Bank Voor Handel en Scheepvaart NV v. Slatford and Anor

[1953] 1 QB 248

(Judgment by: Evershed MR)

Between: Bank Voor Handel en Scheepvaart NV
And: Slatford and Anor

Court:
United Kingdom Court of Appeals (Queens Bench Division)

Judges: Devlin J (27 June 1951 to 17 July 1951; 30 July 1951)
Evershed MR (6-8 October 1952; 3-4 November 1952)
Denning LJ (6-8 October 1952; 3-4 November 1952)
Romer LJ (6-8 October 1952; 3-4 November 1952)

Subject References:
INTERNATIONAL LAW
Foreign legislation transferring movable property in England
Whether enforceable in England
Decree of allied government in London
Public policy
TRADING WITH THE ENEMY
Peace Treaty
Hungary
Charge on property 'belonging to' or 'held or managed on behalf of' Hungarian national
One-man company
All shares held by Hungarian national
Whether charge imposed
CROWN PREROGATIVE
Custodian of enemy property
Income of investments of property made by the custodian not exempt from tax

Legislative References:
Treaty of Peace (Hungary) Order, 1948 - (S.I. 1948, No. 116), art. 1 (2), (3), (5) (g)
Trading with the Enemy Act, 1939 - (2 & 3 Geo. 6, c. 89), s. 7

Case References:
Lorentzen v. Lydden and Co. Ltd, not followed - [1942] 2 K.B. 202
O/Y Wasa S.S. Co. Ld. and Another v. Newspaper Pulp and Wood Export Ltd, not followed - (1949) 82 Ll.L.Rep. 936
Government of the Republic of Spain v. National Bank of Scotland Ld., followed. - [1939] S.C. 413; (63 Ll.L.Rep. 330, sub nom. The El Condado)

Hearing date: 27 June 1951 to 17 July 1951; 30 July 1951; 6-8 October 1952; 3-4 November 1952
Judgment date: 4 November 1952

Judgment by:
Evershed MR

It was and is coneded by Mr. Russell for the bank (and agreed by the Attorney-General) that the produce or "fruits," as they have been called, of the investment of the principal fund are "annual profits or gains" within the ambit of the charge created by Sch. D to the Income Tax Act, 1918. They are, it is said, annual profits or gains arising or accruing to a person residing in the United Kingdom (viz., the custodian) from property situate in the United Kingdom within the meaning of para. 1 of the Schedule. They would therefore prima facie fall within the terms of para. 1 of the Miscellaneous Rules applicable to Sch. D which, so far as relevant, provides that "Tax under this Schedule shall be charged on and paid by the person ... receiving ... the income in respect of which tax under this Schedule is hereinbefore directed to be charged." But the bank said in the court below and say now that the person receiving the income, that is, the custodian, was by virtue of his office and the "Crown status" (to use the language used by Scott L.J. in Territorial and Auxiliary Forces Association of the County of London v. Nichols , ( [1949] 1 K.B. 35 at 47) and borrowed by Devlin J.) with which his appointment and the nature of his official functions invested him, immune from liability to assessment on the general and well-known principle, expressed in popular language, that "the Income Tax Act does not bind the Crown." I should add that it is agreed by both parties that the "fruits" or interest, having been derived from the realization of Treasury bills bought at a discount, must be treated as "created income" for income tax purposes and is therefore exempt from the provisions as regards the custodian's liability for tax contained in the Finance Act, 1944.

