Commissioner of Stamps u. Logan.
Present: Dalton A.CJ. and Poyser J.COMMISSIONER OF STAMPS v. LOGAN et al108—D. C. (Inty.) Colombo, 1,939.
Cstate duty—Partnership deed—Good-will of business—Bona fide purchase formoney or money's worth—Consideration—Ordi?iance No. 8 of i 913,s. 9 (1).
A deed of partnership entered into between three persons containedthe following clause : —“ In the event of the death of the said Hendersonduring the subsistence of the partnership hereby created the good-willof the business including the right to use the firm name of Henderson& Company shall belong to the said Hanscomb and the said Hanscombshall be entitled to purchase the share of the said Henderson in thepartnership business …. it being hereby declared for thepurposes of this clause that no value shall be placed upon the good-willas a partnership asset and the representatives of the said Hendersonshall not be entitled to be paid anything in respect of good-will.”
A memorandum of agreement signed the same day recited that Hender-son was the owner of the good-will of the firm and provided as follows :“Whereas in consideration of the fact that the said Hanscomb has formany years past devoted himself to the business of the said firm and hasadvanced its interests and helped to develop its business, the saidHenderson by the said deed of partnership agreed that in the eventsfully set out the said Hanscomb should be entitled to the good-will ofthe firm without any payment therefor.”
Held, that there was no purchase by Hanscomb of the good-will fromHenderson for consideration so as to bring it within the exceptionprovided by section 9 (1) of the Estate Duty Ordinance.
Held, further, that the good-will passed by way of gift to Hanscomb,only on Henderson’s death to be held by him under the conditions setout in the agreement.
HIS was an appeal from an order of the District Judge of Colombo
allowing an appeal from a decision of the Commissioner of Stampson a question of estate duty. The first and second respondents are theexecutors of the last will of James Alexander Henderson. Henderson diedon April 18, 1928, and at the date of his death was a partner in the firmof Henderson & Company. The third respondent Hanscomb was apartner with the deceased and with the first respondent in the firm ofHenderson & Company. The Commissioner of Stamps assessed thevalue of the good-will of the business of Henderson & Company for thepurpose of estate duty to be paid by the estate of the late James AlexanderHenderson. The District Judge held, reversing the Commissioner’sdecision, that the good-will had passed to Hanscomb for considerationand that estate duty was not payable.
L. M. D. de Silva, K.C., S.-G. (with him Pulle3 C.C.), for appellant.—“Full consideration” is to be understood as consideration within themeaning of the English law. Wherever the word “ consideration ”occurs in a local Ordinance, it bears the meaning which it has in English
394DALTON A.C.J.—Commissioner oj Stamps v. Logan.
law. See Salman v. Obias ‘ and Waharaka Investment Co. v. Commissionerof Stamps *. That being so, it is insufficient to show that the considera-tion which has passed is past consideration, because past consideration isno consideration at aU. See Anson on Contracts (16th ed.), p. 119.
Section 9 (1) of the Estate Duties Ordinance is the same as section 3 (1)of the Finance Act of 1894. That is an added reason why the word“ consideration ” has to be given a meaning which it enjoys underEnglish law.
The stipulations contained in the deed and memorandum are incon-sistent with the idea of a purchase for money or money’s worth. The onlybasis upon which the idea of purchase can be put is the services renderedto the partnership during Henderson’s life-time. It is entirely incon-sistent with that idea that, if Hanscomb died during the continuanceof the partnership, the representatives of Hanscomb should get nothing.A purchaser must be owner before he dies.
The one point in this case is whether Hanscomb purchased this good-will for money or money’s worth. In the deed there is an expressionwhich indicates that the consideration is for past services. That isinconsistent with the idea of a bona fide purchase. If it is not a bona fidepurchase, then section 9 will not operate.
The District Judge, in his judgment, has failed to give effect to thedocument P 3, and has misapplied the decision in Attorney-General v.Bo den *.
Hayley, K.C. (with him Choksy), for respondents.—The transactionmust be looked upon as a whole. It became a sale although, at firstsight, it deos not seem a sale.
The question of past consideration is put forward for the first time inthis Court. Past services rendered form an exception to past con-sideration.
Finance Acts should not be given a highly technical interpretation.The language of such Acts is intentionally wide and untechnical. SeeAttorney-General v. Sandwick1 on the interpretation of Finance Acts.The term “ purchase ’’ is of wide interpretation in English law.
Counsel also cited Lampleigh v. Braithxuaite “ and Harris’s Case *.
