INLAND REVENUE COMMISSIONERS Vs. PAYNE

JUDGEMENT

(1.) The word in the definition clause of "settlement" which is relevant to that question is the word "arrangement". The word "arrangement" is not a word of art : It is used, in my opinion, in this context in what may be described as a business sense, and the question is : Can we find here an "arrangement" as so construed? It is said that the only element in this transaction which falls within the definition of "settlement" is the deed of covenant itself. I am unable to accept that argument. It appears to me that the whole of what was done must be looked at, and where that is done, the true view, in a certain relationship to the company as part of one definite scheme, the essential heads of which could have been put down in numbered paragraphs on half a sheet of note-paper. Those were the things which it was essential that Mr. Payne should do if he wished to bring about the result desired. He did it by a combination of obtaining the control of the company, entering into the covenant, and then dealing with the company in such a way as to achieve his object. Now if a deliberate scheme, perfectly clear cut, of that description is not an arrangement within the definition clause, I have difficulty in seeing what useful purpose was served by the Legislature in putting that word into the definition at all. I am clearly of opinion that, by placing himself into these relationships with the company, Mr. Walter Payne was engaged in making an "arrangement" within the meaning of that clause. That he was the settler under it is manifest, and I need not take up time in dealing with that aspect of the matter.

(2.) The next question that arises is whether he was in a position to revoke or otherwise determine the settlement or any provision thereof. IN my opinion, there is only one answer to that question. The position in which he had placed himself was on in which he could bring to an end his liability under his deed of covenant. That deed of covenant was a provision of the settlement; it was an integral part of it; and his liability under it could be determined by him at any moment that he pleased by the mere exercise of his voting rights in such a way as to put the company into liquidation. But the most sustained argument on this branch of the case was upon the meaning of the word "power". It was sad that word must have a very restricted meaning and, indeed, must be confined to a power in what I may call the strict converyancing sense. It was said that if it was not so limited in its application it would extend to the exercise of a maybe5e right of property and, indeed, would give to the section a scope which the Legislature could not possibly have intended. It is then said that in the present case the power to determine the settlement. If it existed, could only be the power derived from Mr. Walter Paynes control of the voting rights of the company, and that is no doubt the case. But it is said that those rights, which he exercised in the way that he did, are not aptly described as a "power", they are rights which are inherent in his ownership of the shares. The argument, in my opinion, is putting much too limited a meaning on the word "power". As Clauson, L. J., pointed out in the course of the argument, the point would have had more substance if such a word as arrangement" had not appeared in the definition clause. In relation to such a word it is impossible, it seems to me, to confine the word "power" to a strict power in the conveyancing sense. It must, therefore, have a wider and more popular meaning. The argument that the exercise of a mere right of a property cannot be a "power" is, in my opinion, beside the point. The question in the present case is, not as to the bare exercise of a voting right looked at by itself. That voting right was brought into the scheme and was an essential part of the scheme, and it was used as the mechanism by which Mr. Walter Payne should be in a position to bring his liability to an end. It so happens that under the particular device adopted the method of bringing that liability to an end was by exercise of the votes attached to his shares. But those voting rights, used for the purposes for which they were used, and playing the part in the scheme which they did play, are in my opinion, properly described in the context of this section as a "power". In my judgment, therefore, that argument fails.

(3.) The next question that arises on the meaning of Section 38 (1), paragraph (a), is whether or not in the event of the exercise of the power Mr. Walter Payne would, or might, "cease to be liable to make any annual payments by virtue or in consequence of any provisions of the settlement", the relevant provision in this case, of course, being the covenant. It was said that, as by the winding up of the company the liability of Mr. Walter Payne to make payments came to an end by the very force and nature of the covenant itself, these words are in appropriate to cover such a case, and that they are contemplation, not the termination of liability, according to the terms of the contract, but, so to speak, a premature termination of a liability which would otherwise have continued. In my opinion that argument also fails. The question is : Did Mr. Walter Payne cease to be liable to make any annual payments? The answer is that he did. The fact that he so ceased because his liability had been brought to its conclusion, instead of being revoked by a superimposed power of revocation, appears to me to be irrelevant. The language, in my opinion, is amply clear to cover this case.