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Firestone Tyre and Rubber Co. Ltd Vs. LewellIn (inspector of Taxes) - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtMumbai High Court
Decided On
Reported in[1957]31ITR338(Bom)
ActsIncome Tax Act, 1918; Original Income Tax Act, 1842; Original Income Tax (Amendment) Act, 1915; Income Tax Rules - Rules 5 and 10
AppellantFirestone Tyre and Rubber Co. Ltd
RespondentLewellIn (inspector of Taxes)
direct taxation - agency - income tax act, 1918 - rules 5 and 10 of income tax rules, 1915 - company 'x' (incorporated outside united kingdom) doing business for company 'y' (incorporated in uk) - company 'x' to be treated as agent of company 'y' and profit earned by company 'x' to be treated as profit earned in uk within meaning of rule 2 read with 10. - section 31(4) (since repealed) :[tarun chatterjee & h.l.dattu, jj] jurisdiction of high court - respondent, a government company, chartered appellants vessel to carry rock phosphate from togo to west coast india - dispute arose between parties - under agreement, respondent had chosen mumbai as port of delivery vessel carrying rock phosphate was delivered at port of bombay - application filed by respondent earlier before delhi high.....lord evershed m.r., j.1. it may be truly said as a general proposition that the bulk of those who are liable to pay income-tax are the subjects of her majesty resident in the united kingdom. but there are some few cases in which persons not subjects of her majesty, and not indeed resident in the united kingdom, may pay the tax. thus, to refer to the income-tax act which is appropriate to this case, the income-tax act, 1918, schedule d, paragraph 1, of that act provides : 'tax under this schedule shall be charged in respect of - (a) the annual profits or gains arising or accruing - ... (iii) to any person, whether a british subject or not, although not resident in the united kingdom....... from any trade, profession, employment, or vocation exercised within the united kingdom.' 2. that tax.....

Lord Evershed M.R., J.

1. It may be truly said as a general proposition that the bulk of those who are liable to pay income-tax are the subjects of Her Majesty resident in the United Kingdom. But there are some few cases in which persons not subjects of Her Majesty, and not indeed resident in the United Kingdom, may pay the tax. Thus, to refer to the Income-Tax Act which is appropriate to this case, the Income-Tax Act, 1918, Schedule D, paragraph 1, of that Act provides : 'Tax under this Schedule shall be charged in respect of - (a) The annual profits or gains arising or accruing - ... (iii) to any person, whether a British subject or not, although not resident in the United Kingdom....... from any trade, profession, employment, or vocation exercised within the United Kingdom.'

2. That tax liability of foreign non-residents is qualified and governed as regards assessment by certain of the General Rules - and again I refer only to those material to the present case - applicable to Schedules A, B, C, D and E. Of those rules it will be sufficient to read rules 5 and 10, which have assumed their present form as successors in title (as it were) of the Original Income-Tax Act, 1842, as amended by the Act of 1915. Rule 5 states : 'A person not resident in the United Kingdom whether a British subject or not, shall be assessable and chargeable in the name of any such trustee, guardian, tutor, curator, or committee, or.......' - and these are the more important words - '........ of any factor, agent, receiver, branch, or manager, whether such factor, agent, receiver, branch, or manager has the receipt of the profits or gains or not, in like manner and to the like amount as such non-resident person would be assessed and charged if he were resident in the United Kingdom and in the actual receipt of such profits or gains.' But rule 10 provides : 'Nothing in these rules shall render a non-resident person chargeable in the name of a broker or general commissioner agent, or in the name of an agent not being an authorized person carrying on the regular agency of the non-resident person or a person chargeable as if he were an agent in pursuance of these rules, in respect of profits or gains arising from sales or transactions carried out through such a broker or agent.'

3. From the paragraphs in Schedule D which I have read, and the two rules, it follows that in the case of an attempt to tax, via a 'regular' agent, a non-resident person, two requirements must be shown to be satisfied - first, the non-resident must be not merely trading with the United Kingdom but exercising, that is carrying on, a trade or profession within the United Kingdom; and, second, for the purposes of that trade there must be what is called an authorized person as regular agent of the non-resident trader.

4. The claim to income-tax in the present case relates to the five tax years 1940/1941 to 1944/1945 inclusive. That was a period of severe wartime restriction in this country upon trading between the United Kingdom and foreign parts. That matter I have mentioned because it has, as will be seen, some bearing upon this case.

5. The non-resident sought to be taxed is a company known as the Firestone Tyre and Rubber Export Co., being a company incorporated, I think, in the state of Maine but having its principal place of business in the city of Akron in the state of Ohio in the United States. I will call that company, hereafter, 'Akron.'

6. The alleged regular agent which is to be taxed on behalf of the non-resident Akron is an English company known as the Firestone Tyre and Rubber Co. Ltd., whose factory and offices and place of business are at Brentford in the environs of London. That company I will refer to as 'Brentford.' Brentford is in fact wholly controlled, as the judge pointed out, by Akron; but I agree, of course, with Sir James Millard Tucker that one cannot disregard the effect of the separate legal entity which Brentford is; one cannot answer the question raised in this appeal by treating Brentford as though it were a mere emanation of Akron.