De Silva, K.C., in reply.
Cur. adv. vult.
December 1, 1933. Dalton A.C.J.—
This appeal is from an order of the District Judge, Colombo, whoallowed an appeal from the decision of the Commissioner of Stamps on aquestion of estate duty. The Commissioner assessed the value of thegood-will of the business of Henderson & Company for the purpose of thepayment of estate duty by the estate of the late James AlexanderHenderson. The District Judge held, reversing the Commissioner’sdecision, that no estate duty was payable in respect of the good-will.
The first and second respondents to this appeal are the executors of thewill of the late James Alexander Henderson, dated March 19, 1928.Henderson died on orabout April 18, 1928, and at the dateof his death
‘ 81 N. L. ft. 410.* (1928) 2 K. B. 500,at 518-20.
2 34 N. L. ft. 266, at 212s 1 Sm. L. C. (11thed.) 136.
* (1912) 1 K. B. 539.* 3 Dyer 212.
DALTON A.C.J.—Commissioner of Stamps v. Logan.395
was still a partner in the firm of Henderson & Company. The thirdrespondent, Herbert Joseph Hanscomb, was a partner with the deceasedand with the first respondent, George Kenneth Logan, in the firm whichcarried on the business of merchants, and estate and commission agentsin Colombo. For convenience I will hereafter use the surnames only ofthe parties. The deed containing the terms and conditions of this partner-ship (exhibit P2) is dated February 28, 1922. Under that deed and afurther memorandum of agreement (exhibit P3) of the same date, Hans-comb was to become entitled to the good-will of the firm, subject to theterms of the deed of partnership and memorandum. The appellant, forthe purpose of assessing estate duty, valued the estate of the deceased
J.A. Henderson at a figure, including the value of the good-will of thebusiness. This good-will has been valued separately in the sum ofRs. 58,000, and the correctness of this valuation is not challenged by therespondents. It is urged, however, on their behalf that, under the provi-sions of section 9 (1) of the Estate Duties Ordinance (No. 8 of 1919),duty is not payable in respect of the good-will, as the title thereto passedby reason of a bona fide purchase by Hanscomb from Henderson, for fullconsideration in money or money’s worth paid to Henderson. This saleand purchase of the good-will it is urged was effected by the deed ofpartnership P2 on February 28, 1922.
The learned District Judge has held that the good-will in questionpassed to Hanscomb absolutely under the deed P2 for full considerationpaid in money’s worth for the sole use of Henderson, and therefore theestate duty claimed was not payable. He held the case to be a stronger oneon the facts to bring it within the exception provided for in section 9 (1)than the case of Attomey^General v. Boden1 that was relied upon by therespondents.
The material portions of the deed P2 for the purpose of this case areclauses 3, 18, 19, 20, and 24.
The deed begins by reciting that Henderson and Hanscomb had beencarrying on the business in partnership under an earlier deed of 1916(exhibit PI), and that they were desirous of terminating that partnershipand of forming a fresh partnership taking in Logan as a partner. Thisnew partnership is thereupon constituted to commence from July 1, 1922,the capital of the partnership consisting of such sums contributed insuch proportions as may from time to time be agreed upon by thepartners.
Clause 3 provides that the partnership may be terminated by any oneof the three partners giving not less than six months’ notice in writing ofhis intention to terminate the partnership, and at the expiration of theperiod of such notice the partnership shall end.
Clause 18 provides for what is to happen in the event of the death ofLogan during the subsistence of the partnership. First Henderson, andthen Hanscomb shall have the right to purchase the share of Logan, butfor the purpose of this clause Logan is not entitled to any share in thegood-will of the business, and the representatives of Logan shall not beentitled to be paid anything in respect thereof.
1 (1912) 1 K. B. 539.
396DALTON A.C.J.—Commissioner of Stamps v. I*ogan.
Clause 19 provides for what is to happen in the event of the death ofHanscomb during the subsistence of the partnership. Henderson is thento have the right to purchase his share, and a similar provision to that inclause 18 follows. Hanscomb’s share of the business for the purpose ofthis clause includes no share in the good-will of the business.
