- (1.) RATIO Decidendi: "Purchaser will be entitled to restrictions of transfer imposed by articles of association." Mrs. Nellie Lynall, with whose estate this appeal is concerned, died on May 31, 1962. Her age was in the middle seventies. Her principal asset was a large holding representing about 28 per cent. of the issued capital of a private limited company called Linread Ltd. This was an old -established and prosperous concern having its headquarters in Birmingham and being engaged in the manufacture of what are known as cold -forged fasteners -things in the nature of screws, nuts and bolts used in the aircraft and motor industries. The company was a private company and the shares were held entirely in the family, the chairman, Mrs. Lynalls husband, owing 32 per cent. and two sons owning 20 per cent. each. All four were directors of the company, though Mrs. Lynall was not an executive director. Under the articles of association the shares of the company were very severely restricted in transfer; the directors had an absolute right to refuse to register, and a would -be seller must first offer his shares to Mr. Lynall and, after he ceased to be chairman, to the other members of the company, at the fair value, which at all material times was fixed at par. At the very lowest estimate the shares were worth double that figure, but in effect a would -be transferor had nothing to sell but the par value. In these circumstances a familiar difficulty arose of valuing the shares for estate duty purpose under section 7(5) of the Finance Act, 1894, which is in these terms : The principal value of any properly 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.
(2.) IT has been the law since Attorney -General v/s. Jameson, the decision of a very strong Court of Appeal in Ireland, which was followed and confirmed in the House of Lords in Inland Revenue Commissioners v/s. Crossman, that the meaning to be given to this section is that for the purpose of estimating the price of such shares, price being under the section the criterion of value, it must be assumed that a purchaser would be entitled notwithstanding the restrictions to be transfer imposed by the articles of association. This view of the law is admittedly binding on this court, but the respondent taxpayers desired to reverse the point, in case the matter went to the House of Lords, that the minority view expressed by Lords Russell and Macmillan in Crossmans case was the right one and that the true value of shares such as these is par and no more.
(3.) THE company had a conservative dividend record, but during the last two years of Mrs. Lynalls life a dividend of 15 per cent. had been paid, no doubt under the pressure exercised by the Revenue, which of course had in its hands the weapon of a surtax direction on the members. Moreover, this was company in which two person holding 60 per cent. of the capital were about 70 years old and inevitably the question must arise how the very heavy estate duties which would become payable on their deaths could be found, and it is notorious that in order to raise the duty many such companies have been obliged to offer a certain proportion of their shares by an issue to the public, which of course involves the sweeping away of the restrictions on transfer and becoming a public company. This would have the result of very much enhancing the price which the shares would fetch, and the chance of its happening must necessarily be in the mind of any purchaser, who would so long as the company remained a private company in effect be looking up his capital. The sale envisaged by the section is, as is agreed, not real but a hypothetical sale and must be taken to be a sale between a willing vendor and willing purchaser - see, for instance, the speech of Lord Guest in In re Sutherland. decd. It is true that the so -called willing vendor is a person who must sell : he cannot simply call off the sale if he does not like the price; but there must be on the other side a willing purchaser, so that the conditions of the sale must be such as to induce in him a willing frame of mind. The controversy which has arisen here is extraordinarily free from authority, which is strange, as valuations under the section have been going on since 1894. The dispute is, what information about the company and its past history and future prospects is to be assumed to be in the possession of the purchaser at the date of the sale. Three possibilities were canvassed. First, that which was reached by the judge below, namely, that the purchaser must be taken to be in possession, apart from what I call published documents, of all such further information (if any) as on the evidence in this case a member of the board applied to would have afforded. This evidence was given by one of the two sons of the family, who alleged that the board if asked would have been extremely uncommunicative. The judge himself did not favour this result but he felt constrained to it by a decision of Danckwerts J. in In re Holt, decd.;