7. The question which we have to decide in the sense that I have anticipated, after my reference to the Income-Tax Act and the rules, can now be restated in the terms in which I find them in paragraph 2 of the case stated. 'The questions,' said the Commissioners, 'for determination before us were as follows '....' - I leave out (a) - '.... (b) whether Akron was exercising within the United Kingdom a trade of selling tyres to persons outside the United Kingdom; and, if so, (c) whether that trade was carried on by Akron through the agency of Brentford.'

8. It is trite observation that in every case which comes before the courts the answer in the end must depend upon its particular facts. The facts of the present case are undoubtedly in many respects special and facts of the present case are undoubtedly in many respects special and peculiar. As Sir James said, the old cases in which the question of taxing non-resident persons came before the courts (for example, the cases compendiously referred to as the 'champagne' cases) were cases, generally speaking, where the non-resident sold in the United Kingdom goods made abroad; and it was in particular reference to the cases of that type that Lord Cave L. C., in Maclaine & Co. v. Eccott, used language which has been quoted many times before, as it has been quoted in the present case. 'The question,' said Lord Cave L. C., 'whether a trade is exercised in the United Kingdom is a question of fact, and it is undesirable to attempt to lay down any exhaustive test of what constitutes such an exercise of trade; but I think it must now be taken as established that in the case of a merchant's business, the primary object of which is to sell goods at a profit, the trade is (speaking generally) exercised or carried on (I do not myself see much difference between the two expressions) at the place where the contracts are made. No doubt reference has sometimes been made to the place where payment is made for the goods sold or to the place where the goods are delivered, and it may be that in certain circumstances these are material considerations; but the most important, and indeed the crucial, question is, where are the contracts of sale made ?'

9. The present case is on its facts very different in material respects from the type of case exemplified by the 'champagne' cases. Indeed, in some respects it may be said to be the converse of them, since the goods here in question were made in the United Kingdom and were then sold abroad.

10. I turn to a statement of what I will call the Akron business. [His Lordship read the finding of fact stated in paragraph 4 of the stated case, and continued :] Whether the particular company sought here to be taxed, Firestone Tyre and Rubber Export Co., itself manufactures tyres is not a matter which appears to be proved in evidence, but I assume - and I base myself upon the finding of the commissioners - that this company is at any rate a member of, and an important member of, the general Akron organization; and the business of that organization is that of the marketing and distribution of Firestone tyres and other Firestone products. I observe that Firestone tyres are branded articles. The name Firestone, besides being in fact a trade mark, is part, and a valuable part, of the goodwill of Akron. I assume also that tyres which bear that mark as a guarantee of the reputation of Firestone are made in accordance with some particular process, whether patent or not, and that process, again is part, and a valuable part, of the business undertaking and property of Akron.

11. The distribution of Firestone products outside the United States, and particularly in Europe, appears to be conducted by Akron through distributors under 'distributor' agreements. I shall refer presently to the one which we have taken as a sample. But the substance of the obligation put upon such distributors was that they were bound to promote the sales in their countries of FIRESTONE products and not to sell any competing products themselves at the same time.

12. In order that such a distributor should get supplies, Akron have also established, as the case mentions, as part of their organization controlled manufacturing companies (of which Brentford is one) whose function it is to make Firestone tyres and Firestone products according to the strict directions and specifications of Akron, and to dispose of those tyres subject to, and only subject to, the terms imposed by Akron.

13. I will now refer to the distributor agreement which has been called 'the master agreement,' and is typical of the type of agreement made by Akron with its distributors. I will call it the Swedish master agreement for it is made between the Firestone Tyres and Rubber Export Co. and a company situated in Stockholm. It is desirable that I should read a certain amount of this agreement because a good deal of the argument has turned upon its true effect. The first clause is this : 'The company,' that is Akron, 'hereby grants to the distributor' - I will call the distributor 'Sweden' - 'upon the terms and conditions hereinafter mentioned the exclusive right to sell Firestone branded...' tyres, etc., in the territory of Sweden, and in consideration of that grant Sweden agrees to buy, sell and distribute such Firestone branded products exclusively, to keep on hand a sufficient stock to meet demand, and to use their best endeavours to promote the sale and distribution, etc.

Clause 2 : 'Prices : Subject to the company's right' - that is, Akron's right - 'to change prices.... the distributor shall be entitled to the prices... on the branded tyres as per attached lists. The lists in fact were not attached to our copy, but we understood from Sir James that, as is common I take it with most branded articles, there was a controlled price which Sweden had to pay and a controlled price at which Sweden had to sell. Then there was a provision for permitting Akron to change the prices.

Clause : 3 : 'Deliveries : The company [Akron] will make deliveries f.a.s. vessel provided always that the shipment shall weigh...' so much. 'Delivery to carrier shall constitute delivery to distributor.'

Clause 4 : 'Terms : The terms of the company [Akron] shall be 90 days' sight draft, documents against acceptance.' There are the provisions about changes in price which I can pass over, and a further obligation on the distributor to keep stocks on hand. Clause 9 provides that Akron reserves the right to sell Firestone products to companies and others who customarily purchase their tyres in the United States, etc., even though such products may be shipped to the distributor's territory, that is Sweden.