Clause 20 begins as follows: “ In the event of the death of the saidJames Alexander Henderson during the subsistence of the partnershiphereby created, the good-will of the business including the right to use thefirm name of Henderson & Company shall belong to the said HerbertJoseph Hanscomb, and the said Herbert Joseph Hanscomb shall beentitled to purchase the share of the said James Alexander Hendersonin the partnership business.” After various provisions the clause con-tinues :—“ It being hereby declared for the purposes of this clause that novalue shall be placed upon the good-will as a partnership asset and therepresentatives of the said James Alexander Henderson shall not beentitled to be paid anything in respect of good-will”
Clause 24 provides that if Henderson terminates the partnership bygiving notice to Hanscomb and Logan or either of them as provided forin clause 3, Henderson shall be entitled to purchase the share or shares ofthe outgoing partner or partners, the outgoing partner, however, not beingentitled to be paid anything in respect of the good-will of the business.
The memorandum of agreement (P3) between Henderson and Hanscomb,signed the same day, after making reference to the partnership that hasbeen or is about to be instituted between the three persons named, containsimportant provisions in respecct of the good-will of the business. It recitesthat Henderson is the owner of the good-will of the firm, and continues : —
“ And whereas in consideration of the fact that the said Herbert JosephHanscomb has for many years past devoted himself to the business of thesaid firm and has advanced its interest and helped to develop its businessthe said James Alexander Henderson by the said deed of partnershipagreed that in the events therein fully set out the said Herbert Joseph
Hanscomb should be entitled to the good-will of the said firm
without any payment therefor.
And whereas it is understood between the said James AlexanderHenderson and Herbert Joseph Hanscomb that notwithstanding that inthe events fully set out in the said deed of partnership the said HerbertJoseph Hanscomb shall become entitled to the said good-will withoutpayment therefor, the said Herbert Joseph Hanscomb, in the event of hisso becoming entitled to the said good-will, is to regard the ownership ofthe said good-will as being in the nature of a trust for such of the futurepartners in the said firm as may be worthy of ultimately being given thesaid good-will or a share therein.”
The memorandum then provides that Hanscomb shall not be free tosell or dispose of the good-will, so long as there shall be any partner orassistant in the firm “ who by conduct or character shall have provedhimself or themselves worthy of being given the said good-will or a shareor shares in the said good-will just as the said good-will has been given bythe said Janies Alexander Henderson to the said Herbert-Joseph HanscombVi manner aforesaid, the intention of the parties hereto being that the
DALTON A.C.J.—Commissioner of Stamps v. Logan.397
said good*will shall without payment therefor be passed on to worthysuccessors by the said Herbert Joseph Hanscomb just as it has been or isto be passed to him by the said James Alexander Henderson.”
Was there here a bona fide purchase on February 28, 1922, by Hanscombfrom Henderson of the good-will for full consideration in money or money'sworth paid to Henderson for his own use or benefit? This is a questionof fact to be decided by the Court upon the evidence before it. Thequestion has been answered by the District Judge in the affirmative, butI regret I am unable to come to the same conclusion. I will refer to thelearned Judge’s reasons for his conclusions later.
If one examines the terms of the clauses of the partnership deed P2referred to above, it is clear that Henderson could terminate the partner-ship whenever he wished to do so, on giving the notice required. If hedid so, Hanscomb either as individual or partner had no rights of anykind in the good-will of the firm. If the partnership was not so terminated,and Henderson died during the subsistence of the partnership, then andonly then was Hanscomb to become the owner of the good-will. In thoseevents, can it be said that he had purchased the good-will on the executionof the deed of partnership? So long as Henderson was alive it seems tome the good-will, subject to the terms of the partnership, was his and hisinterest in the good-will ceased only on his death. This is made clear,I think, by the provisions of clause 20. It was in the event of the deathof Henderson during the subsistence of the partnership that the good-willwas to go to Hanscomb, and then too only if he were alive, the same clausemaking it clear, however, that the representatives of Henderson were not tobe paid anything for it.
An examination of the terms of the memorandum of agreement of thesame date between Henderson and Hanscomb fortifies one in that con-clusion. It sets out that the good-will is the property of Henderson,and goes on to state that, whereas in the events set out in the deed ofpartnership Hanscomb would be entitled to the good-will without anypayment, if he does become entitled to the good-will in the events set out,he is to regard the ownership of it as in the nature of a trust for such ofthe future partners in the firm as may be worthy of being given the good-will. It then states that just as the good-will has been given (in theevents mentioned) to Hanscomb by Henderson, so it shall be passed on byHanscomb to worthy successors without payment.