It is here that the issue is joined. The trial judge accepted the argument of the bank; but, with deference to the judge's view, I have reached a different conclusion. It was not (as I understand his judgment) the view of the judge that the office of custodian was such, of itself and without anything more, to confer upon its holder the immunity belonging to the Crown. Certain of the great offices of State, whose powers may be said to be directly derived from those in earlier times exercised by the King in person, may be able to assert that "Crown status" attaches to them, inevitably and with all its consequences, while acting in the exercise of their official duties. The office of the custodian is clearly not of this character - which could not, indeed, be easily attributed to an official bound, as regards the moneys with which we are concerned, to obey the directions or demands of the Treasury, the Board of Trade and (later) the Administrator of Hungarian Property. And I agree with the judge that the matter is not advanced by the use of such expressions as "emanations of the Crown," which convey no meaning capable of precise significance. It is clear that the modern machinery of government is exercised in many of its aspects by officials appointed by the executive under powers created or conferred by Acts of Parliament and that "Crown immunity" will only belong to such officials if and so far as it is the logical and necessary consequence of the character of their powers and responsibilities or (as regards any property in their hands) of the purposes to which it must be applied. It was the view of the judge - and Mr. Russell has not really sought to go further in this respect that the case of the custodian fell within this class. But the judge thought that the character of his duties satisfied the condition requisite for Crown immunity. "His duties," he said, "bring him within the sphere of two of the most ancient and peculiar prerogatives of the Crown the power to make war, including the power to take for itself the property of an enemy found within the Realm, and the power to make peace." In this view of the custodian's functions, he thought the Austrian Administrator's case ( 48 T.L.R. 37 ) (to which I must later refer) conclusive. And so he held that the custodian received the income in question "as a person having Crown status, or at the least that he received it for a Crown purpose."

The question being whether, as respects the income received by him (being income admittedly within the charging provisions of Sch. D), it is taxable in the custodian's hands, it is first necessary to examine the purposes for which he received it, to ask what were the custodian's duties in regard to such income when it came into his hands. That this is the proper approach in a matter of this kind appears to me to follow from such cases as Coomber v. Berkshire Justices ( [1883] 9 App.Cas. 61. ). In that case, the question being whether the respondents were liable to be assessed for income tax under Sch. A or B of the Income Tax Act, the House of Lords based their answer (which was favourable to the respondents) by considering the purposes for which the premises were applied and concluding that such purposes were wholly public purposes, that is, purposes of the central government of the country. So much appears - to make but one citation - from the beginning of Lord Watson's speech. He said (9 App.Cas. 61, 72.): "I entertain no doubt that the occupiers of buildings used as courts of assize, or as county police stations, are within the privilege of the Crown and are therefore not liable to be rated under the first section of the Act of the 43 Eliz. c. 2. In the case of The Mersey Docks ( 11 H.L.C. 443 , 464.) my noble and learned friend (Lord Blackburn), delivering the opinion of five of the consulted judges, said: 'Long series of cases have established that where property is occupied for the purposes of the government of the country, including under that head the police and the administration of justice, no one is rateable in respect of such occupation. And this applies not only to property occupied for such purposes by the servants of the great departments of State, such as the post office, Smith v. Birmingham Guardians ((1857) 7 E. & B. 483.); the Horse Guards, Lord Amherst v. Lord Sommers ((1788) 2 T.R. 372.); or the Admiralty, The Queen v. Stewart , ((1857) 8 E. & B. 360.) in all which cases the occupiers might strictly be called the servants of the Crown; but also to property occupied by local police, Justices of Lancashire v . Stretford ((1858) E.B. & E. 225.); to county buildings occupied for the assizes, and for the judges' lodgings, Hodgson v. Local Board of Carlisle ((1857) 8 E. & B. 116.); or occupied as a county court, The Queen v . Manchester ((1854) 3 E. & B. 336.); or for a jail, The Queen v. Shepherd ((1841) 1 Q.B. 170). In these latter cases it is difficult to maintain that the occupants are, strictly speaking, servants of the Sovereign, so as to make the occupation that of Her Majesty; but the purposes are all public purposes of that kind which, by the constitution of this country, fall within the province of government, and are committed to the Sovereign; so that the occupiers, though not perhaps strictly servants of the Sovereign, might be considered in consimili casu. And the decisions are uniform, and were not disputed at the bar, that the exemption applies so far; but there is a conflict between the decisions as to whether the exemption goes farther.'"

