Alloway v Phillips (HM Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judgment Date | 17 March 1980 |
| Date | 17 March 1980 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
COURT OF APPEAL-
Income tax-Schedule D, Case VI-Non-resident-Contract to sell story to newspaper company resident in U.K.-Whether income arising from property in U.K.-Income and Corporation Taxes Act 1970 (c 10), ss 108, 109.
The Appellant was the wife of one of the "Great Train Robbers". At all material times she was resident in Canada and pursued no profession or vocation. During 1967-68 an employee of her solicitors in the United Kingdom purported to make a contract on her behalf with a newspaper company resident in the United Kingdom. The contract required the Appellant to co-operate in the ghost-writing and publicising of articles based upon her experiences and included certain restrictive covenants aimed at protecting the company's exclusive rights to her story. In consideration therefore, the company was to make payments to the Appellant totalling £40,000. The Appellant duly performed the contract in Canada. The company thereupon paid £39,000 to her agent in the United Kingdom.
The Inspector of Taxes assessed the Appellant under Case VI of Schedule D. On appeal it was contended for the Appellant that (a) there was no contract between the Appellant and the company and the payment had been made on the basis of quantum merit, (b) the payment was substantially for the sale of secret information and was therefore capital, and (c) even if income, it did not arise from the contract but from services rendered under the contract, in Canada, and was therefore outside the charge imposed by s 108, Income and Corporation Taxes Act 1970. The Special Commissioners found that the Appellant had ratified the contract and held that the payments made thereunder were property situated within the United Kingdom and the payments were chargeable income under Case VI of Schedule D.
In the High Court it was additionally contended for the Appellant that the contract was void or unenforceable as being against public policy and that income therefrom was consequently untaxable.
The Chancery Division, dismissing the taxpayer's appeal, held (1) that no authority had been produced in support of the submission that the contract was void, nor of the proposition that payments actually made under a void contract escape tax; (2) that there was evidence to justify the Commissioners' findings (i) that the contract was ratified and that the payment was not capital and (ii) that the payment arose from the contract rights; (3) that those rights which were admitted to be property situated within the United Kingdom were the only source of the payment and the services alone would have entitled the Appellant to nothing. The taxpayer appealed.
The Court of Appeal, unanimously dismissing the taxpayer's appeal, held that (1) the Commissioners were entitled to find that Mrs. Alloway had ratified the contract and the payment was income and not capital, and (2) that she had no property in Canada capable of producing this profit-it arose from her rights under a contract enforceable in this country, which rights were property in the United Kingdom.
Stated under s 56, Taxes Management Act 1970, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 11 and 12 April 1978 Mrs. Patricia Alloway appealed against an assessment to income tax made on her for the year 1967-68 under Case VI of Schedule D in the sum of £39,100 in respect of amounts received from the News of the World Ltd. (publishers of a Sunday newspaper, the News of the World).
2. Shortly stated the question for our decision was whether payments made to or for her were, within the meaning of s 108, Income and Corporation Taxes Act 1970, "annual profits or gains arising or accruing…to [Mrs. Alloway]…although not resident in the United Kingdom from any property whatever in the United Kingdom".
3. The following documents were proved or admitted before us:
(2) a copy of a document which purported to be an agreement made on 10 February 1968 (annexed hereto as an exhibit(1) );
(3) a copy of a letter dated 1 February 1974 from the News of the World Ltd.;
(4) a copy of a letter dated 4 February 1974 from Messrs. King & King, accountants;
(5) copies of articles in the News of the World.
Copies of such of the above as are not annexed hereto as exhibits are available for inspection by the Court if required.
4. In our decision (para 6 below) we set out the names of the witnesses who gave evidence before us, the facts which, as a result of the evidence both oral and documentary adduced before us, we find proved or admitted and a summary of the contentions put forward by the parties.
