Prendergast v Cameron
| Jurisdiction | England & Wales |
| Judge | The Lord Chancellor,Viscount Maugham,Lord Russell of Killowen,Lord Wright,Lord Romer |
| Judgment Date | 12 March 1940 |
| Judgment citation (vLex) | [1940] UKHL J0312-1 |
| Date | 12 March 1940 |
| Court | House of Lords |
[1940] UKHL J0312-1
House of Lords
Lord Chancellor
Viscount Maugham
Lord Russell of Killowen
Lord Wright
Lord Romer
After hearing Counsel for the Appellant, as well on Monday the 12th, as on Tuesday the 13th, days of February last, upon the Petition and Appeal of John Cameron, formerly of 29 Bede House, Manor Fields, Putney, London, S.W.15, but now of Resolis, Renfrew Road, Kingston Hill, Surrey, Company Director, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of His Majesty's Court of Appeal, of the 23d of January 1939, might be reviewed before His Majesty the King, in His Court of Parliament, and that the said Order might be reversed, varied, or altered, or that the Petitioner might have such other relief in the premises as to His Majesty the King, in His Court of Parliament, might seem meet; as also upon the printed Case of E. Prendergast (His Majesty's Inspector of Taxes), lodged in answer to the said Appeal; and Counsel appearing for the Respondent, but not being called upon; and due consideration being had this day of what was offered for the said Appellant:
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of His Majesty the King assembled, That the said Order of His Majesty's Court of Appeal, of the 23d day of January 1939, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay, or cause to be paid, to the said Respondent the Costs incurred by him in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.
My Lords,
The Appellant was at the material time a director of a well-known building company, Higgs & Hill, Ltd. He had been employed by the company for 44 years and had been a director of the company since 1919. The company was a prosperous one and the Appellant was largely responsible for its success. In 1934 he was minded to resign his position as director because he desired a rest, and he informed his fellow directors of his intention to give notice in writing to the secretary of the company with the result that, by virtue of Article 107 ( d) of the Articles of Association, his office would be vacated. The company was, not unnaturally, anxious to retain his services and on 17th December, 1934, a letter was written by the direction of the Board to the Appellant informing him that the Board had considered his intimation that he intended forthwith to determine his directorship. The letter went on to ask him in the interests of the company not to serve the proposed notice, and stated that in consideration of the Appellant acceding to this request the company would within 21 days, or by such instalments as he would accept, pay him a sum of £45,000. This undertaking would be embodied in a formal deed reciting the letter. The Appellant accepted the offer. Accordingly by a deed of the 31st December, 1934, which recited that the Appellant was then a director, of the company and that the company had in the circumstances set out in the letter of the 17th December, annexed to the deed, for the consideration specified in the letter, agreed to make Mr. Cameron two payments amounting in all to £45,000, the first payment on the 31st December, 1934, and the second on the 31st March, 1935, the company bound themselves to make these payments. On the same day a Board meeting was held, at which the Appellant was present, and it was resolved that the Appellant should remain on the Board of directors in an advisory capacity, and that his remuneration should be fixed at the rate of £400 per annum as from the date of the meeting.
The question which arises in this Appeal is whether the Appellant is liable to income tax in respect of the sum of £45,000, as being a profit arising from the office of director, under Schedule E of the Income Tax Act. The Special Commissioners have held that the Appellant received the sum in question for the consideration expressed in the letter and embodied in the deed. They accepted the deed as genuine and found that the conditions of the deed had been carried out. They, therefore, held that the sum of £45,000 was not subject to income tax under Schedule E in the hands of the Appellant and discharged the assessment. Lawrence J. reversed this decision on the ground that the true consideration for the payment of the £45,000 must have been the desire of the company that the Appellant should continue as a director with the result that the payment arose from his office as director. The Court of Appeal by a majority approved the judgment of Lawrence J., and this Appeal is from their decision.
Tax is charged under Schedule E in respect of every public office or employment of profit. Rule 1 of the Rules applicable to Schedule E provides that tax shall be charged "on every person having or exercising an office or employment of profit mentioned in this Schedule … in respect of all salaries, fees, wages, perquisites or profits whatsoever therefrom for the year of assessment." It is admitted that the Appellant's directorship was an office of profit and that he received the sums in question in the year of assessment while holding that office. The only question, therefore, is whether these payments arose from the office held by the Appellant. We have been invited by learned Counsel on behalf of the Appellant, in considering this question, to fix our gaze on the precise words of the letter of the 17th December. Reference was made to the decision in the Duke of Westminster's case ( 1936, A.C. 1), in which observations were made by Lord Tomlin and others of your Lordships as to the importance of giving effect to the proper legal interpretation of documents, provided they are bona fide and not only used as a cloak to conceal a different transaction. It had been argued on behalf of the Inland Revenue Commissioners in that case that the substance of the arrangements contained in the material documents must be regarded, and not merely the form. Such a suggestion found no favour with the majority of the noble and learned Lords who heard that Appeal, and I certainly have no intention of departing in any way from what was there laid down. But how does it help the Appellant? In this case the substance and the form of the documents seem to me to be the same. The Appellant was anxious to retire and, but for the inducement offered to him not to do so, he would have signed a notice of resignation. The company valued his services and they were prepared to pay a large sum to him to induce him to abstain from his intention to resign, and thus to continue as director.
Your Lordships are asked to say that, in these circumstances, the only consideration for the payment was the act of the Appellant in acceding to the request of the company not to serve the notice of resignation. If it were not for the approval given by the Master of the Rolls to this submission, I should have thought it only required to be stated to be rejected. I can see no difference between a promise not to resign and a promise to continue to serve as director. It is true that the Appellant did not give any promise in words to continue to serve for any period of time, any more than the Board by their resolution of the 31st December named a term of service. It is fair to assume that, in the course of a long connection of the Appellant with the company, his fellow directors had learned that they could trust him. Whether or not it was open to him, having received the sum, to resign immediately afterwards is a question which I find it unnecessary to answer. The Appellant's colleagues on the Board no doubt knew the man with whom they had to deal, and were confident that if he received the money they were prepared to pay him they would get good value for it.
My Lords, like the Special Commissioners, I accept the deed as genuine. The consideration stated in the deed for the payment of the money is that the Appellant should not resign. If he resigned, his office as director would cease. If he did not resign, it would continue. To call the continuance of his office "a by-product of the undertaking not to deliver notice of resignation" seems to me, with all respect to the Master of the Rolls, to be a misdescription of the contract. The continuance of the Appellant in his office was the essence of the bargain. If anything was needed to make plain the intention of the parties as expressed in the letter and in the deed, the minute of the Board of the 31st December is conclusive. I agree with the statement by Lord Justice Luxmoore that, so far as the company was concerned, the only legitimate ground for making the payment was to induce the Appellant not to resign and so to continue his services as a director. The Master of the Rolls was of opinion that if, having received payment of the £45,000, the Appellant had forthwith served a notice of resignation, the company's cause of action would have been for damages for breach of a contract not to serve the notice of resignation. I do not know what damages could be recovered for the breach of such an agreement, if it is to be regarded as a mere contract not to send a piece of paper containing notice of resignation. If, on the other hand, it is something more than that, it could only be what the form of words used in the letter seems to me to express, namely an agreement to continue as a director of the company in consideration of the payment of £45,000.
Your Lordships were pressed with the decision in Dewhurst's 16 Tax Cases 605 case ( 16 Tax Cases 605). I agree with all the members of the Court of Appeal, and with Mr. Justice Lawrence, that that decision does not cover...
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