DEEDS OF COVENANT (SEALING) (Hansard, 6 April 1977)

§ Mr. Peter Emery (Honiton)
I am delighted to be able to raise a specific matter and to see a Treasury Minister here to reply to the debate, because there is a legal aspect to the matter, and if a Law Officer is not present, this is a matter with which the Treasury has power to deal.
As the case unfolds it will be found that it concerns the Church of St. Peter 1370 and St. Paul, Uplyme, in my constituency. I believe that matters of a constituency nature should be, and normally are, sorted out by correspondence and contact between the Member concerned and the Minister or the Member and the Minister's Department, and that time should not be taken on the Floor of the House for these items. Indeed, this is only the third Adjournment debate of a constituency nature that I have raised during my 18 years in the House, and today of all days I would wish not to be debating this matter because only three and a half hours ago my wife presented me with a baby daughter.
However, I raise the matter because what has happened is bureaucratic nonsense. It is exactly the type of case that makes the average man in the street despair of the foolishness of administration and the damned pigheadedness of certain of our administrators, civil servants or—dare I say it?—even Ministers.
The House will know that the 1971 Finance Act abolished the necessity that covenants of gift had to be stamped. Up to that time, there had been a requirement that covenants should carry a wafer seal, usually pink or red, and they had to be sent for stamping and registration immediately after execution. I believe that at the time of the Finance Bill it was again considered to be unnecessarily rigid and bureaucratic that the requirement for the sealing of these covenants should continue. Indeed, it was abolished, as was the need for the wafer seal that went on such covenants.
It is against this background that I wish to unfold the case on behalf of the Church of St. Peter and St. Paul. Early in June 1976 a claim was submitted to Her Majesty's Chief Inspector of Taxes at Bootle for the refund of more than £803 against 89 covenants on which payment has been received for the financial year 1975–76. This was in accordance with the procedure which had been followed since 1971 when the requirement that covenants should be stamped was abolished by the Finance Act. Prior to that date covenants had been sent by the church for stamping and registration immediately after execution. Up to this time there had been a requirement, as was made absolutely clear, that the covenants should carry a wafer seal.
1371 In August 1976 a letter was received from Her Majesty's Inspector of Taxes at Bootle saying that 16 of the covenants were invalid because they had not been executed under seal and so do not constitute effective disposition of income for tax purposes and tax cannot be repaid in respect of payments made under their terms. The writer of the letter said late: Documents thus found to be invalid cannot be made valid merely by affixing a seal or altering the wording. They must be re-executed under seal and will operate only from the date of execution and repayment is normally only available in respect of payment made after that date. The sum was in respect of only £180.45 for 1975–76 and £44.17 for 1976–77, a total of £224.62. It is not very much, but it is well over one-quarter of the returnable tax claimed and a very serious loss to a small church in a small parish which has to exist on the contributions of parishioners and where a considerable sacrifice was being made by a number of people who wished to sustain the church.
In March 1975 the then assistant honorary treasurer of the parochial church council had had some new forms of covenant duplicated locally from which the word "sealed" was omitted from the phrase "signed, sealed and delivered" in the attestation which had survived from the days when the seal had been used. The omission could have been due to a typographical error—after all, it was the omission of only one word—or, as sealing as such as a positive action of putting a wafer seal on the document no longer occurs, ordinary men and women could not be blamed for conjecturing or thinking that the word "sealed" was redundant.
Indeed, it might well be argued that to have a document containing that word signed, witnessed and sworn when the signatory knew that the document was not to have a wafer seal appended to it might be an incorrect action, as no wafer seal was to be attached. Therefore, why in God's name should someone put his hand to something which was not to be carried out?
I repeat that the covenants were produced locally in an effort to save money. If the Minister wishes to see them, I have examples of the old covenant and of the new one.
1372 Before the church council appealed to me the assistant treasurer made a direct approach again to Bootle asking that the inspector of taxes should agree that the covenantors concerned should be allowed to sign new covenants, trusting that if this were done the Inland Revenue would allow the date of first payment to be applied to the new covenants. Nobody challenges that the intent and belief of the covenantors was that they were covenanting as from the date of the first documents. Bootle replied that this could not be done. What a load of bureacratic nonsense!
