BIM37730 - Wholly & exclusively: duality of, or non-trade, purpose: remuneration, etc: payment of share of profits following sale of shares

When Mr. Hibbert says, ‘It was all along intended that the Company would make the payments’, he says something which flatly contradicts that which appears in the correspondence. The correspondence shows that right to the end it was intended that Mr. Hibbert and Mr. Kjeldsen should pay, and the draft terms of the final arrangement says so in express terms. For that I refer to the document on page 30 of the correspondence.

Then Mr. Kjeldsen says, ‘that he was very concerned when he heard that the Pinkneys were going to retire’, more concerned than anyone, having come from Denmark 30 years ago. He and Hibbert were in reality managers. They could not have continued to carry on the Company without the help of the Pinkneys. The services they gave were genuine and necessary. The Company needed those services. He himself knew few clients and he did not know any of the Pinkneys' friends. It was only by the Pinkneys' introduction that he got to know them. The Pinkneys were pushing the Company with the customers. The payment was made to retain the services of the Pinkneys. The Company benefited accordingly.’

Here again, when Mr. Kjeldsen says that ‘the payment was made to retain the services of the Pinkneys’, that contradicts the agreements of 21st November, 1945. It is contrary also to the whole tenor of the correspondence under which the payment was to be made by Mr. Hibbert and Mr. Kjeldsen, and not by the Company as a consideration for services. It is quite true that the Company did benefit from what was done, but that of itself gives no right in law to Income Tax deduction. But if I ignore that aspect of the matter entirely, in case there may be a later independent arrangement by the Company to remunerate the brothers for their services, and if I interpret that sentence in Mr. Kjeldsen's evidence -’The payment was made to retain the services of the Pinkneys’- in this way, that it was made by the Company exclusively to retain the services of the Pinkneys, then I interpret that sentence in the way most favourable for the Company. But whether the payments were so made is the very question in the case. That being so, there must be some evidence to support what is otherwise simply Mr. Kjeldsen's conclusion or assertion. One has to look for the facts upon which he bases that statement: that is to say, one must find some evidence that the Company in one way or another came to a decision to remunerate the brothers for their services.

The next and final witness was Mr. George Weir. The relevant part of what he said is this: ‘If the purchasers were to be allowed to carry on the old Company then they had to advise them. It was vital to the Company. The purchasers normally did the office work and never contacted the people the Pinkneys knew. The business was dependent absolutely on contacts. He considered the amount in question was a revenue payment for services rendered to the Company and therefore his firm charged it in the Company's profit and loss account. It was his suggestion that the third deed should be executed to make matters clear.’

That really carries the matter no further except to show whose idea it was to charge the payment in the profit and loss account.

That is the whole of the evidence. Nowhere in it is there any proof that the Company, as such, came to a decision that since it had had the brothers' services it would shoulder the obligations to the brothers under the agreement of 1945. Nor is there any trace of an alternative decision by the Company, namely, that wholly independently of those obligations the Company would remunerate the brothers for what they had in fact done and pay the brothers the same amount as that which Mr. Hibbert and Mr. Kjeldsen owed under that agreement. Normally, when a company has had services rendered to it and the servant gets something from the company, it can reasonably be inferred that the one is a quid pro quo for the other. It would not be right to infer that here, where the payment by the Company is the exact amount of a private obligation by the directors and is made to the creditors of those directors. In such a case the Company cannot complain if it is asked to prove its contention that it is paying for the services rendered to it with some degree of particularity.

Again, it might be thought that it would be very easy for the Company to put the matter right by some appropriate resolution, and that it is hard to penalise it for want of that formality. Here again however, a moment's consideration will show that the case is not so simple. If the Company discharged its directors' obligations under the 1945 agreement, then a serious question would arise as to whether the money's worth thus received by the directors was or was not income liable to Income Tax and Surtax in their hands. Alternatively, a resolution which simply authorised the payment of £6,122 as remuneration to the brothers as an independent arrangement, would leave the directors still liable under the 1945 agreement to pay the brothers an equivalent amount; and I much doubt whether that was ever ‘intended all along’. These difficulties may indeed explain what was at first to me surprising; namely, why no evidence was tendered to the Commissioners of some resolution or decision of the board or of the Company in general meeting authorising the payment of this sum to the brothers as remuneration.

The Commissioners in their decision say this: ‘We, the Commissioners who heard the appeal, were of opinion on the evidence adduced before us that although the Respondent Company was not a party to the agreements dated 21st November, 1945, and 27th May, 1947, it was clearly understood that the brothers should render services to the Respondent Company and that the share of commissions provided to be paid to them under the said agreements was to be their remuneration for so doing and to be payable by the Respondent Company.’

Then I ask, by whom was all this understood? On the evidence, only by the brothers and Mr. Hibbert and Mr. Kjeldsen. There is no evidence that the Company as such ever agreed to be bound by such an understanding or ever agreed to honour it. We do know that it was the firm of auditors, to quote Mr. Weir's evidence, who considered that it was a payment for services rendered to the Company and therefore should go into the profit and loss account as a debit.

The Commissioners go on: ‘Further in pursuance of such understanding the brothers in fact did render valuable services to the Respondent Company and in consideration therefore the Respondent Company did in fact make the payments of the share of commissions to them’. That is a clear finding of fact. But findings of fact must have some evidence to support them if they are to stand. To assert that the Company made the payment in consideration of the services presupposes that the Company considered the matter and came to a decision to that end. There is no evidence in the Case that that happened and in the absence of such evidence the Commissioners' finding in my view cannot stand. No doubt it is a strong thing to do to reverse Commissioners, particularly Commissioners of the City of London, on questions of fact. But being clear, as I am, that there is no evidence upon which the finding can be based, I have no alternative but to say that this appeal succeeds.