COURT OF APPEAL 4th and 5th March, 1948 No. 1401
Income tax - Exemption - Charitable purposes - Finance Act, 1921 (11 & 12 Geo. V, c. 32) ; Finance Act, 1927 (17 &18 Geo. V, c. 10), Section 24.
The Appellant Company was incorporated in July, 1942, as a non-profit-making company limited by guarantee, with a view to the production, in association with the Council for the Encouragement of Music and the Arts (later the Arts Council of Great Britain), of plays of outstanding merit which were thought unlikely to be a commercial success. The objects of the Company, as set out in its memorandum of association, included the advancement of education and of educational plays and arts of all kinds; the production of plays, concerts, exhibitions, dances, etc., whether educational, partly educational, or scientific or partly scientific or otherwise; and "as ancillary to the foregoing objects of the Company and with a view of finding income and funds for the purposes of the Company to carry on business as theatre, music hall, concert hall, dance hall, ballroom, public hall, cinema and picture house proprietors and managers". The activities of the Company had in fact been confined to the fostering of dramatic art subject to the guidance of the Council, and the production of plays of great artistic merit.
The Company claimed, under Section 30(1)(c), Finance Act, 1921, as amended by Section 24, Finance Act, 1927, exemption from Income Tax in respect of its profits from the production of plays, on the grounds that its primary objects were charitable, the other objects being merely ancillary thereto; that the Company was accordingly a charity; that the trade of producing plays was exercised in the course of the actual carrying out of a primary purpose of the charity, and that the profits were applied solely to the purposes of the charity. The claim was refused by the Commissioners of Inland Revenue and, on appeal, by the Special Commissioners, who held that, having regard to the wide terms of the memorandum of association the objects of the Company were not confined to charitable purposes.
Held, that decision of the Special Commissioners was correct.
Stated under the Finance Act, 1925. Section 19(3), and the Income Tax Act, 1918, Section 149, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the King's Bench Division of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 11th October, 1946, Tennent Plays Ltd., hereinafter called "the Appellant Company", being aggrieved by a decision of the Commissioners of Inland Revenue on a claim made for exemption from Income Tax under the provisions of Section 30(l)(c) of the Finance Act, 1921, as amended by Section 21 of the Finance Act, 1927, in respect of trading profits, applied to have the said claim heard and determined by the Special Commissioners and appealed against assessments to Income Tax made upon the Appellant Company for the years 1942-43 to 1945-46 to which the said claim related.
2. The Appellant Company was incorporated on 6th July, 1942. It owed its formation to the desire of the directors of H.M. Tennent Ltd., a company engaged in theatrical enterprise, to produce plays of outstanding merit which were thought unlikely to be a commercial success. The managing director of H.M. Tennent, Ltd. approached the Council for the Encouragement of Music and the Arts, commonly known and hereinafter referred to as C.E.M.A., and an exchange of letters took place dated 28th and 30th May, 1942. Copies of these letters are annexed, marked "A", and form part of this Case. C.E.M.A. suggested, and H.M. Tennent Ltd. agreed, that H.M. Tennent Ltd. should found a non-profit-making company for the launching, in association with C.E.M.A., first of Macbeth and thereafter of productions of a similar nature. The Appellant Company was thereupon formed.
3. C.E.M.A. had come into existence in 1940 as the result of a grant of £25,000 for the purpose by the Pilgrim Trust. Copies of announcements relating to its origin, viz., an answer given by the President of the Board of Education on 10th April, 1940, to a parliamentary question, and a press statement of the same date emanating from the Board, are annexed, marked "B", and form part of this Case. It appears from these announcements that a fund of £100,000 was being made available, half of that sum being a contribution from the Exchequer. A Council - C.E.M.A. - was being set up by the Board of Education to administer the fund with two senior officers of the board to assist the Council as assessors. Its policy is summarised in the press statement as: "To carry the Arts - Music, Drama and Painting - to those places which for one reason or another are cut off from the enjoyment of the best." As regards drama it is stated that: "It will make possible visits of first-class touring companies to give worthwhile plays in towns where only the cinema is available. It will not at present touch London or any of the larger towns."
4. Subsequently the limitation mentioned in the last sentence was removed, and the policy of C.E.M.A. was considerably expanded. In general it fostered the formation and activity of a number of companies, one being the Appellant Company, through the medium of which encouragement of dramatic art was carried out. The purpose of C.E.M.A. in relation to the arts, and particularly to the drama, and the nature of the financial, etc., arrangements contemplated for the assistance of theatre companies are stated in a print, "Theatre Companies. Conditions of Association with C.E.M.A.", issued by C.E.M.A. in November, 1913, of which a copy is annexed, marked "C", and forms part of this Case. The statement is as follows:-
"The defined purpose of the Council is to maintain the highest possible standard in the arts. The Council hopes to enlist in this policy the co-operation of theatre companies which have before them the same ideals of service to the community; which are anxious to spread the knowledge and appreciation of all that is best in the theatre, and thus to bring into being permanent, educated audiences all over the country. It is a special aim of the Council to encourage the dispersal of the arts to centres which, mainly for reasons connected with the war, are cut off from enjoying them.There follows a list of obligations to C.E.M.A. to which theatre companies are asked to subscribe in entering into association with the Council. These obligations are set out briefly in paragraph 6 of this Case.Only properly constituted non-profit-making companies and bodies functioning under charitable trusts are eligible for association with C.E.M.A. Financial arrangements of varying kind and degree may be made with each company to assist its work; and for each the Council is prepared to act as sponsor with Government Departments and public bodies, testifying to the value of the work done in the interests of national service. These arrangements are subject to individual negotiation. They represent on the one hand the Council's obligations to its associated companies."
5. The Appellant Company was incorporated, as aforesaid, as a company limited by guarantee. A copy of its memorandum and articles of association is annexed, marked "D", and forms part of this Case. The character of the Appellant Company as a non-profit-making company was not in dispute, but our attention was particularly directed to objects (A) to (D), and also (0) and (S), of the objects clause, as affecting the question whether it was a body established for charitable purposes only. These objects are set out below.
"(A) To formulate and prepare schemes for and establish and take all necessary steps for the promotion, maintenance, improvement and advancement of education and of educational plays and arts of all kinds and the arts of drama, dance, singing and music and also any other forms of art in any way allied to the said arts or any of them.6. The Appellant Company duly entered into association with C.E.M.A. in accordance with the "Conditions of Association", annexe "C", and undertook the general obligations laid down therein. Under these obligations it is to give the fullest possible advance information about all productions and bookings (clause 1), C.E.M.A. retaining the "right to withhold support from any production of which it disapproves (clause 7); to forward accounts, programmes, etc., as may be required (clause 5), and to include words on its programmes to indicate its association with C.E.M.A. (clause 6). An assessor appointed by C.E.M.A. has the right to be present at all meetings of its directors (clause 2). Any guarantee or grant is to be solely at C.E.M.A.'s discretion (clause 4). Affiliation is to continue from year to year, unless determined by either party on two months' notice (clause 3). The application of surplus funds is subject to C.E.M.A.'s consent, and, in the event of association ceasing, the funds accrued during association are only to be expended with C.E.M.A.'s consent (clause 8). In the event of the Appellant Company discontinuing its work or becoming, in C.E.M.A.'s opinion, financially unable to carry out its obligations, C.E.M.A. is to be entitled to discontinue the affiliation forthwith (clause 9). No engagement abroad is to be accepted without C.E.M.A.'s permission (clause 10).(B) To present, promote, organise, provide, manage, conduct such plays, dramas, comedies, operas, operettas, burlesques, promenade and other concerts, musical and other pieces, ballets, shows, educational and other entertainments, exhibitions, dances, competitions, amusements, recreations and compositions of all kinds whether educational, partly educational or scientific or partly scientific or otherwise, or for philanthropic or charitable purposes, and whether on any premises of the Company or elsewhere.
