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Income and Customs v Investec Asset Finance Plc and Investec Bank Plc (Taxes)| Higher Court (Tax and Law Firm)| Legal Affairs

"and ( "Garrard"); and (3) a HKP... deal. FTT summarized the Garrard operation as follows:. Indeed, as we have already stated in point 5, the Hong Kong operation was the result of a pure Hong Kong lease operation in respect of a... The lessees were two Cathay Pacific Group entities and, at the date of the operation we are dealing with, all or almost all of the equity injections had been received and it was argued that any prospective income from lettings or disposals in Hong Kong would be at 17% of the total amount of the equity injections....

Of course, [Investec] would not have bought the shares unless they were certain that a certain amount would be obtained practically immediately from the company, and for this purpose the tenancy agreement was modified, which provided for substitute rent and a pre-payment of these rents.... In the other amendment, if[Investec] were to become the main shareholder of the company to be leased, the executive shareholder would continue to be a going concern and would retain a very small claim to rent as an absolute shareholder, and thus[Investec] had to make changes to the certificate in order to prevent the full allocation of this income to the shareholders immediately after receiving the expedited rent, i.e. essentially to[Investec]....

Operations were carried out by a dedicated commercial group within the group, which specialises in customised finance deals.... In each of the deals, the joint topic was that IAF and IBP each purchased a stake in a debt leasing eligible alliance and became partners of that alliance to implement the alliance and make dividends to IAF and IBP....

Later on in this process we will often focus only on Investec's purchase relationships, but it is important to understand that IAF and IBP, as we will discuss in more detail below, have become partner in each of the leasing relationships as it is of vital importance to HMRC and not contested by Investec.... IAF and IBP are not the only ones who have become involved in any of the leasing relationships.

Summarising, the disputed expenses comprised (i) (in the case of each of the LAGP, Garrard and Hong Kong Partnerships) amounts disbursed for the purchase of interests in each of the Partner Agreements, (ii) (in the case of Garrard) amounts disbursed for the purchase of interests in Schrovest which owned 5% of the Garrard Partner Agreement, and (iii) (in the case of LAGP and Garrard) further significant equity investments....

Issue 1 was whether the disputed expenditures were principal or income expenditures. On [ [96]-[100], the FTS ruled that the expenses were entirely and solely for the purpose of its individual transactions and should not be prohibited.

Question 4 was whether the leasing company's paid taxes - or the leasing company's dividends representing paid taxes - should be taken into consideration when calculating the sole finance industry income taxes. Investmentsec has lodged an appeal against the FTT's conclusions. It has not contested FTT's finding that there were two transactions and not one each.

In what they call an implicit statement by FTT[81], that Investec has conducted more partnership deals than the seven disputed deals than they were not open to FTT on the basis of the proof, but (i) we do not read[81] as containing such a statement and (ii) if so, then we believe that FTT's statement was open on the basis of the witness's proof, what they claim to be an implicit statement by FTT[81] is that Investec has conducted more partnership deals than the seven disputed deals than they were not open to FTT on the basis of the proof, but (iii) we do not read[81] as containing such a statement and (iv) if so, then we believe that FTT's statement was open on the basis of the witness's proof.

Problem 1: Was the controversial expenditure investment or the income? Distinguishing between income and profit, whether income or payment, has a long story. This is because, like the similarities, an item of property usually kept on the taxable person's principal balance sheet by some tax payers may be a commodity for others.

"will depend on the impact of the expenses from a commercial and operational point of views and not on the juridical categorisation of claims if they are secure, busy or exhausted". In addition, she gets further assistance from a paragraph in the Lord Goff of Chieveley's Lawson v Johnson Matthey plc[1992] 2 AC 324 at 341 (with which Lord Keith of Kinkel and Lord Elmslie agreed) address in Lawson v Johnson Matthey plc[1992], quoted by the lawyer for Investec: 27.

IAF and IBP were both wholesale and retail banks for which debt and equity trades could be readily classified as turnover operations ([81]). The IBP was the most important dealer in the group. She conducted a wide range of wholesale and retail banking activities through various departments. IAF also had extensive commercial financing at the date of the respective operations and, as a logical expansion of its leasing financing activities, had repeatedly purchased and resold leasing receivable portfolio ([21]).

