IN THE HIGH COURT OF JUSTICE CHRVF 92/0773/B
Royal Courts of Justice The Strand
London WC2A 2LL
Friday, 5th November 1993
LORD JUSTICE DILLON
LORD JUSTICE NOLAN
LORD JUSTICE ROCH
BRIAN HALL Appellant
(HM INSPECTOR OF TAXES)
IAN MALCOLM LORIMER Respondent
MR. P. GOLDSMITH QC and MR. L. HENDERSON (Instructed by The Solicitor of Inland Revenue, Somerset House, Strand, London WC2R 1LB) appeared on behalf of the Appellant
MR. S. ALLCOCK QC and MR. A. HITCHMOUGH (Instructed by Simmons & Simmons 14 Dominion Street, London EC2M 2RJ) appeared on behalf of the Respondent
J U D G M E N T
(The stenograph notes of John Larking, Chancery House,
53‑64 Chancery Lane, London WC2A 071‑404 7464)
LORD JUSTICE DILLON: I will ask Nolan L.J. to give the first judgment.
LORD JUSTICE NOLAN: This is an appeal by the Inland Revenue in the person of Mr. Hall, Her Majesty's Inspector of Taxes, against a decision of Mummery J. dismissing the appeal of the Revenue against a decision of a Special Commissioner. The Special Commissioner by that decision had upheld the appeal of Mr. Lorimer against assessments under Case 1 of Schedule E upon his earnings as a freelance vision mixer for the years 1984/85 to 1988/89 inclusive. Mr. Lorimer contends, and the Special Commissioner held, that those earnings were properly assessable not under Schedule E but under Schedule D. Case 1 of Schedule E imposes a charge of tax "in respect of any office or employment on emoluments there". The charge under Schedule D is imposed upon inter alia the profits "from any trade, profession or vocation". For the first four of the assessments the relevant charging provisions were contained in the Income and Corporation Taxes Act 1970. For the fifth they are in the corresponding Act of 1988. Nothing turns on that; the language is identical.
The case has been argued before us, as it was below, on the agreed basis that the critical issue is whether or not the contracts from which Mr. Lorimer derived his earnings were contracts of service. If so the earnings were properly assessed under Case 1 of Schedule E; if not they should be assessed under Schedule D.
The detailed facts of the matter which are so important in a case of this sort are set out with admirable thoroughness and clarity in the case stated by the learned Special Commissioner and in the documents attached thereto. I shall have to refer to some of the documents later in this judgment, but by way of introduction I cannot do better than adopt the summary of the facts given by Mummery J. in his judgment which was reported at (1992) 1 WLR 939. The summary begins at page 941 F and reads as follows:
"It appears from the facts found by the commissioner and set out in the case stated that the taxpayer, after a period in business on his own account and then in employment as an electrician, trained as a vision mixer in 1983. During his period of training and down to the end of January 1985 the taxpayer was employed by Molinare Ltd. as their one and only vision mixer in their business of producing television programmes. In 1985 the taxpayer decided to leave full‑time employment with Molinare Ltd. and became a freelance vision mixer, doing work for a number of different production companies.
Vision mixing is undoubtedly a skilled editing job. It involves selecting, in the course of making both pre‑recorded television programmes and live television programmes, camera shots taken from different angles which come up on screens in front of the mixer. The shots selected by the mixer determine what the viewer ultimately sees on his television screen at home. The vision mixer works closely with the director. He does not himself produce the film or television programme; he is one of many involved in the production. Others involved are the producer, director, musical director, cameramen, presenters, artistic directors, stagehands, electricians, engineers and so on. The production in which the vision mixing occurs usually takes place in a studio owned or hired by the production company. The studio is equipped with very expensive equipment owned or hired by the production company. The studio is equipped with very expensive equipment owned or supplied by the studio company, though the advice of the vision mixer may be sought on the equipment to be used in a particular production.
