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G. Scammell and Nephew, Ltd. Vs. Rowles (H. M. Inspector of Taxes). - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
Decided On
Reported in[1940]8ITR41(Cal)
AppellantG. Scammell and Nephew, Ltd.
RespondentRowles (H. M. Inspector of Taxes).
Cases ReferredPersian Oil Co. Ltd. v. Dale
- sir wilfrid greene, m.r. - this appeal from a decision of lawrence, j., arises out of a claim by g. scammell & nephew, ltd., to deduct for the purposes of ascertaining their taxable profits for the year 1933-34 three sums which they allege were expenses wholly and exclusively laid out or expended for the purposes of their trade. the sum in question are firstly, a sum of pound 7,500 paid by the company to one of their directors, mr. hood barrs; secondly, a sum of pounds 62 10s. 0d., being a contribution paid by them to a mr. toms towards his costs of certain litigation and thirdly a sum of pound 53 10sh. 0d. representing costs incurred by them in connection with a compromise agreement.the circumstances giving rise to that claim for deduction are of a rather complicated nature; they are set.....

Sir Wilfrid Greene, M.R. - This appeal from a decision of Lawrence, J., arises out of a claim by G. Scammell & Nephew, Ltd., to deduct for the purposes of ascertaining their taxable profits for the year 1933-34 three sums which they allege were expenses wholly and exclusively laid out or expended for the purposes of their trade. The sum in question are firstly, a sum of Pound 7,500 paid by the Company to one of their directors, Mr. Hood Barrs; secondly, a sum of Pounds 62 10s. 0d., being a contribution paid by them to a Mr. Toms towards his costs of certain litigation and thirdly a sum of Pound 53 10sh. 0d. representing costs incurred by them in connection with a compromise agreement.

The circumstances giving rise to that claim for deduction are of a rather complicated nature; they are set out in the case but I must give a short summary of them in order to make this judgment intelligible. The Company (to whom I will refer as Scammells) carry on business as motor engineers and at the relevant time when the story begins they had as directors, Mr. Hood Barrs, a Mr. England and a Mr. Scott; Mr. Hood Barrs held by far the larger part of the issued share capital of Scammells. In February, 1932, Mr. Hood Barrs Acquired a considerable share holding in a company called Blue Belle Motors Ltd., whose business appears to have been that of running motor coaches. That purchase put him into a position to control Blue Belle Motors de facto, and the first thing that seems to have happened is that Mr. Hood Barrs, Mr. England and Mr. Scoot became directors and remained a substantial shareholder in Blue Belle Motors, was treated by the new board as though he had ceased to be a director and office which he had previously held. It appears from the Minutes which are annexed to the case, and indeed one would have expected it, that one of the object of Mr. Hood Barrs in acquiring that share holding was to benefit Scammells by procuring for them a potential customer and after the board of Blue Bell Motors and been re-constituted, a number of transactions took place between the two companies. For one thing a management agreement was entered into under which Scammells were appointed managers and Secretary of Blue Belle Motors at a remuneration of Pounds 3,000 a year. That agreement, I think, was terminable by six months notice on either side. In addition to that, Scammells did a great deal of work, repair work and so fourth, and rendered other services to Blue Belle Motors. It would also appear though this is very largely inference because there is no finding of fact with regard to it, that Scammells gave certain financial assistance to Blue Belle Motors. However that may be, in April of 1932 there was owing to Scammells from Blue Belle Motors a sum of Pounds 12,779 13s. 10d. on trading account. That is found by the Commissioners in paragraph 5 of the Case, and that is a finding to the effect that that was a trade debt owing, which had become due in the courses of trading between the two companies from the one to the other. By way of security for that indebtedness Blue Belle Motors issued debentures to Scammells to the amount of Pounds 12,000. There is one other matter with regard to which certain material appears on the face of the documents annexed to the Case, and that related to certain motor coaches which Blue Belle Motors were apparently acquiring under hire-purchase agreements. It appears that there was some financial assistance in connection with that, and that some contract was entered into. It looks as though the intention at one time was that Scammells should acquire those coaches and let them to Blue Belle Motors, and there was a reference to a hiring agreement in relation to those coaches. But we are not in a position to know exactly what had happened with regard to those coaches because it was not matter that was gone into before the Commissioners and there is no finding about them. Accordingly we cannot, I think pay any attention to that matter because we do not know the facts. The first fact with which we start is the existence of this trading debt in April, 1932, and the debenture holding of Scammells by way of security for it.