The parish sought my help on this point, and I immediately approached Sir William Pile, who took a sympathetic interest. I am most grateful to him. He wrote to me on 9th January this year. I am sure the Minister has received a copy of his letter which says: On first reading your letter and that of Mr. Innes"— which I had sent— —"I confess that, not having met the point before, I wondered whether the Department was being a little wooden in standing on the omission of the word 'sealed' in the covenant forms that had been 'signed and delivered'. I have therefore looked very carefully into the matter and I have to say that I am now persuaded that we are not standing on 'a legalistic tautology'. That applies because I had suggested that this really was pure legalistic tautology and that the Inland Revenue was getting out of its responsibility to pay what obviously, in any commonsense or ethical approach, should have been repaid. Sir William went on: under English law a promise which is made without consideration—and a charitable covenant falls into this category—is ineffective unless made by deed, and a deed must be under seal. This is the amazing factor. In the absence of a wax seal, wafer seal or other mark, it is accepted that sealing has taken place if the attestation clause includes the word 'sealed'. One does not have to do it but, in fact, one has to sign that one has done it although one knows one will not do it. Can that make sense? Can that be what the Minister is going to support? The Board of the Inland Revenue said that it was not within the power of the Inland Revenue to correct this matter, an error on the part of the parish council, however sympathetic it may feel towards it.
1373 I must say that Sir William was kind in that he conceded that, contrary to what had originally been written to the church, new deeds made for the current year 1976–77—therefore, before 6th April 1977, if they were made within this period—would be allowed to have effect for payments if they had been made at any time since 6th April 1976 but not earlier. Indeed, this saved the parochial church council £44, and that is why I referred to the two sums earlier in my speech.
There is another interesting factor. If the Treasury or the Inland Revenue are going to stand on a legalistic nonsense because they say they cannot alter the law—it should be pointed out that they have altered it—I must emphasise that the Board of Inland Revenue, when it was required that flimsy seals were necessary before 1969, accepted covenants without seals prior to that time. If the Minister wants evidence—I am certain he will take my word—I can provide it from this church.
At least no one has suggested that the parish should be let off the hook if it had done anything wrong. What we are suggesting is that it should be given what everyone in the case accepts is justified. No one has for a moment ever suggested that the executors of the documents did not properly, and in their own minds, deem that they were taking every legal step necessary for the covenants to obtain tax repayments.
I suggest, therefore, that the plain man should not be required to set his hand to what must seem to him to be a patently untrue statement and to sign that a document is to be sealed when he knows that it is not to be sealed. Surely that is as obnoxious to a lawyer as it is to a church man, giving encouragement to the all-too-prevalent attitude to any form of oath, that it is anachronistic mumbo-jumbo which is not to be taken literally.
The sum at stake for the church is small. Many would say that it is negligible. However, the sum at stake for the covenantors is not small. Part of it, in one instance, is the widow's mite. Therefore, the principle at stake is anything but negligible. If the present ruling is upheld, much larger sums could be denied to the church. No one wants that to happen. I do not believe that the Inland 1374 Revenue does. Certainly I do not believe that Sir William does. I cannot believe that the Treasury does. If there is a difficulty in law, there is surely power in the Treasury to make an ad hoc payment to the church for this amount. If it must hold up this legalistic nonsense, repayment should be made, and I appeal to the generosity of the Minister, because he knows that this money has been pledged properly.
Nearly all politicians today believe that they themselves and their parties are compassionate. So does the law, which takes great risks and on occasions faces obloquy to show compassion to criminals. There is nothing criminal in this case. Can none of this gentle rain of compassion seep through to the stifled arteries of our bureaucracy in order to prevent a village church being financially flogged for a minor mistake or an error of omission by a helper, and to prevent very considerable financial suffering?
I have attempted to be reasonable. But, if we cannot across the Floor of the House find some way of working out the financial payment of this money to the church, I suggest that the Treasury will be adopting tax evasion methods to avoid paying back what it knows in its mind should justifiably be paid. I do not believe that it is right that any Member of Parliament, especially any responsible Member of Parliament, should have to make that sort of accusation against the Treasury. The Treasury knows that this is a quite justifiable case. I appeal to the great might of the finest of all Ministries in the country to find some way to help the Church of St. Peter and St. Paul at Uplyme.

