Commissioner of Taxes v Nchanga Consolidated Copper Mines Ltd

APPEAL (No. 32 of 1962), by special leave, from a judgment of the Federal Supreme Court of the Federation of Rhodesia and Nyasaland (Clayden C.J., Briggs and Quenet F.JJ.) (November 7, 1961) allowing an appeal by the present respondent from a judgment of the High Court of Southern Rhodesia (Young J.) (May 9, 1961) whereby an appeal by the respondent against the disallowance of its objection to an income tax assessment made upon it for the year ending March 31, 1959, was dismissed.

The following facts are taken from the judgment of the judicial Committee: The respondent's business was that of copper mining. Together with two other companies, Rhokana Corporation Ltd. and Bancroft Mines Ltd., it formed what was known as the Anglo-American group of copper mines in Northern Rhodesia. Each of the three operated a separate mine and was independent of the others, but there were overlapping directorates, and one Acutt, the joint deputy-chairman of the Anglo-American Corporation of South Africa Ltd., was deputy-chairman of each company.

Anglo-American acted as secretary and technical adviser to the group. There was also a common sales department for handling the disposal of their output, which was marketed through the British Metal Corporation. It was, apparently, the practice that the corporation should sell the copper forward on the basis of production estimates supplied by each of the members of the group. The sales were not at prices fixed in advance: they were commitments to supply, but only at the market price current when the copper was actually made available. Each company was expected to meet the corporation's commitments to the extent of its production estimates, but the copper itself was not sold as the specific product of any one of the three mines.

In the year 1957 the price of copper on the world market was falling steeply. Supply was in excess of demand, and during the year a number of the large producers in different parts of the world imposed upon themselves voluntary cuts in production. There was no binding agreement between them to effect this, but the individual decisions must have become known to all those actively interested in the copper mining business.

Down to the close of 1957 the Anglo-American group had not adopted any policy of reducing output. For 1958 the planned production of the three mines was an aggregate figure of 270,000 tons, 140,000 for the respondent, 90,000 for Rhokana, and 40,000 for Bancroft. By the beginning of 1958 it was accepted by those responsible for these companies that the Anglo-American group could not continue to make no contribution in the way of a cut in production, and a figure of 10 per cent. was taken as the appropriate measure of the cut. That would reduce the estimated aggregate of 270,000 to 243,000 tons. The question was, if the group was to sacrifice 27,000 tons, how was the sacrifice to be distributed among the three members of the group?

Accordingly, a meeting between their representatives took place at Salisbury, Southern Rhodesia, in the month of January, 1958. Three alternative courses of action were reviewed in turn at that meeting. First, each mine could cut its programme by 10 per cent. But to Bancroft, which was the most recent to come into production and was, comparatively, a high-cost producer, such a cut was altogether unacceptable, owing to the adverse influence on its costs of production. A second alternative was that Bancroft should be left with an unreduced programme, Nchanga and Rhokana adding to their own cuts the 4,000 tons of reduction that would have been due from Bancroft. But again this proposal had to be rejected, as it was felt that it could not be defended from the point of view of the separate interests of those two companies. There then emerged, and was accepted, the idea that Bancroft should go out of production altogether for 12 months, beginning as early in 1958 as was practicable, and Nchanga and Rhokana should be left to undertake between them the whole...