Bray v Best
| Jurisdiction | England & Wales |
| Judge | Lord Mackay of Clashfern,Lord Keith of Kinkel,Lord Brandon of Oakbrook,Lord Oliver of Aylmerton,Lord Goff of Chieveley |
| Judgment Date | 23 February 1989 |
| Judgment citation (vLex) | [1989] UKHL J0223-1 |
| Date | 23 February 1989 |
| Court | House of Lords |
[1989] UKHL J0223-1
House of Lords
Lord Chancellor
Lord Keith of Kinkel
Lord Brandon of Oakbrook
Lord Oliver of Aylmerton
Lord Goff of Chieveley
My Lords,
I have had the advantage of reading in draft the speech about to be delivered by my noble and learned friend Lord Oliver of Aylmerton. I agree with his reasoning and conclusion that this appeal should be dismissed.
In the course of the hearing of this appeal their Lordships found that on occasion the report of a case in Tax Cases may appropriately be referred to even when the case is also reported in the Official Reports. Accordingly I consider that for the future in this House counsel should be entitled if they think that the more convenient course to use the report of such a case in Tax Cases rather than in the Official Reports but if they decide to do so the references to the case in the Official Reports should also be given.
My Lords,
I have had the opportunity of considering in draft the speech to be delivered by my noble and learned friend Lord Oliver of Aylmerton. I agree with it, and for the reasons given by him would dismiss the appeal.
My Lords,
For the reasons given in the speech of my noble and learned friend, Lord Oliver of Aylmerton, I would dismiss the appeal.
My Lords,
This appeal is concerned with the assessability to income tax under Schedule E of distributions made by the trustees of two trust funds established for the benefit of the employees of a trading company which was taken over by a larger organisation, such distributions having been determined upon and made after the cessation of the relevant employment. The company, A. Gallenkamp and Co. Ltd., was an old established family company carrying on the business of manufacturing laboratory equipment. Towards the latter part of the 1950s, the directors, partly with a view to making the company less vulnerable to take-over and partly to provide additional incentive for its employees, established a trust fund for the benefit of employees. By a trust deed dated 3 December 1957 and made between the company of the one part and three trustees (the company's chairman, its solicitor and its accountant) of the other part, it was provided that during a lengthy trust period, defined by reference to the life of the survivor of all descendants then living of his late Majesty, King George V, the trustees should hold the trust fund (being such sums as should from time to time be advanced by the company for the purposes of the deed) on trust to raise thereout and apply such sums as should be necessary for the subscription or purchase of such fully-paid shares in the company as the company should direct. It is unnecessary to recite the trusts of the deed in any detail beyond saying that the beneficiaries were confined to employees who had not themselves sold or transferred shares to the trustees and that provision was made for shares purchased by the trustees to be offered to employees of the company, for the income in each year to be divided at the company's discretion among such qualified employees as the company should determine and, in so far as not so applied, for it to be invested as an accretion to capital and for the trustees in their discretion at any time to determine the trust. There was also reserved to the company a wide power in its discretion to alter or modify the trusts or provisions of the deed.
In 1961 the trustees purchased from a Mrs. Jarrom, the widow of a former managing director, a substantial parcel of shares which were segregated and made the subject of a separate trust which closely followed the pattern of the 1957 deed, save that income was distributable at the trustees' rather than the company's discretion and that the employees and directors eligible to benefit were limited to those with 10 or more years' service. The reason for this, it appears, was that Mrs. Jarrom had expressed a wish that a separate fund should be established in memory of her late husband, Harry Jarrom, and that it should be for the benefit of long-serving members of the company's staff.
