BIM37775 - Wholly & exclusively: duality of, or non-trade, purpose: loans/advances to others: solicitor guaranteeing client's borrowing

Unless I am compelled by authority to do otherwise, I would decide that the Commissioners were justified in the conclusion which they have reached. There was evidence that it is the practice of some solicitors to give guarantees to their clients, and this appears to me to be a perfectly sensible and proper activity to be pursued in the course of a solicitor's practice, particularly where the guarantee concerned arises in the course of a transaction - e.g., the purchase of a house - in which the solicitors are acting professionally for the client. So here, it would seem to me, upon the ordinary principles of commercial accountancy, the expenditure resulting from the discharge of an overdraft guarantee is properly to be brought into account as a debit item in computing the profits of the Respondent solicitors. Nor, it seems to me, does the deduction fall under any of the paragraphs in [what is now ICTA88/S74]; it seems to me to be ‘money wholly and exclusively laid out or expended for the purposes of the ... profession’, and it is a loss ‘connected with or arising out of the trade, profession or vocation’. There is no serious suggestion that it represents capital withdrawn from the profession. The conclusions of the Commissioners were based upon findings of fact properly arrived at upon the evidence before them, and they seem to me to be correct conclusions in law from those findings.

The decision in the case of Hagart and Burn-Murdoch appears to me to be distinguishable from the case now before me on two distinct grounds. In the first place, the activity in question here is not the making of advances but the giving of guarantees. There is no finding that the solicitors received any separate consideration for these guarantees, and the giving of the guarantees was therefore incapable from its nature of constituting a separate venture comparable to that of money-lending, i.e., putting out money at interest. The giving of guarantees without consideration must be either an incident to the profession of solicitor or a gratuitous act lying outside the ambit of any trade or profession. Mr. Fisher says that this is an insubstantial distinction, but it seems to me to be a factor of some weight in considering whether the particular activity should be regarded as an ordinary activity of the practice of solicitors. The activity of giving guarantees is not, I think, open to the objections made by Lord Shaw and Lord Warrington to the inclusion of money-lending within the scope of a solicitor's business, and I think there is less difficulty in making or supporting a finding that the giving of guarantees is an activity of a solicitor's business than there would be in making or supporting a finding that money- lending is an activity of a solicitor's business.

In the second place, there was in the present case the all-important evidence and finding that at any rate some solicitors do make a practice of giving guarantees to clients in certain circumstances. Upon the evidence before them the Commissioners were, I think, entitled to find, as they did, that the Respondents and some other solicitors are accustomed to give guarantees in favour of clients in certain circumstances, usually when the guarantee is required for what appears a temporary purpose.

Mr. Fisher [counsel for the Crown] has placed, naturally, very great reliance upon the words ‘essential and necessary'' contained at page 392 of Lord Buckmaster's speech in the Hagart and Burn-Murdoch case [see BIM37770], these words being an echo of the expression ‘essentially necessary’ which he has on the same page quoted from the finding of the Commissioners in the case of Reid's Brewery Co., Ltd. v Male [see BIM37753]. Mr. Fisher derives from that expression of Lord Buckmaster's the proposition that, in order to establish that the loss on guarantees is deductible, one must show that unless a solicitor gives guarantees of this kind it is virtually impossible for him to earn profits as a solicitor; in other words, you cannot carry on the business of a solicitor successfully without being prepared to give guarantees. Lord Shaw and Lord Warrington use different expressions from that used by Lord Buckmaster. Lord Shaw uses the expression, at page 395 5, ordinary expenditure of a solicitor's business’, and at page 398 6 Lord Warrington uses the expression ‘general practice amongst solicitors’. I understand the expression ‘ordinary expenditure of a solicitor's business’ as meaning expenditure commonly undertaken by solicitors, and similarly the expression ‘general practice amongst solicitors’ as meaning activities commonly undertaken by solicitors.

…I have come to the conclusion that the finding is sufficient to establish that it is a general or ordinary activity of the practice of solicitors in the sense of an activity commonly undertaken by solicitors in the course of their practice, though certainly not a practice which is universal or adopted by the majority of solicitors. This is a question of degree upon which the Court would not readily interfere with the finding of the Commissioners, and I think it would be an unduly narrow view of the law as explained by the House of Lords in Hagart and Burn-Murdoch to hold that evidence that an activity is carried on by a number of solicitors, with no evidence to the contrary, is insufficient to establish that that activity is a general or ordinary activity of solicitors. It is worth while to observe that, so far from calling evidence to the contrary, the Inspector of Taxes accepted as given the evidence of the other solicitor who was not called, and did not seek to take advantage of the opportunity of cross-examining him.