After he left full‑time employment with Molinare Ltd. the taxpayer prepared a curriculum vitae. He made contact by letter, telephone and personal visits with many companies in the television industry with a view to obtaining engagements as a vision mixer. In the first 14 months he built up a list of 22 companies and in the three succeeding years the number on the list has remained at about 20. Some of the original names stayed on the list. New names were added. Most of the time was spent on engagements with a relatively small number of companies, though not always the same companies.
The taxpayer kept busy in what is a volatile industry. He worked for over 800 days in the period from 2 February 1985 to 5 April 1989. His annual number of engagements ranged from between 120 to 150. In the relevant period he had a total of about 580 engagements. Apart from three occasions when he worked as a technical director, a director and a transmission controller, all of the taxpayer's engagements were as a vision mixer. On six occasions when bookings clashed he provided, with the consent of the production company, a substitute hired at his expense for a sum less than he charged the production company, so that on those occasions he made a profit from the engagement.
The taxpayer has had no full‑time or long term contract with any one company since he left Molinare Ltd. He has been free to accept engagements or not, as he wished, and the various production companies have been free to engage the taxpayer or not as they wished.
He takes bookings for periods of usually one to two days on a first come first served basis. The longest engagement was for 10 days. When he accepts an engagement the taxpayer goes to the studio and stays there until his part in the programme production has been satisfactorily completed. He does no other work for the company engaging him. Bookings are usually made on the phone to his home, where he has an office, and are subsequently confirmed by letter which often states the date, rate of pay, place of work and time. There are, however, no formal written conditions of engagement. Varying lump sum amounts are agreed and charged as reward for the work, sometimes with the addition of VAT. The taxpayer was registered for the purposes of VAT from 1 February 1985. Some clients are bad payers and keep him waiting for three months before they pay up. Some companies have deducted PAYE income tax or Class 1 national insurance contributions from the agreed payments. It appears that the taxpayer's charges are higher than the normal union rates of pay. For most of the relevant period the taxpayer was a member of a union, the Association of Cinematograph Television and Allied Technicians. All of the taxpayer's work as a vision mixer is done at the studios owned or hired by the production company on equipment owned or supplied by the studio company. The taxpayer does not provide any equipment or tools of his own. He does not contribute any money to the cost of the production of the programme. He does not share in the profits or run the risk of losses on the production. He does not hire any staff, either to assist him with his vision mixing at the production studio or at home, though his wife helped him with paperwork at home until their marriage was dissolved and he employed an agent for a few months from March 1989.
As to his financial arrangements, the taxpayer keeps a business account at his bank separate from his personal accountant. In January 1985 he effected a retirement annuity policy and a life assurance policy approved by the Revenue under the Income and Corporation Taxes Act 1970. In October 1986 he took out an insurance policy against sickness, providing income after four weeks of ill‑health."
Before us Mr. Goldsmith QC, representing the Inland Revenue, made a concession which had not been made below. It was that tax could not be charged under Schedule E in respect of the profits made by Mr. Lorimer on the six occasions when, with the consent of the production company concerned, he provided a substitute to carry out the work for which he had contracted.
Mr. Goldsmith accepted that in those cases Mr. Lorimer could not be said to have earned his profit in the performance of a contract of service because in the result he was not paid for his own skill and labour. Mr. Goldsmith added, and I would agree, that the concession had no significant bearing on the proper classification of the other 574 engagements which Mr. Lorimer carried out during the 800 or more days on which he worked between 2 February and 5 April 1989.
Mr. Goldsmith submitted, and again I would agree, that the conclusion of the Special Commissioner on those other engagements was a conclusion of mixed law and fact. Therefore, it could only be disturbed on appeal if either the learned Special Commissioner had misdirected himself in law or the true and only reasonable conclusion on the facts found by him was inconsistent with his determination. The Revenue case before us as before Mummery J. was put forward primarily on the letter basis.