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(2) The following authorities were cited before us: Drummond v.Collins 6 TC 525; [1915] AC 1011; Ryall v.Hoare 8 TC 521; [1923] 2 KB 447; Whitney v.Commissioners of Inland Revenue 10 TC 88; [1926] AC 37;Curtis Brown, Ltd. v. Jarvis 14 TC 744;Bennet v. Marshall 22 TC 73; [1938] 1 KB 591;Trustees of Earl Haig v. Commissioners of Inland Revenue 22 TC 725; 1939 SC 676; Hobbs v. Hussey24 TC 153; [1942] 1 KB 491; Beak v. Robson 25 TC 33; [1943] AC 352; Commissioners of Inland Revenue v. Gardner Mountain & D' Ambrumenil, Ltd. 29 TC 69; [1947] 1 All ER 650; Purchase v. Stainer's Executors 32 TC 367; [1952] AC 280; Higgs v. Olivier 33 TC 136; [1952] Ch 311; Firestone Tyre & Rubber Co., Ltd. v. Lewellin37 TC 111; [1957] 1 WLR 464;
Evans Medical Supplies, Ltd. v. Moriarty 37 TC 540; [1958] 1 WLR 66; Bradbury v. Arnold 37 TC 665;Bloom v. Kinder 38 TC 77; Housden v.Marshall 38 TC 233; [1959] 1 WLR 1; Carson v.Cheyney's Executor 38 TC 240; [1959] AC 412;Hume v. Asquith 45 TC 251; [1969] 2 Ch 58;Seager v. Copydex Ltd. [1967] 1 WLR 923. (3) We were also referred to the following: Halsbury's Laws of England, 4th edn, vol 1, page 697; Halsbury's Laws of England, 4th edn, vol 8, page 608; Chitty on Contract, 24th edn, vol 2, pages 2013, 2015 and 2018; Stroud's Judicial Dictionary, vol 4, page 2151 (property); Dicey & Morris, Conflict of Laws, 9th edn, (1973), chapter 30, pages 721-8.
6. We, the Commissioners, who heard the appeal, took time to consider our decision and gave it in writing on 23 May 1978 as follows:
(2) This is an appeal against an assessment to income tax made upon Mrs. Alloway for the year 1967-68 under Case VI of Schedule D in the sum of £39,100 in respect of amounts which, it is alleged on behalf of the Crown and accepted on behalf of Mrs. Alloway to the extent of £39,100, were paid to her or to others on her behalf by The News of the World, Ltd., publishers of a Sunday newspaper ("the Newspaper").
(3) It is common ground that Mrs. Alloway was not resident in the United Kingdom during the year 1967-68.
(4) Our task was complicated by the lack (understandable perhaps in the circumstances) of direct evidence of some of the relevant facts. We considered whether we should invite the parties to make further enquiries and call further witnesses. We also considered whether we should use our powers under s 52(2), Taxes Management Act 1970, and summon Mrs. Alloway's husband to appear before us and give evidence. Mrs. Alloway's husband is Mr. Charles Frederick Wilson ("Mr. Wilson") who was convicted and sent to prison for taking part in the "Great Train Robbery" (which we take to be a matter of general knowledge). We decided, however, that it was unlikely that we should obtain much more assistance and that the best course was to determine the appeal on the basis of such evidence as had been adduced and what inferences we could draw from it.
(5) Mr. Wilson escaped from prison and went to Canada where, some time prior to the year 1967-68, Mrs. Alloway joined him. In January 1968 Mr. Wilson was arrested in Canada and brought back to this country where he is still detained in prison. Mrs. Alloway remained in Canada until after the end of the year 1967-68 and some time after that returned to the United Kingdom. For some months following her husband's re-arrest she was in bad health, receiving medical attention for a nervous condition and taking sleeping pills. During this time her memory was blurred; sometimes she found everything was blotted out-in particular, names would be forgotten. Her memory was still not very good. For some, at least, of the time she was the subject of a Canadian deportation order. Soon after her husband had been brought back to this country Mrs. Alloway received a telephone call from London; she could not remember who the caller was but thought that it was either a friend of her husband or a representative of Messrs. Sampson & Co., ("Sampsons") solicitors of Bride Street, London E.C.4. The caller told her that someone from the newspaper was coming to Canada to see her and that she had to speak to him. In due course the reporter arrived bringing a typewriter with him and stayed in Mrs. Alloway's home for about a week. During this time he had conversations with Mrs. Alloway and with friends she had staying in the house. He asked to see documents and pictures and she gave him a few that she had with her. Mrs. Alloway did not think that the reporter had said anything about a formal contract with the newspaper or that he had shown her anything like a contract. Although she understood that she was to be paid, she was not sure if the reporter had mentioned payment but thought that he might possibly have done so.
(6) Mrs. Alloway denied that she had appointed any literary agent to make a contract with the newspaper. When asked about a Mr. Fryde (who is referred to in para (9) below), she said that when she was about to return from Canada she had had a telephone conversation with a Mr. Fryde in the United Kingdom. She asked him to look after her "legal affairs" in England, which she explained as meaning to make arrangements about passports and to find out...
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