(C) To purchase, acquire and obtain interests in the copyright of, or the right to perform or show any opera, play, comedy, drama, stage piece or musical composition which can be used or adapted in any way for any educational or allied play; enter into agreements if desirable with authors, dancers, actors or others in connection with all or any of the objects of the Company and to produce, distribute, rent or otherwise deal in cinematograph films.
(D) As ancillary to the foregoing objects of the Company and with a view of finding income and funds for the purposes of the Company to carry on business as theatre, music hall, concert hall, dance hall, ballroom, public hall, cinema and picture house proprietors and managers.
(O) To establish and support or to aid in the establishment and support of any schools and any educational, scientific, literary, religious or charitable institutions, whether such societies be connected with any of the objects of the Company or not and any club or other establishment calculated to advance the interests of the Company and to make any donation whether charitable or otherwise and either in cash or assets which the Company may deem expedient.
(S) To do all such other things as are incidental or conducive to the attainment of the above objects or any of them."
7. In June, 1945, C.E.M.A. changed its name to "The Arts Council of Great Britain", the Chancellor of the Exchequer announcing that it would go on as a permanent organisation with that title: it would be incorporated as an autonomous body, leaving the shelter of the Ministry of Education and receiving its grant-in-aid direct from the Treasury. A Royal Charter was granted to it on 9th August, 1946, the Order for which bears date l0th July, 1946. A copy of the said Order is annexed, marked "E", and forms part of this Case. The recital to the Charter states that the creation of a body corporate has been represented by the Chancellor of the Exchequer as expedient
"for the purpose of developing a greater knowledge, understanding and practice of the fine arts exclusively, and in particular to increase the accessibility of the fine arts to the public throughout Our Realm, to improve the standard of.execution of the fine arts and to advise and co-operate with Our Government Departments, local authorities and other bodies on any matters concerned directly or indirectly with those objects, and with a view to facilitating the holding of and dealing with any money provided by Parliament and any other property, real or personal, otherwise available for those objects."8. The first annual report, 1945, of the Arts Council of Great Britain, hereinafter referred to as "the Arts Council", was issued in due course after the grant of the Royal Charter in August, 1946; as aforesaid. A copy of the said report is annexed, marked "F", and forms part of this Case. Pages 12 to 16 deal with drama. As regards recent developments of the work it is stated that, "Broadly speaking, the aim has been gradually to replace nation-wide touring organised from headquarters by the provision of companies at self contained centres." (page 12). A full list of theatres managed by or associated with the Arts Council, of organisations associated with the Arts Council, and of tours under its direct management, with the names of the plays, etc., produced by the several bodies in the year to 31st March, 1946, is given in appendix "F", from page 37 to page 42.
9. The Appellant Company's work in "a series of fine revivals" is referred to on page 15 of the report, and the names of the plays produced by it in the year to 31st March, 1946, appear on page 40. The full list of its productions from the beginning is as follows:-
Macbeth, They came to a City, Love for Love, Hamlet, The Duchess of Malfi, A Month in the Country, The Importance of Being Earnest, The Rivals, The Circle, A Midsummer Night's Dream, The Skin of our Teeth, Lady Windermere's Fan and Crime and Punishment.10. The Appellant Company succeeded in interesting the public beyond expectations. Instead of the anticipated loss, it showed a large profit, though there were losses on some individual plays. It was exempted from the Entertainments Tax, and a great part of the profit resulted from that exemption. The statutory provisions under which exemption was obtained are those of Section 1(5) of the Finance (New Duties) Act, 1916, which, so far as may be relevant, are as follows:-
"(5) Entertainments duty shall not be charged on payments for admission to any entertainment where the Commissioners (of Customs and Excise) are satisfied- (a) that the whole of the takings thereof are devoted to philanthropic or charitable purposes without any charge on the takings for any expenses of the entertainment; or
(b) that the entertainment is of a wholly educational character... or
(d) that the entertainment is provided for partly educational or partly scientific purposes by a society, institution, or committee not conducted or established for profit...
11. Evidence, which we accepted, was given before us by Dr. B. Ifor Evans, a member of C.E.M.A., now vice-chairman of the Arts Council and formerly chairman of its drama panel. As the evidence applies to C.E.M.A. in the same way as to its successor, the Arts Council, both bodies are in this paragraph referred to without distinction as "the Council." The witness stated that there was no formal relationship between the Customs and Excise and the Council, but there were negotiations with regard to Entertainments Tax in all cases. The Appellant Company's memorandum and articles of association had been approved for this purpose by the Customs and Excise. During the period in question exemption from Entertainment Tax had to be obtained play by play. It was possible that the Appellant Company might have produced a play which would have been approved by the Council but not by the Customs and Excise. In fact the plays were all accepted by the Customs and Excise as "educational" or "partly educational", and tax was remitted on that ground. The word "educational" was used by the Council, and by the Appellant Company in its memorandum, on account of its use in the exempting provisions of the Finance (New Duties) Act 1916. Throughout the Appellant Company's activities it had reflected the views and shared the purpose of the Council who felt that the Company had high ideals. It would have been a breach of the agreement with the Arts Council for the Company to produce any play without the Council's consent, and there was always discussion between them as to which plays were to be produced. Such plays could be produced only with a high supporting cast.
The terms of the Appellant Company's association with the Council were similar to those of other non-profit-making companies, all of which had obtained exemption from Entertainments Tax, and some of which had made surpluses. In the event of any company deciding to produce a play which the Council had not approved, the Council retained the right to dissociate itself. In places where taste was not highly developed a start had to be made at a different level, and this explained the production in one centre of a play such as Charley's Aunt.
The witness agreed that throughout the history of English criticism there had been a debate whether the object of poetry and dramatic art was to "delight" or to"instruct", but there had always been present the idea of instructing.
12. Evidence, which we accepted, was also given by Miss Mary Glasgow, secretary-general of the Arts Council, who was assessor on the board of the Appellant Company appointed by the Arts Council and attended board meetings on its behalf. Until April, 1946, Miss Glasgow was an Inspector under the Ministry of Education. She had acted as secretary of C.E.M.A., and had been closely associated with the Appellant Company since its formation.
The witness stated that all finances of the Appellant Company had been submitted to C.E.M.A., and afterwards to the Arts Council. The use of any surplus fund was at the disposal of these bodies, and had been used for their ends in co-operation with the Appellant Company. It had never been considered that the provision in the memorandum of association relating to the running of dance halls was an object of the Appellant Company. In fact it did nothing else but foster dramatic art, subject to the guidance of C.E.M.A. and the Arts Council.
In association with those bodies, theatre companies had presented plays to new audiences over the country, the great majority of which had never seen a stage play. Experimental plays which were bound to result in a loss were among those financed and staged.
