Tyrer v Smart
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE BUCKLEY,LORD JUSTICE EVELEIGH,SIR JOHN PENNYCUICK |
| Judgment Date | 01 December 1977 |
| Judgment citation (vLex) | [1977] EWCA Civ J1201-2 |
| Docket Number | 1975 No. 30 |
| Court | Court of Appeal (Civil Division) |
| Date | 01 December 1977 |
[1977] EWCA Civ J1201-2
In The Supreme Court of Judicature
Court of Appeal
On Appeal from the High Court of Justice
Chancery Division (Revenue Paper)
(Mr. Justice Brightman)
Lord Justice Buckley
Lord Justice Eveleigh
and
Sir John Pennycuick
MR. P.W. MEDD Q.C. and MR. MICHAEL HART (instructed by The Solicitor of Inland Revenue, Somerset House, London) appeared on behalf of the Respondent (Appellant).
MR. M. NOLAN Q.C. and MR. J. HOLROYD PEARCE (instructed by Messrs. Denton, Hall & Burgin, Solicitors, London) appeared on behalf of the Appellant (Respondent).
This is an appeal from a decision of Mr. Justice Brightman given on 23rd July 1976, when he allowed an appeal from the Special Commissioners in relation to an assessment upon the taxpayer, Mr. Tyrer, in respect of a benefit which he obtained as the result of subscribing for shares under the scheme which is referred to in the Case Stated by the Commissioners, Mr. Tyrer being a deputy managing director of a company called Rentokil Ltd., which was one of a number of subsidiary companies in a group the parent of which was called Rentokil Group Ltd, which was itself a subsidiary company of a Danish Company. We are not I think concerned with the Danish Company, but we are concerned with the scheme formulated by the English parent company, Rentokil Group Ltd., for offering shares to employees of that company and of its subsidiary companies, being UK employees of five years' standing, or employees abroad of managerial status, at the price of 20/- a share upon the occasion of Rentokil Group Ltd., going public.
The facts of the case are set out in the Case Stated and it is unnecessary for me to recapitulate them, but I think it would be useful for me just to state a short catalogue of dates. On 6th March 1969, as is found in paragraph 5 (i) of the Case Stated, the taxpayer received a special application form, accompanied by a covering letter which is set out in that paragraph of the Case. On 9th March 1969 the taxpayer applied for 5,000 shares and sent his cheque for £5,000 in payment for them (paragraph 5 (k)). That application was accepted on 17th March 1969 and it is common ground that the application was not revocable at any date between 9th March 1969 and 17th March 1969. There were no dealings upon theStock Exchange in these shares on 17th March 1969, because dealings in the shares of the company did not begin until the following day; but on the following day, by the end of the morning, the shares were changing hands at 26/- and at the close of business at 27/6d. Members of the general public who had applied for shares upon the issue which is in question had subscribed at 25/-; the employees were invited to, and were permitted to, apply at the price of 20/-
I would draw attention to certain important findings of fact in the Case which are relevant to the decision of the point which we have to determine. In paragraph 5 (g), which is at page 7, the Commissioners found as a fact that "The Company's purpose in making shares available for employees was to encourage employees to identify with the Company and to induce loyalty towards the Company. Five years' service was adopted as the necessary qualification for no particular reason other than that it was desired to encourage 'established' employees to become shareholders".
A little lower down in the same paragraph there is the finding that "No maximum limit was put on the number of shares for which any employee could apply. In the event no particular pattern emerged: some less highly paid employees applied for and received more shares than some more senior employees. When the arrangements were under discussion there was no certainty as to how they would work out from the point of view of employees".
In paragraph 5 (n) on page 15, the Commissioners found as a fact that "The Appellant, when he had applied for his shares, had no particular confidence that the shares would have a value in excess of the minimum price" - I interpose to say that that means the 20/-"He thought that they might go either way".
