Clark v Oceanic Contractors Inc.

JurisdictionEngland & Wales
Judgment Date10 November 1981
Judgment citation (vLex)[1981] EWCA Civ J1110-4
Docket Number81/0445
CourtCourt of Appeal (Civil Division)
Date10 November 1981

[1981] EWCA Civ J1110-4


COURT OF APPEAL (Civil Division)

On appeal from the Chancery Division (Revenue Paper) (Mr. Justice Dillon)

Royal Courts of Justice


Lord Justice Lawton,

Lord Justice Brightman


Lord Justice Fox


1979 No. 25

David Macdonald Clark (Her Majesty's Inspector of Taxes)
Appellant (Respondent in the Court of Appeal)
Oceanic Contractors Incorporated
Respondent (Appellant in the Court of Appeal)

Mr. F. HEYWORTH TALBOT, QC, and Mr. J.R. GARDINER (instructed by Messrs. Slaughter & May) appeared on behalf of the Respondent (Appellant in the Court of Appeal).

Mr. PAUL BAKER, QC, and Mr. R.J.A. CARNWATH (instructed by The Solicitor of Inland Revenue) appeared on behalf of the Appellant (Respondent in the Court of Appeal).


Oceanic Contractors Incorporated appeal against an order of Mr. Justice Dillon, made on July 29, 1980, whereby he set aside as being erroneous a determination in their favour by the Special Commissioners for Income Tax and reversed it. The effect of this order was to adjudge that the obligations imposed by section 204 of the Income and Corporation Taxes Act 1970 put upon Oceanic as persons making payments of income assessable to income tax under Schedule E the duty to deduct income tax and to account for such deductions to the Inland Revenue notwithstanding, first, that they were incorporated under the laws of Panama where they had their registered office; secondly, that they were a wholly owned subsidiary of a company incorporated under the laws of the State of Delaware, USA, which had its principal place of business in New Orleans, Louisiana; thirdly, that they were not resident in the United Kingdom for tax purposes; fourthly, that the persons to whom they made payments of income assessable to income tax under Schedule E were employed by them under contracts governed by the law of the State of Louisiana to do work in the North Sea outside the territorial waters of the United Kingdom but within the areas of that sea designated by the United Kingdom pursuant to the Convention on the High Seas 1958 and the Continental Shelf Act 1964 as areas within which the rights of the United Kingdom with respect to the sea bed and subsoil and their natural resources may be exercised; and lastly, that they made the payments in Belgium in US dollars by cheques drawn on Oceanic's bank account in New York without deducting tax.


The Case Stated by the Special Commissioners sets out the agreed facts. Mr. Justice Dillon gave a summary of them in his judgment which is reported in (1981) 1 WLR 59. In these circumstances I need not for the purposes of this judgment go over the facts again. It suffices, I think, to state that the Crown's claim was for the tax which they claimed Oceanic should have deducted during the tax year 1977/78. The Inland Revenue's calculations were that £2,033,254 was payable under regulation 26 of the Income Tax (Employments) Regulations 1973 (to which I shall refer hereafter as "the Regulations"). During the relevant tax year Oceanic had premises in the United Kingdom and employed here about 4,500 persons in a number of places. They deducted tax in sterling under the PAYE scheme when paying them. This appeal is not concerned with those employees. What it is concerned with is the payments of income to a few hundred men, about 60 per cent of the work force, who worked for Oceanic on derrick barges, pipe-laying barges and other vessels in both the United Kingdom and Norwegian sectors of the North Sea. The operating base for this work was Antwerp and the administrative base was Brussels where the pay records were kept and cheques for emoluments were drawn and posted. Most of those who were assessable to tax under Schedule E had addresses in the United Kingdom. Oceanic posted cheques to those addresses.