In the present case, on a like inquiry, I am unable to agree with the answer given by Devlin J. already quoted, that "he received it for a Crown purpose," if by that language he intended that the income in the custodian's hands was "Crown income" and applicable exclusively for Crown purposes, that is, public purposes or purposes of the central government. In the absence of some further direction or order on the part of the Treasury or the Board of Trade, the custodian could not lawfully apply the sums in question or any part thereof to any purposes whatever, public or private. He was bound to hold the sums, to keep them, as it were, in medio until such time as he received some effective direction to apply them or otherwise dispose of them as directed - in the event to hand them over to the Administrator of Hungarian Property.

Mr. Russell has argued that during this period of inactivity the beneficial interest of the bank was wholly extinguished; that there was, in truth, no beneficial interest at all in any part of those sums and that there remained accordingly only the legal interest of the custodian. Mr. Russell concedes, of course, that the custodian could not put the moneys in his own pocket. He was bound by statute to hold them as he did; but he, an officer of the Crown, so held them, and the purposes for which he so held them were none the less public purposes because they were negative, more especially since the Crown could at any time (by its executive officers) divert them as it might think fit and since also the aim and object of the vesting and all that followed upon it was none other than the prosecution of the war and the worsting of the King's enemies, matters peculiarly within the ambit of the Sovereign's war-making prerogative.

I have been unable to accept this argument. I cannot agree that during the period of retention by the custodian the rights and interests of the bank were wholly removed or extinguished. The corresponding situation under the Trading with the Enemy legislation of the first world war was considered by Russell J. in the case of In re Munster ( [1920] 1 Ch. 268. ), where he held that the beneficial interests of persons or bodies in the position of the bank in this case must be regarded during the period of retention as being in "statutory suspense." And the ratio of that decision has been held to be equally applicable to similar cases arising under the Trading with the Enemy Act, 1939 - by Simonds J. in In re Gourju's Will Trusts , ( [1943] Ch. 24. ) and by this court in In re Pozot's Settlement Trusts ( [1952] Ch. 427 , 440).

The conception of beneficial rights being "in suspense" is no doubt at first sight somewhat strange and novel. But, in my judgment, it does not involve - indeed, it negatives - extinction, which would be equivalent to confiscation. So much, to my mind, clearly follows from the language of Russell J., who considered and founded himself on the relevant earlier decisions. I find it sufficient to cite one passage from Russell J.'s judgment in In re Munster . He said: ( [1920] 1 Ch. 268 , 278, 279.) "To this reading of the Act two objections have been raised in argument on behalf of the Commissioners of Inland Revenue. First, it is said that this is confiscation, and it is further said that confiscation of the property of enemy subjects is not the law of this country. For this latter proposition various statements from different judgments were cited. Two will serve as examples. In Hugh Stevenson & Sons, Ld. v. Aktiengesellschaft für Cartonnagen-Industrie ( [1918] A.C. 239 , 244.), Lord Finlay L.C. says 'It is not the law of this country that the property of enemy subjects is confiscated. Until the restoration of peace the enemy can, of course, make no claim to have it delivered up to him, but when peace is restored he is considered as entitled to his property with any fruits which it may have borne in the meantime.' Lord Haldane in the same case remarks: ( [1918] A.C. 239 , 247.) 'The law of this country does not in general confiscate the property of an enemy. He cannot claim to receive it during war, but his right to his property is not extinguished; it is merely suspended.' The passages no doubt accurately state the law of this country apart from the provisions of any statute or of the treaty of peace. Lord Parker in Daimler Co. Ld. v. Continental Tyre and Rubber Co . ( Great Britain) Ld ( [1916] 2 A.C. 307 , 347). makes this clear when he says: 'Subject to any legislation to the contrary or anything to the contrary contained in the treaty of peace when peace comes, enemy property in this country will be restored to its owners after the war just as property in enemy countries belonging to His Majesty's subjects will or ought to be restored to them after the war.' In my judgment, the Act of 1914 does not depart from these principles or involve confiscation. Under its provisions the enemy is deprived of beneficial ownership during the war, and the custodian after the termination of the war is bound to deal with it in such manner as His Majesty (keeping no doubt in view the arrangements made at the conclusion of peace) may by Order in Council direct. The second objection urged against this view of the Act of 1914 is that it involves the existence of a period of time during which there is no beneficial owner of the property and that this state of affairs is contrary to ordinary legal conceptions and principles. That is quite true, but it is the result of a statute which, in my judgment, causes the beneficial ownership to be and remain in statutory suspense or abeyance during the period in question, during which period the custodian has certain limited powers of dealing with the property."