13. Further evidence, which we accepted, was given by Mr. F. A. S. Gwatkin, chairman of the Appellant Company and senior partner in the firm of McKenna & Co., solicitors to the Company. The Appellant Company's memorandum and articles of association had been submitted to the Customs and Excise solely to see whether the objects would pass as educational. The Department had suggested certain alterations in their terms, among them the inclusion of object (D) in clause 3 of the memorandum.
14. It was contended for the Appellant Company:-
(1) That object (A) of clause 3 of its memorandum of association was its primary object, and that that object was charitable either as being for the advancement of education or as falling within the fourth case of purposes beneficial to the community (Special Commissioners of Income Tax v. Pemsel, 3 T.C. 53, per Lord Macnaghten at page 96).
(2) That object (B) of clause 3 was consequential and that,
on a true construction, if (which is not admitted) its terms purported to authorise productions which were not educational or for the promotion of the arts as in (A), those terms were either otiose or repugnant, and were to be disregarded.
(3) That the next following objects were ancillary, including object (D), which was stated so to be, and that none of the objects authorised any activity not in furtherance of education and the arts.
(4) That the foregoing construction of the objects of the Appellant Company was consonant with its origin and with its association with C.E.M.A. and the Arts Council and the obligations which it undertook to those bodies.
(5) That, on the evidence, all the activities of the Appellant Company had in fact been, and its intentions were, to promote education and the art of drama.
(6) That the Appellant Company was a charity, and was exempt from Income Tax under Schedule D in respect of the profits of the trade of producing plays carried on by it, because such profits were applied solely for the purposes of the charity and such trade was exercised in the course of the actual carrying out of a primary purpose of the charity.
15. It was contended for the Crown:-
(1) That object (A) of clause 3 of the Appellant Company's memorandum of association was not in terms the primary object for which it was established, and that in its context it could not be so regarded.
(2) That the objects set forth in clause 3, and especially
object (B) read together with object (D), and also objects (O) and (S), gave the Appellant Company powers which were both wide and vague, and extended far beyond purposes which could be held to be charitable.
(3) That the Appellant Company was at liberty to exercise any of these powers and could not be prevented from so doing by C.E.M.A. or the Arts Council, who could do no more than withhold approval and sever association between themselves and the Appellant Company.
(4) That in fact, as was shown by its report of 1945, the Arts Council in certain instances extended its approval to the production by theatre companies of plays which could not be regarded as educational or as falling in any way within the scope of charitable purposes.
(5) That the Appellant Company was not a body established for charitable purposes only; that its claim to be such
should be disallowed, with the consequence that the assessments under appeal should be confirmed in principle.
16. Reference was made to the following authorities:-
Commissioners of Inland Revenue v. Yorkshire Agricultural Society, 13 T.C. 58.
Keren Kayemeth Le Jisroel Ltd. v. Commissioners of Inland Revenue, 17 T.C. 27.
Royal Choral Society v. Commissioners of Inland Revenue 1943, 25 T.C. 263.
Dunne v. Byrne, [1912] A.C. 407.
In re Shakespeare Memorial Trust, [1923] 2 Ch. 396.
17. Having considered the arguments and evidence adduced before us, we gave our determination as follows:-
It is common ground that the education of public taste and advancement of the art of drama, with the presentation of plays, etc., in pursuance thereof, are objects of the Company, and that these objects are charitable. It is said, however, for the Crown that the objects of the Company, as stated in its memorandum of association, go much further and extend to purposes which are not in any sense charitable. Our attention has been directed to the provisions, e.g., for "dances, competitions, amusements, recreations" (3 (B)), and for the carrying on of business as dance hall, etc. proprietors and managers (3 (D)), and also to the provisions contained in 3 (0) and 3 (S). Our attention has further been invited to lists of plays - of undoubtedly lower standard than those in fact produced by the Company, but falling, it is said, within its powers and objects - which have been given by some other bodies similarly related to the Arts Council.
It is contended for the Company that these objections are ill-founded; that its memorandum does not authorise anything not in furtherance of education and of dramatic art, and that it is established for charitable purposes only.
In considering this question we think it desirable to draw a distinction between two aspects of the work carried on by the Company. It sets out to improve the taste of the public and to widen the appreciation of dramatic art, and the weight of emphasis falls here. Apart from this educative aspect, which appears to be plainly charitable as falling under the head of education, the work of the Company enables people to enjoy the experience of high-class drama for its own sake, and goes to satisfy an existing demand on the part of those - no doubt a limited audience - who already appreciate, and are anxious to see, what is best in the theatre.
This second aspect is agreed to represent a part of the Company's purpose in advancement of the art of drama. The degree to which, and the sense in which, the aim and effect of dramatic art are to "instruct" has always been a matter of controversy among leading critics of literature and drama; the one point on which there has been agreement is that the experience which the art of drama gives is of very high value and importance. In our opinion the provision of that experience must fall within the fourth class of charitable purposes as being beneficial to the community.
The fact that the Company could, and might, include plays of a lower standard than those on its list does not appear to us to be in any way fatal to its claim. As regards the education of public taste we accept the explanation that audiences are found on very different levels, and that, in raising their powers of appreciation, it maybe necessary to lead them on from works of comparatively easy or popular appeal. Again, as regards the experience of drama - as such; and apart from this educative aspect - we think it right to take a liberal view; work of genuine but lesser merit may well be calculated to give an experience of value which cannot be dismissed as mere entertainment.
It is when we come to the provision for dances, etc., that we are met with an objection to the Company's claim which appears to a us to be real and formidable. The objection is founded on the wide terms of 3(B) of the memorandum, from "educational and other entertainments" to the end, and of 3(D). We recognise, on the evidence and having regard to the history of the Company's formation, the conditions of its association with the Arts Council, and the unexpected success of its run of classical and high class plays that such objects as these have not been present to the mind of those concerned. But it was laid down in Keren Kayemeth Le Jisroel, Ltd. v. Commissioners of Inland Revenue, 17 T.C. 27, that the Court "is not concerned with the motives or ultimate aims of the founders but is solely concerned with the meaning and effect of the language employed in the memorandum (per Lawrence, L.J. at page 43); and again, in regard to "the transactions which may be entered into and the operations which may be carried on, that the Income Tax code looks at the nature of the transactions; it looks at the character of the activities; and it does not look behind these to what may be the motive which has prompted the formation of the company" (per Lord Macmillan, at page 58). We do not think in the present case, that we are at liberty to discount the language of the latter part of 3 (B) because or so far as its wide terms were drawn from, or directed to, the provisions for exemption from Entertainments Duty (Section 1 (5) of the Finance (New Duties) Act, 1916); or again, the language of 3 (D) because its inclusion, was due to suggestion from outside. Nor do we find it possible to disregard the wide language of 3 (B), as we are invited to do, on the ground that it is repugnant or otiose to the context. The objects complained of are stated in the forefront of the memorandum and in the same breath as the objects which are clearly charitable, and we cannot regard the terms of 3 (A) as overriding those of 3 (B).
As an example of the operations which may be carried on we may take the case of "dances". If the objects did not go further than the holding of an occasional dance in order to counteract the effect of losses and provide income and funds for carrying on the Company's altruistic work for the drama, we think they would not have the effect of introducing non-charitable purposes (cf. Commissioners of Inland Revenue v. Yorkshire Agricultural Society, 13 T.C. 58., per Lawrence, L.J., at the foot of page 81 and on page 82). But the provision for "dances" in 3 (B) appears to be little qualified, and light is thrown upon it by the "ancillary" objects stated in 3 (D), which extend in plain terms to the business of owning and managing dance halls.