§ The Minister of State, Treasury (Mr. Denzil Davies)
I congratulate the hon. Member for Honiton (Mr. Emery), first, on obtaining this Adjournment debate in order to raise this matter on behalf of his constituents and, second, on the birth to his wife this evening of a daughter.

§ Mr. Emery
I am grateful to the hon. Gentleman.

§ Mr. Davies
I have great sympathy with the case put forward by the hon. Gentleman, whicht means that I shall not be able to do anything. But I assure him 1375 that, if it were possible to do anything, this would be the kind of case in which I should want to assist. It is a hard case—one of the hardest of hard cases—but I learned when I read my law books that, unfortunately, hard cases make bad law.
This is not a matter of bureaucracy or of administration. If it were, it might very well lie in the hands of the Chairman of the Board of Inland Revenue or of Treasury Ministers to do something about it. Unfortunately, this is a matter not of legal technicality, as the hon. Gentleman suggested, but of an interpretation of the law or of the Inland Revenue acting according to the legal advice that it has received from its advisers.
The Inland Revenue believes that its advice is correct. It is not for me to say, but that is the advice which it has received, and it has to act according to the legal advice which it has received. I, as a Minister, cannot overturn that interpretation of the law of the land. It is not my place to change the law. Parliament can change the law. The courts can interpret the law. But a Minister should not be in a position to apply the law as between different citizens according to his own interpretation of that law.
Unfortunately, this is an area of great technical complexity. The law states that if there is a deed of covenant certain tax privileges accrue, but if there is not, those privileges do not accrue.
The question is whether there is a deed of covenant, and that is a question of law. The law lays down that in order for there to be a deed of covenant, the document must satisfy certain conditions. One of those has in the past been that it had to be a sealed document, whereby a seal was affixed to the document. But over the years the courts have looked at this matter. There have been cases where the seal, which is only a large piece of wax, has been lost. But the courts have, as I understand it, been prepared to accept that the document was under seal in spite of the loss of the seal if the words "signed, sealed and delivered" were at the bottom of the document.
The Inland Revenue now takes the view, in the light of the decided cases, that if the attestation clause in the document includes the word "sealed" it is prepared to assume that sealing has taken 1376 place. But if the word "sealed" is not there the assumption does not apply, and the Inland Revenue, on the advice it is given, cannot accept that that document is a deed of covenant for the purposes of the tax legislation.
I accept that this is a technical and legalistic matter, but the whole law of covenant is technical and legalistic, and I would not want to bore the house tonight by tracing the history of the deed of covenant, contracts under seal and the need for consideration in other contracts.
I have great sympathy with the case presented by the hon. Member, and with his constituents. I wish it were possible for me to say tonight that we could give the money back. But it does not lie in my power to change the law of England. One of our Law Lords said that there is no equity about a tax. That meant not that there is no fairness about a tax but that we cannot pick and choose in taxation matters.

§ Mr. Emery
I am pleased to receive the hon. Gentleman's sympathy. If I understand him properly, he is restrained by the law from doing anything. Can I recruit his sympathy if I table an amendment to the Finance Bill specifically to relieve this case retrospectively? Can I be sure that his sympathy would be carried into action and that he would do exactly what he said he wants to do; that is, give the money back to the church?

§ Mr. Davies
The hon. Gentleman must not ask me to pronounce on an amendment dealing with a particular case. How the Committee on the Bill would react is a matter for the Committee. If the hon. Gentleman tabled an amendment calling attention to the anomalies in the law on this matter and arguing that the word "sealed" was not necessary in future for the generality of taxpayers, that might be another matter. But it would be extremely difficult and improper to make an amendment to the Bill retrospectively to relieve the tax on one person or group of persons, however sympathetic one might be to the case.
Unfortunately, there is no equity about a tax. Unfortunately, although the law of equity may have been made according to the size of the Lord Chancellor's foot, as was once said, the law of taxation does 1377 not depend on the size of the foot of the Chairman of the Board of Inland Revenue or of Treasury Ministers. That, in fact, is the case that I must rest on.
This is a matter of law. I do not say this unkindly, but it is open to any citizen in this country to challenge an interpretation of the law by seeking legal advice and redress in the courts. In this case I realise that a small amount of money is involved. I am not saying that people should go to court, but at the end of the day that is the right place to decide these matters until Parliament changes the law. I am sorry for the hon. Member's constituents, but I cannot do anything to assist them.

§ Mr. Emery
I thank the Minister for his reply. I must point out that I would not have raised this matter had it involved a large corporation or body with large funds. I would have given the advice that the way to go about this is to challenge it in the courts. But this body does not have the type of financial backing to enable it to go to court and enter into what is likely to be a most costly action 1378 involving much much more money than it could obtain if it case. I must point out to the Minister that this is why I have raised the matter on the Floor of the House this evening.

§ Mr. Denzil Davies
I accept that entirely. I was merely pointing out that it does not lie with me or with the Inland Revenue to act here. The only way to change the situation is through the courts, or by Parliament passing another law. It is not within my power to go any further than that.

§ Mr. Deputy Speaker (Sir Myer Galpern)
Before I adjourn the House, may I offer my congratulations to the hon. Member for Honiton (Mr. Emery) and his wife on the birth of a daughter. In view of the debate on the Adjournment, I suggest that the hon. Member does not forget to claim his child benefit immediately.

§ Mr. Emery
Thank you, Mr. Deputy Speaker.