The recital of the past services of Hanscomb to the firm in which he hadadvanced its interests and helped to develop the business, I am inclinedto think, is merely for the purpose of showing why Hanscomb was regardedby Henderson as a wothy successor to him, and as worthy of being giventhe good-will subject to the terms of the partnership. It has been urgedby the Solicitor-General, however, that, if there was any bona fide sale ofthe good-will to Hanscomb in February, 1922, the consideration thereforwas services rendered in the past, which in law is no consideration at all.There is nothing to suggest it was moved by a previous request, nor is itshown to have been rendered under such circumstances that a request isimplied.
Section 9 (1) of the Estate Duties Ordinance has been taken overfrom section 3 (1) of the Finance Act, 1894 (57) & 58 Viet. c. 30) and it
398DALTON A.C.J.—Commissioner of Stamps v. Logan.
would seem therefore that “ consideration ” as used in the section of theOrdinance must mean what it means in English law. (Vide Salman u.Obias1 and remarks of Macdonell CJ. in Waharaka Investment Co., Ltd.v. Commissioner of Stamps *.) Taking, however, the terms of the deed'andmemorandum together, I am of opinion that in the event of Hanscombbecoming entitled to the good-will under the terms of the deed, it was tobe by way of gift to him from Henderson, without payment of any kind.
In Attorney-General v. Boden (supra) relied upon by the District Judgethe facts are not the same. The indenture of partnership of January 30,1907 (after an earlier partnership had expired by the effluxion of time)was made between Henry Boden, H. S. Boden, and R. S. Boden. Thebusiness was one of lace manufacturers carried on in five towns in England.All the assets of the business of Boden & Company as existing immediatelyafter the commencement of the present partnership were to be the assetsof the partnership. The salaries and shares in the profits of the partnerswere fixed, whilst H. S. Boden and R. S. Boden were to give so muchtime and attention to the partnership business as the proper conduct ofits affairs required. Henry Boden on the other hand could give so muchtime to the business as he thought fit. If Henry Boden died or otherwiseshould cease to be a partner, his share was to accrue to H. S. and R. S.Boden in equal shares, subject to their paying out to his representativethe value of his share and interest, but without any valuation of or allow-ance for good-will, which good-will was to accrue to H. S. Boden andR. S. Boden in equal shares.
If either H. S. Boden or R. S. Boden should die or otherwise cease to bepartner, his share was to accrue to the other partners in proportion totheir existing shares in the same way, subject to valuation, the good-willto be valued and allowed for in the general account at the rate set out inthe indenture.
Henry Boden died on November 14, 1908, the value of his share andinterest in the partnership being ascertained as provided for in thefindenture. H. S. and R. S. Boden paid the sum of £186,734.0.0 to HenryBoden’s executors for the value of deceased's share, no account beingtaken of the good-will in the valuation. The Attorney-General thereuponclaimed estate duty upon the value, as at the death of Henry Boden,of the good-will of Boden & Company. It was urged in support of theinformation with alternative pleas that Henry Boden died possessed of aninterest in the good-will, which interest ceased on his death. For thedefendants .it was urged that the good-will had no value, and thereforenothing passed on Henry Boden’s death. Secondly, if Henry Boden’sshare had any value it was amply paid for in money’s worth by thecovenants of the defendants under the indenture of January 30, 1907.On the question of the value of the good-will of the business; Hamilton J.came to the conclusion that it was of every little value. To the limitedextent which he pointed out he held there was a good-will, but froma practical point of view it was worth extremely little.
With regard to the defendants' argument that the good-will wasproperty which passed on the death of Henry Boden by reason of abona fide purchase by them from him for full consideration in money or
1 a w. L. R. 410.2 34 N. L. It. at p. 272.
DALTON A.C.J.—Commissioner of Stamps v. Logan.399
money's worth, Hamilton J. pointed out that it was a question of factwhether the consideration for the property was full or not. He then setsbut three facts which lead him to the conclusion that full consideration wasgiven, in the shape of H. S. and R. S. Boden’s convenants to serve and theirother convenants, for any property which accrued to them on his death.These three facts, first that the partnership was to last as long as HenryBoden lived, secondly that he was to have his capital employed in the busi-ness, a lucrative one, as long as he lived, and thirdly that the good-will ofwhich they thought little was to pass with the rest of the corpus of his inte-rest to them on payment of a price which was liberal to himself. Looking atthe substance of the transaction and looking at the combined effect of allthe terms of the contract, Hamilton J. came to the conclusion it was asale and purchase to take effect upon the death of Henry Boden. Hefinds that Henry Boden and his sons believed and were justified in believingthat full consideration was being given in their covenants to serve forany property that accrued to them on his death otherwise than by pay-ment in cash.
