LORD EVERSHED M. R. In this case I have come to the same conclusion as Harman J. and I think, therefore, that this appeal fails.
The subject-matter involved is the sum of Pound 4,000 which was paid out to the taxpayer by way of settlement of an action which he had brought against a company, Gordon Mills Ltd., the action being based on as alleged breach by Gordon Mills Ltd. by way of repudiation of a contract of agency which the taxpayer had with them at the time. The question, when properly formulated, is whether, within the language of the applicable Income-tax Act, 1918, Schedule D, paragraph I (a) (ii), this is properly chargeable as being in respect of 'the annual profits or gains arising or accruing' to the taxpayer from a trade. His trade, in respect of which he admittedly is or was taxable, is that of a sales agent for articles of womens clothing manufactured by various manufacturing companies.
The facts are fully set out in the case stated and it unnecessary, for the purposes of my judgment, that I should restate them fully. I can sufficiently state the essentials of the matter by reference first to Appendix D to the case which shows that during a number of years beginning in 1939 and ending in 1951 the taxpayer had agencies of this character for a number of manufacturers totalling in all twenty. It is, however, necessary to observe at once that at no one time did the taxpayer hold agencies for twenty such firms or anything like that number, Indeed, at the relevant date, namely, July 1, 1948, when Gordon Mills Ltd. terminated the taxpayers agency with them, he had two such agencies, one with a company called Green, Hearn & Co., and the other with this company, Gordon Mills Ltd. However, the importance of this schedule lies in the circumstance that during the business life of thirteen year which it covers, the taxpayers agencies varied in their nature and number from time to time. Some were held for a very short time : some, by the figures, may have represented little more than isolated transactions conducted on commission basis : others lasted longer. In the case of Green, Hearn & Co. the agency had continued by 1951 for no less than twelve years, and, similarly, the Gordon Mill agency at the relevant date had lasted for seven years or more; but it was in the nature of an agency business of this kind that there might be from time to time changes in the actual agencies held, by the substitution of one for another. I need say no more about this particular agency than that its terms were comprehended in a written agreement, one clause of which provided that it was terminable on either side by twelve months notice ending on October 20 in any year. It is therefore an incident of importance, in this case, that, if it is to be regarded in any sense as an asset, its quality must be judged by its legal character, and it was an asset liable to determination on relatively short notice. On the other hand, it is fair to say, as Mr. Graham emphasized in his short but forceful speech, that it was obviously in the ordinary expectation of the parties (and the case so finds) that, if all went well, the contract in fact as a business matter would be likely to have gone on, one might say, indefinitely. Unfortunately for him or perhaps being deliver or him, because I know not the ultimate financial gain or made by taxpayer engaged himself in 1948, the year with which we are concerned, as manger for business, of which his wife was substantially the proprietor, called K. Wiseburgh, Ltd., a business of manufacturing and merchanting garments of the same character, to some extent at least, Those made by Gordon Mills. It was because of that enterprise that Gordon Mills said that he was neglecting his proper obligation to them and had accordingly treated the contract as at an end.
Thereupon the taxpayer issued his writ and by his statement of claim he asked for damages for breach of contract and also for an account of the commission which he alleged was at that date due and unpaid in respect of his past work. It is right to observe that, as pleaded, the damage for breach of contract which the tax payer alleged was 'damage in that he had lost commission which he would otherwise have earned.' He says that the real damage lay not so much in the loss of the commission which would otherwise have been earned but in the loss the particular contract; but to may mind there is no valid distinction for the present purpose between these two.
The taxpayer might have alleged that the real damage to him, apart from the loss of a certain amount of commission, lay in this : that if the determination were wrongful his goodwill as sales agent in this line of business was thereby seriously impaired. If and in so far as damages were claimed because his goodwill as a sales agent had been impaired, I can well convince, to say the least of it, that the taxpayer would have had a strong case for saying that such a sum of damages would not be taxable.
