected a member of the House of Commons he becomes a member of the parliamentary party when he accepts the Conservative whip, which he will do on election but which he may refuse later, in which event he will no longer be a member of the parliamentary party. Once elected, members of the House of Commons become representative of the constituency for which they have been elected, not delegates of the local constituency associations which may have put them up as candidates. On the facts as found I can find nothing which links contractually and directly members of local constituency associations to Conservative members of the House of Commons representing their constituencies. The lack of a contractual link is even more clear in the case of peers who are members of the parliamentary party as long as they accept the Conservative whip in the House of Lords.
Counsel for the Crown did not suggest that there was any direct link. His submission was that all the different sections of the party are linked together through the national union and the party leader and that anyone joining a local constituency association (which is the only way in which a member of the public, not being a peer or a member of the House of Commons, can join the party) by that act impliedly accepts the linkage so that he becomes a member of an unincorporated association which is the party.
Anyone joining a local constituency association impliedly agrees to become linked to the national union. Between 1972 and 1975 the members of that body were local constituency associations. In 1975 the rules were changed so that anyone who subscribed annually to any registered constituency association became a member of the national union. Counsel for the party accepted that all who were members of the national union were members of an unincorporated body. But that still leaves a constitutional gap between the national union and the parliamentary party. The Special Commissioners were of the opinion that the gap was bridged by the rules which regulate the party meeting and the selection of the leader of the party. Without such a bridge having its foundations in contractual relationships there could not be, in my judgment, an unincorporated association. Peers, particularly Scottish representative peers, and Conservative members of the House of Commons would have no bonds of union with local constituency members.
The keystone of the bridge is said to be the party leader. In a booklet, entitled 'The Party Organisation', which was annexed to the case, the leader's position and functions are described as follows:
'The Leader of the Party stands at the apex of the entire structure of the Party, linking together the three elements of Parliamentary Party, National Union, and Party Headquarters ... the Leader heads both the Conservative Party in Parliament and the Conservative Party Organisation in the country, including the Party Headquarters. He is elected in the first place by the Conservative Members of Parliament in the House of Commons ... The Leader elected by the Parliamentary Party in the House of Commons is then presented for election to a special meeting representing the Party as a whole. This meeting is organised by the National Union and the Chief Whip jointly. Conservative Members of both Houses, Parliamentary Candidates and Members of the National Union Executive Committee covering all sections of the Party are eligible to attend this meeting ... The Leader of the Party appoints the officers of the Party-the Chairman, Deputy Chairman, Vice-Chairmen and Treasurers-who are directly responsible to him for the state of the Party organisation throughout the country and the Party's finances. The Leader of the Party also appoints the Chairman of the Conservative Research Department.'
The procedure for electing the leader is contained in rules made in 1965. The case does not state who made the rules. All that is clear is that neither the local constituency associations nor the national union had any rule-making powers which enabled them to direct the 'members of the House of Commons in receipt of the Conservative and National Liberal Whips' to elect a leader. Nor are there any rule-making powers in these bodies to change the mode of election. Whoever made the rules can change them. This must mean that somewhere in the party there is an unidentified rule-making body which at any time can make fundamental changes affecting the organisation and leadership of the party, including the destruction of the bridge which is said to exist between the leader and the mass membership and over which the mass membership has no control. In my judgment, however viable such a body may be as a political movement, it lacks the characteristics of an unincorporated association for the purposes of the taxing statutes. There are no mutual understandings between all the members, no mutual rights and obligations and no rules governing control where it clearly lies, which in the leader. It is no answer to say, as counsel for the Crown did, that on joining a local constituency association members impliedly agree to accept what he called the conventions of the party. Agreements which confer rights and impose obligations, as membership of unincorporated associations do, must be reasonably certain because they may become justiciable and those creating unincorporated associations sometimes do. No member of a local constituency association, basing his claim on contractual rights, could ask the court to protect those rights in respect of the parliamentary party's election of a leader who was 'presented for election as Party Leader to the Party Meeting constituted as at present': see the 'Procedure for the Selection of the Leader of the Conservative and Unionist Party' set out in the booklet to which I have referred.
Another approach to the problem presented by this case is to ask when the unincorporated association which is said to exist was formed. If, as was accepted by both the Special Commissioners and the Crown, such an association is a creature of contract, the agreement which brought it about must have been made on some identifiable occasion or in some identifiable circumstances. I can find in the party's history as set out in the case and the documents annexed thereto no such occasion or circumstances.
According to the booklet to which l have already referred, the parliamentary party can trace its origins back 'for several hundred years', certainly back to the second decade of the reign of Charles Il. The same booklet states that the local constituency associations developed out of the registration societies which were formed after 1832 to carry out the task of making sure that the names of supporters entitled to vote were included in the register of electors. In 1867 it was decided to form a federation of local associations in England and Wales. This was the beginning of the national union. In 1870 an important event happened in the constitutional history of the party. Mr Disraeli founded the Conservative Central Office. Until 1911 the general control and direction of that office was in the hands of the whips. In that year the first party chairman was appointed. From its earliest days the Central Office collected funds for the party's use. At first these funds were under the direct control of the leader; in modern times the party's honorary treasurers have been responsible for the funds. There is now a board of finance whose function it is to raise money for the central funds of the party. Since the financial year which ended on 31 March 1968 the party has published an income and expenditure account of its central funds, together with a statement of the net cash and invested reserves. It is these accounts which probably have attracted the attention of the Revenue. The central funds are derived mainly from donations; but a substantial proportion comes from contributions made by local constituency associations on a quota basis. They are expected to meet their quotas but some associations do not do so. The Central Office administers the funds for party purposes but neither the national union nor the local constituency associations have any right under any rule to a say in how the funds are to be used. When I asked counsel for the Crown during the course of argument when the Revenue suggested that the party had become an unincorporated association he said that it had done so when the funds administered by the party's officer through the Central Office had come to be recognised as the funds of the party rather than mere financial help given to the leader to be used by him for party purposes. In my judgment, this would be no beginning of such an association. Further, I can find no event in the history of the party which looks like a beginning of such an association. The indications are that the separate bodies which make up the party co-operate with each other for political purposes but maintain independent existences for organisation purposes.
The Crown's main argument, however, was based on the proposition that the party's unquestioned, valid control of funds could only be possible in law if it were an unincorporated association. The officers of the party who receive donations, legacies and constituency association quota subscriptions for party purposes could not hold them as trustees since the law does not recognise trusts for non-charitable purposes. Clearly they could not use the funds for their own purposes. The only form of holding which made legal sense, so it was submitted, was that they held the funds for the benefit of the members of the party, being an unincorporated association, to be used by them for the party's purposes. I reject this argument for three reasons: first, because I find this working back kind of argument a most unsatisfactory way of establishing the existence of an association which could only have come into existence as the result of an agreement between two or more persons; second, because it disregards the history of the central funds; and, third, because it ignores what most people intend when they make donations to central funds. I have had the benefit of reading in draft Brightman LJ's analysis of the legal nature of a donation to Central Office central funds. I agree with what he will say.
I would dismiss the appeal.