The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 72 of 1995

 

Rangatira Limited Appellant

v.

The Commissioner of Inland Revenue Respondent

 

FROM

 

THE COURT OF APPEAL OF NEW ZEALAND

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 2nd December 1996

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Present at the hearing:-

Lord Keith of Kinkel

Lord Browne-Wilkinson

Lord Nolan

Lord Steyn

Lord Cooke of Thorndon

  ·[Delivered by Lord Nolan]

 

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The question raised in this appeal is as old as the law of income tax.  It is whether, in a given set of circumstances, profits realised on the disposal of assets should be classified as income and taxable as such, or as capital gains, free from that tax.

 

1. The profits in question were realised by the appellant upon the disposal of shares and securities which it had acquired on or after 1st April 1983.  The Commissioner accepts that profits on the disposal of such assets acquired by the appellant before that date are capital gains.

 

2. The relevant statutory provisions are those set out in section 65(2)(a) and (e) of the Income Tax Act 1976.  They read as follows:-

"65 (2) [Assessable items] Without in any way limiting the meaning of the term, the assessable income of any person shall for the purposes of this Act be deemed to include, save so far as express provision is made in this Act to the contrary, -

65 (2)(a) [Business profits] All profits or gains derived from any business (including any increase in the value of stock in hand at the time of the transfer or sale of the business, or on the reconstruction of a company) ...

 

65 (2)(e) [Personal property sales] All profits or gains derived from the sale or other disposition of any personal property or any interest therein (not being property or any interest therein which consists of land within the meaning of section 67 of this Act), if the business of the taxpayer comprises dealing in such property, or if the property was acquired for the purpose of selling or otherwise disposing of it, and all profits or gains derived from the carrying on or carrying out of any undertaking or scheme entered into or devised for the purpose of making a profit ..."

 

3. The word "business" is defined in section 2 as including:-

"any profession, trade, manufacture, or undertaking carried on for pecuniary profit."

 

4. The respondent made assessments upon the appellant in respect of the profits in question for the years 1986-1990 inclusive.  He relied upon the provisions of section 62(2)(a), or in the alternative upon each of the three limbs of section 62(2)(e), or in the further alternative upon the provisions of section 191(4A) which deals with profits derived by a company in a group in circumstances in which it would have been assessable if the group were one company.  The claim under section 191(4A) was rejected by Gallen J. in the High Court, was not considered by the Court of Appeal in its judgment, and has not been pursued in argument before their Lordships.  It may therefore be left aside.

 

5. In the High Court, Gallen J. rejected the arguments based by the respondent upon the provisions of section 62(2)(a), but upheld the assessments upon a number of the transactions under section 65(2)(e), principally upon the ground that they fell within the second limb of that provision.  In the Court of Appeal the respondent was successful in his claim for tax upon the profits of all of the relevant transactions under section 65(2)(a), save for those realised in the year 1986, which the respondent agreed to be out of time for assessment under section 65(2)(a).  The appellant did not ask the Court of Appeal to overrule the decision of Gallen J. in respect of the respondent's claim under section 65(2)(e), nor did it seek to reopen the issue before their Lordships, beyond asserting that the decision was justified, and justified only, under the second limb of section 65(2)(e).

 

6. The appellant is an unlisted public company.  It was formed in 1937  on the  initiative of Sir John McKenzie.  From an early stage

its majority shareholders were a series of charitable trusts endowed by him.  The minority shareholders were members of his family, or trusts of which they were beneficiaries.  The directors effectively administered the assets of the company, which provided income by way of dividend to the shareholder trusts for allocation by the trustees.  The majority of the directors have always been independent businessmen.  The appellant had only one full-time employee, Mr. McKegg, who was described as its General Manager and Company Secretary.

 

7. Over a period of years the company consistently invested on a long-term basis in shares in what would generally be regarded as sound, well-performing companies.  As one would expect, shares were disposed of from time to time and profits, sometimes of a substantial nature, were made on the disposal, but at least until 1983 the respondent did not suggest that any of those profits were taxable.  He accepted that they were capital gains.