Clause 12 says that Akron 'shall not be liable for delays or failures to make delivery of goods ordered here under occasioned by was, fires, the elements, labour trouble, interruption or shortage of transportation facilities, inability to obtain goods, or from any cause beyond the control of the company.'

Clause 13 : 'It is understood and agreed that this agreement is not to be construed as constituting the distributor an agent of the company for any purpose whatever.'

Clause 14 : 'The contract between the parties hereto is fully set forth in this agreement and has been entered into under the considerations herein expressed and no others, and shall become effective only when executed by the duly authorized representatives of the company at Akron, Ohio, it being agreed that this agreement is to be construed under the laws of the state of Ohio in the United States of America'; and it is not to be altered or modified except by written endorsement, and so forth. There is a power of cancellation which is irrelevant.

Upon the face of it, it seems to me clear enough that the effect of that master agreement was, although it was implicit perhaps rather than clearly expressed, that Akron would itself sell to Sweden such tyres and other products as Sweden should require, or at least would provide the tyres and so forth that Sweden would require at the prices and subject to the other conditions contained in the agreement. I pause to observe that throughout the case and in the other documents Sweden has been treated as and called a customer of Akron.

14. I now pass to the second master agreement, again a typical one of a kind, namely, the agreement between Akron and Brentford, which I will call the Brentford master agreement. That came into being in 1936, but, as the case shows and as one can find from the judgment of the judge, Brentford had been in existence for a good many years before that date. For present purposes I think none of the previous history matters. The Brentford master agreement was as follows : '(1) In consideration of the payment by the American company 'Akron' hereinafter mentioned the English company 'Brentford' will from time to time use its best endeavours to fulfill either by manufacture or from its existing stocks all orders obtained in Europe or elsewhere by the American company as and when requested so to do by the American company. (2) The American company shall upon each request being made forward to the English company full particulars of such order. (3) The English company shall upon the receipt of such order with all possible dispatch forward the goods thereby ordered to the purchaser and shall give such instructions for payment of the purchase price by the purchaser as shall be requested by the American company. (4) In consideration of the above mentioned services the American company will pay to the English company in the manner hereinafter mentioned a sum equal to the cost price to the English company of the goods supplied here under plus five per centum thereof.' Then the expression 'cost price' is defined. Clause 5 provides for there being accounts between the parties. Clause 6 states that the agreement should continue for a period, but the fact is that it had continued ever since. It is to be noted, for what it is worth, that unlike the Swedish master agreement the agreement does not provide that nothing in the agreement should constitute for any purpose Brentford as the agent of Akron.

15. Upon the face of the document it is, I think, clearly contemplated that, when Akron received from any of its customers or purchasers an order, it would or might pass that order on to Brentford for execution with such directions as to price and so on as it then gave. Brentford would be bound to execute it, or at least to use its best endeavours so to do.

16. The case then, upon the face of the documents, would be fairly analogous to the example given by Sir James of the man who desires to present to the lady of his choice a bunch of flowers, and orders them from a florist. The florist, not being able in fact to supply those flowers, will get another florist so to do, and the lady receives in due course the flowers in fact from the second florist. In that case (and I daresay the result would be similar if the arrangement had gone strictly according to the letter of the master agreement) it is at least probable that the second florist never enters into any contractual relations with the customer who orders the flowers.

17. But the fact is that things did not work out quite as the agreements, on the face of them, stated that they should. That, I think, undoubtedly was partly due to the English war-time controls which rendered Brentford unable to comply with any orders for tyres save such as the appropriate governmental authority either permitted or indeed directed them to do. The way in which the main difference in practice arose was this, that the orders were not sent to Akron by Sweden and then passed on to Brentford. They were sent direct to Brentford. It is not in doubt the variation in procedure was authorized, and that in fact Akron gave to those customers or distributors a list of persons or firms in European and other countries to whom they could send, direct, their orders.

18. The method of business activity is again best found in the case itself, and I think it desirable to read from the case, particularly since one passage I am about to read constitutes a deliberate finding of fact. [His Lordship read paragraphs 12 and 16 (c) of the case, and went on :] It may be said that, since there was difficulty in transmitting money from the United Kingdom to America, the amounts for which Brentford were accountable to Akron were treated as though they were loans by Akron to Brentford.

19. I will dispose first of all of two particular transactions, namely, supplies of Firestone tyres first to the Government of New Zealand and, second, to the Government of France in Great Britain, the so-called Free French Government. These two orders covered goods to the value of Pounds 49,000 out of a total of goods with which this case is concerned amounting to Pounds 782,000. The supplies to the New Zealand and Free French Governments were not in fact in accordance with the Akron/Brentford arrangements or the Akron master agreements; they were directed by the British Government. They were, however, treated by Brentford quoad Akron as though they had been within the scope of the master agreements; and the Crown has in fact - no one can say that it was not fair and just so to do - been content to treat them as though they were in consimilicasu with the whole of the rest of the transactions. I say no more about those particular orders.

