Mills (John) Productions Ltd v Mathias
| Jurisdiction | England & Wales |
| Judgment Date | 05 July 1967 |
| Date | 05 July 1967 |
| Court | Chancery Division |
HIGH COURT OF JUSTICE (CHANCERY DIVISION)-
Income tax, Schedule D - Profits of trade - Company formed to exploit actor's services - Sum received on termination of contract with film-producer - Whether a trading receipt.
Contract - Parol negotiations followed by formal agreement - Date when binding agreement concluded.
The Appellant Company was formed to exploit the services of an actor. On 23rd June 1947 it entered into an agreement with him under which it secured his exclusive services for 14 years from that date; and on the same day it entered into a contract with R Ltd., a film company, to which the actor was joined as a party, whereby the exclusive film services of the actor were to be rendered to R Ltd. for a period of seven years from 1st July 1948. In 1949 R Ltd. got into difficulties, and early in 1951 the contract was cancelled in consideration of the payment of £50,000. It was not clear from the findings in the Case Stated whether the agreement for cancellation was made on 19th January 1951 or in March 1951. On 26th February 1951 the Company resolved to wind up, and it accepted no further engagements thereafter. At that time, owing to his age and other circumstances, the outlook for the actor was sombre. The agreement between the Company and the actor was cancelled on 21st March 1951. The £50,000 was paid to the liquidator on 29th March 1951. In April 1951 another company was formed to exploit the actor's activities, somewhat on the same lines as the Company, and to acquire the copyright of works by his wife.
The Company was assessed to income tax under Schedule D for the year 1950-51 on the footing that the £50,000 was a trading receipt. On appeal, it was contended for the Company that the £50,000 was paid for the cancellation of an agreement forming the capital structure of its trade, or, alternatively, that the trade had ceased when the Company went into liquidation and the sum was paid to the liquidator under an agreement made by him. For the Crown it was contended that the Company's trade was carried on until at least 21st March 1951, and that the £50,000 was paid under an agreement made before that date and was a receipt of the trade. The Special Commissioners found (a) that the cancellation of the contract with R Ltd. did not affect the profit-making structure of the Company and (b) that the trade was still in existence when the payment was received, notwithstanding that the Company was then in voluntary liquidation.
Held, (1) that the cancellation of the contract did not affect the structure of the profit-making apparatus of the Company; (2) that the Company did not carry on trade after it had resolved to wind up.
It being common ground that the payment of £50,000 fell due when the cancellation agreement was made, the case was remitted to the Special Commissioners to find the date of that agreement. It was found that before 17th January 1951 R Ltd. had stated that they wished to cancel the contract and the actor and the Company had decided to agree subject to payment of a proper amount. At a meeting on 17th January attended by the actor and directors of the two companies the Company proposed a payment of £60,000 on cancellation and R Ltd. promised to consider it. After further negotiation, at a meeting on 19th January the Company's solicitor, with its and the actor's authority, finally put forward an offer to accept £50,000 for the cancellation of the contract, which R Ltd. finally accepted. It was agreed that the solicitors on both sides should deal with the matter; such matters as copyright in the two films made under the contract and credit for the actor were left for them. A monthly payment which would have been due from R Ltd. under the contract on 15th February was not made, and the formal agreement executed on 22nd March was expressed to release R Ltd. as from 16th January.
According to his evidence, the Company's solicitor did not regard himself as having authority to conclude a contract on its or the actor's behalf on 19th January. Counsel was instructed by his firm, on the footing that there was no concluded agreement on that date, to advise on the further arrangements. On Counsel's advice the Company went into liquidation, R Ltd. was asked to write (which it did) to the liquidator in the form of an initial offer of £50,000 for cancellation of the contract, and the formal agreement was made between the liquidator and R Ltd. The purpose of putting the Company into liquidation was to make doubly sure, if possible, that the £50,000 would not be subject to tax. The Special Commissioners held that a binding agreement was concluded on 19th January 1951.
Held, that the inference drawn by the Commissioners from the primary facts was correct.