The lack of regulative funds led firms to make a profit by participating in intricate and novel deals ([60]). They had to be very short-term and were: nine for LAGP, six for Garrard and two for HKP ([66]).

Garrard's contribution was made to the partner to allow it to purchase property to sell claims to Lombard and the arrears to SMBC ([49],[84]-[85]). The IAF and IBP had no interest in carrying out the lease transactions of the lease partners. The only objective was to carry out the preplanned and actually pre-contracted termination of the lease in such a way that they would promptly recieve the dividends or sales revenues from the shares in the company.

Secondly, FTT rightly stated that (i) the disputed expenses comprised amounts disbursed for the purchase of company shares and equity investments, (ii) it was crucial that Investec became a partner in the leasing arrangements and (iii) Investec had not purchased the leasing claims. Firstly, it was right for FTT to take into account the commercial and commercial realities of the operations and the type of benefit obtained by Investec.

Secondly, FTT had taken into consideration that the payment was made for the acquisition of shares and as equity investments, but it had the right to take into consideration the way in which these funds were to be used. It was not purchased to continue the business of leasing partners, but to obtain partner dividends or income from the disposal of company shares.

Third, it was incorrect to say that a company share was always an investment of a financial character. According to the facts of the present case, the characteristics used by FTT lead to the finding that the shares in the company were income positions. In August 2006, IAF, MLSCI and Investco signed a commitment and IAF, IBP and Investco signed a further commitment (see point 19 of the statement of agreed facts).

The instruments of accession have first declared IAF and then IBP as new partners (inter alia)'willing to become partners in the partnership and to be subject to all the terms of the partnership instrument applicable to a partner' (clause 2(A)). Investec's legal counsel argued that it did not agree with Millett LJ's legal assertion that any unavoidable effect should be regarded as the object of the disbursement and listed a number of cases in which unavoidable effects had not been identified as the object.

On the contrary,[Investec] claimed that if we had determined that the expenses would be for trade and not for investments in the individual businesses, substantially the same argument would subvert [HMRC]'s current claim. Let us just reiterate the points that when [Investec] became a partner in all the different alliances, there was never the intent that the transactions would be carried out for an independent purpose within the lease transactions.

It was clear in the LAGP and in all Hong Kong circumstances that [Investec] could do nothing to stop the business from ending effectively, and of course exactly what they wanted. In the LAGP case, the injection of equity was mainly part of the acquisition cost of the shares and did not contribute to the fulfilment of the'existing obligations entered into as part of the pre-existing trading partnership'.

While the Garrard relationship was a little more focused on things, it remains clear that every move, the acquisitions of rental contracts from the two entities of the Investment Group and the purchases of asset and lease from third party, was fully focused on the objective within the individual businesses of [Investec].

This objective was to generate enough overall rent revenue to encourage Lombard to assign 95% of the rents and, at SMBC's request, to accumulate enough reserved property which would have the hoped-for continued right to receive cash grants in order to maintain the competitive pricing that SMBC would have to pay for the shares after the disposal of 95% of the rents.

An example that does not add much, but seems to us to endorse this view, is the case of a corporation raider who purchases a business just to disassemble it, probably in a predetermined way, to maximize value by carrying transactions, parts of transactions, and property to various buyers, so that the total cost of the parts surpasses the sales value quoted for the business and allows the stripper to make its desired profits.

However, if the Remover: is already subject to taxation as a pecuniary tool and a stock trader; the surgeries were carried out on seven separate occasion, all with results and with the always envisaged gains; all the surgeries were short-term surgeries, and the Remover had no interest in the activity and commerce of the Targeted Companies, except to allow it to make the ultimate gain, page 17, we have difficulty in doubting that the expenses of purchasing the Companies could be anything other than the income that would be entirely accrued for the commercial purposes of the Removers.

At our discretion, it is necessary to differentiate between the disputed expenditure components, consisting of the amounts disbursed for the acquisition of company securities and the Schrovest securities, and the disputed expenditure components, consisting of the amounts disbursed by way of contribution of principal.