 

8. Two factors appear to have been principally responsible for the decision by the respondent that gains arising from the disposal of shares acquired after that date should be taxed.  The first was the number of sale transactions which occurred during the years from 1983-1990. Various schedules listing these sales have been put forward by the parties both before the New Zealand courts and before their Lordships' Board but they have been prepared on the basis on differing assumptions, and cannot easily be reconciled.  For example, where shares in a particular company were sold on the same occasion but in separate parcels, their treatment in the various schedules differs according to whether the sale was treated as a single incident or as a number of sales, and also as to whether the particular schedule is confined to the sales of shares acquired after 1st April 1983.  This may account for the fact that the Court of Appeal judgment at one stage refers to 51 sale transactions during the 7 year period, but then goes on to summarise the details of only 41 sales in its description of the appellant's business activities during the years under review. The appellant is content however that the 41 sales should be taken as representative of the character of its business during the years in question.  The appellant's case is that the Court of Appeal reached  the wrong conclusion as to their nature.

 

9. The second factor principally relied upon by the Commissioner was the occurrence during the relevant years of those transactions which are now admitted by the appellant to have involved the purchase of shares with a view to resale at a profit, and which have been the subject of the assessments under the provisions of section 65(2)(e).  The respondent contends, and the  Court   of  Appeal  agreed, that  the  existence of  these

transactions was an indicator of the true scope of the appellant's business.  The appellant for its part maintains that they took place in exceptional circumstances, and stood apart from the ordinary course of its business.

This being in broad outline the area of dispute between the parties, the question for consideration is how the facts should be approached with a view to determining whether the conditions of liability under section 65(2)(a) exist.  At one stage in their respective arguments, counsel for both parties took up extreme positions.  Thus for the appellant, Mr. Underhill Q.C. advanced the contention that there could be no question of liability under section 65(2)(a) since the holding of investments did not constitute the carrying on of a business, and therefore the appellant fell outside the scope of the charge.  This is a novel proposition, and one which their Lordships have no hesitation in rejecting.  It may well be that in the case of individuals or trustees the holding of investments would very rarely amount to the carrying on of a business. It may well be, therefore, that, if the investments held by the appellant had instead been held by the various bodies of trustees who made up the majority of its shareholders, there would have been no scope for the operation of section 65(2)(a).  But the interposition of the appellant made all the difference.  The objects clause of the appellant is drawn in conventionally broad terms and authorises it to carry on a range of businesses which embraces almost the whole conceivable gamut of commercial activities.  The authorities, to some of which reference must be made, contain a number of instances in which investment holding companies, no less than investment dealing companies, have been treated as carrying on a business for taxation purposes, and their Lordships feel no doubt about the correctness of such treatment.

 

10. The Solicitor-General, on the other hand, at one stage in his argument advanced the broad contention that the making of profits through the selling of shares formed an incidental part of the business activities of the appellant and that in consequence all such profits - or at least all profits arising from the sale of shares acquired after 1st April 1983 - should be regarded as profits derived from the appellant's business and assessable under section 65(2)(a).  This contention too, thus broadly stated, their Lordships are not prepared to accept.  If accepted, it would abolish the well-established distinction between investment-holding and investment dealing companies a distinction which their Lordships are unwilling to disturb.  The tax with which this case is concerned is a tax on income, and however difficult the task may be in particular cases there is no escape from the necessity to distinguish between the taxable income which is derived from the carrying on of the business on the one hand and the non-taxable gains arising from the disposal of capital assets of the business on the other.

 

11. The difficulty of distinguishing between profits which are of an income nature on the one hand, and capital gains on the other tends to be more acute in a case, such as the present, where the assets in question are, for the most part, shares in listed companies.  Most of the decided cases in this area are concerned with profits on the sale of land, an asset whose character in the hands of the vendor can often be judged by its suitability for speculation on the one hand, or long term investment on the other.  In the case of shares, particularly small parcels of shares in listed companies, such an indication is frequently lacking.  For many shareholders it makes little difference (tax considerations apart) whether the shares yield a profit by way of dividend or by way of a gain on re-sale. But for the shareholder who is carrying on a business, the question for taxation purposes remains the same, namely, whether the particular profit is income from capital assets held as part of the business, or from dealing with those assets as what may conveniently be called trading stock.

 

12. The Solicitor-General specifically declined to use the phrase "trading stock" as a description of the shares upon whose sale a taxable profit or an allowable loss would arise.  He submitted that it was unnecessary for him to do so in order to support his case. He pointed out, correctly, that whereas in the United Kingdom legislation the operative word in the charging provisions is "trade", the law of New Zealand, and for that matter the law of Australia, uses the broader word "business".  But while acknowledging this distinction, their Lordships find it difficult to quarrel with the phrase "trading stock" as a description of assets a profit on whose sale will constitute taxable income falling within section 65(2)(a).

