McNamee v Revenue Commissioners

• Jurisdiction: Ireland
• Judgment Date: 05 February 1954
• Date: 05 February 1954
• Court: High Court

McNamee v. Revenue Commissioners

In the Matter of the Finance Act, 1894, and In the Matter of the Estate of THOMAS McNAMEE

JEREMIAH McNAMEE

Petitioner

THE REVENUE COMMISSIONERS. Respondents

Revenue - Estate duty - Valuation of shares - Private company - Restriction on transfer of shares - Principle of valuation - Sale in open market - Finance Act, 1894 (57 & 58 Vict., c. 30), s. 7, sub-s. 5.

Petition, pursuant to s. 10 of the Finance Act, 1894, by Jeremiah McNamee, executor of Thomas McNamee, deceased, by way of appeal from an assessment of valuation for estate duty of the value of 175 £1 ordinary shares in the Convoy Woollen Company Limited.

The facts have been summarised in the head-note and are fully stated in the judgment of Maguire J., post.

By s. 7, sub-s. 5, of the Finance Act, 1894, it is provided that the principal value of any property shall be estimated for the purposes of estate duty"to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased."

At the time of his death T. M. was possessed of 175 £1 ordinary shares in the Convoy Woollen Company Ltd., a private company with an issued share capital of 15,000 5 per cent. preference shares of £1 each and 50,000 ordinary shares of £1 each. The articles of association provided that the directors might refuse to register any transfer without giving any reason. The shares were not quoted on the Stock Exchange. The deceased bought his 175 shares in 1938 for £1 each and they were sold by his executor in 1951 for £1 10s. 0d. each. The Company had paid dividends of 12¹/₂ per cent. and 15 per cent. over the previous three years and was in a strong financial position. The Company's business was of a fluctuating type and much capital investment was necessary. The Revenue Commissioners having assessed the value of the shares for the purpose of estate duty at £4 each, the executor appealed to the High Court by a petition under the provisions of s. 10 of the Finance Act, 1894.

Held by Maguire J. that in estimating the price which the shares would fetch if sold in the open market, the Court should have regard to the number of prospective purchasers the shares would attract, the earning capacity of the Company, the dividend policy of the directors, the resources of the Company, its capital and replacement requirements, its business difficulties and competitors, the nature of the trade and the inability to alienate the shares freely, once bought.

Maguire J. accordingly fixed the value of the shares at £1 12s. 6d. each.

Attorney-General v. Jameson, [1905] 2 I. R. 218 and Smyth v. Revenue Commissioners, [1931] I. R. 643 applied. In re Holt, Deceased. Holt v.Inland Revenue Commissioners, [1953] 1 W. L. R. 1488 considered.

Cur. adv. vult.

Maguire J. :—

This is a petition pursuant to s. 10 of the Finance Act, 1894, by Jeremiah McNamee, executor of the above-named Thomas McNamee, deceased, by way of appeal from an assessment of valuation for estate duty of the value of 175 £1 ordinary shares in the Convoy Woollen Company, Limited. The Revenue Commissioners estimated and assessed the value of the shares at £4 per share. The

petitioner claims a declaration that the value of each share be determined at £1 10s. 0d.

The facts in so far as they are not in controversy are simple enough. Thomas McNamee was a retired mill-worker in the Convoy Mills. He died on the 17th October, 1950, possessed of 175 ordinary shares in the Convoy Woollen Company Limited. By his will, he bequeathed all his property to his three children, his two daughters and his son, the petitioner. Probate of his will was granted to the petitioner forth of the Principal Registry of the High Court of Justice on the 3rd August, 1951. The value of the estate for estate duty purposes was stated to be approximately £1,000, but its final valuation awaits the determination of this appeal. The Convoy Woollen Company Limited was incorporated on the 19th December, 1904, under the Companies Acts, 1862 to 1900, as a public company limited by shares with a share capital of £50,000 in 50,000 ordinary shares of £1 to carry on the business inter alia of manufacturers of woollen cloth and woollen goods. It acquired and took over the business of an earlier company which had been incorporated in 1887. At the date of the death of Thomas McNamee, the issued capital of the Company consisted of 15,000 5 per cent. preference shares of £1 each and 50,000 ordinary shares of £1 each. Clause 25 of the articles of association of the Company provides:— "The directors may decline to register any transfer of shares without assigning any reason therefor."Clause 28 of the articles provides for the registration of transferees "if the transferee be first approved by the directors." The shares of the Company are not dealt with on any stock exchange. They have no market quotation.