20. To illustrate my judgment let me take an imaginary order coming from Stockholm, Sweden, for, say, 1,000 tyres. They send direct to Brentford an order for 1,000 Firestone tyres. Brentford, having regard to the terms of the Brentford master agreement, may not have been bound to accept the order, and, indeed, having regard to the war-time controls, might not have been able to accept it; but I am supposing the case that Brentford accepts the order. It supplies all the tyres, and in accordance now with the terms of the written master agreements it delivers them f.a.s., and that constitutes delivery to Sweden. For the rest, the transaction is, as between Brentford and Sweden, in all respects governed by the dictates of Akron in accordance with the Swedish master agreements, that is to say, all the details as to the price to be charged, the method of collection, delivery, and so forth.

21. What then, on a true analysis, is the result of a transaction taking that form Sir James has said that there are two results. Either, first, the sole trading operation was an operation between Sweden on the on hand and Brentford on the other, an English contract, becoming in due course an English sale; the arrangement between Brentford and Akron about the subsequent apportionment of the purchase price collected is something altogether outside the scope of the trading operation; it therefore follows, as night the day, that Akron is not trading or carrying on a trade within the United Kingdom. Or, second a contract upon the giving by Sweden of the order comes into existence, a new contract between Sweden and Akron, or alternatively a contract between Brentford and Akron, with the purpose or having the effect that the 1,000 tyres which are to be delivered to Sweden become the property of Akron. In either case there is a point of time when the property passes to Akron, and from that time forward the transaction is exclusively governed by the terms of the Swedish master agreement, which is an agreement made out of England and governed by the laws of the state of Ohio; and, therefore, it follows also that Akron is not carrying on a trade within the United Kingdom at all.

22. As the argument developed, of the two horses (if I may use a substantial variation of the metaphor which Harman J. used) Sir James rode the former rather harder than the latter; though I think that when he opened the case, and (as I noted from the judgment of Harman J.) when he put his case in the court below, he presented as the favourite the second of the two horses. Certainly the way in which Sir James put the case has all the attractions of simplicity. I think, for myself, that it is too simple, and that when the matter is more closely examined very severe difficulties are found to confront Sir James on both heads of his argument, difficulties which roam rocks like the rocks of Scylla and Charybdis to which Harman J. alluded. In my judgment Harman J. came to a correct conclusion, for I think that neither of Sir James's propositions can be, on examination, established.

23. First, to revert to my imagined simple case, I think that upon the order being given by Sweden and accepted by Brentford there arises between Brentford and Sweden a contract of sale made in England, a contract which according to the Sale of Goods Act, 1893, becomes a sale when, in accordance with the other arrangements, the tyres are delivered by Brentford f.a.s. I reject, as did the judge, the notion that there arose at some point of time what I think was aptly described by Harman J. as a philosophical contract between Brentford and Akron sufficient to pass the property in those tyres from Brentford to Akron before delivery. It is, I think, possible - the judge assumed it was the fact, but I do not myself go so far - that when Sweden sends its order to Brentford there also arises a subsidiary contract, that is, subsidiary to the Swedish master agreement, between Sweden and Akron on the footing that, properly construed, the Swedish master agreement operated as a continuing offer by Akron to sell or to provide tyres, that offer being accepted when Sweden gave an order for tyres in pursuance of and in reliance upon it. I think that if such a fresh contract came into existence it would occupy a very subsidiary and ancillary position. If, for example, to go back again to may case, Brentford committed same default, having accepted the order, I think that on my analysis Sweden would be entitled to sue Brentford for breach of contract. I think it may be that Sweden could also sue Akron under the Swedish master agreement for having failed to provide the tyres; and it may also be that Sweden could set up against Akron what I have called a subsidiary and ancillary contract also; but having stated as best I can the effect of that supposed breach I think it will be seen at once that on my analysis any such contract between Akron and Sweden is of a purely incidental character.

24. But its possibility has, I think, some aspects of danger about it for Sir James, and for this reason. We do not know the exact arrangements whereby communications passed, and were intended to pass, between Sweden and Akron. Assuming that there was by the Swedish master agreement a continuing offer, it may be that acceptance, so as to create contractual relations, must first be communicated to the offeror, and that it would not suffice to create a contract that Sweden merely put the order in the Swedish post office box. If that is right, then the communication in the case I suppose was - and Sir James, I think, conceded as much - made not to Akron direct but to Brentford, and Brentford must at least be the agent of Akron to receive communication of the acceptance with the possible result (I say no more) that, even on the second of the two alternatives which Sir James put forward, there would arise a contract with Akron in England because the acceptance of the offer was communicated to Akron via its agents in England. I need not, however, pursue further that aspect of it. It suffices, in my judgment, to state, as I have done, that on the happening of the case I am supposing of Sweden sending an order for tyres to Brentford, there came into existence in England a contract for sale between Brentford and Sweden.

25. If that is so, is Akron carrying on a trade within the United Kingdom In my judgment it is. In my judgment the typical English contract of sale between Brentford and Sweden which I have supposed is an incident, and an incident, deliberately contrived, of Akron's business of marketing and distributing Firestone branded tyres in England and in Europe, and indeed in every country of the world. I do not repeat all the matters which I have previously mentioned as to the nature of the articles which are supplied, but merely state compendiously by way of reminder that Firestone tyres are branded proprietory articles of the Akron organization.