Stated under the Income Tax Act 1952, s. 64, by the Commissioners for the Special Purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners for the Special Purposes of the Income Tax Acts held on 3rd December 1962 John Mills Productions Ltd. (hereinafter called the "Company") appealed against the following assessment to income tax, Schedule D:
2. Shortly stated, the question for our decision was whether an amount of £50,000, received by the liquidator of the Company in circumstances hereinafter appearing, was a receipt of the Company's trade entering into the computation of its profits for tax purposes.
3. The following witnessess gave evidence before us: Stanley Passmore, solicitor, a partner in the firm of J. D. Langton & Passmore, and at all times a director of the Company; John Armit Basden, chartered accountant, the liquidator of the Company.
4. The following documents were proved or admitted before us(1):
(2) Memorandum and articles of association of the Company.
(3) Agreement dated 23rd June 1947 made between the Company and John Mills.
(4) Agreement of the same date made between Production Facilities (Films) Ltd. and the Company and John Mills, together with an agreement dated 22nd March 1951 between the liquidator of the Company, John Mills and J. Arthur Rank Productions Ltd.
(5) A bundle of correspondence.
(6) A copy of a letter dated 22nd November 1950 from John Mills to J. A. Rank.
(7) Accounts of the Company for the period 14th April 1947 to 5th May 1948, each of two years ended 5th May 1950 and the period 6th May 1950 to 26th February 1951.
(8) Bundle of correspondence.
Copies of such of the above as are not annexed hereto as exhibits are available for inspection by the Court if required.
5. As a result of the evidence both oral and documentary adduced before us we find the following facts proved or admitted:
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(a) The Company was incorporated on 14th April 1947. The objects for which it was established, as set out in para. 3 of its memorandum of association (exhibit 1), include the following:
(4) To enter into engagements with artistes, producers and other persons, and to reimburse any such person by a salary, or share of profits, or a salary varying with profits, or otherwise.
(b) The Company was formed to exploit the services of a very well-known and successful actor in films, John Mills (hereinafter called "Mr. Mills"). On 23rd June 1947 the Company entered into an agreement with Mr. Mills (exhibit 2). Under this agreement the Company secured the exclusive services of Mr. Mills as a star artiste in and a producer and/or director of films and as an artiste in and a producer and/or director of stage plays for a period of 14 years from 23rd June 1947. Under clause 7 of the agreement Mr. Mills was not bound to fulfil any contract for his services made by the Company unless the identity of the other contracting party and the nature of the play or film contemplated by the contract and the provisions of the contract generally were such as would be reasonably acceptable to a person of his reputation.
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(c) On the same date, i.e. 23rd June 1947, the Company entered into an agreement with Production Facilities (Films) Ltd. (exhibit 3). This latter company subsequently changed its name to J. Arthur Rank Productions Ltd., and is hereinafter referred to as "Ranks". The agreement is subsequently
referred to as "the Rank contract." Under the Rank contract, to which Mr. Mills was joined as a party, Ranks engaged Mr. Mills, and Mr. Mills with the consent of the Company agreed to render his exclusive film services, for a period of seven years from 1st July 1948 (with an extension of the period in certain circumstances). The services to be rendered by Mr. Mills were as a star artiste in films, with a minimum of ten, to be produced by Ranks or by companies associated with Ranks, of which at least one in each year was to be produced in the United Kingdom. Ranks were to arrange if possible for at least three of the films to be produced in America. In addition, if Mr. Mills so elected, he was to act as director and/or producer of all or any of the films to be made in England. Mr. Mills also undertook to give such advice as Ranks might require in connection with the production of any other films produced by Ranks during the period of the agreement. (d) The Rank contract contained elaborate provisions relating to the choosing of films to be produced under the agreement, and to restrictions on Mr. Mills's right to act in plays and also in films other than those to be produced by Ranks under the agreement. It also embodied detailed arrangements for the sums to be paid to the Company by Ranks in respect of the services rendered by Mr. Mills.
(e) Under the Rank contract the Company requested and authorised Ranks to pay all moneys payable to the Company thereunder to M.C.A. (London) Ltd., their accredited agents.
(f) When the Company was formed it employed agents, M.C.A. (London) Ltd., who introduced various propositions for the use of Mr. Mills's services in the making of films for certain companies...
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