Now, that being the position in April, Mr. Toms began to get active, because on the 13th May, 1932, he issued a writ against Scammells, Mr. Hood Barrs, Mr. Scott and Blue Belle Motors, claiming a variety of relief. No copy of the write is annexed to the Case, but we have sent for a copy of it, and it appears that in that action Mr. Toms was suing on behalf of himself and all other shareholders in Blue Belle Motors except the defendants, Messrs. Hood Barrs, Scott and England. I should say that Messrs. Scott and England had got, I think it was, one share or, at any rate, a qualifying share in Blue belle Motors from Mr. Hood Barrs. Of course, in so far as Mr. Toms was suing on behalf of all other shareholders in Blue Belle Motors, the relief that he was seeking was relief not for himself but for Blue Belle Motors. The plaintiff in what is commonly called a minority shareholders action is enforcing the rights of his company and not his individual rights; out in the present case Mr. Toms was also seeking to enforce certain rights which he claimed belonged to him as an individual. In his writ he sought to have set aside or declared invalid, firstly, the management agreement under which Scammells were appointed managers of Blue Belle Motors; secondly, what is referred to as a transfer of thirteen coaches belonging to Blue Belle Motors to Scammells, and an agreement, being the agreement which I have already mentioned, for hire of those coaches back to Blue belle Motors. He sought, thirdly, an injunction to restrain the carrying out of any of those agreements; fourthly, a declaration that he was a director of Blue Belle Motors; and fifthly, an injunction to restrain his co-directors from excluding him from acting as a director and damages. Now it will be seen at once, when the nature of the relief that Mr. Toms was claiming is understood, that, if he were successful in that action - taking first of all his claim to be a director - the proceedings of the board of Blue Belle Motors, at a time when he was being excluded from the proceedings of the directors, would have been void, and accordingly the whole of the trading account and the debentures issued to secure it would have been exposed to attack. I say that it would have been void because I bear in mind that Scammells, who were the other party to those transactions, had notice or must be taken to have had notice of any irregularity owing to the presence of the whole of their directorate on the board of Blue Belle Motors. The position, therefore, was one of very great danger for Scammells, and they foresaw the possibility that the money that was owing to them would be lost unless something were done.

There was another matter which comes into this story and it was this. It was alleged that Mr. Toms had made defamatory suggestions relating to Mr. Hood Barrs, Mr. England and Mr. Scott, and these three gentlemen issued a writ claiming damages for slander against Mr. Toms. On the 15th June 1932, Mr. Toms was successful in obtaining an interlocutory injunction in his action restraining Messrs. Hood Barrs, England and Scott from excluding him from the board of Blue Belle Motors, and, in view of that order, the position of Scammells, of course, became very much worse, and, as the Commissioners find in paragraph 9 of the Case : '... in view of this, Mr. Hood Barrs and his co-directors were advised by legal advisers that the arrangements which they, as Directors of Blue Belle Motors, Limited, had made with the Appellant Company, including the issue of the said Pounds 12,000 debentures to the Appellant Company could be impugned and avoided, and they decided that it would be in the interest of the Appellant Company to enter into a compromise with Mr. Toms, as otherwise the Appellant Company would lose the balance of the said account owing to them by Blue Belle Motors, Limited.' It appears from the Minutes and from the finding of the Commissioners that Mr. Toms was willing to compromise and get rid of all those claims and disputes on certain terms. I need not rehearse them in detail because I shall have to examine in a moment the actual deed of compromise, but he was insisting on having transferred to him for a consideration the shares in the Blue Belle Motors which Mr. Hood Barrs and his co-directors held, he was insisting that the slander action against himself should be discontinued, and he was insisting on the cancellation of the debentures held by Scammells and Blue Bells Motors. On those terms (among others) being satisfied, he was prepared to consider the discharge, if not of the whole, at any rate of a substantial part of the indebtedness of Blue Belle Motors to Scammells. Now that being the state of affairs, is order that a compromise of that description might be implemented, it was obviously necessary that Mr. Hood Barrs and his co-directors should be brought into it, because the acquisition of their shares in Blue Bells Motors by Mr. Toms was one of the things on which Mr. Toms was insistent, and also because those three gentlemen were the plaintiff in the slander action. Accordingly, any compromise, if it was to be effective had to provide for those to matters.