However, for the amounts disbursed under equity investments, we believe that the item is different. Based on the factual observations of FTT (see in particular[30] above ), the equity injections were made by IAF and IBP as Garrard's partner in order to allow the partner to acquire either already rented or afterwards rented property.

IAF and IBP contributed a total of 226,181,882 as LAGP partner. With regard to the factual observations of FTT (see in particular[25] cited above ), 4,258,690 was used to allow the partner to acquire lease property, while (at least when reading the decision) the net amount was actually used to allow the partner to make the payment for the lease transaction.

In filings after the circular of a bill of this ruling, Investec contested these observations (or at least our reading of the FTT ruling in relation to the accounts ).... the statement of agreed facts that it was issued by PEA Leasing, but the statement of agreed facts does not show that it was either issued by IAF or IBP as a cash injection.

Accordingly, we believe that the funds (or at least 209,198,662 thereof) have been actually used to allow the Company to purchase the lease. FTT argued that Investec's final aim in carrying out the equity injections was that IAF and IBP should benefit from dividends and sales revenues and that these revenues were generated in IAF's and IBP's stand-alone financing transactions.

Nevertheless, it seems inevitable to us that Investec's contribution was at least partially made for the purpose of Garrard's and LAGP's operations, which, according to FTT, differed from those of IAF and IBP. It was not a random result, but crucial to the way the Garrard and LAGP operations were conducted.

For Garrard, it was the shareholders' equity investments that allowed the company to purchase asset values that made dividends and gains possible. At LAGP, it was the shareholders' equity investments that allowed the company to purchase the lease transaction.

FTT stated (as of [98]) that these deposits were'in fact part of the share sale price', but the lease was thereafter actually purchased with the equity provided by IAF and IBP. whether the company gains should be subjected to two assessment notices? There is no doubt that, since FTT has established that there are two separate trade groups, both the IAF and IBP trade groups and the lease partner trade groups are liable to corporate income taxation.

Investestec claims that once the gains of the leasing partners are taxable in the ownership of the leasing partners, they will no longer be taxed in the ownership of IAF and IBP as part of the business of IAF and IBP, as this would imply dual taxation.

ICTA Section 114 of 1988 contained specific provisions for the calculation of gains and loss which provided that the gains and loss of a business conducted by a business entity had to be calculated individually'as if the business entity were a company' and that each shareholder was taxed on a portion of that income.

It is based on the general rule that, in the absence of clear words forcing a different inference, taxation law must be construed in such a way that gains that have been subject to one-off taxation on one base do not have to be subject to renewed taxation on another base.

In conclusion, HMRC concluded that FTT had not gone through the ramifications of its determination that the IAF and IBP stand-alone financing transactions were distinct transactions from those executed by each leasing partnership. In the LAGP and Garrard cases, the dividends which IAF and IBP obtained were to a large extent reimbursements of previous equity inpayments.

We consider it questionable that the revenues of IAF and IBP, in so far as they were declarations of contribution of capital rather than gains, were not taxable when IAF and IBP calculated their rateable gains. The National Australia Finance (Equipment Leasing) Ltd ('NAFEL') company concluded two lease contracts ('the LNG Vessels HP Agreements').

HP's first agreement was with a firm named Optima Leasing SA ('Optima') and concerned a ship named MV SK Splendor. The Westdeutsche Landesbank Girozentrale ("West LB") has granted the NAFEL a documentary letter of credit for the MV SK Supreme and the Canadian Imperial Bank of Commerce ("CIBC") has granted the NAFEL a documentary note of credit for the MV SK Splendor.

Merrill Lynch Capital Services, Inc. "MLCSI" and Investco LLC, Series 2003-1 ("Investco") (both members of the Merrill Lynch group of businesses and located in Delaware ) subscribed and presented a Memorandum of Understanding establishing a British general commercial company under the 1890 Partnerships Act, known as "Leasing Acquisitions General Partnership" ("LAGP").

Article 5 of the articles of association provided that the object of the LAGP was to continue the lease operation and the purchase, administration and sale of certain permissible investment with a view to profits. National Europe Holdings Ltd ("NEHL"), LAGP and Merrill Lynch International entered into a put warrant arrangement ("the PEA Put Option") on August 10, 2006, under which LAGP gave NEHL the right to resell one common stock to PEA Lease Ltd ("PEA Lease") to LAGP.

