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DEATH AND TAXES: OF CATS AND DOGS & RATS AND RABBITS

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You may rightly question your correspondent’s sanity. Has she forgotten, I hear you ask, that this column deals with tax? All will be revealed.

It is an understandable human habit, writes R E Megarry QC in Miscellany-at-Law published by Wildy, Simmonds & Hill (1955), to illustrate the characteristics of fellow men by reference to the animal kingdom; and judges and tax lawyers are no exception to the rule, adds Megarry, a retired High Court judge.

In an income tax case involving the value of goodwill attached to certain business premises, Lord Justice Scrutton referred to the argument that goodwill must be considered on a “cat, dog and rat” basis. The cat prefers the old home rather than the owner, and stays in the house even when the owner leaves. The cat represents the customers who continue to go to the shop even though the shop has changed hands. The probability of their custom therefore adds additional value to the calculation of goodwill.

The dog represents customers who follow the person rather than the place. These are the customers the former owner can expect to take with him when he leaves.

There remains a class of customer who follows neither the place nor the person and they are of no value in calculating goodwill. The judge said that they are called rats, not for any particular reason except to keep the epigram in the animal kingdom. He went on to say that he believed that Lord Justice Maugham had introduced the rabbit to the calculation.

The exposition of Maugham LJ was that the rabbit indicates the customers who come simply from propinquity (one of the oldest words in the English language and one that, arguably, only a judge would use) to the premises. On this basis, said his Lordship, it was evident that the rabbit might be bigger than the cat, which might well diminish to the size of a mouse. Such indignity, said the judge, might prove fatal to any right-thinking cat.

There have been occasions when animals have decided issues of maritime law. In one case the question was whether a collision between a warship and a cargo ship, six weeks after armistice had been declared, was the result of warlike operations. It had been argued that the warship had been engaged on the peaceful errand of taking mines back to her parent country, but the House of Lords refused to disturb the finding that the operation was warlike. There were significant tax and commercial implications.

Lord Sumner observed: “I recognize the high importance of considering the ship’s errand and the purpose of her voyage, but I should have thought that, having proved an animal at large to be a lion, it was not further indispensable to prove that he was not at that moment merely performing as a lamb, unless of course some circumstances of ovine behaviour happened to be apparent”.

Animals have also helped to decide whether interest charged by a moneylender was excessive and usurious. The judge decided: “Of course the difficulty with regard to the amount of interest to be allowed is always this, that there are some people to whom no one would lend anything at any rate of interest whatsoever. In such a case it would be impossible to say, if anybody did lend to such people, that any amount of interest was unconscionable or extravagant. Lord Bramwell summed it up in an earlier case. He said: Suppose you were asked to lend a mutton chop to a ravenous dog. Upon what terms would you lend it?” Quite so.

A dumb but eloquent animal of a different kind exercised the mind of the court in an income tax and death duties case in London in 1968. It concerned the actor Errol Flynn and the question whether he had changed his domicile of origin to a domicile of choice. Inevitably, this led the judge to examine Flynn’s lifestyle.

“… Errol Flynn was a film actor whose performances gave pleasure to many millions. On 20th June 1909 he was born in Hobart, Tasmania; and on 14th October 1959 he died in Vancouver, Canada. When he was seventeen years old he was expelled from school in Sydney and in the next thirty three years he lived a life which was full, lusty, restless and colourful. In his career, in his three marriages, in his friendships, in his quarrels, and in bed with the many, many women he took there, he lived with zest and irregularity. The lives of film stars are not cast in the ordinary mould; and in some respects Errol Flynn’s was more stellar than most. When he died, he posed the only question that I have to decide. Where was he domiciled at the time of his death? At one time he was undoubtedly domiciled in California. Hollywood has never been deficient in what was then, as always, one of Errol’s great interests in life, namely, a generous pool of available pulchritude. Yet even though as a sexual athlete Errol Flynn may in truth have achieved Olympic standards, time brings changes to all…”

Many pages later in the judgment, after much personal and geographical biography, the answer came: when he died, Errol Flynn was domiciled in Jamaica, which was a tax haven for the rich and famous.

Who said that tax law is boring?

Penelope Webb, who worked for some years in industry, is a former tax partner of a large international accounting firm.