Koenigsberger v Carl Mellor (HM Inspecotor of Taxes)
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE LEGGATT,LORD JUSTICE SIMON BROWN,LORD JUSTICE WARD |
| Judgment Date | 17 March 1995 |
| Judgment citation (vLex) | [1995] EWCA Civ J0317-8 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | CHRVF 93/0927/B |
| Date | 17 March 1995 |
[1995] EWCA Civ J0317-8
IN THE SUPREME COURT OF JUDICATURE
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
(Mr Justice Lindsay)
Before: Lord Justice Leggatt Lord Justice Simon Brown Lord Justice Ward
CHRVF 93/0927/B
MR L PRICE QC (Instructed by Messrs Rosenbergs, London NW5 2AA) appeared on behalf of the Appellant
MR T BRENNAN [MR K BRYANT 17-3-95] (Instructed by the Inland Revenue Solicitors Office, London WC2R 1LB) appeared on behalf of the Respondent
Friday, 17 March 1995
The respondent, one of Her Majesty's Inspectors of Taxes, refused the claim by the appellant, Carl Koenigsberger, for retirement annuity relief under the provisions of section 619 of the Income and Corporation Taxes Act 1988 for the year of assessment 1987/88. On 5th November 1991 Judge Medd Q.C. sitting as a Special Commissioner dismissed the appellant's appeal. On 10th May 1993 Lindsay J. ordered that the determination of the Special Commissioner, in respect of which a case had been stated, be affirmed. Against that Order the appellant now appeals.
By his Decision annexed to the Case Stated the Special Commissioner recorded that the appellant is a barrister who has practised in London since 1958. He claimed retirement annuity relief against the income received by him in the year of assessment 1987/88 from syndicates at Lloyds of which he was a member or Name. He also elected that his personal pension contribution should be treated as final in the year of assessment 1987/88 in accordance with section 641 of the Income and Corporation Taxes Act 1988, and therefore that payment should be treated as the payment of a qualifying premium for the purposes of Chapter III Part XIV of that Act by virtue of section 655(2).
Relief may be claimed under section 619(1) of the Income and Corporation Taxes Act 1988 which (so far as material) provides that -
"Where in any year of assessment, an individual is (or would but for the insufficiency of profits or gains be) chargeable to income tax in respect of relevant earnings from any trade, profession, vocation, office or employment carried on or held by him, and pays a qualifying premium, then -
(a) Relief from income tax shall be given under this section in respect of that qualifying premium, but only on a claim made for the purpose, and where relief is to be so given, the amount of that premium shall, subject to the provisions of this section, be deducted from or set off against his relevant earnings for the year of assessment in which the premium is paid ..."
The appellant paid a qualifying premium of £1,000 which is referable to the year of assessment 1987/88. His right to retirement annuity relief depends on whether or not for that year he was chargeable to income tax in respect of "relevant earnings" from any trade. By section 623(2) -
"...'relevant earnings' in relation to any individual, means, for the purposes of this Chapter, any income of his chargeable to tax for the year of assessment in question, being either -
...
(c) Income which is chargeable under ... Schedule D and is immediately derived by him from the carrying on or exercise by him of his trade, profession or vocation either as an individual or, in the case of partnership, as a partner personally acting therein..."
To be entitled to the relief claimed the appellant therefore had to establish that the income received by him from syndicates at Lloyds was income "immediately derived by him from the carrying on or exercise by him of his trade as an individual."
As reported at [1993] STC 408 the Special Commissioner found at page 410j that -
"The members of Lloyds, for the purpose of insuring members of the public against risks operate in syndicates and, on joining a syndicate, a Name undertakes to accept liability for a proportion of any risk underwritten by the syndicate. Any profits achieved by the syndicate are shared by the Names in the same proportion as the risks are borne. Members of syndicates may be either working Names or external Names. A working Name is a person who, as well as underwriting the risks undertaken by his syndicate is also actively engaged in the business of Lloyds."
The Special Commissioner referred to the standard agency agreement which at that date governed the relationship between a Name and his members' agent. Clause 5(a) provided that -
"The agent shall have the sole control and management of the underwriting business and the Name shall not in any way interfere with the exercise of such control or management."
He mentioned that the person to whom he referred as "the head of the syndicate" alone decided what risks the syndicate should accept. The Special Commissioner also recorded in relation to the appellant that "once he became a Name he told me he spends 3-4 hours per week on Lloyd's affairs." That time was spent deciding how to spread the underwriting, which syndicates to leave and which to join, and how much in total to underwrite.
The ratio of the Special Commissioner's conclusion that the profits that the appellant received as a result of being a Name at Lloyd's were not immediately derived by him from the carrying on or exercise by him of his trade as an individual was expressed at page 412a as follows -
"Turning to the present case I first ask myself whether what Mr Koenigsberger did amounted to the "exercise by him of a trade as an individual". In my view it did not. The trade of underwriting risks was carried on by the agent of the syndicate and the risks chosen were chosen by the head of the syndicate. Mr Koenigsberger emphasised that he made considerable exertions and exercised care and skill in doing what he did. I accept that. But what he did was not carrying on the underwriting business of his syndicates. What he did was, and his exertions were, directed to ensuring that he joined the syndicates that operated in the fields most likely to show a good profit and were managed by an agent who produced good results. He played no part in the carrying on of the underwriting business, indeed his agreement with his agent expressly prohibited him from doing so. He took no part in deciding what risks were underwritten as that was in the sole discretion of the head underwriter."
In affirming the Special Commissioner Lindsay J. referred to two concessions by the Crown:
(1) "Every member of a syndicate is a contracting party to each contract entered into by the syndicate of which he is a member; the taxpayer is a member of Syndicate 296" (page 413e); and
(2) "In the relevant year the taxpayer carried on trade as an external Name at Lloyd's and [that] the income of that trade was assessable under Case 1 of Sch D" (page 414c).
The second concession was manifestly inaccurate. Mr Leolin Price Q.C. rightly asserted that there is no such trade. Both counsel accepted that the Crown's concession should be understood as meaning that income which is chargeable under Case 1 of Schedule D arose or accrued to the taxpayer as an external Name at Lloyd's from the trade of underwriting.
Having mentioned the position of an investor, the judge said at page 416e -
"By contrast, unless and until he decides to join and is able to join a syndicate, a man cannot, it seems to me, carry on the trade of being an external Name. He has not, at that stage, got the wherewithal to be such a trader. Exertions as to whether to join a syndicate and which, if any, syndicates to join seem to me to be preparatory to the trade rather than part of its carrying on. It may be a pointer to some such conclusion that in theory, at any rate, Mr Koenigsberger's exertions could have led him to decide wholly to withdraw from Lloyd's. Could it then be said that the exertions were part of the carrying on of the trade of an external Name when the result of the exertions was a decision to cease to be such a Name? I am far from sure that all the exertions of care, skill, and work in which Mr Koenigsberger relies can be said to represent the carrying on by him of the trade of being an external Name as opposed to their being the taking of steps which might or might not lead to an ability to carry on that trade."
At page 416h the judge expressed his conclusion as follows:
"Between Mr Koenigsberger's exertions and the derivation by him of income from the trade, there lie what in Northend (supra) were called intervening events or circumstances. The Agent and the heads of the syndicates which Mr Koenigsberger joined had to take steps if Mr Koenigsberger was to receive any income from the trade. If they had done nothing at all, Mr Koenigsberger would have received no income as a Name. It is they who must and who did take the steps. Mr Koenigsberger himself had by contract and perhaps by...
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