The PEA Lease was a fully owned NEHL affiliate which had no significant asset or liability at that time. LAGP will pay 1 for the equity interest in PEA Lease or 16,899,720 if the NAF LLP lease is transferred to PEA Lease prior to the exercising of the options (as mentioned in section 14 below).

MLCSI, Investco, Merrill Lynch International (as guarantee for the commitments of the LAGP partners) and Investec entered into a put warrant arrangement ("the LAGP Put Option") on August 10, 2006 under which Investec gave MLCSI and Investco the right to put their shares in Investec under certain terms and certain terms at a premium to be determined according to a calculation included in the LAGP Put Options.

It'?s the letter of agreement. Ltd, PEA Lease and LAGP have prepared and submitted a Certificate of Assent ("the Certificate of Assent") by which (i) the notifying party has given its approval to certain transaction and (ii) changes have been made to the leases and RGA. On August 1, 2006 NEHL granted an exercising declaration to MLCSI and Investco under the PEA put options, obliging LAGP to acquire PEA lease from NEHL at a cost of £16,899,720.

LAGP MLCSI and Investco were partner companies at this point in their.... In August 2006, MLCSI and LAGP entered into a Memorandum of Understanding in which MLCSI committed to step up to LAGP 226,097,383 to pay the NEHL due under the PEA put options (see point) and to grant PEA leasing loans to enable it to pay back the intra-group NAF LLP debt (see point 14).

In August 2006, a shares hive-off document was completed which assigned one common PEA Leasing common PEA shares to Investco (on LAGP's behalf). In August 2006, IAF, MLCSI and Investco subscribed and submitted a commitment andnvestec and Investco subscribed and submitted a further commitment replacing MLCSI and Investco as LAGP-partner.

After completion of the two documents, IAF made an extra £11,309,094 injection to LAGP and IBP made an extra £214,872,788 injection to LAGP. A total amount of 226,181,882 was used to cover payment of postage tax on the acquisition of PEA Leasing and to reimburse the amount due by LAGP to MLCSI under the terms of the loan writing mentioned in section 16 above.

In August 2006, LAGP (through its new partner Investec) and PEA Lease entered into an intra-group credit facility in which LAGP committed to providing 209,198,662 in cash to enable PEA Lease to pay back the intra-group credit to NAF LLP (see section 14). PEA Lease had a total of £4,258,690 for the years ended August 30, 2006 and September 15, 2006.

Expenses for asset items held for rental to Capital Bank plc, MAN Financial Services plc, ING Leasing (UK) Ltd and Fortis Leaase UK Ltd. under operate leases... Payables in conjunction with or resulting from the leases. SK Shipping Europe Ltd. and the owners LAGP announced on 11 October 2006 their intent to end the ship leases under the leases on 19 October 2006.

LAGP: (1) on October 11, 2006, requested West LB to pay the full amount due under the documentary letter of credit granted by West LB, and (2) on October 19, 2006, requested CIBC to pay the full amount due under the documentary note granted by CIBC.

On 19 October 2006 LAGP obtained a combined amount of £248,302,590 from West LB and CIBC. of the Finance Act 1998. Memorandum (the'Memorandum') concluded by JHSW Lease (12) Ltd ('JHSW12', as general partner) and Schrovest Lease 12/07 Ltd ('Schrovest', as Kommanditistin). Garrard's activity was to operate the lease by purchasing and investment in eligible assets.

While JHSW12 had a 95% interest in the gains and loss, Garrard and Schrovest's property owned the remainder. in March of 2007. £5 of the sale amount stated in the document and that 100 will be added to the JHSW12 equity holding and 6 will be added to the Schrovest equity holding.

JHSW12 and Schrovest have performed and handed over two Correction Certificates to correct certain mistakes in the preparation of the Certificate and the Supplementary Memorandum. Garrard's transmission to Investec. IBP, Schroder Investment Company Ltd ('SICL') and JHSW12 concluded a contract of sale ('contract of sale') on 2 April 2007 under which IBP substituted JHSW12 as general partners and purchased all of Schrovest's outstanding shares from SICL.