A comparison of the terms of partnership in Boden’s case, in so far asthey relate to the good-will of the business, with those in the case beforeus is necessary to enable one to say whether the District Judge was rightin the conclusion to which he came. A comparison shows at once certaindefinite points of difference between the two cases. In the former thegood-will passed with the rest of Henry Boden’s interest under the deedof partnership, the partnership lasting as long as Henry Boden lived,his interest then accruing to the survivor or survivors. If Henry Bodendied, the value of his interest in the partnership included no part of thegood-will. If, however H. S. or R. S. Boden died or ceased to be partners,the value of the good-will was to be included in estimating the share ofthe partnership of either of them. In the case before us, however,Henderson could put an end to the partnership at any time on due notice,in which case he could purchase the shares of the outgoing partners.If he did so, neither Hanscomb nor Logan was entitled to any share in thegood-will which, the memorandum states, was his property. In any eventLogan was not entitled to any share in the good-will, since the memoran-dum P3 makes it clear it was, in certain eventualities, given to Hanscombalone.
Further, in Boden’s case it is found that the good-will was worthextremely little. This fact undoubtedly played an important part inhelping towards an answer to the question whether full considerationwas given or not, or whether what was given was a fair equivalent for whatwas received. In Henderson's case the good-will is valued at Rs. 58,000.In the former case the full consideration for the good-will was held to bethe covenants to serve. In the latter case there are such covenants also,but I am unable to say, having regard to the value of the good-will, thatthey are a fair equivalent for what was received. Service was paid forin salary and a share in the profits. In the latter case it is, it is true, setout in the memorandum that Hanscomb should be entitled to the good-will, in the events set out in the deed of partnership, in consideration ofhis past services for many years. Having regard to the combined effect ofthe terms of the memorandum I am inclined, however, as I have already
400DALTON A.C.J.—Commissioner oj Stamps t>. Logan.
stated, to construe the recital of the past services of Hanscomb as givinga reason why he has been thought worthy of the good-will, rather than assetting out the consideration for the good-will. It must be rememberedof course that he had been duly remunerated for those services in accord-ance with the terms of the earlier partnership. If, however, it be regardedas consideration in 1 the legal sense, then clearly it is past considerationwhich in this case is not consideration at all. In Boden’s case there isno doubt that the consideration was future services. That case, as ispointed out by Haihilton J., was a purely commercial transaction, whilstthe case before us is one, so far as the disposal of the good-will is con-cerned, which appears to be based upon gratitude. I do not think, on thispoint, that any assistance can be derived from cases dealing with familysettlements. It was indeed pointed out that family arrangements arenot inconsistent with full money’s worth being given, but such cases donot seem to me to be helpful in such a case as this.
For these reasons, therefore, I am unable to agree with the learnedDistrict Judge’s conclusion or to hold that there was a purchase onFebruary 28, 1922, by Hanscomb from Henderson of the good-will whichWas to pass to Hanscomb on the death of Henderson. The transactionentered into between them on that date, in respect of the good-will, in myview of the evidence, was that the good-will was to go to Hanscomb onlyin the events set out in the deed P2, Henderson’s interest therein ceasingonly on his death. In that latter event a benefit arose to Hanscomb bycesser of Henderson’s interest. It was further provided that, if it everdid pass to Hanscomb in the events set out, it was to be of the nature of agift by Henderson to Hanscomb, for which no payment of any kind wasto be made, and it was to be held by him under the conditions set out inthe memorandum, and passed on by him in the same way.
There is one more matter to which I must refer. Counsel for therespondents has called our attention to the fact that the Inland RevenueAuthorities in London informed the Solicitors for the parties jih Englandthat the value of the good-will need not be brought into account inEngland for estate duty purposes there. The correspondence on thematter was produced in the lower Court and' is in evidence in the case.On what grounds this conclusion was reached of course we are not aware.It is conceded that the indenture P2 was before the English authoritiesbut not the memorandum P3, which was not brought to their notice,it being apparently thought that the latter document would not berequired. The fact that this opinion was expressed by the Inland RevenueAuthorities in no way leads me to think, after consideration of all thematerial before the Court, that the conclusion to which I have come iswrong.
I would therefore allow the appeal from the District Judge’s order,and restore the revised assessment made by the Commissioner of Stamps.The appellant is entitled to the costs of this appeal and to his costs inthe Court below.
Poyser J -I agree.