Now Mr. Hood Barrs to a serious view of the slander which it was alleged had been uttered against him by Mr. Toms. His two co-directors were more easy going about it, but Mr. Hood Barrs insisted that it was a serious matter and he was not prepares to give up his claim to damages for slander except for some substantial consideration. Accordingly, the Company (Scammells), in so far as they were anxious to have a compromise, which would result in securing payment, if not of the whole, at any rate of a substantial part of Blue Belle Motors debt to themselves, found themselves bound to come to a deal with Mr. Hood Barrs in connection with the slander action. Mr. Hood Barrs demanded a sum of Pounds 7,500 before he would consent to give up that claim, and his co-directors (he having withdrawn from the board) debated the matter resolved that it was to the advantage of the Company to make that payment in order to secure the benefit of the proposed compromises. In the result a deed was drawn up and executed containing the terms of compromise. Mr. Hood Barrs was paid the sum of Pounds 7,500 in order to procure his execution of the deed and that is the sum of Pounds 7,500 which is the first item arising for consideration on this appeal. The deed of compromise is dated 27th July, 1932. It is made between Scammells of the first part, Mr. Hood Barrs of the second part, Mr. Scott of the third part, Mr. England of the fourth part, Blue Belle Motors, Ltd. (who are called 'the Motor Company') of the fifth part, and Mr. Toms of the sixth part. It contains a number of recitals, including recitals relating to certain financial transaction between the two companies and to the acquisition by Mr. Hood Barrs of his shares in Blue Belle Motors; and it recites, in recital 10, that : 'Since the 18th day of February, 1932, numerous financial inter-trading and other transaction have taken place between Motor Company and Scammells.' It recites the writ in the slander action issued by Mr. Toms, and the granting of the interlocutory injunction. Then in recital 15 it recites that 'Valuable services have been rendered by Scammells and its directors in the reorganisation of the business of the Motor Company and in placing the finances of the latter Company upon a sound footing as Mr. Toms doth hereby admit and acknowledge'. It recites in recital 17 that prolonged negotiations had taken place, in the course of which Mr. Toms had made a full investigation of all the books and documents of Blue Belle Motors in relation to transactions between the Motor Company and Scammells up to the 30th June, 1932, and that he was satisfied with regard to those transactions.

Pausing there for a moment, that really means this : that the position of these two companies, with their de facto common board, and the nature of the trading and other relationships into which they had entered were such as to suggest to anyone familiar with this type of inter company situation the possibility, at any rate, that Scammells had been exploiting Blue Belle Motors for the benefit of themselves. That is the sort of suspicion that, as I say, anyone familiar with this class of relationship might haver entertained. But the recital which I have referred to and the other provisions in the document make it clear that Mr. Toms had investigated the whole of the position, and had satisfied himself that there was nothing of the kind to which exception could properly be taken. Accordingly, the deed on the face of it shows that there was nothing of real substance of any suggestion of that description.

Then it recites in recital 18 : 'An account of the transactions matters and things between the Motor Company and Scammells has been prepared by the Accountants (C.F. Middleton & Co.) acting on behalf of the parties hereto of the first second third and fourth parts and has been agreed by the Accountants (Barnes Bryant & Co.) acting on behalf of Mr. Toms and the Motor company and it has been agreed by and between the parties hereto that the said account shall be accepted by them and each of them as a final settlement of account and adjustment of all transactions matters and things as between the Motor Company and Scammells and that the said account shall be annexed to this Deed and from part thereof...'. Then, - in the body of the deed - in consideration of Pounds 17,062 10s. 0d. paid (as to Pounds 10,562 10s. 0d. by Blue Belle Motors and as to Pounds 6,500 by Mr. Toms) to Scammells, and of the covenants and undertaking by Mr. Toms thereinafter contained, Scammells were to do certain things. Now that Pounds 6,500 was in fact the purchase price which was being paid by Mr. Toms for the acquisition of the shares held by Mr. Hood Barrs, as a director in Blue Belle Motors. As the Commissioners find in paragraph 11 of the Case : 'the balance of Pounds 6,500 was payable through the Appellant Company to Mr. Hood Barrs for the shares in Blue Belle Motors, Limited, which he was to transfer or procure to be transferred.' That sum of Pounds 6,500 therefore, is one with which Scammells, have no concern; it merely comes into the picture in this deed because the deed was an omnibus deed with a number of parties to it, and one of its objects was to deal with certain matters between certain parties, with many of which Scammells, as such, were not directly concerned. They formed a condition of the compromise between the two companies and Mr. Toms. That Pounds 6,500, therefore, many be ignored.