Remuneration for the issue of the registered common stocks was 7,877 and remuneration for the company held 4,899,625 pounds. JHSW12 was informed by Schrovest that it had appointed IBP as the general partner's replacement and that each of Schrovest and JHSW12 had informed the other of its agreement. Schrovest's equity was transferred using the equity securities transaction report of 2 April 2007.

SICL, as Schrovest's sole owner, decided on 2 April 2007 by way of a letter to rename Schrovest as Investec Asset Finance (Capital No.3) Ltd ('IAF3'). IAFC3. All of Investec and IAF3 have issued and supplied a complementary document according to which:

£1,200,000 of equity was to be given back to IAF3 (reducing IAF3's equity to 50,000); and (2) IAF provided £200,000 of equity to Garrard. of Garrard's gains and forfeitures. Capitol Bank least. Garrard purchased certain trucks on 12 April 2007 at a combined purchase price of 723,664. 76 were then rented to the Capital Bank plc under operational leasing conditions.

It was financed by a call from IBP as general contractor of Garrard for Garrard to make further equity contributions: Investec and IAF3 have implemented and supplied a modified and adapted Commitment Contract. The Garrard name was changed to "Garrard No. 2 Leasing Partnerships LP". May, 2007. In May 2007 IBP (as General Partners of Garrard) decided to buy the company:

1 ) certain machines, cars and equipment which are the object of operational leasing contracts to the Bank of Ireland Business Finance Ltd, Capital Bank plc, Fortis Lease UK Ltd, ING Lease (UK) Ltd, MAN Financial Services plc, VFS Financial Services (UK) Ltd and Tesco Distributions Ltd of Investec Asset Finance (No. 1) Ltd (a company of the same group as Investec); 3 ) certain utility cars of one or more third parties which are sold to MAN Financial Services PLC under operational leasing contracts under the terms of the operational leasing contracts.

In May 2007, IBP (as the general partners of Garrard), Investec Asset Finance (No. 1) Ltd and Investec Asset Finance (Capital) Ltd concluded a contract of sale-purchase for the machines, cars and equipment mentioned in paragraph 46(1) and 46(3) which are the object of leasing contracts. The Garrard Group received 40,171,700 to Investec Asset Finance (No. 1) Ltd as compensation and 5,944,000 to Investec Asset Finance (Capital) Ltd.

May, 2007. In May 2007, IBP (as General Contractor of Garrard) purchased certain trucks at a combined purchase price of 5,680,825, which were then let to MAN Financial Services PLC under operational leasing agreements. The Guinness Mahon Leasing Ltd. Guinness Mahon Leasing Ltd ('GML') and IAFC3 entered into a contract of sale on 19 July 2007 and GML superseded IAFC3 as Garrard's Kommanditist.

Investec, IAF3 and GML issued and surrendered a certificate of performance on 19 July 2007 and GML became Garrard's Kommanditist under the Articles of Incorporation. In July 2007, IBP (as general contractor of Garrard) decided to acquire from Investec Asset Finance (No. 1) Ltd. certain machines, cars and equipment which are the object of operational leasing contracts, to Alliance & Leicester Commercial Finance plc, Bank of Ireland Business Finance Ltd, Capital Bank plc, ING Lease (UK) Ltd, MAN Financial Services plc and VFS Financial Services (UK) Ltd.

In July 2007, IBP (as general contractor of Garrard) requested further equity injections from Garrard: However, the Commission has decided not to grant the loans until 1 July 2007, which sets out the conditions for this facility. The Garrard Group provided Investec Asset Finance (No. 1) Ltd with 21,558,600 in return. Juli 2007. IBP (as general contractor of Garrard) and Lombard on 15 August 2007 entered into a debt sale and transfer contract in which IBP agrees to transfer to Lombard all of its interests, property and interest in and to 95% of certain of Garrard's leasing claims and Lombard agrees to repay £63,501,141.72 to Garrard.

Investec Asset Finance (Management) Ltd, IBP (as general partners of Garrard), Lombard and IBP (as guarantors of the commitments of Investec Asset Finance (Management) Ltd) entered into a service contract on 15 August 2007 appointing Investec Asset Finance (Management) Ltd as administrator of the assets under lease and the lease related cash outflows.