26. My conclusion does not involve the proposition that Brentford, in stead of being an independent legal entity, is a mere branch of Akron; but Brentford, though a separate entity, is in fact wholly controlled by Akron, and in the making of what may be described as Akron proprietory branded articles it acts under the close direction of Akron in all respects, and in selling those articles to Akron's customers it does so on terms fixed by Akron so that after allowing Brentford its costs and a percentage thereon the whole of the profits on the transactions go to Akron.

27. We were referred in the course of the argument, as was the judge, to Weiss Biheller & Brooks Ltd. v. Farmer, in which a Dutch company (which manufactured gas mantles in the Netherlands) made a business arrangement with an English company for the distribution and marketing of its gas mantles here. The substance of the arrangements was that the Dutch company sold the gas mantles first to the English company, the two companies acting as principals, vendors and purchasers, and then the English company sold them again to customers in England, again acting as principle, as vendor. Ultimately, the profits of those transactions were divided between the Dutch and the English companies, in certain proportions. I do not suggest that that case is entirely parallel with the present case, and the reference in the somewhat obscurely worded agreement between the Dutch company and the English company to del credere certainly lends much force to the view that the English company was, in some respects at any rate, regarded as an agent of the Dutch company. But the case does, I think, show, and it is an illustration of the principle, that the fact that the English company, when it sells particular goods, sells them as a principal to the customers does not negative a proposition that the parent company, from which in some sense or another the goods emanated, may not equally be carrying on or exercising a trade within the United Kingdom. I think that the case which I have mentioned was rightly regarded by Harman J. as lending some support to the view which he formed.

28. There remains the third and final question. If Akron is carrying on this trade within the United Kingdom, then for the purposes of rules 5 and 10 is Brentford its 'regular' agent To my mind, the answer to that question must be in the affirmative. If the conclusion is right that Akron is trading in the United Kingdom, then it must be doing so through someone's agency, since, admittedly Akron is not itself here, nor are any of its officers, nor has it got here any branch or office. Indeed, as I understood him, Sir James did not really argue otherwise than that, given the premise that Akron was exercising a trade in the United Kingdom, and doing so by means of or as a result of Brentford's sale transactions, Brentford really must be treated as a regular agent within the terms of rule 10. There certainly could not be any doubt, having regard to the Brentford master agreement, that if Brentford is for this purpose an agent at all, it certainly is a regular agent, and not merely (to use the phrase to be found in the cases) an irrelevant agent.

29. The view of the case which I have taken makes it unnecessary for me to discuss the further question also debated before us, namely, whether, on the assumption that contracts for sale to Sweden of tyres were contracts with Akron made outside the United Kingdom and governed by United States law, Akron was still trading here - that is, exercising a trade within the United Kingdom - because so many incidents of the performance of the contract (for example, delivery, receipt of the purchase price, and so forth) took place here : in other words, the point that the exceptional facts of this case take the matter out of the general rule enunciated by Lord Cave L. C. in Maclaine & Co. v. Eccott in the passage which I have already cited. The Judge was inclined to the view that an affirmative answer should be given to that question, that the case was one so exceptional in its facts that he could invoke, to support his answer, the language used, for example, by Atkin L. J. in the earlier case of F. L. Smidth & Co. v. Greenwood, where the Lord Justice said : 'I think that the question is, where do the operations take place from which the profits in substance arise ?' In the view which I have taken it is unnecessary for me to discuss that matter, and I, therefore, prefer, for my part, to express no conclusion about it; but for the reasons which I have earlier given I think Harman J. came to a correct conclusion, and I would dismiss this appeal.

Jenkins L., J.

30. I agree. I need not repeat at length the facts stated in the case, or refer again in detail to the distributor agreement or the agreement of February 8, 1936, between Akron and Brentford.

31. The question whether Akron was during the relevant years exercising a trade within the United Kingdom through the agency of Brentford is a question of fact which the Special Commissioners have answered in the affirmative, and their decision upon that question, as the tribunal of fact, in not to be disturbed on appeal, unless the facts as found by the are incapable in law of supporting such a decision.

32. Sir James has argued before us with his usual persuasive force that on the facts found, and on a proper appreciation of the legal effect of the distributor agreement and the agreement of 1936, and of the course of dealing between Akron and Brentford and the various distributors whose orders were dealt with by Brentford, the only proper conclusion as a matter of law is that Akron was not at any material time exercising a trade within the United Kingdom, or at all events was not exercising a trade within the United Kingdom through the agency of Brentford.

33. The effect of Sir James's argument may, I think, be thus fairly summarized :

(i) Akron and all the distributors whose orders for tyres are material to the case were resident outside the United Kingdom, and the distributor agreement entered into between Akron and each of these distributors was made outside the United Kingdom

(ii) Each of the distributor agreements amounted to a standing offer by Akron to supply the distributor concerned with tyres as and when ordered by such distributor. If the terms of the distributor agreements had been strictly adhered to, the distributors would have given their orders for tyres to Akron, and each such order would have constituted an acceptance of Akron's standing offer, and thus have given rise to a contract between Akron and the distributor concerned for the sale by the former to the latter of the tyres ordered - see Pollock on Contracts, 13th ed., at p. 141. The acceptance would be complete on the dispatch by the distributor in his own country by post or cable of his order for tyres. The contract would thus be made in the distributor's country of residence, that is to say, outside United Kingdom.

