“On 19th December Schroders faxed to Barclays De Zoete Wedd, the merchant bank which was acting for Bardon, a letter confirming an offer by Camas of 40p per Bardon share, with a partial cash alternative ‘subject to joint analysis of potential synergies and due diligence’. The following day, the Offers Committee met on two occasions. At the first meeting a final draft of the facility agreement was produced, and it was resolved to proceed with the establishment of banking facilities on the basis of that agreement. At the second meeting, held later in the afternoon, the committee reported that the facility agreement had been finalised for execution, and it was resolved to approve it in its final form. At 1.30pm on 20th December the Bardon board met to discuss the Camas offer, which had been faxed by Schroders the previous day. The Chairman was authorised to respond by rejecting the offer on the basis that it was inadequate in value and that the board of Bardon did not believe that the record of Camas’s management demonstrated that it would be able to achieve the purported synergies or lead a merged group to further growth. This decision was communicated to Camas later the same day. This led to a meeting of the Camas board the following day, 21st December, at 10am. Following an update on events and discussion and advice from Warburgs and Schroders, it was decided that there was no possibility of a recommended bid at a price which Camas would be prepared to offer, and that ‘the success of a unilateral bid was too uncertain to warrant proceeding’. Project Bardon therefore came to an end.”
“The Proposal certainly did not constitute an offer by Camas for Bardon because of the preconditions it contained. Schroders made it clear that prior to any offer being made, a meeting would need to be held subsequent to2 January 1996 at which the Chief Executives of Camas and Bardon would need to conclude that putting the two companies together would lead to identified annual synergies of at least£10million …. Once this meeting had taken place, it was envisaged that Camas would undertake a due diligence exercise on Bardon which it was expected that Bardon would want to reciprocate.”
“If the Proposal had contained a firm unconditional intention from Camas to make an offer, an announcement would have had to have been made by Bardon immediately following its board meeting, whether or not the Bardon Board decided to recommend the offer.”
"any company whose business consists wholly or mainly in the making of investments and the principal part of whose income is derived therefrom . . . "
“Management means administration, but the expression is not as narrow as the expenses of the board of directors or of the heads of departments. The natural meaning is that part of the expenses related to the sphere of administration or management. But it does not cover all the expenses of carrying on the whole business or trade of the company under the management. The decision of a commercial company to buy so many tons of fruit as a matter of policy would be management, but sending out the people to buy them would not be management. There is a distinction between the managerial decision and carrying it out in individual cases. Paying brokerage and stamp duty cannot be regarded as part of management…”
“… the brokerage and stamp duties payable on the purchase of an investment being not general expenses of conducting the society’s business but expenses specifically referable to and only incurred by reason of the purchase, are expenses of the purchase and not expenses of management. If we draw a line between the moneys admittedly laid out by the society for expenses of management and the moneys laid out for the price of an investment, we hold that the brokerage and stamp duties fall on the same side of the line as the latter…. In our view the disputed items are so closely linked with the transaction of purchase (being necessarily incurred in the course thereof) as to be considered part of the expenses of the purchase and not expenses of management of the society’s business.”
“The concession is… of value, for, if the expense of purchasing an investment is not an expense of management, I can see no valid ground of distinction between the price of the stock which is purchased and the stamp duty paid upon contract or transfer and the brokerage paid to the broker. Each item is an integral part of the cost of acquisition or, as the commissioners put it, a part of the expenses of the particular purchase not of the expenses of management.”
“These expenses are… so closely linked with the transaction of purchase that they may naturally be considered as items in the total cost of a purchase which has already been resolved upon by the management of the company, and not as expenses of management. This is the short and simple ground upon which the Special Commissioners decided the case in favour of the Crown, and I have arrived at the conclusion, though with considerable doubt, that it is a sound ground.”
“That appears to me to be sufficient to negative one argument for the Crown – that expenses of management only include expenses involved in taking managerial decisions and exclude expenses involved in carrying them out in individual cases. Commissions arise from individual cases…”
“I do not think that it is possible to define precisely what is meant by ‘expenses of management’. It has not been argued that these words have any technical or special meaning in this context. They are ordinary words of the English language, and, like most such words, their application in a particular case can only be determined on a broad view of all relevant matters…. looking to the purpose and content of the section it appears to me that the phrase has a fairly wide meaning so that, for example, expenses of investigation and consideration whether to pay out money either in settlement of a claim or in acquisition of an investment must be held to be expenses of management…. …It seems to me more reasonable to ask, with regard to a payment, whether it should be regarded as part of the cost of acquisition, on the one hand, or, on the other hand, something severable from the cost of acquisition which can properly be regarded as an expense of management.”
“The brokerage and stamp duty, though not… an integral part of the purchase price, are a direct and necessary part of the cost of a normal method of purchase.”