It appears that the Company, however unlikely such a course may be, could determine its affiliation with the Arts Council (see number 3 of the general obligations undertaken by theatre companies), and, no longer having any prospect of financial assistance, embark on a substantial dance hall business in order to finance its high class theatrical activities. (Indeed, it might apparently give theatrical entertainments or amusements of almost any kind, with the same end in view.) To do this it would not be necessary for the Company to "re-associate itself for other purposes" by "adding to its objects" or otherwise (see the Yorkshire Agricultural Society case, per Atkin, LJ, at page 78). It is true that it would still be a non-profit-making concern, but this would not be "sufficient of itself to stamp the Company as a Company established for charitable purposes only" (Keren Kayemeth case, per Lawrence LJ., 17 T.C. at foot of page 44).
Finally, we think that the provisions of 3 (0) and 3 (S) of the memorandum, which might in themselves be of little weight, are, when read in connection with the wide objects above referred to, a further impediment to the Company's claim.
After careful consideration of the documents and the evidence, the arguments addressed to us and the authorities cited, we cannot in face of the objects stated in the memorandum, regard the Company as confined to the pursuit of charitable purposes either by way of education or of benefit to the community.
The application therefore fails. As regards the appeals before us, we leave the figures to be agreed.
18. The Appellant Company immediately after the determination of the appeal declared to us its dissatisfaction therewith as being erroneous in point of law and in due course required us to state a Case for the opinion of the High Court pursuant to the Finance Act, 1925, Section 19(3), and the Income Tax Act, 1918, Section 149, which Case we have stated and do sign accordingly.
G. R. HAMILTON, R. A. FURTADO, Commissioners for the Special Purposes of the Income Tax Acts, Turnstile House, 94/99 High Holborn, London, W.C.1. 17th February, 1947.
The case came before Macnaghten, J., in the King's Bench Division on 21st and 22nd July, 1947, when judgment was reserved. On 28th July, 1947, judgment was given in favour of the Crown, with costs. Mr. G. R. Upjohn, K.C., Mr. J. S. Scrimgeour, K.C., and Mr. William Lindsay appeared as Counsel for the Appellant Company, and the Solicitor-General (Sir Frank Soskice, K.C.), Mr. J. H. Stamp and Mr. Reginald P. Hills for the Crown.
Macnaghten J The Appellant in this case, Tennent Plays Ltd., a company incorporated under the Companies Act, 1929, as a company limited by guarantee, appeals against a decision of the Special Commissioners rejecting its claim for exemption from Income Tax under Schedule D under the provisions of the Finance Act, 1921, Section 30, Sub-section (1) (c), as amended by the Finance Act, 1927, Section 24, in respect of its trading profits for each of the four years ended 5th April, 1943 to 1946.
Section 30, Sub-section (1) (c) of the Finance Act, 1921, as amended by the Finance Act, 1927, Section 24, provides that:
"Exemption shall be granted... (c) from income tax under Schedule D in respect of the profits of a trade carried on by any charity, if the profits are applied solely to the purposes of the charity and either - (i) the trade is exercised in the course of the actual carrying out of a primary purpose of the charity: or (ii) the work in connection with the trade is mainly carried on by the beneficiaries of the charity."
The Company was incorporated on 6th July, 1942, in the circumstances and for the purposes hereinafter set out.
After the outbreak of the second world war the Pilgrim Trustees made, in December, 1939, a grant of £25,000 to maintain and encourage in wartime the practice and enjoyment of the fine arts - music, painting and the drama - and set up a small committee to administer the grant. In April, 1940, His Majesty's Government announced that the Treasury would provide £50,000 to further the work initiated by the Pilgrim Trustees and thereupon the Board of Education constituted a body called originally the Council for the Encouragement of Music and the Arts (commonly known as C.E.M.A.). The Council consisted of Lord Macmillan (the chairman of the Pilgrim Trustees) and eight other members appointed by the Board of Education.
In June, 1945, C.E.M.A. changed its name to the Arts Council of Great Britain; and the Chancellor of the Exchequer announced that it would continue as a permanent organisation and would be incorporated. This was accordingly done by a Royal Charter dated 9th August, 1946. The Charter begins with the following recital:
"Whereas it has been represented to Us by Our Chancellor of the Exchequer that for the purpose of developing a greater knowledge, understanding and practice of the fine arts exclusively, and in particular to increase the accessibility of the fine arts to the public throughout Our Realm, to improve the standard of education of the fine arts and to advise and co-operate with Our Government Departments, local authorities and other bodies on any matters concerned directly or indirectly with those objects, and with a view to facilitating the holding of and dealing with any money provided by Parliament and any other property, real or personal, otherwise available for those objects, it is expedient that the unincorporated Institution formerly known as the Council for the Encouragement of Music and the Arts and now known as the Arts Council of Great Britain should be created a Body Corporate under the name of the Arts Council of Great Britain with the powers and subject to the provisions hereinafter contained".
The Charter provided that the income and property of the Council wheresoever derived should be applied solely towards the promotion of the objects set forth in the recital; and that no member of the Council, except members of the executive committee, should receive any remuneration for his services.
There can, I think, be no doubt that the purposes of the Arts Council of Great Britain, both before and after its incorporation by the Royal Charter of 9th August, 1946, were charitable purposes (see Royal Choral Society v. Commissioners of Inland Revenue 1943, 25 T.C. 263. ).
The drama is one of the fine arts, and, so far as the encouragement of the drama is concerned, the Arts Council, both before and after its incorporation, fostered the formation of separate companies for that purpose. On 6th July, 1942, the Appellant Company was accordingly formed under the auspices of C.E.M.A., as the Arts Council was then called. Exhibit "C", which is annexed to and forms part of the Case stated by the Special Commissioners, sets out the conditions on which theatre companies could be associated with and receive assistance from C.E.M.A. None but "properly constituted non-profit-making companies and bodies functioning under charitable trusts" were eligible for association with the Arts Council.
The Appellant Company is undoubtedly a non-profit-making company. It has no share capital. Clause 4 of the memorandum of association provided that the income and property of the Company, whencesoever derived, should be applied solely towards the promotion of the objects of the Company as set forth in the memorandum of association, and that no portion thereof should be paid or transferred, directly or indirectly, by way of dividend, bonus or otherwise howsoever by way of profit, to the members of the Company.
Clause 7 of the memorandum provided that if upon the winding up or dissolution of the Company there should remain after the satisfaction of all its debts and liabilities any property whatsoever, the same should not be paid to or distributed amongst the members of the Company, but should be given or transferred to some other institution or institutions having objects similar to the objects of the Company.
The question, therefore, whether the Company is a charity, depends upon the objects of the Company set forth in its memorandum of association. They are set forth in clause 3 of the memorandum. There are nineteen of them in all, because, notwithstanding the comments (I think I may say, criticisms) of eminent Judges, the practice persists of putting in the objects clause of a memorandum of association not only the real objects for which the company is formed, but also a great many other objects which the founders of the company have no intention of pursuing, but upon which, of course, it is possible, in this changing world, they might at some future time be disposed to adventure.