Then the things which Scammells were to do were (among other things) to see to the transfer of the shares; to cancel two agreements, those agreements being the management agreement and the hiring agreement in relation to the coaches; to see to certain other matters which I need not deal with; deliver up for cancellation the debentures; and pay Mr. Toms Pounds 62 10s. 0d. as a contribution towards his costs of the Chancery action. That Pounds 62 10s. 0d. is the second item now in controversy. Then there are certain covenants by the individual directors who were parties (that is to say, Mr. Hood Barrs, Mr. Scott and Mr. England) made with Mr. Toms, and, with regard to some of the covenants, with Mr. Toms and the Motor Company. The only one to which I need refer is covenant (5) : 'That on behalf of themselves and of the Motor company they will serve notice of discontinuance of the pending proceedings for slander against Mr. Toms in the Kings Bench Division subject to each party paying their own costs'. Then in clause 3 (1) come certain covenants by Mr. Toms with Scammells, Mr. Hood Barrs, Mr. Scott and Mr. England. Firstly, he covenants that he has made a full examination of all the books and documents of Blue Bells Motors relative to all transactions matters and things which have taken place between that company and Scammells and to the conduct of the affair of Blue Belle Motors Ltd., generally from the 18th February, 1932, up to the 30th June, 1932, and was satisfied with and accepted them. Then, consequential upon that he undertakes that he will not in his individual capacity or as a director or debenture holder or shareholder in Blue Belle Motors made any claim in respect of any such matters, and there is an indemnity. That release and that indemnity, of course, are merely for the purpose of establishing upon a proper comprehensive basis the result of his satisfaction with the investigation of the accounts and the inter-company transactions. It does not appears that there was any substantial claim which he was releasing because, as he himself agrees and covenants, he was satisfied with everything that he had examined. Then under covenant (2) Mr. Toms agreed to discontinue the Chancery action. Then there are certain further covenants by Blue Belle Motors and Mr. Toms with Scammells to reimburse Scammells in respect of certain moneys which had become due by them to a tyre company, apparently in connection with tyres purchased or hired - hired I apprehend - for Scammells on behalf of Blue Belle Motors. They are to pay Scammells reasonable charges for all works which was in progress or should have been done afterward that is to say, matters not included in the account, which only went down to the 30th June, 1932. Then clause 7 is a comprehensive mutual clause in respect of any matter which might have arisen out of the relationship between the two companies, and clause 8 contains a withdrawal of charges.

Now the only other matter in the deed to which I need refer is the account which is annexed. That account, which is signed by the two firms of accountants, is headed 'Statement of Account showing a balance due of Pounds 10,500 as agreed between the parties.' The account credits Scammells with an aggregate sum of Pounds 32,085 14s. 7d. The items making up that figure are very shortly stated and it is quite impossible by a mere examination of the items to form any satisfactory conclusion with regard to them. Some of them would appear to be in the nature of advances made to Blue Belle Motors by way of financial assistance : other items would appear to be mere trading liabilities, goods supplied and service rendered, and so fourth. But however that may be - and there is no finding with regard to it for a reason which I shall presently state - the account shows on the other side Blue Belle Motors Ltd., credited with sums amounting in the aggregate to Pounds 18,346 5s. 11d. There again, as to the dates when those payments were made, and the items of liability to which they were appropriated, if indeed they ever were appropriated, the Case is silent, and we cannot draw, it to show a balance due to Scammells of Pounds 13,739 8s. 8d. The accountants have then reduced that by an item 'By credit to adjust; Pounds 3,176 18s. 8d.', leaving a balance of Pounds 10,562 10s. 0d. which is the sum of cash paid by Blue Belle Motors to Scammells, as stated in clause 1 of the deed.