The order was an order made by consent. It followed, apparently, after a considerable period of negotiation, for it is dated in April 20, 1950. The Commissioners in their conclusions state that the terms of the judgment had no bearing whatsoever on the question whether the amount awarded was also criticized to some extent by Harman J. If by it the Commissioners meant that the judgment and the language of it were were for all purposes wholly irrelevant in any case, I should have agreed with the criticism; but, for my part, I think also that the criticism may be somewhat less than just to the Commissioners. The reason for that view will appear when I have read the order : 'Pursuant to the order of the registrar whereby it was ordered : That the plaintiff [the taxpayer] be at liberty to enter judgment against the defendants for the sum of Pound 4,000 as damages for breach of agreement of service and for costs of the action,... That the plaintiff do recover nothing from the defendants in respect of his claim for commission and expenses' that is a reference to the second head of the claim which Mr. Mustoe called pre-breach commission 'That the sum of Pound 4,000 paid into court by the defendants... be forthwith paid out to the plaintiffs solicitors... in satisfaction of the said sum of Pound 4,000 damages : That the action be with drawn from the list. It is this day adjudged that the plaintiff recover against the said defendants Pound 4,000 and costs of the action throughout to be taxed...' The judgment is at least relevant to this extent. It shows and the parties were entitled to compromise their action in such terms as they chose that there was no sum being paid for pre-breach commission. Had it been the other way round, Mr. Mustoe conceded that he would have been in difficulty in saying that unpaid commission paid as a result of a law suit to get payment of it is not taxable. But it seems to me that, once it is conceded, and the judgment makes it clear that this was an agreed sum of damages for breach of this agreement by its repudiation, then the utility of this order is exhausted for our purposes. In other words, it still remains for the court to say whether in the circumstances of this case a general sum of damages for breach of this agreement was 'profits or gains arising or accruing' to the taxpayer from his trade.
There is one other inference which must be drawn from the form of the judgment read in the light of the of the pleadings and I do not forget that this is a consent order, a settlement when no doubt both parties had considered all their alleged rights and defences and that is this : I think that, on the face of it, it is impossible for the court to infer that this Pound 4,000 or any part of it must be treated as paid by way of damage for the loss of the taxpayers goodwill. The form of the pleadings plus the amount of the damages really makes that impossible.
If return, therefore to the question, was this sum paid by way of damages in respect of this agency contract 'profits or gains' arising from the trade of the taxpayer as a sales agent Mr. Mustoes argument had the defendants. That being some Mr. Mustoe contended, it follows that it is a capital item. I have said that there is an attraction in that argument and if the question were res integra it would be more attractive still; but, it clearly will not do as a test in these cases in the light of the authorities to which we have been referred.
It is true that for the most part the authorities are decisions of the Inner House of the Court of Session in Scotland which do not bind this court; but the Income Tax Acts apply indifferently on either side of the border and, therefore, I should in any case be slow to indicate when sitting in this court an entirely new approach to the incidence of taxation in England from that which I think has now been well established in Scotland. In other words, I feel that we should follow the line of the Scottish decisions and the principle which can be extracted from them.
Faithful to that prelude, I will cite the language of Lord President Normand and say 'No infallible criterion emerges from a citation of the case law. Each case depends upon its own facts.' (Kelsall Persons & Co. v. Inland Revenue Commissioners). I do not think it is necessary to go over the case which have been cited to us; it is fair to say, as Mr. Mustoe put, that the case I have last mentioned, Kelsall Parsons & Co. v. Inland Revenue Commissioners is perhaps very much at one end of the line and Barr, Crombie & Co. v. Inland Revenue Commissioners is a case very much at the other end of the line. Kelsall Parsons was a case in which the business of the company (for the taxpayer there was a company) was that of agent for manufacturers. They, however, had at the relevant date far more agency contracts than Mr. Wiseburgh had at the relevant date, and, moreover, the same subject there to the consideration of the Inner House was a sum paid for cancellation of a contract which in any event would have determined in a relatively short time and inregard to which, as Lord Normand says, the taxpayer had no reasonable expectation of its further continuance.
However, Mr. Graham pointed out that the present case is really distinguishable on its facts, and distinguishable in a significant degree from Kelsall Parsons. First, the agencies which Mr. Wiseburgh held were but two. Secondly, as I have said earlier, although the agency which we are considering was expressed to be determinable at relatively short notice, in truth, if all had gone well, there would have been no reason to suppose that it would have been. And thirdly, as the Commissioners pointed out, the effect of the loss of this contract was, quoad the taxpayers agency business, very substantially to depreciate his earnings; whereas in the Kelsall Parsons case the court pointed out that the earnings of the taxpayer out of the agency business were not much different from what they had been before the cancellation of the material contract. I agree that in respect of those matters that present case differs from that case; but I am unable to agree that those differences are of such significance as to bring the case from the territory, so to speak, of Kelsall Parsons into the land of Barr Crombie. On its facts, if one were content to take the analogy of facts, the present case may be said to be more closely resembling the later case of Inland Revenue Commissioners v. Fleming & Co. (Machinery) Ltd., and I have already said that I must resist Mr. Mustoes invitation to refuse to follow the Scottish line of authority.