The nineteen objects (marked with the letters of the alphabet from A to S) of this Company, whose real purpose was to produce stage plays in association with the Arts Council of Great Britain, are very various.
The object described in clause 3(A) is this:
"To formulate and prepare schemes for and establish and take all necessary steps for the promotion, maintenance, improvement and advancement of education and of educational plays and arts of all kinds and the arts of drama, dance, singing and music and also any other forms of art in any way allied to the said arts or any of them."
Before the Special Commissioners it was conceded by the Crown that the purposes set forth in clause 3(A) were charitable; but in this Court the Solicitor-General submitted that, although no doubt if and so far as the objects were educational they were charitable, the objects set out in the latter part of clause 3(A) were not charitable purposes.
It is, however, unnecessary to decide that question or to read clauses 3(B) and 3(C), which follow on the objects set out in clause 3(A), because in this Court it was admitted by Counsel for the Company that the objects set forth in clause 3(D) cannot be considered to be charitable purposes.
Clause 3(D) runs thus: "As ancillary to the foregoing objects of the Company and with a view to finding income and funds for the purposes of the Company" - those words should be noted, because the Company was really formed for the purpose of promoting the public welfare, whereas the objects in clause 3(D) are for the purpose of making money like any commercial concern - "to carry on business as theatre, music hall, concert hall, dance hall, ballroom, public hall, cinema and picture house proprietors and managers." It is obvious that the objects set out in clause 3(D) are far outside any form of instruction or entertainment which can possibly be regarded as a charitable purpose.
It appears that this singularly incongruous clause in the memorandum was inserted on the suggestion of the Commissioners of Customs, to whom application had been made, and made successfully, that the plays produced by the Company should be exempted from the Entertainments Tax. The clause was suggested by the Commissioners of Customs and it was accepted by the founders of the Company, who in that respect were certainly no wiser than the men of Troy who admitted the wooden horse within their gates. It is very unfortunate that the Company should have included these objects within the scope of its memorandum. In fact, the Company has never dreamt of pursuing any of the strange objects set out in clause 3(D). The Company has, in fact, as appears by paragraph 9 of the Case, carried out loyally the conditions on which alone they could get assistance from the Arts Council. Paragraph 9 of the Case sets out some thirteen plays which the Company has produced, beginning with Shakespeare's Macbeth and ending with Dostoievsky's Crime and Punishment. All those plays were produced by the Company in association with C.E.M.A. as was stated on the programmes of the several performances. Most people would, I suppose, agree that he presentation of those plays upon the stage was indeed desirable in the public interest and was beneficial to the public who saw them. They certainly were all plays of great artistic merit. It was, no doubt, anticipated (as the Case states) when the Company was founded that the presentation of such plays would not prove to be a financial success, but it was hoped that, assisted by the funds belonging to the Council, the Company would be able to educate the public up to that higher standard which was obviously desirable in the public interest. As a matter of fact it turned out that the public taste was better than was expected, and the production of plays set out in Paragraph 9 of the Case did result, in most cases, in profit to the Company, a profit, of course, which had to be used for the purposes of the Company.
It was suggested that clause 3(D) of the memorandum might be excused on the ground that it begins with the word "ancillary" - that it was only a humble handmaid subordinate to clause 3(A), that it was a small handmaid and, therefore, the Court could overlook it. I do not think I can take that view. The founders of the Company chose to include these seemingly ridiculous objects among the objects for which it was established, and, the Company having chosen to insert those objects in the memorandum, the Court must accept it that those are indeed some of the objects of the Company. It is, I think, impossible, therefore, to hold that the decision of the Special Commissioners in rejecting the Company's claim to exemption from Income Tax under Schedule D was wrong.
In those circumstances I am of opinion that the appeal fails and must be dismissed.
Mr. Hills: My Lord, the appeal will be dismissed with costs; and the assessments must be referred back to the Commissioners, because they did not determine the figures, to adjust them in accordance with your Lordship's judgment?
Macnaghten, J.: Yes.
An appeal having been entered against the decision in the King's Bench Division, the case came before the Court of Appeal (Tucker, Somervell and Cohen, L.JJ.) on 4th and 5th March, 1948, and on the latter date judgment was given unanimously in favour of the Crown, with costs, confirming the decision of the Court below.
Mr. G. R. Upjohn, K.C., Mr. J. S. Scrimgeour, K.C., and Mr. William Lindsay appeared as Counsel for the Appellant Company, and the Solicitor-General (Sir Frank Soskice, K.C.), Mr. J. H. stamp, and Mr. Reginald P. Hills for the Crown.
Tucker, L.J.: I will ask Cohen, L.J., to give the first judgment in this case.
Cohen, L.J.: This is an appeal from a judgment of Macnaghten, J. affirming a decision of the Special Commissioners by which they rejected a claim for exemption from Income Tax under Schedule D under the provisions of the Finance Act, 1921, Section 30(1) (c), as amended by Section 24 of the Finance Act, 1927, in respect of its trading profits for periods which I will mention later.
That Section in its amended form, so far as material to the point we have to decide, is in the following terms:
"Exemption shall be granted - (c) from income tax under Schedule D in respect of the profits of a trade carried on by any charity, if the profits are applied solely to the purposes of the charity and either - (i) the trade is exercised in the course of the actual carrying out of a primary purpose of the charity"I need not read any more of that Sub-section. Then Sub-section (3) provides:
"In this section the expression 'charity' means any body of persons or trust established for charitable purposes only."The question in this case is whether the Appellant Company, having regard to its objects, is "established for charitable purposes only."
It was incorporated on 6th July 1942, as a company limited by guarantee and as a non-profit-making company. The promoters of the Company were H.M. Tennent Ltd., and the Case contains information as to their motives in forming it. But I agree with the Commissioners that, to quote Lawrence, L. J. in Keren Kayemeth Le Jisroel Ltd. v Commissioners of Inland Revenue, 17 T.C. 27, at page 43, that the Court "is not concerned with the motives or ultimate aims of the founders... but is solely concerned with the meaning and effect of the language employed in the memorandum."
Suffice it to say that it was formed after consultation with the Council for the Encouragement of Music and the Arts, shortly known as C.E.M.A. and now known as the Arts Council of Great Britain. It became an associate of C.E.M.A. in accordance with that body's conditions of association and has in fact conducted all its operations in accordance with conditions prescribed by C.E.M.A. But there is nothing in its memorandum of association limiting its functions to functions approved by C.E.M.A. or preventing it from continuing to function if its connection with C.E.M.A. is severed. It follows, therefore, that the fact that C.E.M.A. was, and the Arts Council of Great Britain is a body formed for "charitable purposes only", or that only non-profit-making companies and bodies functioning under charitable trusts are eligible to be associate members of C.E.M.A. has no relevance to the point we have to decide.
In this connection I would refer to certain observations made by Lord Buckmaster in Bowman v. Secular Society Ltd., [1917] A.C. 406. The passage to which I desire to refer occurs on page 468. In that case their Lordships were considering whether, having regard to its objects, the Secular Society was either criminal or illegal, and to reach a decision on that point it was necessary to decide what its main object was. In that connection Lord Buckmaster says, on page 468:
"Neither the documents preliminary to the incorporation of a company registered with a memorandum of association, nor the action of directors after a company has been formed can properly be received as evidence for the purpose of determining what the objects of the company may be."Therefore, I turn to the memorandum of association on which the question before us has to be decided. Clause 3 of the memorandum defines its objects:
"The objects for which the Company is established are:-I pause there to point out that the word "such" has no grammatical meaning in that clause. I shall have to consider later what, if any, its effect is. Then:
(A) To formulate and prepare scheme for and establish and take all necessary steps for the promotion, maintenance, improvement and advancement of education and of educational plays and arts of all kinds and the arts of drama, dance, singing and music and also any other forms of art in any way allied to the said arts or any of them.