If it be necessary to define it further, I should say that the formula "statutory suspense" means what it says - that the beneficial interests, though their existence is preserved, are by force of the statute "suspended"; that is, they cannot in our courts be presently asserted and enforced. That the beneficial interests of the bank were liable to be wholly defeated and extinguished, i.e., by an order or direction of the Treasury or the Board of Trade having that effect, I do not doubt. But, pending such diversion, I think that in some real and intelligible sense they remained; and certainly, in the events that have happened, I think they must now unquestionably be taken to have persisted throughout the period of the custodian's retention. Indeed, on no other view (save that of pure gift by the Crown which cannot be supposed) could it properly have been conceded in the court below that the bank was entitled to be paid not only the principal sum but its "fruits" also.

The notion that proprietary rights should be suspended, that they should (wholly or to some extent) not be presently enforceable in the courts is one capable, as was pointed out during the argument, of other illustrations arising out of war-time legislation, for example in the case of mortgagees by virtue of the Courts (Emergency Powers) Act, 1939. Nor is it clear (though it is unnecessary to decide) that a person in the position of the bank could in no circumstances invoke the jurisdiction of our courts to protect and preserve its rights, albeit suspended. Thus, in the case of an individual Dutchman who succeeded in escaping to this country, it is not clear that the courts would not at his suit, restrain an unauthorized and therefore unlawful diversion of his (former) property by the custodian.

However that may be, I think that the perseverance of the interests of the bank in the sums in question, however remote their character, makes it impossible to say that the sums were held by the custodian exclusively for "public purposes." But, whether or no some discernible interest remained in the bank, still the purposes for which the custodian held the sums, and his duties in respect of them, were purposes and duties of preservation - unless and until he was otherwise directed, and such direction might be in favour of purely private persons or bodies. And the purposes and duties were specifically defined and imposed by statute. They were by nature no less than by the manner of their creation quite distinct, in my judgment, from the prerogative rights of making war or peace - apart altogether from the particular fact that they extended to the property not only of enemies but of nationals of Allied countries whose territory had been overrun by the enemy. No doubt the measures were taken as war measures. But it seems to me impossible to contend, sensibly or by reference to history, that all war measures are manifestations of the Sovereign's war-making prerogative. Total war has been an experience thrust upon twentieth century humanity and has required, for its efficient prosecution, restrictions and controls on property and individual activities never formerly dreamt of. It could not, in my view, be contended that all the many officials appointed by the executive to make effective the machinery of such restrictions and controls were invested with Crown immunity because their purposes were purposes of war. Nor do I think that the case is altered by the circumstance that the duty of preservation imposed by section 7 of the Act of 1939 was expressed to be "in contemplation of arrangements to be made at the conclusion of peace," for it could not be predicted that such "arrangements" would be exclusively derived from the exercise of the prerogative right of treaty-making or any power strictly analogous thereto. And, finally, in this connexion I attach importance to section 16 of the Act which seems to me to emphasize - if emphasis were necessary - that the particular statutory obligations of collection and preservation imposed upon the custodian were distinct, as by nature they are distinct, from the Sovereign's war-making and other prerogatives, including his right of seizure of the property of his enemies.

If, then, the office of custodian is from the circumstances of its creation distinct in character from those great and ancient offices whose history places them, as it were, close to the Crown and invests them naturally with Crown immunity, and if therefore the availability of "Crown status" for the custodian depends on the nature of his duties and, as regards property in his hands, the purposes for which he must apply it, it seems to me, for the reasons I have given, that unless there is binding authority to the contrary, the true conclusion is that in the present case the custodian was liable to tax in respect of the interest in question.

