Wisdom v Chamberlain (Inspector of Taxes)

[1969] 1 All ER 332

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(Judgment by: Harman J)

Between: Wisdom
And: Chamberlain (Inspector of Taxes)

Court:

Judges:
Harman JSalmon LJ
Cairns J

Subject References:
INCOME TAX
Casual profit on hedge against devaluation
Purchase of silver bullion
Profit on re-sale
Finding that other considerations influenced purchase unsupported by evidence
Whether adventure in the nature of trade

Legislative References:
Income Tax Act 1952 - (15 & 16 Geo. 6 & 1 Eliz 2 c 10), Sch D, Case I

Case References:
Edwards (Inspector of Taxes) v Bairstow - [1955] 3 All ER 48; [1956] AC 14; [1955] 3 WLR 410; 36 Tax Cas 207; 28 Digest (Repl) 396, 1763
Inland Revenue Comrs v Livingston - (1927) 11 Tax Cas 538; 1927 SC 251; 28 Digest (Repl) 45, 121
Jenkinson (Inspector of Taxes) v Freedland - (1961) 39 Tax Cas 636; Digest (Cont Vol A) 850, 173n
Leeming v Jones (Inspector of Taxes) - [1930] 1 KB 279; 99 LJKB 17; 141 LT 472, affd HL, sub nom
Jones (Inspector of Taxes) v Leeming - [1930] AC 415; [1930] All ER Rep 584; 99 LJKB 318; 143 LT 50; 15 Tax Cas 333; 28 Digest (Repl) 22, 87

Hearing date: 7 November 1968
Judgment date: 8 November 1968

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Judgment by:
Harman J

This is an appeal against a decision of Goff J, on a Case Stated by the General Commissioners of Income Tax for St Martins-in-the- Fields, Westminster. The judge's decision was in favour of the taxpayer. He held that the profit in question was not assessable to income tax. It is a straightforward kind of case, in my view, and no great researches into the taxing Acts are required. The case merely is: Whether tax under Sch D is exigible under Case I of s 123 - "tax in respect of any trade carried on in the United Kingdom ..."

The only gloss on that is that, in the definition section (hundreds of sections away - s 526) -

"'trade' includes every trade, manufacture, adventure or concern in the nature of trade."

So that it need not be a trade if it is an adventure in the nature of trade, which enlarges the words of the section.

The case concerns the affairs of an actor of the name of Norman Wisdom, a man making a very large professional income. Having some savings, which no doubt were not of much significance to him at the time, he did not want them, but they were a nest-egg for his future-because after all a comedian's life does not go on for ever and he needs something for his declining years-he, like many of his kind, was not much concerned with the financial aspects of his life, which he entrusted to a chartered accountant, who was accustomed, I suppose, to dealing with that sort of thing; at any rate he carried on his business in Charing Cross Road. He was the man who regulated the taxpayer's affairs; his name was Mr Halpern.

In 1961, as in many other years since the war, there was talk in the air of a devaluation. It was, as we now know, an event which did not happen at that time, though it had happened since. Mr Halpern, advising his client about his assets (which amounted to some £200,000 in value, consisting of a house, some investments, a yacht on the stocks then building, and a certain amount of cash) was minded to find some way of providing a cushion against the loss which would be occasioned to his client's capital assets in the event of a devaluation of the pound. He wanted to find something which against dollars would maintain its value and would therefore be saleable at a profit which would stop the hole made by the devaluation of the sterling assets. Casting about for an expedient, he was led to suppose that it might be a good plan for his client to buy ingots or bars of silver. That was, he ascertained, a pretty stable commodity; it had not varied in value more than 5 per centover the last six years (this was in 1961), he thought it would maintain its value, and if this country devalued its pound he could still sell it at a good profit against dollars.

And so he took the advice of the well-known bullion brokers, Mocatta & Goldsmid Ltd, and made an appointment to see them in November 1961. On the very morning when he was going to see them, there was a sudden rise in the price of silver. That did not deter Mr Halpern at all. It did, however, derange the bullion market to some extent, and though he wished to purchase £200,000 worth of silver bars the broker would not let him have more than half that amount because the jump which had occurred that morning had somewhat upset the equanimity of the market. However that may be, Mr Halpern continued his efforts, after purchasing the £100,000 worth, to double that sum because that was, he thought, the appropriate amount for his client to buy. But it is a most significant feature of this case that it was not intended that the taxpayer should realise his assets, his stocks and shares, his house, his yacht or what-not, and thus furnish the money for the transaction; the plan was to borrow the money at what on the face of it were very high rates of interest-profitable, no doubt, to the broker and the banker who furnished the money, but not so unprofitable as it might seem to the taxpayer, because he was a high surtax payer. Therefore the transaction was entirely financed on borrowed money except for a sum of £10,000 in cash which he put down on the deal.