 

13. This, however, is little more than a semantic point.  The real issue is whether the sale profits are derived from a "business" within the meaning of section 2.  Their Lordships find assistance here in the words of Richardson J. in Calkin v. C.I.R. [1984] 1 N.Z.L.R. 440, 446 where he expressed the view:-

"that underlying each of the words in the definition in section 2, and the term `business' itself when used in the context of a taxation statute, is the fundamental notion of the exercise of an activity in an organised and coherent way and one which is directed to an end result".

 

14. For present purposes the end result is, of course, one which consists of or includes the realisation of profits on sales.

 

15. Mr. Underhill took issue with the respondent's choice of the date, 1st April 1983, as the starting point for the suggested change in the character of the appellant's business.  He submitted that  there  was no evidence of any particular change on that date.

16. Their Lordships consider that this submission adopts too narrow an approach.  As will be seen, there was evidence in the appellant's Board Minutes and elsewhere of a new and more speculative policy being adopted by the appellant in the early 1980's.  The respondent was entitled to assert that in consequence a new business activity had commenced, at the latest, by the beginning of the 1983 year of assessment.  It was then for the appellant, upon whom the burden of proof lay, to displace that assertion.

 

17. Of more significance, to their Lordships' minds, was the respondent's decision to confine his claim to profits on the disposal of shares acquired after 1st April 1983 rather than to argue that the whole of the appellant's business, and thus the whole of its investment portfolio, was dedicated with effect from that date to dealing in investments rather than holding them.  There is no reason in principle why the latter argument should not have been advanced.  There is no reason in principle why capital assets should not be appropriated to the purpose of dealing on income account, or vice versa.  The consequence is simply that the assets in question fall to be carried from one account to the other at their market value on the date of appropriation, under the principle applied in Sharkey v. Wernher [1956] AC 58, and F.C.T. v. Whitfords Beach Pty. Ltd [1982] 150 C.L.R. 355 (to which reference is made by Hill J. in F.C.T. v. Radnor Pty. Ltd [1991] 102 A.L.R. 187, 204).  The character for tax purposes of the appellant's acquisition and disposal of investments would then have fallen to be judged as a composite whole.  The more limited approach adopted by the respondent gave rise, as Mr. Underhill pointed out, to surprising consequences where, for example, the appellant had held shares in a particular company for many years before 1st April 1983, where it decided to add to its holding, perhaps upon the occasion of a rights issue, after that date, and where in consequence, although the original holding remained a capital asset, the additional shares would rank as dealing stock.  But these consequences merely reflect the fact that the respondent's case, although more broadly stated in argument by the Solicitor-General, was essentially based on the simple proposition that the appellant was liable to income tax under section 62(2)(a) because, with effect from 1st April 1983 at least, it had embarked upon a business of buying and selling shares with a view to profit.

 

18. From the outset of these proceedings it has been accepted by both parties that the general approach which the court should adopt may be taken from the well-known passage in the judgment of the Lord Justice Clerk (Sir J.H.A. Macdonald) in Californian Copper Syndicate Limited v. Harris [1904] 5 T.C. 159 where he said:-

 

"It is quite a well settled principle in dealing with questions of assessment of Income Tax, that where the owner of an ordinary investment chooses to realise it, and obtains a greater price for it than he originally acquired it at, the enhanced price is not profit in the sense of Schedule D of the Income Act of 1842 assessable to Income Tax.  But it is equally well established that enhanced values obtained from realisation or conversion of securities may be so assessable, where what is done is not merely a realisation or change of investment, but an act done in what is truly the carrying on or carrying out a business.  The simplest case is that of a person or association of persons buying and selling lands or securities speculatively, in order to make gain, dealing in such investments as a business, and thereby seeking to make profits. There are many companies which in their very inception are formed for such a purpose, and in these cases it is not doubtful that, where they make a gain by a realisation, the gain they make is liable to be assessed for Income Tax.

 

What is the line which separates the two classes of cases may be difficult to define, and each case must be considered according to its facts: the question to be determined being - Is the sum of gain that has been made a mere enhancement of value by realising a security, or is it a gain made in an operation of business in carrying out a scheme for profit-making?"

 

19. As has been mentioned, it is not in dispute that all of the gains realised by the appellant on sales by the appellant of shares purchased between the date of its incorporation in 1937 and 1st April 1983 have amounted and will continue to amount, in the terms used by the Lord Justice Clerk, merely to realisations or changes of investment.  The case advanced by the appellant before Gallen J. was that there was no justification for the distinction drawn by the respondent between shares purchased before and shares purchased after that date.  The general policy of the company and the nature of its business had remained unaltered.