Now I shall have something more to say with regard to that account in a moment, but I must return to the facts as found by the Commissioners. It will be remembered that the Commissioners, in paragraph 5 of the Case, found that in April there was a liability of Blue Belle Motors to Scammells on trading account of Pounds 12,779 13s. 10d.

There is no suggestion is the Case that any part of that trading debt has ever been repaid. The debentures which were issued in respect of it were still outstanding at the date of the agreement, and it would appear from the passage in paragraph 9 of the Case which I have already read, that the fear of losing what the Commissioners describe as the 'balance of the said account' was the real thing that made Scammells decide that they must compromise with Mr. Toms. In dealing with that account there is one further statement, in paragraph 11 of the Case, to which I should refer. It is this : Scheduled to the deed was statement setting out the financial position at the date of the instrument between the appellant Company and Blue Belle Motors, Limited. This statement showed a balance then due to the Appellant company of Pounds 13,739 8s. 8d. and a payment in settlement thereof of Pounds 10,562 10s. 0d.' That being the position, the Commissioners, in paragraph 15 of the Case, find as follows : We, the commissioners who heard the appeal, were of opinion that the compromise was effected, not for the purposes of the Appellant Companys trade, but to enable it to terminate a trading relation which it found inconvenient with the minimum sacrifice of the balance of account resulting from that relationship. In our opinion, therefore, the payments made to secure the assent of the parties to the compromise and the legal costs of carrying it through were not money wholly and exclusively laid out or expended for the purposes of the Appellant Companys trade.'

Now it is to be noticed that there is no reference in that finding to any capital element in the sum of cash of Pounds 10,000 odd paid by Blue Belle Motors to Scammells as part of the compromise arrangement. The reason of that is apparently this. When the matter was before the Commissioners some evidence was given explanatory of that account. Before the Commissioners the Crown took up the attitude that it did not care whether or not some of those items were or were not of a capital nature. Had it embarked upon a minute inquiry of that character, a number of questions might have arisen; for instance, as to whether or not the payments on account could or could not be appropriated for present purposes as against any capital expenditure in the shape of financial assistance given by Scammells to Blue Belle Motors and questions of that kind might have arisen. But the Crown fought the case before the Commissioners upon the footing that it did not matter to its argument whether or not the whole of those items represented what the Pounds 12,779 owing in April represented, namely a real trading account. It is quite impossible for us to regard that account on any other basis. It seems to me not only that the Crown could not now turn round and invite us to discover in that account some capital colour or ask us to send the matter back to the Commissioners in order to have the account further investigated : the Crown deliberately selected the argument upon which it wished to stand and we must take the matter as we find it. The proper inference, in so far as the Commissioners have found a fact about it, seems to me to be this : if one starts with a figure admittedly owing in April on trading account, if one then proceeds to the fact that there is no finding that any penny of that had ever been repaid, and when we find that that indebtedness had by June gone up by Pounds 1,000 or so, and when we find in the finding of the Commissioners in paragraph 15 the balance of account referred to as 'the balance of account resulting from that (trading) relationship' it seems to me that we would not be justified in treating the sum of Pounds 10,562 10s. 0d., as anythings more for the purposes of this case than a trading debt. Of course, if the facts had been, and there had been a competent finding of facts showing that part of that indebtedness was indebtedness in respect of a loan transaction of a capital nature or something of that kind, different considerations might well have emerged, and it is to be understood that my judgment in this case is founded upon the approach to that account which I have described.

The Crown, before the Commissioners, put its case in a very broad way. It said : 'Look at the situation of these two companies. Look at this agreement. The object of the agreement was to put an end to a piece of capital mechanism, so to speak, belonging to the Company, and that was something of a capital nature.' In fact, the argument can best be explained by reference to the fact that the learned Solicitor General before us said that the case was to be compared with the case of Vanden Berghs Ltd. v. Clark in which a sum of Pounds 450,000 was paid in order to get rid of an agreement between two large combines, under which their profits were to be pooled, and a variety of complicated arrangements were made. That, therefore, was the type of general argument that the Crown put forward, and it put it forward, as I have said, on the basis that, so far as the Crown was concerned, it was immaterial whether this particular matter of the payment of this account was payment of a sum which was partly of a capital nature or whether the whole of it was of a revenue nature.