But, to bring the matter over to what I have called the Barr Crombie land, it must be shown that, in truth and substance, what the taxpayer parted with was not merely his rights and expectations under a contract entered into in the ordinary course of his trade, but was a parting by him with one of his enduring capital assets, as it is called. It is so that sort of consideration, as I said earlier, that this case might well have been different if the Pounds 4,000 had been paid because the taxpayers good will had been damaged. In the Barr Crombie case the agency which was there cancelled amounted to the substance of the whole business of the tax-paying company its receipts accounted for nearly nine-tenths of the total earnings and its loss necessitated the complete reorganisation of the taxpayers business, a reduction in its staff, and the taking of new and smaller premises. In fact, a substantial part of the business undertaking had gone. Here, as it seems to me, what has happened in brief is that the taxpayer has been carrying on this business which for thirteen years has shown variations in the actual agreements which it has comprehended; and the business has suffered something of shock and perhaps something of a disaster by reason of this quarrel with a valuable customer. But beyond that, it seems to me that it is not right to say that the taxpayer had his undertaking as a sales agent partially destroyed or taken away.
The matter being very largely one degree, which is, as Lord Normand said, a matter of fact, the question in the end is, I think one of fact for the Commissioners to find. On the facts of this case it seems to me that the Commissioners were entitled to find, and justified in finding, as they did, without any misdirection of law, that this amount awarded to the taxpayer was taxable profit; that is to say, a part of the profits or gains arising from the business for the year in question. Herman J. thus expressed himself towards the end of his judgment : 'The taxpayer was manufactures agent. He had other agencies from time to time and carried on business as an agent, and one of the incidents of such business is that one agency may end and another begin, the fact that an agency was key agency, and therefore was important to him and represented half of his income, seems to me to be irrelevant.' With the possible exception of substituting 'inconclusive' for 'irrelevant,' I agree entirely with that statement; and I agree with what Judge said later : 'it was a normal incident in this kind of business that an agency should come to an end, and the compensation paid is, it seems to me quite clearly, income.'
I agree with Harman J., and I agree with him on the ground that, at the end of it all, it is a legitimate conclusion which the Commissioners on the facts of the case were entitled to find. For these reasons, this appeal fails.
BIRKETT L. J. I am entirely of the same opinion; but, in view of the arguments of Mr. Mustoe and Mr. Graham, I will say one word by way of supplement.
We have been concerned all the time with this sum of Pounds 4,000. Towards the end of the discussion Mr. Graham invited us to consider the nature of the Pounds 4,000. That was in the submission that he could distinguish the facts in the Kelsall parsons case from the facts of the present case. What he said was that the damages were in the nature of a sum of money, a surrogatum or quid pro quo for the loss of this contract. He also asked us to consider the nature of the business.
It is perfectly plain that, in all the cases which have been before the courts on this or on a similar topic, the courts have felt an intense difficulty in laying down anything like a precise line that could be applied to the facts of any given case. But what I think they have done now as emerges from the cases cited to us by Mr. Mustoe, is this : they have said ones duty is, first of all, to examine with care the facts, come to a decision on the primary facts, make such inference as those facts demand, bearing in mind at all times the considerations which have been laid down in the various cases.
As I mentioned during the argument, I think that the most help full passage was that from Lord Russells judgment in Inland Revenue Commissioners v. Fleming & Co. (Machinery) Ltd. 'The sum received by a commercial firm as compensation for the loss sustained by the cancellation of a trading contract or the premature termination of an agency agreement may in the recipients hands be regarded either as a capital receipt or as a trading receipt forming part of the trading profit. It may be difficult to formulate a general principle by reference to which in all cases the correct decision will be arrived at since in each case the question comes to be one of circumstance and degree. When the rights and advantages surrendered on cancellation are such as to destroy or materially to cripple the whole structure of the recipients profit making apparatus, involving the serious dislocation of the normal commercial organisation and resulting perhaps in the cutting down of the staff previously required, the recipient of the compensation may properly affirm that the compensation represent the price paid for the loss or sterilisation of a capital asset and is therefore a capital and not a revenue receipt.' Then he cites the cases of Van den Berghs Ltd. v. Clark and Barr Crombie & Co. Ltd. and not the other side Kelsall Parsons & Co. So it is perfectly plain that there is no fixed rule, no precise rule or standard by which we can lay it down and say : 'you have come within it or come without it.' It is a matter of degree and all the facts of the case must be considered.