(iii) If the terms of the distributor agreements had been strictly adhered to, the position under the agreements of 1936 between Akron and Brentford would have been that, as and when contracts for the sale of tyres by Akron to distributors were concluded in the way above described, Akron, if so minded, would have passed them to Brentford to carry out under the agreement of 1936; and, thereupon, as between Brentford and Akron, Brentford would have been bound, so far as it was able, to fulfill those contracts on the terms as to remuneration and otherwise contained in that agreement.

(iv) It follows that, if the terms of the distributor agreements had been strictly complied with, Akron might well have been carrying on a trade of selling tyres to distributors outside the United Kingdom, but could not have been exercising that trade within the United Kingdom because all the contracts for the sale of tyres would have been made outside the United Kingdom; and the balance of authority is strongly in favour of the view that a merchanting traded, that is to say, a trade concerned with the sale of goods, is (generally speaking) carried on in the place where the contracts are made - see, for example, Maclaine & Co. v. Eccott per Lord Cave L. C. The fact that an non-resident trader, who has made a contract outside the United Kingdom with another non-resident for a sale of goods to the latter, obtains those goods from a trader resident in the United Kingdom is not enough to displace the general rule so as to make the trade of either non-resident a trade exercised within the United Kingdom : see Sulley v. Attorney-General, and the distinction drawn by Lord Herschell in Grainger & Son v. Gough between trading with a country and carrying on trade within a country.

(v) The fact that the strict terms of the distributor agreements were departed from in practice (both before and after the date of the agreement of 1936), so as to allow distributors to order any tyres they required from any listed manufacturer of Firestone tyres selected by them, does not affect the above conclusion. The distributor's order addressed to any listed manufacturer equally raised a contract made outside the United Kingdom between Akron and the distributor concerned immediately upon the dispatch by letter or cable of the distributor's order, the listed manufacturers simply playing the role of agents empowered to receive such orders on Akron's behalf.

(vi) If the foregoing submissions in their application to the practice actually followed are wrong, and the effect of that practice was to make an order for tyres a addressed to Brentford an offer requiring the acceptance of Brentford in England, so that the contract in each case was made in this country, that does not make good the contention that Akron was exercising a trade within the United Kingdom; for on this footing the contracts were contracts with Brentford for the sale by Brentford to the distributors concerned of Brentford's tyres, not Akron's tyres, and the trade exercised in the United Kingdom was Brentford's, not Akron's. This merely resuscitates the Crown's abandoned claim that Brentford was carrying on its own account the trade of selling tyres to persons resident outside the United Kingdom, and cannot assist the case for the Crown on the present appeal.

(vii) In any case, and on any view of the matter, the tyres supplied or sold by Brentford to distributors outside the United Kingdom were Brentford's own tyres, not Akron's, as appears from the terms of the agreement of 1936; and it is legal impossibility for a person to sell his own goods as agent for another - see the distinction drawn in W. T. Lamb & Sons v. Goring Brick Co. Ltd. between the relationships of vendor and purchaser and principal and agent. It follows that Brentford cannot have been selling its own tyres to distributors as agent for Akron, and it follows further that Brentford must either have been selling on its own account to distributor outside the United Kingdom (a theory which, as appears above, cannot advance the case for the Crown) or else must be regarded as having been selling to Akron, at a price corresponding to the rate of remuneration fixed by the agreement of 1936, the tyres required by Akron to fill contracts made by Akron outside the United Kingdom with non-resident distributors. In neither alternative could it be held that Akron was exercising a trade within the United Kingdom, and Brentford has already been assessed to the whole of the tax which would be payable on the footing that it was, as part of its own trade, selling to Akron.

34. In my judgment, whatever the position might have been if the terms of the distributor agreements had been strictly adhered to, Sir James's argument breaks down on the course of dealing actually followed. An order placed by a distributor direct with Brentford as one of the listed manufacturers of Firestone tyres could at most only create a contract between the distributor and Akron to the effect that the distributor would purchase, and Akron would cause the manufacturer to sell to the distributor, the tyres ordered on the terms and condition of the distributor agreement. There was on privity of contract between distributor and manufacturer quoad the distributor agreement, and it is, I think, quite impossible to hold that the mere placing of an order with any one of the listed manufacturers would, without more, oblige that manufacturer to deliver the tyres ordered. As between the distributor and the listed manufacturer the matter must have been one of offer and acceptance, that is to say, an order placed by the distributor with the manufacturer and accepted by the latter. The order and its acceptance would alone constitute the effective contract under which the distributor could call upon the manufacturer to deliver the tyres ordered, and would be bound on his own part to take and pay for them. Such contracts in the case of Brentford would be made in England as the place of acceptance. On applying this view of the contractual position to the facts found, it appears that during the material period Brentford was selling to distributors abroad, under contracts made in the United Kingdom, tyres manufactured by Brentford in the United Kingdom, and deliverable in the united Kingdom of the contract price and, furthermore, was in fact effecting delivery of and receiving payment for such tyres in the United Kingdom.