The price of silver did not alter very much in the next six months or so and eventually in April 1962 the second transaction (so to call it) was made, which was done in this way: that the first transaction was undone, at a loss to the taxpayer of some £3,000, and the whole £200,000 worth was then purchased on somewhat different terms. The exact terms I need not trouble with, but a year's interest was to be paid in advance and was not to be repayable, and there was an option on the part of the taxpayer to sell back at an enhanced price and a counter-option to the broker hedging him against a loss so that he could call on the taxpayer to exercise his option or to relinquish it.

Now in the autumn of 1962 the pound recovered and all ideas of devaluation for the time being disappeared. But also at the same time and independently of that fact the price of silver began to go up very much; the upshot was that in October 1962 and January 1963 the silver bars were sold on the taxpayer's instructions and he realised a profit of some £48,000. Easily got money, one may think. But the Crown now says that that is a taxable profit, and of course that, having regard to the taxpayer's fiscal position, would take most of the gilt off the gingerbread. And that is what this case is about.

The Crown says that this was an adventure in the nature of trade. It was (it says) something in the nature of a speculation; it was never intended to do more than make a temporary incursion into this market and to realise as soon as might be, either (no doubt) at a profit if devaluation occurred or maybe without a profit if it did not, but having had the insurance of the possession of the bars of silver over the period of danger. But in fact the event which happened was not expected, I suppose, by either party, and although the period of danger passed yet for extraneous reasons the value of the bars very much appreciated, with the result that an entirely unexpected windfall flowed into the pockets of the taxpayer. It is nevertheless said that this was a profit realised from an adventure in the nature of trade and the fact that it was not an expected profit is really quite irrelevant to the matter.

When one looks at the commissioners' findings, one finds them set out in para 9 of the Case as follows:

"We, the commissioners, found that:

(a)

The [taxpayer's] original intention was to purchase the silver as a hedge against the devaluation of sterling.

(b)

At the time of the second transaction other considerations influenced the purchase, the fear of devaluation having subsided.

(c)

The commodity was useless, left unallotted in the hands of Mocatta, was not an income-producing investment, was not a long-term investment, and was financed by loans at a high rate of interest, and no organisation was needed to deal in the commodity as this was provided by Mocatta.

(d)

Whether there was a single transaction or two, by the nature of the subject-matter there was an adventure in the nature of trade.

(e)

The transaction (or transactions) was (or were) in the nature of trade and therefore assessable under Case I of Sch. D."

Now if there were facts to justify those conclusions we cannot interfere even if we would. The learned judge did interfere: he thought that the conclusions were or might be vitiated by the fact that (according to him) a consideration influenced the commissioners which was not supported by any evidence: that is conclusion (b), that

"At the time of the second transaction other considerations influenced the purchase, the fear of devaluation having subsided."

There was no evidence, it was said, of that.

In this court it is not alleged that there was any evidence to support that and therefore we must suppose, I think, that the motive behind the second transaction was the same as that behind the first, viz, to provide an insurance against devaluation. What the learned judge thought (he so stated at the end of his judgment and it is the reason of it) was this ([1968] 2 All ER at p 720, [1968] 1 WLR at p 1240.):

"Having regard to that finding of fact and to the conclusion to which the commissioners came as to the taxpayer's original intention, and to the fact that in my judgment there was no evidence to support any finding that his intention changed, it seems to me as a matter of law to follow that this was not an adventure in the nature of trade but was what Mr. Halpern meant it to be, a security to protect his client against devaluation ... "

Therefore, the learned judge held, as I understand it, that because it was a hedge against devaluation it was not a trading adventure; and, notwithstanding the other findings of the commissioners, he held that, if they had rightly appreciated the facts, that was the conclusion to which (as I think he would have said) they must have come.

For myself I cannot take that view at all. In the first place it seems to me that, supposing it was a hedge against devaluation, it was nevertheless a transaction entered into on a short-term basis for the purpose of making a profit out of the purchase and sale of a commodity, and if that is not an adventure in the nature of trade I do not really know what is. The whole object of the transaction was to make a profit. It was expected that there would be devaluation, and the reason for wanting to make a profit was that there would be a loss on devaluation, but that does not make any difference, it seems to me, to the fact that the motive and object of the whole transaction was to buy on a short-term basis a commodity with a view to its re-sale at a profit. That, as it seems to me, is an adventure in the nature of trade, and I think the commissioners so found as regards the first transaction as well as the second. As regards the first transaction, they rightly supposed that it was a hedge against devaluation; nevertheless when they are assessing the taxpayer to tax they make him an allowance against the loss in which that transaction involved him, and that can only have been on the footing that that too was an adventure in the nature of trade. Therefore, as it seems to me, if they had held (as I take it they should have done) that both transactions were insurances against devaluation, they still would have held that this was an adventure in the nature of trade, and I should have agreed with them.

I, therefore, with the greatest respect, demur to the judge's view that, if they had taken a different view of consideration (b), they would have come to another conclusion. I think they did not do so in fact, and I think that the answer is that this, rightly regarded-ie regarded as a hedge against devaluation-was nevertheless an adventure in the nature of trade. I would hold that it was taxable accordingly and that the appeal succeeds; and I so move.