The difficulty in this case is this : that nobody quite knows for what the Pounds 4,000 was in fact paid. I have been looking at the pleadings which the not been read in full, and it appears to me that on the pleadings the very clearest issues were raised. I see that in the defence the defendants admitted the letter of July 1, 1948, which puts an end to the contract. They say : 'Certainly we wrote it but we were entirely justified in so doing.' Then they say in the particulars and this seems to me a very important matter 'Though the plaintiff [the taxpayer] was bound in accordance with the terms of clause I of the agreement of service with the defendants to act as the defendants sole agent for the export market, the plaintiff during the currency of the said agreement exported articles of a similar nature to those manufactured by the defendants under the name of two firms known as K. Wiseburgh Ltd. and K. Wiseburgh Export Ltd., of each of which said companies the plaintiff had control. Such conduct constituted a breach of his contract with and a dereliction of his duty to the defendants.' Then they say that the persistently neglected the agency. Under paragraph (c), I find the gravest allegations are there made : 'The plaintiffs conduct towards the defendants who were at all material times his employers was such as completely to frustrate the purpose of the contract and to indicate complete lack of faith in and desire to co-operate with them.' They refer to certain letters, and say : 'the plaintiff in terms refused to speak on the telephone upon a matter concerning business affairs with the managing director of the defendants : the plaintiff gave express instructions to his staff... that they were not to have any communication by telephone with the defendants,' but that it was only to be by correspondence. Then there is this : 'at a time when the defendants selling season was at its height, the plaintiff refused in a letter dated May 19, 1948, to canvass further sales on behalf of the defendants.' That was pleaded but it was never fought out in the courts. If it were true, the defendants were saying with reference to this selling agreement : 'You yourself declined to go on with it, and at the height of the season for selling these goods you refused to canvass further -in other words, you dropped the agreement altogether.'
In the reply equally important and serious things were said : 'By the letters set out above and by the general tone of hostility displayed by the defendants in other correspondence between themselves and the plaintiff... and by their refusal to discuss prices with the plaintiff contrary to clause II... and by their failure to keep the plaintiff fully informed as to stocks... and by failure to keep the plaintiff informed as to their cloth position, the be the defendants created a situation in which maintenance of the contractual relationship between the parties was impossible.' AII I need say about it is this : First of all, on the pleadings, there were the very gravest allegations by both sides. Secondly, we know the action was compromised by this payment of Pounds 4,000 : but the grounds on which the sum of Pounds 4,000 was arrived at are quite impossible to determine. One never knows in these matters. One has heard that settlements are sometimes made a little easier outside court because the presence of one leader was urgently required in another court; but it is impossible to speculate why the Pounds 4,000 only was paid in this case. When however, one sees that the year ending March 31, 1948, the commissions were Pounds 8,223, and yet Pounds 4,000 only was paid in this case for the ending of this particular contract, it shows how impossible it is to arrive with any certainty at the nature of the payment of Pounds 4,000 in any detailed sense.
The taxpayer says that it was a payment 'for injury to the goodwill of my business.' I agree with what Lord Evershed M. R. has said about that. In the whole of this statement of claim, detailed as all the complaints are, there is no breath of a suggestion of that kind. It is confined wholly to the loss of commission. All the details in the pleadings, the defence and reply, really go to that purpose.
What the Crown say here is this : If one looks at the cases which have been decided, applying them to the facts as they are now known in the present case, the reasonable inference which we ought to draw from those facts is that this was merely a profit from the trade within Schedule D (I)(a)(ii) of the Income-tax Act, 1918, and was not a sale of a capital asset as the taxpayer contends. I have been troubled all the way through in this case on the question of the two Wiseburgh companies. I can understand it being said : 'I had two contracts and those were the whole of my business. You took one away and you left me with only the one contract, and in that respect you have injured my profit-making apparatus. You have taken away a capital asset of value.' But one must remember what are the facts in this case. The contention was raised in the pleadings : that so far as the asset about which this complaint was made, the taxpayer would not go on with to, and it was on that ground the defendants say that they were entitled to write that letter of July 1. He had declined at the height of that season to comply with the agency agreement and they were therefore justified in doing what they did. We do not know what was the extent of the K. Wiseburgh business, and we are told they were limited companies, of which he was the manager. It was not an agency in the ordinary sense. If the truth be that this man was concerned to say : 'Here am I with a profitable agency, it is true, but I can do much better for myself by having two companies of my own under my own control and I will do it at the expense of this agreement,' it seems to me a little difficult for that man to say : 'I want damages for the jury which you have done to my profit-making apparatus' when, on the true facts, it may very well be that the profit-making apparatus had been changed by his own free will. I have been troubled throughout this case by that consideration, because we do not know what was the extent of the Wiseburgh trade. We only have the allegations which are made that, so far as the export trade was concerned, taking goods which in the ordinary way might have gone from the agency with Gordon Mills Ltd., and all those goods went from Wiseburgh. We know there; is that allegation and the further one that the taxpayer himself had by letter declined to go on with the agreement. These things have not been tried, but they are surely matters which must be taken into consideration when it is said by one side that this is for the loss of a capital asset, and on the other that this is a trade profit arising in the ordinary way from your profits under Schedule D.
I do not think it is necessary to add anything further. Harman J., who gave consideration to this matter, came to the conclusion that the Commissioners were perfectly justified in their findings as they stated them, and he upheld them; and I need only add that in this court nothing that I have heard leads me to suppose that the Commissioners fell into error, and certainly nothing that for one moment makes me fell that Harman J. fell into error.
For my own part, I would dismiss the appeal.
ROXBURGH J. I agree that this appeal should be dismissed.