 

20. This was the gist of the evidence put forward by Mr. Steele, the appellant's Chairman, and accepted by Gallen J.

 

21. The sales of shares which took place during the period under review, according to Mr. Steele, were made for specific reasons unconnected (save in a few exceptional cases) with achieving profits.  Many of them were made at a loss.  Many, again, consisted of or included shares which had been acquired before 1st April 1983, and in some cases shares which had been held for 30 or more years.  In almost all cases the sale proceeds had been reinvested in what were intended to be new long-term investments.

 

22. The cases in which shares had been purchased with a view to resale at a profit, and which formed the subject of the assessments upheld by Gallen J. under section 65(2)(e) consisted of three transactions or group of transactions. The first transaction involved 200,000 shares in a company called Industrial Equity Pacific Limited ("IEPL").  In May 1985 the appellant purchased 200,000 shares in this company, which formed part of a new issue made by the company in that month.  The appellant did so pursuant to a Board decision reached at a meeting on 28th May 1985 and recorded in the following terms:-

"Resolved to confirm the decision taken by Directors present at a meeting on Friday, 17 May 1985 to tender for 200,000 shares with the view that 100,000 be retained as a long term investment and 100,000 be dealt with depending on market circumstances and portfolio requirements."

 

23. According to a schedule produced in evidence by Mr. Steele the cost of the 200,000 shares was $869,430.  100,000 of these shares were sold in February 1986 at a profit of $600,048, the sale proceeds being invested in shares of a company called Tozer Kemsley and Millbourne (Holdings) Limited ("TKM").  Referring to the purchase and sale of the IEPL shares pursuant to the decision recorded in the Board minute quoted above Gallen J. said:-

"This is clearly a departure from the practices which had developed over the earlier years of the Objector's activity.  However it is looked at, it seems to me that although there is a reference to portfolio requirements, it is significant that this is preceded by a comment that the retention will depend upon market circumstances.  ... I am satisfied that this transaction is caught by the provisions of the second limb of s.65(2)(e) and is taxable accordingly."

 

24. The second transaction involved the TKM shares already mentioned.  300,000 of them were purchased at a cost of $955,935. In what was described by Mr. Steele as "a move that was unique for Rangatira", 100,000 of these shares were sold within three months for $482,144.  Of this transaction Gallen J. observed that the sale of the shares was "clearly enough contemplated" at the time of acquisition, and concluded that this intention coupled with the shortness of time during which the shares were held was sufficient to establish the necessary purpose to bring the transaction within section 65(2)(e).

 

25. Thirdly, Gallen J. upheld assessments under section 65(2)(e) in the case of a group of transactions carried out pursuant to decisions recorded in the Minutes of Board Meetings held on 19th April 1985 and 18th October 1985.  The transactions involved shares in Industrial Equity Limited ("IEL"), Brierley Investments Limited ("Brierley") and, again IEPL.  Investment in these and certain other companies associated with Brierley was evidently regarded as being of an unusually adventurous nature.  The minutes of the meeting held on 19th April 1985 included the following passage:-

"Following consideration of a paper prepared by Mr. R.A. Vance it was decided that his recommendation to obtain an acceptable return on the market value of the investment while maintaining our position in I.E.L. be approved.  That is we would sell sufficient I.E.L. shares each year to provide the equivalent return as was being achieved from all other listed equity investments held.  The sale of shares would be made after taking up the Annual Bonus and cash issues."

 

26. The relevant extract from the minutes of the meeting held on 18th October 1985 reads as follows:-

"A recommendation was considered from the General Manager that the policy decided upon in April 1985 to obtain an acceptable income return from the investment in IEL be extended to cover investments in Brierley and [IEPL].

 

27. The principle of selling shares to obtain an acceptable return from the investment in the Brierley Group of Companies was accepted but such sales of shares need not necessarily be from each of the three companies."

 

28. In a letter to the appellant's auditors dated 5th August 1986 Mr. Steele described the new policy in the following terms:-

"Over the last three or four years Rangatira has invested in a few listed shares where capital growth has been extraordinarily high and dividend yield extraordinarily low.  The directors have directed as a policy that in the case of such investments they should provide their shareholders with a satisfactory overall annual yield on the investment and to this end intend to dispose of sufficient shares from these investments to produce a capital gain which, together with the (low) dividend received, equates a satisfactory overall annual yield on the investment. You will be aware that the number of shares sold derives from a formula based on average yield.

