The Commissioners of Inland Revenue Appellants v His Grace the Duke of Westminster Respondent
[1936] AC 1(Judgment by: Lord Wright)
The Commissioners of Inland Revenue Appellants
v His Grace the Duke of Westminster Respondent
Judges:
Lord Atkin
Lord Tomlin
Lord Russell of Killowen
Lord Macmillan
Lord Wright
Judgment date: 7 May 1935
Judgment by:
Lord Wright
The difference of opinion which this appeal has elicited has caused me some doubt, but after careful consideration I am bound to say that, speaking for myself, I have come to the conclusion that the appeal must fail.
If the case were one in which it was found as a fact in regard to each of the deeds in question that it was never intended to operate as a legal document between the parties, but was concocted to cover up the payment of salary or wages and to make these payments masquerade as annuities in order to evade surtax, it may well be that the Court would brush aside the semblance and hold that the payments were not what they seemed. But there is no such finding by the Commissioners; indeed no such case was even suggested; on the contrary, it is admitted that the deeds are genuine and carry an obligation according to their tenour, irrespective of whether the various payees are or are not in the respondent's service at any material date. This is clearly so in the cases not here questioned in which the covenantees are no longer in the respondent's employment. And all your Lordships are of opinion that this is so in the case of Blow, though he is still in the respondent's service, and that the payments in his case are properly deductible.
What then is the difference which distinguishes Blow's case from that of the other covenantees whose cases are to be considered in this appeal? The only difference is to be found in the accompanying letter and form of acknowledgment, both of which are absent in Blow's case. It is on these documents that the Commissioners arrive at their conclusion that the payments under the deeds are not annual payments but "in substance payments for continuing service ejusdem generis with wages or salaries" so long as the recipients remain in the respondent's service.
Like others of your Lordships I shall take as typical the case of Allman. The covenant in the deed to pay him is unconditional. It is not conditioned by the contingency of Allman re-engaging or continuing in the respondent's service; the relevance of that contingency is expressly negatived in the recital; and by clause 3 it is expressly agreed that the payments are to be without prejudice to such remuneration (what that may be is unspecified) as the annuitant will become entitled to in respect of such services, if any, as he may thereafter render to the respondent.
On the footing that the deed is genuine, I do not see any possibility of going behind what appears on the face of the document, or qualifying its effect by documents dehors the deed and in no way embodied in it, or regarding the payments as other than annual payments, as it is admitted that ex facie they are. And what the legal effect is as between the covenantor and the covenantee must determine for revenue purposes the character of the payments actually made.
That character is not to my mind changed if the letter of explanation and the letter of acknowledgment can be taken into account.
The letter of explanation quite correctly, and in accordance with the actual terms of the deed, states that there is nothing to prevent Allman from claiming full remuneration for future work from the respondent; the letter goes on to state what is expected - namely, that Allman will "in practice be content" with the provision made by the deed with such additional payment as will, with the payments under the deed, bring his salary up to what he had been previously receiving. This seems to me to be merely the language of hope and expectation and not to be language capable of being construed as an offer which, if accepted by Allman, would bind him to work for the respondent at the reduced rate; that is if in future he did so work, because no one suggests that if he did not work for the respondent his right under the deed would be affected.
But if the letter of explanation, together with the acknowledgment, were treated as constituting a contract, it could only be a contract to pay and accept what may be called the additional sum. I cannot extract from the actual words a promise or right to pay or receive what is called the "full remuneration for future work"; it is true that Allman would under the deed be entitled to claim "full remuneration" if he were so minded, as a condition of working, but I cannot find any ground for thinking that he ever did so, and still less that the respondent employed him on that footing.
But whatever view is taken, the nature of the obligation embodied in the deed appears to me to be unaffected. I do not stop to examine what is the precise position of Allman and those in like case with him if they go on working in the respondent's employment. It may be that the true inference of fact is that they are working for the additional sum and nothing else, the reason why they are content with this reduced rate being that they are receiving also the annuities under the deed. There may be difficulties in that position. But in any event any such agreement would be merely collateral to the deed.
I may add that I do not understand what is meant by the expression "payments for continuing service ejusdem generis with wages or salaries." The payments must be one thing or the other, either annual payments or wages; there is no room for anything intermediate or in the nature of cy-pres . And once it is admitted that the deed is a genuine document, there is in my opinion no room for the phrase "in substance." Or, more correctly, the true nature of the legal obligation and nothing else is "the substance." I need not develop this point, as I agree with what has been said by my noble and learned friends, Lord Tomlin and Lord Russell of Killowen.