The Crown's main submission was bold, startling and clear. It came to this: anyone, whatever his nationality and wherever he may be, who makes a payment of income to a person assessable to income tax under Schedule E has a duty to deduct income tax and, I quote from regulation 26(1), "within 14 days of the end of every income tax month [he] shall pay to the Collector all amounts of tax which he was liable…to deduct from emoluments paid by him during that income tax month". If this be right, some odd and not uncommon situations would arise. I refer to three. An English craftsman in the building trade goes to an EEC country for a few months to do work for a foreign employer on a building site there. A Commonwealth or foreign newspaper employs one of its own nationals to act as its correspondent in London. A foreign government employs a British scientist or engineer on a short term contract at a salary to give advice or supervise some undertaking. In these kinds of situations the payment of emoluments would probably be made outside the United Kingdom and in the local currency. In all three cases, according to Mr. Baker for the Crown, the foreign employers should deduct tax, presumably in the currency in which the emoluments were paid, and account to the Collector. In some circumstances the employer would be bound to make repayments of tax, again presumably in the same currency as he had deducted tax. He could not be expected to make repayments in sterling. Further, he would be bound to keep the records, give the certificates and make the returns prescribed in the Regulations and to produce at his premises to authorised officers of the Commissioners of Inland Revenue, if called upon to do so, wages sheets, deduction cards and other documents relating to the calculations or payment of emoluments to his employees: see parts 3 and 4 of the Regulations. If he fails to perform his duties under the Regulations he may become liable to penalties under section 98(1)(b) of the Taxes Management Act 1970.


Mr. Baker accepted that it would often be impracticable to enforce the PAYE scheme when there were foreign employers. He submitted, however, that Parliament had envisaged this possibility by providing in section 205(2) that assessments can be made on a person in respect of his income assessable under Schedule E. This point was part of his main submission that section 204 applies to persons making payments outside the United Kingdom of income assessable to income tax under Schedule E and that this was so notwithstanding the well established canon of construction for statutes that they do not apply outside the United Kingdom unless Parliament has enacted expressly or by necessary implication that they should. See Ex parte Blain (1879) 12 Ch.D. 526. Mr. Baker's argument was based, not on any express provision, because there was none, but on necessary implication. Section 204, he submitted, is complementary to section 181 which sets out when tax is chargeable in respect of any office or employment on emoluments therefrom. It envisages tax being chargeable on foreign emoluments paid to a person resident and ordinarily resident in the United Kingdom (Case 1) and on emoluments in respect of duties performed in the United Kingdom by a person not resident or, if resident, not ordinarily resident in the United Kingdom (Case 2). Tax chargeable on emoluments paid abroad or paid in the United Kingdom by persons not ordinarily resident here has to be collected if it is practical to do so. Since there is an extra-territorial element in the charging section, there must be a similar element in the collecting section, which is section 204. If there were not, there would be a gap in the PAYE scheme which could lead to widespread avoidance of tax. Mr. Carnwath, who followed Mr. Baker for the Crown, pointed out that section 204(2) provided that the Board of Inland Revenue "shall make regulations with respect to the…collection and recovery of income tax in respect of all income assessable…under Schedule E". Parliament must have intended the Regulations to apply to foreign emoluments under Case 1 of Schedule E. The statutory provisions for assessing and collecting tax if it were impractical to apply the PAYE scheme went to support the Crown's submission that Parliament intended section 204 to apply worldwide; section 205(2) with regulation 50 provided a long stop to deal with the cases where it was impracticable to apply the PAYE scheme.


These submissions did not find favour with Mr. Justice Dillon: see (1981) 1 WLR 59 at pp. 64–65. He had had, as we have had, the benefit of Mr. Heyworth Talbot's submissions on behalf of Oceanic. In the course of them both at first instance and before us he traced through a number of cases the application of the canon of construction enunciated in Ex parte Blain (supra) to taxing statutes. For the purposes of this judgment I do not find it necessary to examine them in detail because the basic problem when construing all statutes is to deduce from the words used what Parliament intended to enact. Under section 204 Parliament provided that on the doing of a certain act, namely, on the making of a payment of income assessable to income tax under Schedule E, income tax shall be deducted or repaid by the person making the payment. The performance of this act may be in the United Kingdom but it may be anywhere else in the world and by a person who is not ordinarily resident here or who owes no allegiance to the Crown. Before this court the Crown did not contest Oceanic's submission that the act of payment had been made in Belgium by the posting there of cheques drawn on a New York bank and made out in US dollars. Despite the clear intent of Parliament to make foreign emoluments chargeable to tax under Schedule E in certain circumstances, can it have been their intention to...

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