(B) To present, promote, organise, provide, manage, conduct such plays, dramas, comedies, operas, operettas, burlesques, promeande and other concerts, musical and other pieces, ballads, shows, educational and other entertainments, exhibitions, dances, competitions, amusements, recreations and compositions of all kinds whether educational, partly educational or scientific or partly scientific or otherwise, or for philanthropic or charitable purposes, and whether on any premises of the Company or elsewhere."
(C) To purchase, acquire and obtain interests in the copyright of, or the right to perform or show any opera, play, comedy, drama, stage piece or musical composition which can be used or adapted in any way for any educational or allied play; enter into agreements if desirable with authors, dancers, actors or others in connection with all or any of the objects of the Company and to produce, distribute, rent or otherwise deal in cinematograph films.Then follow a number of other objects and powers which I need not read in detail, but which are intended, I think it can fairly be said, to facilitate the carrying out of the objects already mentioned.
(D) As ancillary to the foregoing objects of the Company and with a view of finding income and funds for the purposes of the Company to carry on business as theatre, music hall, concert hall, dance hall, ballroom, public hall, cinema and picture house proprietors and managers."
I must, however, read two of those clauses in full as they were relied on to some extent in the course of the arguments before us, and by the Commissioners in their finding. Sub-paragraph (O) is in these terms:
"To establish and support or to aid in the establishment and support of any schools and any educational, scientific, literary, religious or charitable institutions, whether such societies be connected with any of the objects of the Company or not, and any Club or other establishment calculated to advance the interests of the Company and to make any donation whether charitable or otherwise and either in cash or assets which the Company may deem expedient.The Company's work was, as I have said, carried out entirely in connection with C.E.M.A. An account of its work is contained in the annual report of the Arts Council fr the year 1945, which says that it produced a number of "fine revivals" of plays of a definite educational value. It applied for and obtained exemption from the Entertainments Duty under Section 1(5) of the Financ (New Duties) Act, 1916, which exempts from Entertainments Duty "payments for admission to any entertainment where the Commissioners are satisfied - (a) that the whole of the takings thereof are devoted to philanthropic or charitable purposes without any charge on the takings for any expenses of the entertainment; or... (d) that the entertainment is provided for partly educational or partly scientific purposes by a society, institution, or committee not conducted or established for profit". I do not think we can get any assistance from the fact that that reliet was granted, since it is quite plain that under (d) it could be granted notwithstanding that the objects of the body giving the entertainment were not wholly charitable. It is sufficient that the entertainment is provided partly for educational purposes, and that the body producing it was, as this Company was, a non-profit-making company.(S) To do all such other things as are incidental or conducive to the attainment of the above objects or any of them."
Evidence was then given as to the nature of the work carried on by the Company. I do not think I need refer to that evidence in detail. Suffice it to say that it led to the Commissioners finding, as they did, that the Company in fact did nothing but foster dramatic art subject to the guidance of C.E.M.A. and the Arts Council. But, as I think appears from the words of the Section, that is not conclusive, because it is necessary to show that the Company was "established for charitable purposes only."
On those facts the Commissioners came to the conclusion, after careful consideration of the documents and the evidence, that they could not, in face of the objects stated in the memorandum, regard the Company as confined to the pursuit of charitable purposes either by way of education or of benefit to the community.
Their conclusions are stated with admirable clarity and can be summarised as follows. They find that paragraph (A) of the memorandum was clearly charitable. Indeed, it appears from the judgment of Macnaghten, J., that, before the Commissioners, there had been really no dispute that that object was a charitable object, though before the learned Judge and before us the Solicitor-General was not prepared to make that admission. We do not find it necessary to reach a conclusion on the point and, indeed, did not call on him to argue the point, because we think that, even if that point were decided in favour of the Appellants, the result would not be affected.
Then the Commissioners proceed to analyse the aspects of the work comprised in paragraph (A) and point out it was partly educational and partly to enable thinking persons to enjoy the experience of high class drama. They say in paragraph 17 of the Case that in their opinion: "the provision of that experience must fall within the fourth class of charitable purposes as being beneficial to the community." Then they turn to paragraph (B), and they hold that the terms of that paragraph were so wide that, read with paragraph (D), it necessarily showed that the Company had wide objects which were not strictly charitable. They dealt with the argument that paragraph (B) must be regarded as overridden or limited by paragraph (A), and rejected it. I think it is fair to say that their conclusion was really based on that finding and on nothing else, though they did say that they thought the provisions of 3(0) and 3(S) of the memorandum, which I have read, "which might in themselves be of little weight, are, when read in connection with the wide objects above referred to, a further impediment to the Company's claim."
Macnaghten, J., affirmed their judgment on a somewhat different ground. After referring to the dispute that had arisen under clause 3 (A), he says this:
"It is however unnecessary to decide that question or to read clauses 3(B) and 3(C), which follow or the objects set out in clause 3(A), because in this Court it was admitted by Counsel for the Company that the objects set forth in clause 3(D) cannot be considered to be charitable purposes."I think it is clear from the rest of his judgment - certainly it was clear before us - that Counsel never admitted that, reading the articles as a whole, the objects to be found in clause 3(D) were not a charitable purpose. All that they admitted was that if the concluding portion of that article had stood without the introductory words it would have disclosed a non-charitable purpose. But they submitted in the Court below, as they did here, that, having regard to the fact that the power "to carry on business as a theatre, music hall, concert hall, dance hall, ballroom, public hall, cinema and picture house proprietors and managers" was only to be undertaken "as ancillary to the foregoing objects of the Company and with a view of finding income and funds for the purposes of the Company", that power was subsidiary to and to be used in support of the earlier clauses, and in particular clause (A), and was, therefore, no bar to their succeeding in their appeal. Macnaghten, J:, however, rejected that argument, giving his reasons in these words:
"It was suggested that clause 3(D) of the memorandum might be excused on the ground that it begins with the word 'ancillary' - that it was only a humble handmaid subordinate to clause 3(A), that it was a small handmaid and, therefore, the Court could overlook it. I do not think I can take that view. The founders of the Company chose to include these seemingly ridiculous objects among the objects for which it was established, and, the Company having chosen to insert those objects in the memorandum, the Court must accept it that those are indeed some of the objects of the Company."He, therefore, affirmed the decision of the Commissioners, and from that decision the Appellants have appealed to us.