 

 

29. In this case the gain on disposal of part of the investment pursuant to this policy represents, in the view of the directors, an amount deriving from the ordinary activities of the business (i.e. the maintenance of a satisfactory yield for its shareholders) and they are expected to recur frequently and regularly."

It is evidently this letter which led to the respondent's decision that the appellant should be treated as having embarked upon a trade or business of dealing with shares with effect from 1st April 1983.  The respondent naturally attached considerable weight to this change of policy on the appellant's part not only because it contemplated frequent and regular sales but also because any resulting profits on the sales were to be treated as part of the appellant's income whereas all profits on sales of shares had previously been treated as extraordinary items and carried to capital reserve.  When cross examined about the matter Mr. Steele explained the policy as being the result of a disagreement amongst the Board members as to whether it was good policy to invest in companies where the dividend yield was extraordinarily low but returns could be maintained by way of sales, rather than by investing solely for long term growth. He described it as a compromise and a most unusual policy which was only put into effect on two occasions.  The policy appears to have been formally abandoned at a Board meeting held on 22nd February 1988.  Gallen J. held, nonetheless, that the profits resulting from these transactions were taxable under the second limb of section 65(2)(e).

It seems plain that Gallen J., in reaching his conclusion, accepted the evidence of Mr. Steele that the transactions held to give rise to a liability under section 65(2)(e) were exceptional, and did not reflect a change in the nature of the appellant's business.  Thus in the course of his judgment Gallen J. said:-

"In coming to a conclusion as to the application of the provisions of s.65(2)(a), I am satisfied that the emphasis and pattern of activities of the Objector had not changed overall from its original focus.  I accept at least up until 1981, the activities of the Objector brought it within the first of the alternatives formulated by the Lord Justice Clerk in the Californian Copper case and I do not think that the changes which occurred subsequently were sufficiently fundamental to indicate any real change in the philosophy or approach of the Objector from that to which it had adhered up to that point. ... I think that the investment in the Brierley related companies began on a similar basis to that which other investments in which the Objector was involved, had begun and that its subsequent participation in the developments associated with that group of companies, did not so colour its approach to investment as to indicate a basic change in philosophy."

30. The Court of Appeal clearly attached a different and much greater significance to the Brierley related transactions.  The general approach of the court to the issue of liability under section 65(2)(a) was founded upon that adopted by the High Court of Australia in London Australia Investment Co. Ltd v. Federal Commissioner of Taxation (1977) 138 C.L.R. 106 and the Court of Appeal of New Zealand in A.A. Finance Ltd v. Commissioner of Inland Revenue (1994) 16 N.Z.T.C. 11, 383. In giving the judgment of the Court of Appeal McKay J. referred to the following passage in the judgment of Richardson J. in the A.A. Finance case supra at page 11, 391:-

"Liability to tax does not depend on showing that the taxpayer is carrying on a separate business of dealing in investments.  A transaction may be part of the ordinary business of the taxpayer or, short of that, an ordinary incident of the business activity of the taxpayer although not its main activity.  A gain made in the course of carrying on the business is thus stamped with an income character."

 

31. Turning to the facts of the present case, McKay J., after summarising the 41 sale transactions to which earlier reference has been made, said this:-

"The picture which emerges is not that of a passive investor.  The sale of part of the share portfolio in order to acquire the interests of the other shareholders in the James Cook Hotel, and the further sales to enable the purchase of the freehold and the car parking building beneath the hotel, do not of themselves suggest that selling shares was an ordinary incident of the business.  Nor does the acceptance of takeover offers.  The sale of equities in order to balance the portfolio by including in it a substantial holding of Government stock is likewise neutral, when considered on its own. These transactions, however, form only part of a greater whole.

 

32. The sales of shares in the Brierley group to supplement income, and the TKM transactions, were held to be income within the second limb of section 65(2)(e).  We think they would also fall within section 65(2)(a), as being `acts done in what is truly the carrying on of a business', and as `part of the ordinary business of the taxpayer'.  They were not identified as part of some separate and distinct business.  They inevitably colour the other transactions, such as sales to fund the purchase of other shares, and the sales made to fund the major acquisitions in respect of the James Cook Hotel and the investment in Government stock."