IBP and Lombard issued a service level bond on 15 August 2007 in which IBP provided a service and financial commitment to Investec Asset Finance (Management) Ltd under the Understanding. In August 2007, Investec and GML (as Garrard's partners) issued and received a complementary certificate: 1. The parties reached a consensus that Garrard would repay 62,500,000 to IBP in the form of repayment of the IBP contribution; 2. the parties reached a consensus that this would reduce IBP's equity balance to 12,177,566 pounds.

52; and (3) IBP (as Garrard's General Partner) acknowledged to IAF and GML (as Garrard's Kommanditisten ) that Garrard would reimburse to GML the credit granted by GML to Garrard (referred to in Section 55) together with interest earned. in August of 2007. Investec and GML (as Garrard's partners) signed and handed over another complementary document on 10 September 2007:

1. the parties reached agreement that Garrard would repay 260,000 to IBP in exchange for the equity raised by IBP; and 2. the parties reached agreement that this would reduce IBP's equity balance to 11,917,566.52 pounds. £15,216,321; and (2) a disposal by IAF of its stake in Garrard to Mithras for £3,224,319. 65.

Investec, SMBC Leasing and GML signed and handed over a Certificate of Commitment and Affiliation on 11 September 2007 under which SMBC Leasing replaces IAF as Garrard's Garrard affiliate. IBP (as Garrard's outgoing general partner) and SMBC Leasing (as Garrard's new general partner) completed and surrendered a transfer agreement on September 11, 2007 whereby IBP transfers to SMBC Leasing the right to the economic ownership of the Garrard property and liabilities.

Lombard, SMBC Leasing, Investec Asset Finance (Management) Ltd and IBP on 11 September 2007 issued a Certificate of Amendment to the Memorandum of Association dated 15 August 2007 (referred to in Section 59). Investec, Mithras and GML on September 11, 2007 issued and completed a Certificate of Compliance under which Mithras substituted IBP as Garrard's affiliate.

SMBC Leasing, Mithras, GML and IBP issued and handed over a supplementary certificate on September 11, 2007, which makes certain changes to the agreements between Garrard's parties and changes Garrard's name to "Mithras Leasing Investment LP". Investec Asset Finance (Management) Ltd, SMBC Leasing (as general partner of Garrard) and IBP (as surety of the liabilities of Investec Asset Finance (Management) Ltd) entered into a further service contract on 11 September 2007, appointing Investec Asset Finance (Management) Ltd as administrator of the assets under lease and the cash flows from the lease agreements owned or controlled by Garrard.

Investec shall receive the quid pro quo mentioned in paragraph 64(1) and 64(2) on 11 September 2007. Garrard was dealt with as a stand-alone unit by IAF and IBP, so its interest in that unit was recorded as a stand-alone unit (and not the leasing receivables). IAF and IBP each reported the shares they purchased (IAF3 in the case of IAF and JHSW12 in the case of IBP) at acquisition costs.

IAF and IBP shall recognise any Garrard contribution by raising the carrying amount of their holding in Garrard by an amount equivalent to the paid-up shareholding. The IBP has accounted for return on investment to it by reducing the carrying amount of its investment in Garrard by an amount equivalent to the amount of principal transferred.

Investec has calculated Garrard's UK rateable income by Investec and the gains and loss have been assigned to IAF and IBP. Founding of the 46th Hong Kong Leasing Partner. Forty-sixth Hong Kong Leasing Partnerschaft ('HKP') was established on 18 September 1997 under a Memorandum of Understanding ('the Memorandum of Understanding') exported and supplied byombo Ltd ('Bombo'), The Bank of East Asia, Ltd ('BEA') and Carrabelle Ltd ('Carrabelle').

The HKP was founded to rent an Airbus A340-300 including engine (together the "aircraft") from Cathay under a lease contract and to lease the aircraft back to Cathay. Both Bombo and Carrabelle brought HKP HK$ 9,544 into HKP's equity and were eligible for 0.0025% of HKP's gains and loss and assets.