It remains then only to consider the Austrian Administrator's case - Administrator of Austrian Property v. Russian Bank for Foreign Trade ( 48 T.L.R. 37 .) - decided in this court, which Mr. Russell strongly urged was in principle indistinguishable from the present case. In that case the question was whether the administrator (who had been appointed to his office, like the present defendant administrator, not by Order in Council but by the Board of Trade in exercise of a power to appoint conferred by Order in Council) enjoyed Crown immunity from the effect of the then Statutes of Limitation. I will assume that if any official has "Crown status" so as to be immune from the Limitation Act, he will also have immunity from the Income Tax Act. I have, however, come to the conclusion that the Austrian Administrator's case ( 48 T.L.R. 37 .) must be distinguished from the present for, in my judgment, the ratio of the former case was that the office of the administrator was created exclusively for the purpose of providing the mechanism for giving effect to the Treaty of Peace made by the Sovereign by virtue of his prerogative treaty-making power and for fulfilling the promises made in the treaty by the Sovereign. That such was the purpose appears from the recital in the Order in Council from which the office was derived - a recital corresponding to that which I have earlier quoted in regard to the Hungarian Peace Treaty Order of 1948. It is true that Scrutton L.J., near the end of his judgment, uses the broad and general language: ( 48 T.L.R. 37 ., 39.) "The administrator is an agent of the Crown. He is therefore not bound by the statute." But earlier in his judgment he had plainly pointed out the nature of the agency. "Now," he said, ( 48 T.L.R. 37 ., 38.) "in my view he" (that is, the administrator) "is an agent of the Crown to carry out the promises which the King has made by virtue of his prerogative." I refer also to the words used by Greer L.J. ( 48 T.L.R. 37 ., 39.): "There are some expressions used in some parts of the treaty and some parts of the order upon which an argument might be based - to the effect that the order, which has a statutory effect, seems to assume that the administrator is not the servant of the Crown, but in my judgment any such argument must give way to the logic of the position which is created by the fact that the Crown gets the rights, which are to be administered by the administrator, entirely by reason of its prerogative as the war-making power and the peace-making power. The Crown has no interest in these debts at all, and could gct none except by the Treaty of Peace confirmed by the Act of Parliament and the orders made thereunder. Having got that power by reason of the prerogative, the Crown had to see what was the wise and right way in which it could use the property which it had obtained by reason of its prerogative, and it seems to me that the provisions contained in the Treaty of Peace and in the order confirming it, especially in the clause I have read, show that what the administrator is doing is, as agent of the Crown, distributing the funds which the Crown has obtained by reason of its prerogative. For these reasons the Statute of Limitations is just as much inapplicable as if the words of the order had been 'The King in Council,' though the words of the order are 'The Administrator of Austrian Property.'"

In the result, I am of opinion that the Austrian Administrator's case ( 48 T.L.R. 37 .) does not bind me to hold otherwise than that the custodian was properly assessable for the sum of income tax here in question. In my judgment, accordingly, the appeal should be allowed and the sum for which the bank is entitled to judgment should be reduced by the amount of such tax.

I add only that this conclusion seems to me to be conformable to common sense. For if the bank is properly entitled not only to the principal sum but also (as it is conceded that it is) to the fruits which the principal sum earned during the period of its retention by the custodian, why should not the bank, like any other person or corporation similarly entitled to interest accrued in another's hands, suffer deduction of tax thereon? In truth, as was pointed nut during the argument, the commonly used formula that the Income Tax Act does not bind the Crown conceals the true principle, which is that, in the absence of express provision to the contrary, the Crown and the rights of the Crown are not thereby prejudiced. In the present case, it is plain that, the deduction of tax does not touch or affect the personal or prerogative rights of the Sovereign; and it is difficult to see how in any other respect the Crown is prejudiced by the retention for the purposes of the public revenues of part of a sum of interest now treated as having been earned for and payable to the bank.