In their decision the Commissioners referred to the terms of the offer to employees - this is at page 18 - as "terms which it was hoped would, in the event, prove favourable though there could be no certainty". The Commissioners went on to say: "We accept that the purpose of the Company, as indeed of the principal shareholder, Sophus Berendsen A/S" - that is the Danish Company -"insofar as it was a party to the arrangements, in arranging for shares to be offered on favourable terms to established employees of the Company and of companies within the group on the occasion of the parent Company of the group becoming a public company, was to encourage such employees to become shareholders of, or to increase their shareholdings in the parent company". There is a finding of what the purpose of the company was in embarking upon this scheme of making shares available to employees. They said: "If employees became members of the parent company they would identify with the group". The aim, we are told, was to obtain a better relationship with the employees so that they would become, and continue to be, loyal employees having an understanding of, and a sense of involvement in, the affairs and fortunes of the Rentokil Group.
The Commissioners reached their conclusion in the following terms, on page 19: "In these circumstances, and having regard to the context in which the opportunity to apply for shares on favourable terms was made available to the Appellant and all the other group employees with the necessary minimum period of qualifying service, we conclude that the advantage which accrued to the Appellant when he availed himself of that opportunity and his offer to purchase 5,000 shares for £5,000 was accepted, was an advantage afforded to him in return for acting as or being an employee withinthe meaning of that expression as used by Lord Radcliffe in Hochstrasser v. Mayes".
The Commissioners went on: "It seems clear from the notice addressed 'To all staff eligible for special application Forms', that in making arrangements for employees to have an opportunity to apply for shares on preferential terms, the Company was, in effect, acting as the employer of those to whom the notice was addressed and it was as employees that they were intended to respond if they wished to take advantage of the opportunity offered". So they reached the conclusion that: "The Appellant's office or employment was, in our view, the source of the advantage which, in the events which happened, the appellant was able to turn to account". They went on to consider the value of that advantage having regard to evidence which had been called before them, and to the market which developed on 18th March, and they arrived at a value of 4/- per share, and accordingly held the taxpayer assessable in the sum of £1,000.
The taxpayer appealed against that decision. The appeal came before Mr. Justice Brightman and is reported in (1977) 1 Weekly Law Reports at page 1. The ratio decidendi of the learned Judge is I think to be found in a passage in his judgment at page 6, starting from near the letter G, to page 7 at B: I shall not spend time reading that. The learned judge reversed the decision of the Special Commissioners and concluded that the taxpayer was not liable to any tax on this benefit, advantage or right. The Crown appeals from that decision to this court.
Under Schedule E, "Tax is exigible in respect of any office or employment on emoluments therefrom" and the word "emoluments" isdefined as including all salaries, fees, wages, perquisites and profits whatsoever. The argument in this case and other cases to which we have been referred revolves round the significance of the word "therefrom".
It is common ground in the present case that the emolument, if there be one within the meaning of the statute, arose on 17th March 1969, and that its value should be measured by reference to the difference between the value of the shares on that date and the price of 20/- per share paid by the taxpayer. It is not contended in this case that any right accrued to the taxpayer at any earlier date which could constitute an emolument for the purposes of Schedule E, in which respect the present case is to be distinguished from Abbott v. Philbin reported in (1961) Appeal Cases, page 352, where the emolument was held to have arisen when the taxpayer Was granted an option in 1954 and not, as the Revenue there claimed, when he exercised that option in 1956.
Mr. Medd put forward his argument upon the basis of two questions - or perhaps it would be more fair to him to say that he divided the question with which the court is presented into two parts. First, was the advantage which the taxpayer obtained a perquisite or profit within the meaning of the schedule; second, if so, did it arise from the taxpayer's employment? I think that in truth, as was pointed out in Brumby v. Milner. reported in (1976) 1 Weekly Law Reports, in the Court of Appeal, page 29, by Lord Justice Russell at page 35 at E, there is really only one question involved in cases of this nature, which is whether the receipt or benefit has the quality of remuneration or reward for services.
On the facts found it must be accepted that the acceptance ofthe taxpayer's offer to take 5,000 shares at 20/- per share was beneficial to him; he could have realised a profit by selling them on 18th March 1969. at the earliest opportunity to make a sale after his application had been accepted. The question for decision is whether that benefit was a perquisite or profit which arose from his office or employment as a deputy managing director of...
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