The BEA was eligible for the remainder of 99. 995% and invested HK$127,600,865 and US$32,828,307 in the HKPapital. HKP's operations were run by Bombo as CEO and continued in Hong Kong. Both HKP and Kleinwort Benson Ltd ("Kleinwort", operating through its Hong Kong office) have entered into a credit agreement under which Kleinwort has consented to lend HKP up to HK$ 708,891,946 in the form of credit financing ("the 1997 Loan").

Both HKP and Kleinwort have entered into and provided a surety agreement under which HKP (to further secure its commitments to pay back the 1997 loan) has transferred to Kleinwort its right to obtain certain rents under the lease. HKP, BEA, Carrabelle and Cathay have issued and provided a pension options agreement under which HKP gave BEA the right to withdraw from HKP and Carrabelle has consented to acquire BEA's shares in the Company after BEA's withdrawal.

Both Cathay and HK P have signed and supplied a lease agreement under which Cathay has leased the aircraft to HKP until 11 December 2015. Upon receipt of the aircraft, HKP reimbursed Cathay HK$1,090,602,995 and received the right to buy the aircraft for HK$1 (2) on and from December 12, 2007, such "additional rent" as HKP and Cathay have jointly negotiated, which is economically reasonable.

On 5 August 1997 Cathay requested and obtained a decision from the Hong Kong Inland Revenue on the fiscal treatment in Hong Kong of the above described lease agreements. Exercising the retirement options agreement. The BEA has made use of the possibility to withdraw from HKP under the January 2000 retirement options agreement.

Consequently, Carrabelle was eligible for 99.9975% of the gains and loss and the HKP and Bombo equity for the remainder of 0.0025%. and Investec in connection with these agreements. On 14 November 2007 a decision was taken. Acquisition of company shares. Carrabelle, Investec, Bombo and Cathay concluded a sale and transfer agreement on 7 December 2007 in which IAF and IBP concluded a 4.9975% shareholding in HKP and a 95% shareholding in HKP, respectively from Carrabelle.

Stages 95 to 101 took place on 10 December 2007. Boombo and Investec have implemented and supplied a modified and adapted memorandum of association. Modifications to the memorandum and articles of association required Bombos to pay adequate rent into a reserve account as a reserve for Hong Kong income taxes and to allocate surplus rent to shareholders in proportion to their share of earnings.

Cathay shall have the right to pay in advance, on or after 11 December 2007, any additional rent due at that date as a flat-rate surcharge. HKP, Bombo, Cathay and Investec have concluded and supplied a put options agreement under which Investec has each been given an opportunity to request Cathay to buy its shares in HKP.

Cathay ( or its nominee)'s (or its nominee's) price for the acquisition of the Company's Shares upon exercising the put warrants was dependent upon whether or not the additional rents were disbursed and, if the additional rents were not disbursed, whether or not a contingent incident materialised. HKP, Bombo and Investec have entered into and supplied a call agreement under which Bombo has been given call options to request Investec to divest its shares in HKP at a price computed on the same footing as that described in Section 97 with respect to the put agreement.

In the case of an accelerated entry, the call rights of the Bombo Group could be exercised (an accelerated entry corresponds to a contingent entry under the put warrant agreement). Cathay agrees HK$1 with Bombo as collateral for Investec's Call option commitments deep. Both HKP (through each of its partners) and Bombo have entered into a Charge Over Account Deed under which HKP has debited the Reserve Account to the benefit of Bombo as collateral for HKP's Hong Kong fiscal liability.

Investec settled on 10 December 2007 the HK$629,450,223 consideration for the shares purchased by Investec and the HK$40,000,000,000 consideration under the put options agreement. At that time Investec purchased Carabelle's shares in HKP. HKP obtained rents of HK$267,979,819 on December 11, 2007, which were due on that date under the lease.

HK$224,227,775 was paid to Investec from HKP dividends, and Bombo paid HK$43,746,129 into the tax reserve account. As of December 31, 2007, HKP obtained this upfront payment, Investec obtained HK$401,922,593 from dividends paid by HKP and Bombo filed HK$78,413,780 to the tax reserve account. Investec's computation of HKP's UK rateable profit has been completed and HKP's profit and loss has been attributed to IAF and IBP.

HKP's net result from trade after receipts of the lease payments of HK$ 267,979,819 and HK$ 480,346,740 on December 14, 2007 was included in the calculation of HKP's UK rateable profit.