Stewart v Glentaggart Ltd
| Jurisdiction | Scotland |
| Judgment Date | 10 January 1963 |
| Date | 10 January 1963 |
| Docket Number | No. 38. |
| Court | Court of Session (Outer House) |
OUTER HOUSE.
Lord Hunter.
Damages—Dismissal of servant—Breach of contract of employment—Whether servant's liability to tax to be taken into account in assessing amount of damages—Finance Act, 1960 (8 and 9 Eliz. II, cap. 44), secs. 37 and 38, and Fourth Sched.
Under the provisions of secs. 37 and 38 of the Finance Act, 1960, and the Fourth Sched. thereof, certain payments made on termination of employment were rendered liable to income tax.
A company terminated the appointment of its managing director in breach of its contract with him. He sued the company for damages arising from such breach, including loss of salary and loss of a share of the profits. In computing the sums sued for, any amounts which the pursuer would have been, or was, liable to pay by way of income tax or surtax were disregarded. The pursuer contended that, as the amounts he would receive as damages would be chargeable to tax under the Finance Act, 1960, the principle in British Transport Commission v. GourleyELR, [1956] A. C. 185, had no application; and that, accordingly, any damages due should be assessed without regard to his liability to tax.
Held by the Lord Ordinary (Hunter) that the principle laid down in British Transport Commission v. GourleyELR, [1956] A. C. 185, was applicable to the computation of the pursuer's damages, and consequently that, in the absence of any disclosure of his tax position, his averments of loss were irrelevant,
Parsons v. B. N. M. Laboratories, Limited, (1962) Probate No. 1948, reported in The Times, 31st August 1962,not followed.
Robert Dunlop Stewart brought an action of damages for breach of contract against Glentaggart, Limited, arising out of the termination by the company of his employment as their managing director.
The pursuer's averments included the following:—(Cond. 6) "As a result of the defenders' said breach of contract the pursuer has suffered loss and damage. Had his appointment as managing director not been terminated as condescended upon, he would have been entitled to receive a basic salary of £3520, upon which he would have paid income tax and surtax until 5th July 1964 in terms of clause fourth of said minute of agreement. Salary at said rate for the period from 6th October 1961 to 5th July 1964 amounts to £9974, which is the sum first concluded for. During said period the pursuer would have been entitled in terms of clause fifth of said minute of agreement to participate to the extent of at least four per centum per annumin the net profits of the defenders. He believes and avers that his share of said net profits for said period having regard to his said share for previous years which had averaged substantially more than £1000 per annum, and the prospective profits of the defenders for the remainder of the said period of five years would have been at least £3000, which is the sum second concluded for. …"
The defenders' averments included the following:—(Ans. 6) "Admitted that if the pursuer's appointment as managing director had not been terminated in October 1961 he would have been entitled, provided he continued in the defenders' employment, to receive a basic salary of £3520 until 5th July 1964 in terms of clause fourth of said minute of agreement. Admitted that during said period the pursuer would have been entitled to participate to the extent of four per centum per annum in any net profits earned by the defenders. Admitted that the company's accounts for the year ending 31st December 1961 made certain provisions for directors' compensation. Quoad ultra denied so far as not coinciding herewith. Explained and averred that the sum sued for is excessive. Explained and averred in particular that the total salary for the period from 6th October 1961 to 5th July 1964 would have amounted to £9680. If the pursuer had received said salary during said period he would have been liable to pay income tax, and it is believed surtax, thereon. If he had received any sum in name of share of profits, he would have been required to pay income tax, and it is believed surtax, thereon. It is believed and averred that he has an income from private investments and other sources. He is called upon to state what he considers to be his net loss after taking into account the incidence of income tax and surtax and to state his other sources of taxable revenue. These are matters of which the pursuer alone has knowledge. It is explained and averred that the correct method of calculating the value of the pursuer's claim for damages and achieving restitutio in integrum is as follows:—(a) The gross remuneration for the remainder of the term of the contract is discounted by the income tax, and surtax if any, which the pursuer would have had to pay in relation to the salary due for the remainder of the contract period, said income tax and surtax being based on his liability for total income; (b) there falls to be deducted from the net sum so calculated a further sum in respect of mitigation for alternative employment during the remainder of the contract period, making allowance for appropriate tax thereon; (c) a further deduction should be made for the element of futurity; (d) to this net sum there falls to be added the sum in respect of commuted future premium payments for the pursuer's said pension; (e) if the resulting total sum is in excess of £5000, said excess should then be grossed up by the appropriate amount of tax thereon under the provisions of paragraph 7 of the Fourth Schedule of the Finance Act, 1960;1 (f) the net sum payable in damages would be said grossed up sum,
plus £5000, under deduction of said commuted future premium payments …"The pursuer pleaded:—"(1) The pursuer having suffered loss and damage through the defenders' breach of contract as condescended upon, is entitled to reparation from them therefor. (2) The sums sued for being reasonable, decree therefor should be pronounced in terms of the conclusions of the summons. (3) The defenders' averments in answer 6, relative to the correct method of calculating the pursuer's claim for damages, being irrelevant, should not be remitted to probation."