Mr. Upjohn, in his careful argument for the Appellants, attacked the judgment of Macnaghten, J., by saying that he had not given due weight to the introductory words. He said that it was clear that the mere fact that in carrying out a charitable object some non-charitable activities might be undertaken, did not deprive the Company or the body of its charitable character. He relied on the decision of this Court in Commissioners of Inland Revenue v. Yorkshire Agricultural Society, 13 T.C. 58. I do not think I need refer to the facts of that case. The passage on which reliance was particularly placed is to he found in the judgment of Lawrence, L.J., at page 81, where he said:
"It is a common thing for a charitable institution to offer all kinds of privileges and benefits which are in no sense charitable in order to obtain funds for the purpose of carrying out its objects. As an instance I might mention the giving of dinners, dances and theatrical entertainments, all of which entail an expenditure of money on non-charitable objects incurred for the purpose of obtaining funds to be applied for the charitable objects of the institution. Many charitable institutions, in return for annual subscriptions or donations offer special benefits to the persons who become their members. None of the operations of this kind results in making the purposes of the institution non-charitable."I cannot help feeling that there is some force in the view expressed by Macnaghten, J., that, where powers so wide are included in the memorandum, and it is not made clear that they can only be exercised temporarily, it is impossible to hold that it is merely an ancillary consequence of the Company's activities such as was referred to by Lawrence, L.J., in the passage I have read. But I do not think it is necessary to reach a conclusion on this point, since I am satisfied that the Commissioners were right in the conclusion which they reached and in the main reasons they gave for that conclusion.
Mr. Upjohn attacked their opinion on the following lines. He said, first of all, that the question whether a company is established for "charitable purposes only" depends on what its main or dominant purpose is. He relied, in support of that statement, on a passage in the judgment of Lawrence, J., in Peterborough Royal Foxhound Show Society v. Commissioners of Inland Revenue, [1936] 2 K.B. 497, where he said, at page 502: "The question then, in my opinion, is whether the society's main or dominant purpose is charitable." He further relied on some passages in the speech of Lord Normand in National Anti-Vivisection Society v. Commissioners of Inland Revenue, [1948] A.C. 31, where the noble Lord said, at page 77:
"In Bowman v. Secular Society, Ltd., Lord Parker said that 'a trust for the attainment of political objects has always been held invalid, not because it is illegal... but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit'. That was said in a case in which the society was advocating a very important change in the relations of the state and the community towards religion. I respectfully agree with the comment of the Master of the Rolls that Lord Parker's words do not apply when the legislation is merely ancillary to the attainment of what is ex-hypothesi a good charitable object. For the charitable purpose, being dominant, would prevail as it did in Inland Revenue Commissioners v. Falkirk Temperance Cafe Trust and in In re Hood , where it was held that, the main object of the gift being charitable, the gift was none the less valid because the testator had pointed out one of the means by which, in his opinion, the main object could best be attained and which in itself might not have been charitable if it had stood alone."I think this principle, that one must look only at the main or dominant purpose of the Company, must be taken with a little reserve. I feel some doubt whether a company can be said to be established "for charitable purposes only" if it carried on a substantial non-charitable purpose, for instance, to take the case suggested by Somervell, L.J., during the argument, if it took power permanently to run a public house in order to produce funds for its charitable purpose.
In this connection, I would refer to certain observations which were made both in this Court and in the House of Lords in the case of Keren Kayemeth Le Jisroel Ltd. v. Commissioners of Inland Revenue, 17 T.C. 27. At page 40, Lawrence, L. J., says:
"The instrument with which this case is concerned consists of the memorandum of association of the Company and it is essential to bear in mind that in order to obtain exemption from Income Tax under the Section it is not enough that the purposes described in the memorandum should include charitable purposes, the memorandum must be confined to those purposes so that any application by the Company of its funds to non-charitable purposes would be ultra vires."He then refers to the 22 subsidiary clauses in that case, and says, in the middle of page 41:
"The extensive powers conferred on the Company by sub-clauses (2) to (22) (to some of which I have referred in order to indicate their character), although purporting to be secondary to the object mentioned in sub-clause (1) are nevertheless objects for which the Company is established. The Company can exercise any or all of these powers whenever in its opinion such an exercise would be conducive to the attainment of the so-called primary object which, from a practical point of view, means that it can exercise them whenever it is minded to do so, and whether such exercise is in fact conducive to the attainment of that object or not, as neither the Court nor any one else can control the Company's opinion, or otherwise interfere with the manner in which it chooses to carry out its objects. It would be difficult in any case to.determine whether any particular enterprise undertaken by the Company under its wide powers was or was not in fact conducive to the attainment of the primary object, but when the question of whether it is or is not so conducive is left to the decision of the Company itself, I cannot avoid the conclusion that the objects mentioned in sub-clauses (2) to (22) can be carried out by the Company just as freely as the object mentioned in sub-clause (1), and that there is no substantial difference in degree between them."In the House of Lords, Lord Thankerton expressed agreement with Lawrence L.J.'s judgment and gave his own reasons quite shortly. But Lord Tomlin gave a full judgment, and, as it is on certain observations in his judgment that Mr. Upjohn relied, I must read a passage from his judgment which is to be found on page 55, where he says:
"There are a great number of objects in this memorandum. They are all expressed to be ancillary to the main object and I will appreciate the argument which says that if you once find the main object is charitable you cannot destroy the charitable character of the main object because the ancillary powers, which are incidental to it, are, some of them, in themselves, not charitable. That argument, may indeed be well-founded, but when the question is whether the primary object is itself charitable, it is legitimate, in reaching a conclusion upon that head, to consider the effect of the incidental powers, and it may well be that the incidental powers are such as to indicate or give some indication that the primary object is not itself charitable."I think that is all I need read.
I am prepared to accept, for the purpose of this case, the rather narrower way in which Lord Tomlin cites the principle as being more correct than the wider phraseology of Lawrence, L.J.; but, even so, I think we arrive at the same conclusion.
How are we to ascertain what is the main purpose of the Company? Mr. Upjohn said (and I think rightly) that we can find some guidance from cases that have been decided in the winding-up Court when it has been sought to wind up a company when its substratum has gone. i do not think I need refer to the cases themselves, since the principle is well stated in Part I of Palmer's Company Precedents, 15th edition, at page 436; but I~ am reading from the 14th edition, page 431, where the learned author says:
"Where the objects of a company are expressed in a series of paragraphs, the true rule of construction is to seek for the paragraph or paragraphs (commonly the first) which appear to embody the main or dominant object of the company and to treat all other paragraphs, however generally expressed, as merely ancillary to this main object and as limited and controlled thereby. Assuming that there is any such rule of construction, it is, of course, to be borne in mind that, like every other rule of construction, it may be excluded or modified by the contents of the documents to be construed, for every rule of construction contains by implication the saving clause 'unless a contrary intention appears by the document'."He then proceeds to refer to the rather unfortunate habit which has grown up of making each object an independent object, and says that, of course, where there is such a clause they must all be regarded as independent objects.
I think that that sufficiently states the principle to be applied; but it is quite clear that it is not necessarily to be assumed that the first paragraph, by itself, expresses the main object. Indeed, I think in one case to which Mr. Upjohn referred us the first three paragraphs were found by the Court to contain the main objects. It becomes a matter of construction in each case.