Now I return to the finding of the Commissioners. The finding of the Commissioners is one which Lawrence, J., though contained an inference which was not justified by the facts which the Commissioners themselves had found. I find myself in agreement with the view which he took.

The finding in paragraph 15 falls into two parts. The first part states the fact which lead to the conclusion. In the second part the conclusion is that these three payments 'were not money wholly and exclusively laid out or expended for the purpose of the Appellant Companys trade'. The reasons were that those payments were made to secure a compromise, and the securing of that compromise was not, it is said, 'for the purpose of the Appellant Companys trade, but to enable it to terminate a trading relation which it found inconvenient with the minimum sacrifice of the balance of account resulting from that relationship.'

Now, with great respect to the Commissioners, it seems to me that they have put the matter the wrong way round. It was not Scammells who were seeking to terminate a trading relation, a phrase which I understand to be intended to cover the de facto business situation of the two companies vis-a-vis one another, as well as their existing contractual relationships. It was Mr. Toms, on behalf of Blue Belle Motors, and in his individual capacity, who was seeking to determine that trading relation. That was the main object of his action; it was that that he was demanding; it was he, not Scammells, who insisted, as a term of coming to any agreement, that the shares in Blue belle Motors held by the directors should be sold to himself. Scammells were defending, Mr. Toms and Blue Belle Motors were attacking them. What Scammells were anxious about - and on the evidence it appears abundantly clear, and, in fact, the Commissioners themselves in a paragraph to which I have referred (paragraph 9) have a finding to that effect - was the balance of their account, and, in order to obtain payment of as much of that balance as they could get, they were prepared to agree to Mr. Toms conditions.

Now it seems to me that there is no real evidence upon which the commissioners were justified in finding that Scammells entered into this compromise to enable them to determine a trading relation. If that view be correct, and if, as I think is the case, there is no evidence upon which the Commissioners could find that the object of the Appellant Company in entering into the compromise who anything except to obtain payment of as much of the balance of the account as they could persuade Mr. Toms to agree to, and that account being, as I have said, a trading account, it seems to me that the compromise was a compromise effected for the purpose of the Companys trade and for the purpose of enabling them to recover the payment of trading debt owing to them from a customer, which would come into computation in their trading account. On that basis, payments made as a condition of obtaining that compromise which secured that payment to them would have been payments wholly and exclusively laid out or expended for the purposes of the Appellant Companys trade. But, however that may be, let me take the Commissioners finding exactly as it stands. They find that the object was two-fold, to enable Scammells to terminate the trading relation, and to enable them to do so 'with the minimum sacrifice of the balance of account resulting from that relationship'. Now that it obscurely put; it presumably means, 'to terminate the trading relationship and, while doing so, to get paid as much as they could of the balance of their account.' So far as the object of getting payment of the balance of the account is concerned, the effect of that part of it is, as I have said, that they were trying to get payment of something due to them on trading account. But the real weight of the argument that was put before us was said that where you have a complex relationship, two companies with interlocked bards, the chairman of one holding a controlling interest in the other, a management agreement made, a hiring agreement made loans, debentures issued, and so fourth and so on a payment for the purpose of getting rid of that complex relationship is not one which can be said to be wholly and exclusively laid out for the purposes of the Appellant Companys trade. It was also said that it was open to the Crown here to argue, as we were informed they had argued before the Commissioners, that, although the object of the payment might be for the purpose of trade, yet it was of a capital nature. It seems to me that, if we assume that the object was to terminate the trading relation, we must treat the matter giving proper force to the word trading. The relation to which the Commissioners are referring is a trading relation, and, therefore, in so far as there were any other relations which were not of a trading nature, the finding of the Commissioners negatives the idea that one of the objects was to get rid of them; it was trading relations, and trading relations only.