On 25 August 1977 the company became a wholly owned subsidiary of Fisons Plc. and following this the trustees anticipated that there might come a time in the future when the company's work force would be absorbed by the parent company and they might either find themselves with no beneficiaries or find themselves unable effectively to restrict the beneficiaries to employees who had given service to the company. They accordingly set about making arrangements to wind-up the trusts, arrangements which, in 1979, were accelerated by the knowledge that the parent company planned to transfer all the employees of the company to its own employment on 1 April 1979. By deeds dated 15 March 1979, both the trusts were varied, the material alterations for present purposes being (1) the insertion, for the protection of the trustees on any distribution, of a clause enabling them to rely conclusively on a signed statement of the secretary of company containing particulars of the employees on any particular date and containing information regarding length of service, salary and other data relating to any employee and (2) the substitution, by way of a schedule, of new trusts to take effect on the termination of the trust period. So far as material the provisions to the schedule of the 1957 deed were as follows:
"1. In this schedule:
(1) �
(2) The 'termination date' means the date of expiration or earlier termination of the trust period.
(3) 'Eligible employee' means a person who was at the 31 December 1977 and is at the termination date an employee of the company (including a director holding salaried employment or office with the company) but who has not at any time before the termination date sold or transferred any share in the company to the trustees for the time being of the principal deed.
(4) �
(5) 'The terminal fund' means the net moneys remaining held by the trustees � after payment of or provision for � liabilities�.
2. The trustees shall within the nine months immediately following the termination date pay or provide for all liabilities mentioned in the definition of the terminal fund and apply the terminal fund by allocating thereout in respect of each eligible employee such a sum as the trustees shall in their absolute and unfettered discretion think fit but so that
A. No eligible employee shall be entitled to receive as of right any sum allocated to him.
B. The trustees shall apply all sums allocated to eligible employees in one or more of the following ways and such application shall be made within three months of the allocation in question (the choice of application to be in the absolute and unfettered discretion of the trustees) namely:
(i) By paying the same to the eligible employee in each case or where the eligible employee is dead, to his personal representative as an accretion to his estate; (ii) By purchasing from an insurance company … a non-commutable non-assignable annuity policy in his name the annuity whereunder is payable as from his attainment of age 65 (or in the case of a woman age 60) or, if such age has already been attained at the date of purchase, is payable as an immediate annuity.
(3) Every allocation and application shall be made in writing and pursuant to a unanimous resolution of the trustees.
(4) The trustees before making any payment shall be entitled to deduct or make provision for all taxation payable by the trustees in respect thereof.
(5) Subject to the trusts aforesaid, the trustees shall hold the terminal fund upon trust to divide and pay the same to and amongst all the eligible employees in shares proportional to their salaries for the year ended 31 December 1978 � and any payment so falling to be made to an eligible employee who has died before it has been made shall be paid to his legal personal representatives."
The schedule to the amended deed regulating the Harry Jarrom Trust was in similar terms save that eligible employees were limited to those who had been in the service of the company on 31 December 1975.
These alterations having been effected, the trustees, by deeds dated 29 March 1979, directed that the trust period in relation to each fund should thereupon terminate in relation to the whole of the trust property. It thus became necessary, unless the ultimate trust in default was to take effect, for the trustees to allocate the funds among the eligible employees before the end of December 1979. On 1 April 1979 all the company's employees were transferred to the employment of the parent company and their employment by the company ceased. On the previous day, a notice had been posted on the company's notice board informing employees of the existence of the trusts, announcing their winding-up and outlining the procedure which would be followed. For many employees this may well have been the first occasion on which they were aware of the existence of trusts.
The trustees were concerned that the division of the funds should be conducted as fairly as possible and various computer print-outs were obtained showing the effect of applying various formulae which attached different weights to length of service and salary scales. None of these was actually adopted, but they were used to form the basis for ultimate allocation, although, by adopting a lower cut-off point to reduce differentials, there was a substantial departure from the figures yielded by the print-outs. By written resolutions dated 21 December 1979 the trustees of both funds resolved on the allocation of the funds among some 770 employees (633 in the case of the Harry Jarrom trust fund) in accordance with the decision at which they had...
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