 

 

33. In a later passage, McKay J. quoted the following passage from the judgment of Jacobs J. in the London Australia case supra at page 124:-

"I think one can summarize this evidence by stating that the relevant business of the company consisted of investing money in shares for the purpose of producing income to be paid as dividends to shareholders, safety and preservation of capital being a factor that influenced investment policy, but the underlying or basic factor being the use of shareholders' funds for the acquisition and retention of satisfactory income-producing shares."

 

34. After expressing the view that the present case must be judged on the same criteria as those applied in the London Australia case McKay J. concluded by saying:-

"Applying the criteria in Californian Copper, London Australia and A.A. Finance Ltd, and looking at the totality of the facts in the present case, we come to the conclusion that at least from April 1985 Rangatira was selling shares as part of its ordinary business, or as an ordinary incident of its business.  The sales were not merely a realisation or change of investment, but were done in what was truly the carrying on of a business."

 

35. In support of his submission that the Court of Appeal was wrong to reverse the decision of Gallen J. Mr. Underhill rested his argument upon two broad propositions. The first was that the question for determination was a question of fact.  The second was that the Court of Appeal should not reverse the decision of a trial judge upon a question of fact unless that decision is shown to be wrong.

 

36. These propositions are amply supported by authority.  The question whether a particular business consists of or includes the buying and selling of shares for profit is indeed as much a businessman's as a lawyer's question. The answer depends entirely upon the evidence produced as to the nature of the business activity.  As Hill J. succinctly put it in Federal Commissioner of Taxation v. Radnor Pty. Limited (1991) 102 A.L.R. 187, 205:-

"Ultimately, the question whether the respondent was carrying on a business of dealing in shares is a question of fact and degree, a question of impression."

 

37. So far as the role of the appellate court is concerned, their Lordships would adopt the words of Cooke J. (as he then was) in Calkin v. Commissioner of Inland Revenue [1984] 1 N.Z.L.R. 440.  In that case Cooke J. expressed his reservations about the views held by  the  trial  judge  and by  his  brethren in the Court of

38. Appeal, but concurred in the dismissal of the appeal for reasons which he explained as follows at page 61785:-

"In this case, unlike Edwards v. Bairstow, the scope of the appeal is not confined to questions of law.  Still, on the ordinary principle as to the exercise of appellate jurisdiction, this Court should not disturb a finding of fact unless it is shown to be wrong. The tax field is full of examples of facts striking different judicial minds differently.  ...  Respect for the opinions of Wallace J. and my colleagues leads me to think that the present case falls within Lord Radcliffe's words in Edwards v. Bairstow at p. 33: `... there are many combinations of circumstances in which it could not be said to be wrong to arrive at a conclusion one way or the other'. I do not think Wallace J. has been shown to have been wrong ..."

 

39. As their Lordships see it, the crucial evidence in the present case was the evidence of Mr. Steele relating to the purchases and sales of shares in the Brierley related companies which led to the assessments under section 62(2)(e).  It seems clear that the number and frequency of the transactions during the seven years under review would not alone have persuaded the Court of Appeal to differ in their conclusion from that of Gallen J. It was the change of policy asserted by the respondent to have occurred in 1983 or thereabouts and to have been reflected in the Board minutes of 19th April and 18th October 1985 and Mr. Steele's letter of 5th August 1986, which evidently led the Court of Appeal to conclude that the conclusion reached by Gallen J. was erroneous.  Yet this conclusion was based upon Mr. Steele's evidence that the Brierley related transactions were exceptional, and did not reflect a change in the policy of the appellant or in the nature of its business as a whole.  This was evidence, fully tested in cross examination, which Gallen J. had heard and which the Court of Appeal had not.  The Solicitor-General suggested that the Court of Appeal would have been entitled to discount to some extent the weight which should be placed on Mr. Steele's evidence, because it could hardly be regarded as impartial.  Their Lordships do not accept this suggestion. It was for Gallen J. to assess the reliability of Mr. Steele as a witness.  It does not follow of course that another judge hearing that evidence would have given it the same weight.  Looking at the matter in retrospect their Lordships would think that the decision at first instance could have gone either way, but that is not to say that it was wrong.  In their Lordships' view the decision of Gallen J. was one which he was entitled to reach, and one which should not have been reversed.

 

 

 

40. Accordingly, their Lordships will humbly advise Her Majesty that the appeal should be allowed the judgment of the Court of Appeal set aside and the judgment of Gallen J. restored.  The respondent must pay the appellant's costs before their Lordships' Board and in the courts below.

 

© CROWN COPYRIGHT as at the date of judgment.