35. It further appears upon reference to the agreement of 1936 that Brentford was under contract with Akron to do these things as service to Akron in return for a stipulated remuneration, subject to which all profits arising were to belong to Akron.

36. In these circumstances I am of opinion that there was ample evidence to justify the Special Commissioners in concluding as they did, that Akron during the relevant years was exercising a trade in the United Kingdom through the agency of Brentford. Moreover, I cannot regard this conclusion as displaced by the circumstance that the tyres sold by Brentford were Brentford's and not Akron's. This seems to me to be mere machinery which did not affect the substance of the relationship of Akron and Brentford in regard to the trade in question, which, in my view, was Akron's trade carried on by Brentford on behalf of and for the benefit of, or in other words as agent for, Akron.

37. I think that the argument for the Crown on the question of agency derives some assistance from Weiss, Biheller & Brooks Ltd. v. Farmer.

38. I entirely agree with the views as to the relations between Akron and Brentford thus expressed by the Special Commissioners in paragraph 16 (d) of the case. [His Lordship read the paragraph, and continued :] I am accordingly of opinion that the Special Commissioners and the judge came to a right conclusion in this matter, and I would dismiss this appeal.

Birkett L., J.

39. I agree with the two judgments which have just been delivered. Nevertheless, I should like to express my own view about the proper answer to this case.

40. When Sir James Millard Tucker opened this case, within his opening sentences be said that there were two questions, and two questions only, for the determination of the court. The first question, of course, was whether the company which we have agreed to call 'Akron,' the American master company, was exercising a trade within the United Kingdom. The second question was whether Brentford, that is the wholly-owned subsidiary of Akron in this country, was the authorized regular agent of Akron for that purpose

41. Quite clearly, the first question is a question of the greatest importance. If it is answered in the affirmative that Akron was carrying on a trade within the United Kingdom, the second question really becomes academic on the facts of this case. But everybody agreed that the answer to that question, propounded by Sir James and discussed for several days in this court, depended upon the view taken of the facts in the case.

42. As Sir James said, this question of non-resident firms and corporations carrying on business within the United Kingdom had been a matter of very fierce dispute in days past, and, indeed, had been the subject of many decisions which were cited to us. He said, with an air of slight surprise, it was curious that after a long interval of time the ancient question, which all had thought to be settled by these authorities, should be raised again.

43. But the facts of this case are extremely unusual, and many of the cases which were cited to us were cited to try to bring those facts within decisions which the courts had laid down. I am not going through all those. Let me take one illustration only. Sir James said that this question whether or not a non-resident trader is exercising a trade within the United Kingdom can be decided by this test, and it is a test that is a crucial and a practical one. The test is, where are the contracts of sale which are in question made He cited in support of that the views of Lord Herschell and Lord Watson, and the concurring speech of Lord Macnaghten in Grainger & Son v. Gough. That is your test. Where are the contracts made It is not enough, for example, that on the facts of this case payment was to be made in England; it is not enough that delivery was to be made in England; it is not enough that orders for tyres were received in England. All that does not really matter. The crucial test laid down in the cases is where are the contracts made; and, of course, in support of that argument, Sir James was concerned to show that the contracts with which we are concerned were made abroad.

44. The distributor agreement between Akron and the firm in Sweden, which we have agreed to call 'Sweden', in substance said : 'We, Akron, the American company, will provide you in Sweden with Firestone tyres. You shall have the exclusive right to sell Firestone tyres throughout Sweden - and nobody else. We shall provide them for you, in consideration for which you will undertake to buy your tyres only from us.' Sir James thereupon said that meant, although the word was not used, 'We will sell you all the tyres', and that meant Akron was saying that to Sweden by this agreement, 'We agree to sell, and you agree to buy,' and, therefore, the contract was made abroad.

45. Then Sir James said that by a clause of the agreement made with Brentford, which was an agreement subsequently entered into, 'We arranged with Brentford merely to supply those goods which we had sold'. In support of that argument it was really necessary to say that at some moment before the delivery of the order to Sweden there had been somehow and in some form a sale of the tyres from Brentford to Akron. If 1,000 tyres were ordered by Sweden, and the order was sent direct to Brentford, and then Brentford sent the 1,000 tyres, they were in fact the tyres of Akron; and it was all done in pursuance of a non-resident making a contract outside the United Kingdom.