“In my opinion, the result of that case is that in this type of situation one has to ask whether the relevant payment can be regarded as properly severable from the costs of acquisition of an investment or the issue of loan stock, on the one hand, or a direct and necessary part of the cost of a normal method of purchase or issue, on the other. If, posing that question, the answer is that it is the latter, then the payment is not an expense of management.”
“In my view such a decision cannot change the nature of the service provided. If a purchase were completed, I do not doubt that it would be universally accepted that all of the costs incurred in relation to the exploration, evaluation and investigation of the company to be acquired, would be “costs of the purchase”
“…the facts illustrate how difficult it would be to rely on such an imprecise event to differentiate between the nature of an expenditure incurred. In my view one cannot go further than saying that a close relationship between a proposed acquisition and expenditure incurred in respect thereof would necessarily deprive that expenditure of the characteristics of a management disbursement.”
“…It may be part of day to day management to appraise the possibility of acquisitions or disposals, but it ceases to be such when a specific situation is pursued. The costs of management come to an end when a decision is taken to acquire or dispose of an investment as the case may be. This does not relate to the entering into of a binding commitment. Once steps are taken which may lead to a binding commitment and which are necessary for management to make a full and informed decision then management ceases and acquisition or disposal as the case may be commences.”
“An investment company maintains its capital in its investments. In the course of its management, its managers have to consider not only whether such capital is best employed but also whether it is providing the best return. I do not accept that only expenditure in relation to getting the best return from existing investments is what is intended by the expression ‘expenses of management’. Expenditure relating to the appraisal of existing investments or the scope of new investment must equally be expenses of management. However, once an appraisal becomes specific in the sense of relating to a particular investment, this is not management, but possible acquisition or disposal as the case may be.”
“59… We have already found that all the expenditure in issue here related to Project Bardon and to nothing else. The board of the Company and, in due course, the board of Bardon Group plc had to be satisfied with every aspect of the project. The Company’s board needed the advice as part of the necessary appraisal process and in order to enable it to decide whether to make the offer. It needed the services of Schroders and Warburgs both to advise on the project and enable it to communicate the decision to offer as soon as it had reached the decision to make one. We note in this connection Mr Reed’s evidence that the act of working up a potential offer is part of the decision-making process and that any potential offeror has to carry out preparatory work before it can responsibly make an approach to the target. The evidence satisfies us that that was the position here. On that basis, it seems to us, the relevant expenditure cannot be properly severed from the costs of projected acquisition. Thus, given that the Sun Life test applies here, it disqualifies the expenditure from being expenses of management.”
“60… The character of the expenditure throughout the duration of Project Bardon was the same. It was wholly directed at the projected acquisition. All the expenditure was, on the evidence before us, a direct and necessary part of an acquisition of this scale. The board of the Company could not, as we have noted, have proceeded to make the offer without incurring the expenditure. The fact that the offer was rejected by Bardon’s board on20 December 1995 and so was not communicated to its shareholders in no way alters the character of the expenditure.”
“44… On the Special Commissioners’ own findings of fact, the services of Schroders and the other professionals were needed and were used in order to obtain advice on a possible investment in the form of the acquisition of the Bardon group, and to decide whether to go ahead. The work stopped when, on advice, the decision was taken to abort any possible acquisition. But even if the acquisition had gone ahead, the nature of the services would have been the same. Although one element of the professional services involved the working up of the bid, Mr Reed’s evidence indicated that this was part of the decision-making process, and the Commissioners accepted that. I am unable to see how the cost of any of this can fairly be described as part of the cost of acquisition in the sense that brokerage fees, payments for financing and stamp duty obviously are, and the Special Commissioners have reached their conclusion, in my judgment, by asking themselves the wrong question.”
“A separate but related feature of Project Bardon is that it strikes us as having little or nothing to do with the management of the Company’s investment business… … the steps in the project and the advice and services obtained in return for the disputed expenses were far removed from the Company’s existing business of holding one block of shares and three loans.”
“The starting point is that income tax is a tax on income, and its corollary, that in the absence of express provision payments of a capital nature may not be deducted from income.”
“There have been many cases which fall on the border-line. Indeed, in many cases it is almost true that the spin of a coin would decide the matter almost as satisfactorily as an attempt to find reasons. But that class of questions is a notorious one, and has been so for many years.”
“… the notion behind this Section may be thought to be that the expenditure is something which if you were looking at the profits and gains under Schedule D would be deductible as a sum of money wholly and exclusive expended for the purpose of making profits and gains, within Rule 3 of Cases I and II of Schedule D, and accordingly that any expenditure partaking of a capital nature is not aimed at by the Section.”
“If it were possible to have a capital expense of management (which is doubtful), there would be nothing to exclude it… If the expression ‘expenses of management’ is given its natural meaning, it is unnecessary to consider whether any particular expense is capital or not. The words must be given their ordinary meaning without a gloss.”
“It was suggested that the decision could be justified on a ground not present in the instant case, viz.: that the payments there made had the quality of capital expenditure. It may be so, but that was not the ground of the decision…”