The defenders pleaded:—"(1) The pursuer's averments being irrelevant et separatim being lacking in specification, the action should be dismissed. (2) The pursuer's averments so far as material to the question of damages being unfounded in fact, the defenders should be assoilzied. (3) In any event, the sum first concluded for being excessive decree therefor should not be pronounced as concluded for. (4) The pursuer not being entitled to any sum in respect of a share in the net profits of the defenders, the defenders should be assoilzied from the second conclusion of the summons. (5) In any event, the sum second concluded for being excessive, decree therefor should not be pronounced as concluded for."
By agreement of parties, the case was sent for summary trial before Lord Hunter.
On 10th January 1963, after hearing parties, the Lord Ordinary made findings to the effect that the pursuer's averments of loss were irrelevant.
LORD HUNTER'S Opinion.—At the hearing in this summary trial two main questions were debated, one being a question of principle of some general importance, and the other largely a question of pleading. The question of principle, which has involved an examination of British Transport Commission v. GourleyELR, [1956] A. C. 185, and a number of other authorities in the same region of law, arises in the following way. By minute of agreement, which was dated 15th July 1959, but which was to operate from 6th July 1959, the defenders appointed the pursuer, who was at that time chairman of the company, to be their managing director for a period of five years from the last-mentioned date. The minute of agreement made provision for payment to the pursuer of a basic salary and other emoluments, including a share of the defenders' net profit, which were to be additional to the basic salary. On 6th October 1961 the defenders terminated the pursuer's appointment as their chairman and managing director, and the pursuer avers that the defenders thereby committed a breach of the contract of employment contained in the minute of agreement. For the purposes of the present action, the defenders admit liability to make reparation to the pursuer in respect of the termination of his employment with them in October 1961. The issues between the parties in this action therefore relate solely to the amount of damages. In his summons, as amended at the bar at the beginning of the hearing, the pursuer concludes (first) for the sum of £9680, representing loss of basic salary from 6th October 1961 to 5th July 1963, the date on which the contract of employment would have expired; and (second) for the sum of £3000, representing the share of net profits which the pursuer offers to prove he would have received under the minute of agreement during the same period. In calculating the sums of £9680 and £3000 respectively sued for, no regard has been paid to the income tax...
To continue reading
Request your trial
- Shove v Downs Surgical Plc
-
BSkyB Ltd and Another v HP Enterprise Services UK Ltd and Another (No 2)
...not taxable and therefore the principle in Gourley applied. He considered, obiter, the approach of Lord Hunter in the Outer House in Stewart v Glentaggart [1963] SLT 119 in cases where there was taxation of damages which he expressed as follows at 129: “Lord Hunter goes on to conclude that ......
-
Parsons v B. N. M. Laboratories Ltd
...take into consideration the incidence of taxation which in that case would have been Belgian taxation. 33 Lord Hunter's opinion in Stewart v. Glentaggart Ltd. (unreported) gives support to the appellants' argument and may have been the origin of it. The learned judge rejected the view that ......
- Deeny and Others v Gooda Walker Ltd and Others