46. I am bound to say that, as the argument developed and as its effect developed, it seemed almost impossible to maintain that position, for at some subsequent date - one was never given any very clear view about how it had happened - there was a modification of the written agreement had specified in the beginning, 'Whereas the parties hereto are desirous of concluding an arrangement for the fulfilling by the English company of orders obtained in Europe and elsewhere by the American company' and by clause 2, 'The American company shall upon each request being made forward to the English company full particulars of such order,' which seemed to forecast that the course of business would have been that Sweden would say to Akron, 'I want 1,000 tyres' and Akron, therefore, under the agreement would say to Brentford, 'Here are particulars of an order which we desire you to fulfill on the terms we have agreed in this agreement as to payment, price, delivery and so on,' but there came a moment when that was clearly modified because we had to deal with the case upon the footing that there was no such undoubtedly the original agreement made between Akron and Sweden, the distributor agreement, from which everything else flowed, apart from that it was safe to say that Akron did nothing except to receive the main profit on the transaction because all that really happened was that Sweden sent direct in this case to Brentford. Although it was entitled, if it cared, to send to any other particular subsidiary company of Akron, it sent in this case to Brentford; and Brentford thereupon fulfilled the order. If the order was for 1,000 tyres, Brentford, without any reference to Akron, sent 1,000 tyres; it delivered them f.a.s. according to the terms of the agreement; it charged prices which Akron had laid down that it should charge; it received the money in the form which Akron had laid down it should receive the money; it accounted for the property in the manner in which Akron had desired it should so account; and it retained for itself 5 per cent. upon the cost price which had been laid down in the agreement for the services it had rendered in the matter.

47. It is true in substance to say that, apart from entering into the original agreement and receiving the profits on every transaction which arose out of it, Akron did nothing; and therefore if seemed, at least to me, to be quite impossible to maintain the position which Sir James was taking up, that this was a contract made abroad, that that was the crucial test, and that delivery and price did not really matter in the result, and we ought to say, therefore, that there was no trading within the United Kingdom. The view which I myself held was that this particular form of trading was clearly a trade within the United Kingdom. When Brentford received an order for 1,000 tyres it was an order which was being given by Sweden to Brentford, and Brentford could either accept or reject that order; but the contract which was made between Sweden and Brentford was one which I think was clearly made in England; and that contract in that form and in that way was devised and designed, I think, by Akron as part of its world-wide trade.

48. The case stated has set out the position, I think quite admirably, in paragraphs 4 and 5, which I do not propose to read at length. 'Akron, an American Corporation registered in Akron, Ohio, is the head of a world-wide organization consisting of a large group of corporations operating in America and in various parts of the world.' If one is going to look at the facts of the case, that I think is one of the overriding and over-mastering facts which enters into every subsequent stage of the matter. Akron is the head and the trunk of all the vast organization, and Brentford a wholly-owned subsidiary of that head, on the terms of the documents before us doing that which Akron had devised and designed that it should do. 'Some of its associated and subsidiary corporations manufacture and sell tyres...' - as, indeed, did Brentford - '... in the countries in which they are registered, and others sell in the countries in which they are registered, tyres which have been manufactured in America or by subsidiary corporation in other countries. For convenience, certain matters in regard to the business of the organization carried on outside the United States of America have been conducted by other subsidiary companies of Akron... Brentford is an English company registered in 1922 with an issued capital of Pounds 20,000 in Pounds I ordinary shares. This capital was increased to Pounds 140,000 in 1938. All the shares in Brentford are owned by Akron. The board of directors of Brentford consists of individuals resident in the United Kingdom with the exception of Mr. Harvey Firestone, the chairman of the board of directors of Akron, who is a director of Brentford and occasionally attends meetings of its directors.' Then it gives the history of that company which formerly used to sell the tyres manufactured in America, but then it because an economic, commercial proposition for the company to make the tyres here, and so it did. It was doing that admittedly in this case.

49. Lord Evershed M. R. has pointed out that the thing sold was a branded article, Firestone tyres. The trade mark, patents and processes no doubt all belong to the thing sold called a Firestone tyre, and Brentford could not sell to anybody that particular tyre without the consent of Akron because Akron was the owner of that very valuable thing which made the distinctive Firestone tyre. Here was a distributor agreement made between Akron and Sweden. Sweden sent this contract for these Firestone tyres to Brentford, and whilst it would be possible to analyse it in a little more detail it is not necessary because it has already been done. But it seems to me so plan that this is a contract between Sweden and Brentford, devised and designed by Akron, the overriding master company. It is quite true, as Lord Evershed M. R. has said, that one must always recognize that Brentford has a separate and a distinct entity of its own, but it was part of the regular business of Akron that this trade which we have been analysing is this case should go on. It was part of its world-wide organization. As I have pointed out, the real profits of that trade went to Akron. The only money retained above cost price was 5 per cent., expressly stated to be for services to be rendered. All the elements of delivery, price and so on were made in this country, and I cannot doubt that the answer to the first question, 'Does Akron exercise a trade within the United Kingdom ?' must be given quite clearly and firmly as 'Yes'.

50. With regard to the second question, I really have nothing to add because Lord Evershed M. R. has pointed out that if that answer is right, that Akron is carrying on a trade within the United Kingdom, it must be trading through Brentford. It is not suggested that there would be anybody but Brentford, and I should hold myself that in those circumstances it follows that Brentford here was the regular authorized agent for that purpose of Akron. I feel this question should be answered in that way.

51. I think the judgment of Harman J. was right, and that this appeal should be dismissed.

52. Appeal dismissed.

53. Leave to appeal to House of Lords.

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