The 175 shares, the value of which is in issue, were purchased by Thomas McNamee, deceased, in 1938 at £1 each. The transfer to him was registered on the 13th December, 1938. They were sold in 1951 by the petitioner through his solicitor, Mr. McNulty, to a Mr. Kilpatrick at £1 10s. 0d. each. The sale was negotiated early in the year 1951 and the transfer to Mr. Kilpatrick was registered on the 19th September, 1951. Mr. Kilpatrick had some short time before been appointed a director of the Company.

The Finance Act, 1894, s. 1, enacts that estate duty shall be levied and paid upon the principal value, ascertained as thereinafter provided, of all property which passed on the death of every person after the commencement of the Act at the rates thereinafter mentioned. Sect. 7 enacts the manner of "determining the value of any estate for the purpose of estate duty." Sub-sect. 5 converts value into price, and enacts that "the principal value of any property shall be estimated to be the price which, in the opinion of the Commissioners, such property would fetch if sold in the open market at the time of the death of the deceased,"that is to say, the price estimated to be obtainable on an assumed sale. The Commissioners have exclusive jurisdiction to estimate that price in the first instance. Sect. 10, sub-s. 1, provides that any person aggrieved by the amount of duty claimed by the Commissioners, on the ground of the value of any property, may appeal to the High Court, and the amount of duty shall be determined by the High Court; with a further appeal by leave under sub-s. 2.

The legal considerations which must govern the determination of the value of the property for the purposes of the Act were laid down by the Court of Appeal in Ireland inAttorney-General v. Jameson(1). It was held in that case that the principal value of the shares ought to be estimated at the price which, in the opinion of the Commissioners of Inland Revenue, they would fetch if sold in the open market on the terms that the purchaser should be entitled to be registered and should be registered as the holder of the shares, and should take and hold them subject to the articles of association, including the articles relating to the alienation and transfer of the shares of the Company. That case did not come before the Court on an appeal under s. 10 of the Finance Act, 1894, but on an information by the Attorney-General for the determination of the manner in which such value was to be ascertained.

Jameson's Case (1) was followed by Mr. Justice Hanna inSmyth v. Revenue Commissioners(2). It was approved of in the House of Lords in Inland Revenue Commissioners v.Crossman and Others(3). In Scotland, the same point arose in Salvesen's Trustees v. Commissioners of Inland Revenue(4)and Lord Fleming took the same view as that which had been taken in the Irish Court of Appeal. In In re Holt, Deceased.Holt v. Inland Revenue Commissioners(5) the principles already laid down were applied by Mr. Justice Danckwerts. The learned judge accepted the law as laid down in Inland Revenue Commissioners v. Crossman and Others(3). At p. 1492, he says:— "By the terms of section 7, I have to imagine the price which the property would fetch if sold in the open market. This does not mean that a sale by auction (which would be improbable in the case of shares in a company) is to be assumed, but simply that a market is to be assumed from which no buyer is excluded: see Inland Revenue Commissioners v. Clay, per Swinfen Eady L.J.(1).At the same time, the Court must assume a prudent buyer who would make full inquiries and have access to accounts and other information which would be likely to be available to him: see Findlay's Trustees v. Inland Revenue Commissioners(2)."

While the law on the construction of s. 7, sub-s. 5, of the Finance Act, 1894, may now be regarded as settled, it is noteworthy that it has caused acute legal controversy and a great divergence of judicial opinion. In 1904, the Court of King's Bench in Ireland, consisting of Palles C.B. and Justices Boyd and Kenny, in Jameson's Case(3), held by a majority that in estimating such principal value regard was to be had by the Commissioners to the special provisions in the articles of association with reference to alienation and transfer of shares of the company and as to the"fair...