How did Mr. Upjohn seek to apply that principle in the present case? He said, first of all, that paragraph (A) laid down the main purpose of the Company. He contended that it was expressed in such wide terms that the Company would have had power to do all the things that were afterwards set out in greater detail, and that they had been merely inserted in order to remove any doubt and prevent any question being raised, for instance, by bankers, if money were sought to be borrowed for carrying out some of the objects specified, particularly in clause 3 (B). He said there was no reason for drawing a distinction between paragraph (B), to which particular importance was attached by the Commissioners, and any of the other subsequent paragraphs of the clause. He reinforced this argument first by the language of the document itself, and in particular by the use of the word "such". When I was reading that clause, I pointed out that, grammatically, it did not make sense at all. At first I was inclined to think that there was some force in Mr. Upjohn's argument that the only way of giving it any meaning was by reading it as meaning ''such plays as conduce to the object specified in paragraph 3(A)". I think that argument would have had great force if the paragraph had stopped at the words "amusements, recreations and compositions", but when it goes on to say "of all kinds whether educational, partly educational or scientific, or partly scientific or otherwise, or for philanthropic or charitable purposes", it seems to me quite impossible to read the word "such" in the sense in which Mr. Upjohn asked us to read it, and I think we can only disregard it as having no meaning at all. Once you do that, it seems to me necessarily to follow that this is an independent object, an object which by its very terms need not be either purely educational or for other charitable purposes.
But the matter does not stop there. True it is that in paragraph (C) some of the objects are expressly stated to be subsidiary to other objects. Thus the power to "enter into agreements if desirable with authors, dancers, actors or others" is a power to do so "in connection with all or any of the objects of the Company"; but there is no such limitation on the power "to produce, distribute, "otherwise deal in cinematograph films."
Then we find in paragraph (D), to which I have already referred in dealing with the argument based on the judgment of Macnaghten, J., a power "to carry on business as theatre, music hall, etc., proprietors". In that connection it seems to me that the introductory words on which Mr. Upjohn relied in his effort to dispose of the judgment of Macnaghten, J., tell against him when he seeks to dispose of the argument of the Commissioners, because the words are: "As ancillary to the foregoing objects of the Company and with a view of finding income and funds for the purposes of the Company". If I were to seek to try and find any intelligible dividing line between the main and subsidiary objects, I think I should say that (D) has drawn the line, and has said that what has gone before is to be regarded as the object and purpose of the Company, and what follows may perhaps be regarded as subsidiary. It is true one of the objects which has gone before is in itself in part subsidiary; but, if one can give any meaning to this rather inept specimen of draftsmanship, I think the only way in which one can do so is by saying: "You have to look at (A), (B) and (C) and there you will find the purposes of the Company. Paragraph (B) clearly lays down objects which are not charitable." I think the conclusion reached by the Commissioners on these paragraphs was right and fully justifies their judgment.
I do not find it necessary to reinforce this conclusion by reference to paragraph 3 (0) or paragraph 3 (S). Indeed, I think, so far as paragraph 3 (S) is concerned, it really throws no light on the subject. It is the common type of clause, in its mildest form, which is found in every memorandum of association.
For these reasons I think the judgment appealed from and the decision of the Commissioners were right, and this appeal fails.
Somervell. L.J. I agree. I will not repeat the statutory provisions, as I agree completely with the statement of the question which we have to decide which has just been given by Cohen, L.J. With the rest of his judgment I also agree.
The main burden of Mr. Upjohn's argument was that we must seek in these articles a dominant purpose - prlma facie in the first and early paragraphs - and then construe the words setting out other objects or conferring other powers as limited and confined to the carrying out of the primary purpose. In support of that argument he quoted a number of authorities which have been referred to by Cohen, L.J.
It seems to me that, in construing articles - and, indeed, in construing any document - the first thing is to see what they say without having any preconceived notion in one's mind of what one is going to find. No doubt it may often happen that you find a dominant purpose stated at the outset to which the paragraphs which come later must be regarded as subordinate. A very good example of that was given by Lord Sumner in the case of Bowman v. Secular Society [1917] A.C. 406, at the top of page 453. The first paragraph of the objects of the Secular Society was in the following words:
"To promote, in such ways as may from time to time be determined, the principle that human conduct should be based upon natural knowledge, and not upon super-natural belief, and that human welfare in this world is the proper end of all thought and action."Taking that document Lord Sumner points out that object (K) was to publish books generally and without qualification. I agree with Lord Sumner that that power must be construed as meaning to publish books for the purpose of carrylng out the principle set in the forefront of the Society's objects in the paragraph which I have read. He says it would be absurd to construe it as the Society power, to publish Bibles and prayer books, for example, which would be designed to defeat the object which the Society was established to promote.
But whether and to what extent and to which articles that principle of construction applies must depend on the actual words which are to be found in the document to be construed. I will assume, without deciding, that the powers and objects of the Company as set out in paragraph (A), if one stopped there, would be charitable objects. But paragraph (B), as it seems to me, not only introduces new objects, for example, the promotion and organisation of amusements and recreations, which in themselves would have been outside (A), but it goes on to emphasise that the various purposes, and so on, which are set out include "amusements, recreations and compositions of all kinds whether educational, partly educational or scientific or partly scientific or otherwise". I agree with what my brother Cohen, LJ., says that, in the light of those words, it is impossible to regard the word "such" as limiting this paragraph to the object which has already been formulated in paragraph (A). It seems to me that the draftsman has expressly chosen words to give the Company, if it so desires, a general power to organise and promote amusements and recreations of any kind. I agree that that is plainly beyond any charitable purpose.
Then when we come to (C), which starts by giving powers of purchasing and acquiring copyrights, and so on, the wording is obscure, but it provides that those powers must be exercised "in connection with all or any of the objects of the Company". But then it goes on to confer a right "to produce, distribute, rent or otherwise deal in cinematograph films" without any such limitation. There again, I think, that goes far beyond any charitable purpose.
1 would also like to say one word about paragraph (O), because I think it illustrates that these articles have been drafted in what may well be a very proper way when you are dealing with a trading company, and the draftsman wants to throw the net as wide as possible and to take in any unexpected thing which the company may find it desires to do, but which is clearly not the method if it is desired to satisfy a Court that the company is established "for charitable purposes only." The point in paragraph (O) is not so much connected with whether any of the objects of this Company are outside the scope of charity, but with the application of what I may call the subsidiary or subordinate method of construction of later articles. It is said that paragraph (O) was put in merely to deal with the case of the Company having surplus income with which it desires to make donations to societies or institutions of whose objects it approved. If so, it is very curiously drafted. It goes far beyond the use of surplus funds for such purposes. It gives the Company power to establish a school or "any educational, scientific or charitable institutions"; that is to say, it gives power to establish any of the institutions covered by the words which I have just read. I think that is going a long way beyond the necessary power to make a donation to a suitable institution from its surplus funds.
I do not desire to add anything to what my brother Cohen has said, and what the learned Judge has said, with regard to paragraph (D).
For these reasons I agree that the appeal must be dismissed. I agree with the decision of the Commissioners, which, if I may say so, is extremely clearly and accurately expressed, and, relying in particular on the provisions of paragraphs (B) and (C), it seems to me, quite impossible to hold that this Company was established "for charitable purposes only."
Tucker, L.J. I am completely in agreement with the judgments which have been delivered, and I have nothing to add thereto.
The Solicitor-General Will your Lordships say that the appeal be dismissed with costs?
Tucker, L.J. Yes,
The Solicitor-General If your Lordship pleases.
Mr. Upjohn I understand that the memoranda of association of a number of other companies are framed on these lines, and that the matter is of some general importance. In those circumstances I would ask your Lordships for leave to appeal to the House of Lords.
(The Court conferred.)
Tucker, L.J. No, Mr. Upjohn.
[Solicitors:- McKenna & Co.; Solicitor of Inland Revenue]
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