Commissioners of Inland Revenue v Mills (Hayley)

Mr. John Mills is an actor of distinction. His daughter, Hailey Mills, was born on 10th, April, 1946. As a schoolgirl she showed great promise as an actress. When she was only 12, she acted In two films with much success. In consequence, when she was 13, a film company called Walt Disney Productions Ltd., were anxious to cure her exclusive services for five years. Walt Disney wanted her to not only in England, but also in America. She could not be allowed to do It except by licence of the authorities under the Children's Acts: and the application for a licence had to be made by or with the consent of her parents. No difficulty was anticipated about this, but Mr. John Mills was concerned to see that any money earned by her should not be squandered. He had witnessed cases, particularly in the United States, when a child's earnings had been appropriated by the child's parents and only in part applied for the child's benefit. He was, therefore, anxious to have proper arrangements made on her behalf to safeguard her earnings. He approached his solicitors, his bank manager and his accountant: and they got out a scheme to protect the daughter and also to save tax on her earnings. In consequence these things took placer:-

First, on 18th February, 1960, a private company was formed called Sussex Productions Ltd. It had very wide objects covering all aspects of the theatrical and film world. The directors were two of the partners In the firm of solicitors acting for Mr. Mills, and his bank manager.

Second, on 18th May, 1960, Mr. Mills set up a trust for the benefit of the daughter, Miss Hayley Mills. The trustees were the same two partners and bank manager, but in addition Mr. Mills' accountant.

Third, on the same day, 18th May, 1960, Kr. Hills paid for 100 shares of the private company, and forthwith transferred them to the trustees of his daughter's trust. These were the only funds held by the trust.

Fourth, on the same day, 18th May, 1960, there was placed before Kiss Hayley Kills for signature an a;, recent between the private company and herself, waich contained these clauses- The Company hereby engages the Artiste -nd the Artiste hereby agrees to render to the Company the Artiste's exclusive services as an artiste durin the period of five years from the first day of April 1960. The Company will pay to the Artiste by way of remuneration for her services a salary at the rate of per annum such salary to commence as from the first day of April, 1960. The Company shall be at liberty at time or times durin the said period to enter into any contract or contracts whereby the Company undertakes to procure the Artiste to act in any stage play or performance as an artiste in any film or films

The Artiste (as employee of the Company, and not of the other contracting party) shall duly and to the best of her ability do all such things and perform and observe all such terms provisions? nd stipulations as may be necessary or desirable to enable the company duly to carry out perform and observe its obligations under any such contract or contracts.

That agreement was signed for the com-. any by one of the solicitors, and it was signed by Miss Hayley Kills and witnessed by the accountant.

It is plain from the Commissioners3 findings that kiss ills did not understand in the least what she was single he was, of course, just at the time. The Commissioners found this;-

Before the arrangements were carried out, Kills tried to explain to his daughter what was being done for barbet, not surprisingly, he found her not very interested. She knew that her father was making arrangements with regard to her possible considerable earnings from films which would be for her ultimate benefit and she signed the necessary documents without reading them. She did not know that under then agreement for service she was entitled to a salary. She was under the impression that she never received any salary. (in fact the salary was credited to a current account which the Company maintained "or her and. to which they debited expenses incurred on her behalf.) While she was filming in Hollywood, she received pocket money & a week from her parents. At the time of these transactions she had no bank account of her own, save an account with the Post Office Savings Bank, into which were paid presents in cash,"

Those findings enable us to picture her - a typical schoolgirl of 13 with a little pocket money and some small savings in the Post Office. Yet, instead of gulch, through the usual education at school and university, she is committed to acting in films for five years. She is told where to sign, and does so, not knowing in the least what it is all about.

Just over six months later, on 13th January, 1961, when she was still only 14 there was another agreement put before her for signature. It was between alt Disney Productions Ltd., Sussex Productions Ltd., and Kiss Kills. It is a formidable document of 21 pages. It gave flat Disney the right to the exclusiveservices of I-Miss Kills for five years and put her under all sorts of obligations to them. But there was one swell freedom left to her - it was expressly provided that nothing in the agreement should bind her to change the colour of her hair (except that she agreed to wear a wig if the producer so required.) There was to be a very large payment in U. S. dollars to be made for her services, but this was payable to Sussex Productions Ltd., and not to her.

The Commissioners found that Mss Mills signed this agreement, it the others, without reading it. I do not suppose that she understood the first thing about it. The Commissioners expressly found that she had at that time no conception of the amounts being received by the company in respect of the exploitation of her services.

Sussex Productions Ltd. did veil by exploiting., her services. For the first year they received over £40,000 for her services. They paid the agents commission, amounting to over £4,000. They paid the direct fees, £1,000. They -paid tax of £18,000. They did not pay Miss id. anything, except that they credited her with a salary of £400, which they set off against expenses. They paid a dividend on the shares of £12,500. That, of course, went to the trustees of her settlement.

Now the Revenue Authorities claim that all the dividends received by the trustees must be regarded as the income of Hiss Mills. They say that there was a '-settlement:; of which she was a "settler", that the dividends must be regarded as her income (see section 405 of the Intone Tax act 1952) and that she must herself pay sure-tax on the grossed-up figure of the dividends. I cannot tell what this would be for the first year, but I see that the assessment of the income chargeable to surtax for the year 1962/63 was £2,161, and that the surtax, thereon is £13,043.

I will not go into details for the subsequent years. All I would say is that, if the contention of the Revenue authorities is right, the greatest beneficiary from I-ibis frills services will be the Revenue themselves. I or the first year alone they have received £18,000 in income tax from the company. They will also receive a very large sum in surtax from her. Then there is all the agents' commission of 10;. on the sum paid by. alt Disney), the director's fees (£1,000 a year), and solicitors' and accountants's charges. By the time that all of these have reaped tier harvest, there will not be much left for frisks Lillis. It is obvious to that if ides waylay frills is bound to pay the surtax now claimed to the Revenue authorities, the whole of these arrangements were not for her benefit in the least. They ought never to have been entered, into by her father, or anyone advising him., or her. They could only be justified as being for her benefit if they resulted in a substantial saving of surtax. The Commissioners realised this. They said that; She could have been advised to enter into the agreement for service only on the footing that she would at some time enjoy the large profits arising from her earnings, which were known to be going to accrue to the company by virtue of that agreement Nevertheless, whether the advice was proper or improper, the task of this Court is simply to see whether the dividends paid to the trustees are to be regarded as her income, or not. This depends on the statutory provisions, to which I now turn.

THE SETTLEPTS

Section 411 l(2) of the 1952 Act says "settlement includes any disposition, trust, covenant, or arrangement. There were here two settlements. (1) The "trust" set up by hr. Mills by the trust deed of 10th May, 1960 for the benefit of his daughter; and for which he provided the trust fund, namely, 100 shares in the company. (ii) The "arrangement- wnich was given effect byte formation of the company, the issue of 100 shares to Mr, Mils, and the agreement of service by Miss Marley Mills.

THE SETTLORSM

The same subsection goes on to say that "settler" in relation to a settlement, means "any person by whom the settlement was made; and adperson shall be deemed to have made a settlement if he has made or entered into a settlement directly or indirectly, and in particular, (but without prejudice to the generality of the foregoing words) if...