Therefore, we find this Company finding itself in a situation of trading relationship with another company which it wishes to get rid of because it is inconvenient to it. On that basis, and giving full force to the qualifying word 'trading', it seems to me that the conclusion to which the Commissioners have come, namely, that a compromise directed in obtaining the termination of such a relationship was not for the purposes of the Appellant Companys trade, is, with all respect to them, a complete non sequitur. They seem to have thought that a transaction entered in to get rid of a trading relationship is on which, as a matter of law, could not be for the purposes of the trade. It looks as though they had thought that the compromise, if it had looked forward to some affirmative trading in the future, might have been regarded as for the purposes of the trade, but as, on the other hand, it was merely terminating the possibility of disadvantageous trading in the future, it could not be for the purposes of the trade. That seems to me, with all respect to them, to be quite a wrong method of dealing with the matter. The termination of a trading relationship in order to avoid losses occurring in the future though that relationship, whether pecuniary losses or commercial inconveniences, is just as much for the purposes of the trade as the making or the carrying into effect of a trading agreement. Therefore, I find myself in complete agreement with the view that Lawrence, J., took upon that matter.

Now I have not referred to any of the authorities which have been cited to us, except for a passing reference to the case of van den Berghs v. Clark but it appears to me, after careful consideration of the many different cases that have been referred to before us, that the true analogy to the present case is to be found in the class of case where a company, in order to get rid of a contract which is of an onerous nature, or a servant whose continuance in service is undersirable in the companys interest, makes a payment. There were two cases referred to. One was the case of B. W. Noble Limited v. Mitchell That was a case where the company wished to get rid of a life director in order to save a possibility of publicity which would be injurious to the companys reputation if they dismissed him. They came to an arrangement with him under which, among other things, he was to be paid a sum of money and was to sell his shareholding to his co-directors and surrender certain valuable participating notes. I need not quote from the judgments in that case, but this, I think, emerges from it with great clearness, that a payment made in circumstances of that kind to terminate the employment of somebody in the service of the company whose continuance with the company is undersirable is properly treated as a revenue payment and a deductible expense.

The other case was Anglo-Persian Oil Co. Ltd. v. Dale where the payment was a payment made in order to terminate an agency agreement which was proving disadvantageous to the company.

In the present case, if the trading relation was one that was disadvantageous to the Company and, in order to get rid of it, the company had to either into an agreement with Mr. Toms and Blue Belle Motors, and if, in order to secure that that agreement should be effective, it was necessary to make a payment to a third party, to wit, Mr. Hood Barrs, who was in a position to block the agreement because his consent was necessary and there was no means of compelling him to give it, the payment made to Mr. Hood Barrs was, it seems to me, a payment that was made for and was directly connected with the procuring by the Company of the advantage of terminating that trading relation and as such, was wholly and exclusively laid out for the purposes of the Companys trade. That dealt with the Pounds 7,500.

The other two sums can be very shortly dealt with. One was the sum of Pounds 53 10s. 0d. which was the payment made to the Companys solicitors in connection with the preparation of the compromise deed. If the view that I have taken as to the nature of the compromise is correct, the costs of preparing the deed are, of course, a permissible deduction.

The other sum Pounds 62 10s. 0d., was a sum paid as a contribution to Mr. Toms costs in the Chancery action. It was one of the terms that he insisted upon as a condition of his willingness to secure payment by Blue Belle Motors of the Pounds 10,000 odd to Scammells, and was therefore a sum paid to enable Scammells to get the benefit of the compromise. If what I have said about the compromise is right, it follows that that sum, too, is a permissible deduction.

I should, in conclusion, refer to one matter that was touched upon. It was said that when you looked at the agreement of the deed of compromise itself you found a number of matters dealt with and cleared up in it. That was perfectly true. Many of them were things which Mr. Toms was insisting should be cleared up. The others were of a general and consequential nature, such as the release and indemnity to which I have referred in respect of possible claims, the existence of any such claims being negatived by Mr. Toms satisfaction at his examination of the accounts. To the other matters dealt with in that deed I do not think I need refer.

The real substance of the position, I think, was, as stated by the Commissioners, that they decided to enter into the compromise as otherwise they would loser the balance of the account. That was the business and substantial and real object of the whole of this transaction, and that sum they secured, a sum which, upon the basis upon which it was dealt with, was a sum which would appear in their own accounts as revenue; and the sum paid, Pounds 7,500, and the other sums paid to secure it must, in my opinion, by treated in like manner. In the result, the appeal is dismissed with costs.

Finlay, L.J. - I agree.

Luxmoore, L.J. - I also agree.

Appeal dismissed.

Leave to appeal refused.

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