Mr. Goldsmith submitted that the most useful test to adopt in judging the reasonableness or otherwise of the Special Commissioner's decision was that stated by Cooke J. in Market Investigations Ltd v. Minister of Social Security (1969) 2 QB 173 at pages 184‑5 when he said:
"The fundamental test to be applied is this: "Is the person who has engaged himself to perform these services performing them as a person in business on his own account?" If the answer to that question is "yes," then the contract is a contract for services. If the answer is "no," then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and the factors which be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task."
That case was concerned with a lady who belonged to a panel of part‑time interviewers carrying out specific surveys for a market research company. It was held that each of her assignments constituted a separate contract of service in respect of which she fell to be treated as an insured person for National Insurance purposes. Cooke J.'s observations were cited by Pennycuick V.‑C. in Fall v. Hitchen (1973) 1 WLR 286 when holding that a professional dancer was taxable under Case 1 of Schedule E upon his earnings from a particular contract with the Sadlers Wells Trust Limited. After referring to the passage which I have quoted the Vice Chancellor continued at page 292 H of the report:
"In the present case, it seems to me that virtually all the relevant factors point to this being a contract of service. The taxpayer is engaged to work for a minimum period of rehearsal plus 22 weeks, and thereafter until the contract is determined by a fortnight's notice on either side; he is engaged to work full‑time during specified hours for a regular salary; the company has the first call upon his services, and indeed the exclusive call subject only to this, that its consent to the taxpayer performing elsewhere should not be unreasonably withheld; and then, again, the company provides and owns the gear used by the taxpayer with one exception. All these indicia point to the conclusion is that he is not a person who is performing those services in business on his own account and there are really no indicia to the contrary."
In Lee Ting Sang v Chung Chi‑Keung (1990) 2 AC 374
Lord Griffiths delivering the judgment of the Privy Counsel said at page 382 of the report that "the matter had never been better put" than by Cooke J. in the passage in question. The Privy Counsel proceeded to hold, reversing the decisions of the judge of first instance and the Court of Appeal, that the applicant who was a casual worker on a building site was an employee of the subcontractor for whom he was working at the time he suffered an accident and was, therefore, entitled to be compensated under the Employees' Compensation Ordinance of Hong Kong.
It was found that the applicant worked from time to time for other contractors, but when the work of the respondent was urgent would give priority to him, telling any other employer for whom he was then working to engage someone else to finish the work. The applicant had been working on this particular job for 20 days before the accident had occurred.
Lord Griffiths said at page 383 F of the report:
"All the tests, or perhaps it is better to call them indicia, mentioned by Cooke J. in Market Investigations Ltd. v. Minister of Social Security (1969) 2 Q.B. 173, 184‑185 point towards the status of an employee rather than an independent contractor. The applicant did not provide his own equipment, the equipment was provided by his employer. He did not hire his own helpers; this emerged with clarity in his evidence when he explained that he gave priority to the first respondent's work and if asked by the first respondent to do an urgent job he would tell those he was working for that they would have to employ someone else: if he was an independent contractor in business on his own account, one would expect that he would attempt to keep both contracts by hiring others to fulfil the contract he had to leave. He had no responsibility for investment in, or management of, the work on the construction site, he simply turned up for work and chipped off concrete to the required depth upon the beams indicated to him on a plan by the first respondent. There is no suggestion in the evidence that he priced the job which is normally a feature of the business approach of a subcontractor; he was paid either a piece‑work rate or a daily rate according to the nature of the work he was doing. It is true that he was not supervised in his work, but this is not surprising, he was a skilled man and he had been told the beams upon which he was to work and the depth to which they were to be cut and his work was measured to see that he achieved that result. There was no question of his being called upon to exercise any skill or judgment as to which beams required chipping or as to the depths that they were to be cut. He was simply told what to do and left to get on with it as, for example, would a skilled turner on a lathe who was required to cut a piece of metal to certain directions.
Taking all the foregoing considerations into account the picture emerges of a skilled artisan earning his living by working for more than one employer as an employee and not as a small businessman venturing into business on his own account as an independent contractor with all its attendant risks. The applicant ran no risk whatever save that of being unable to find employment which is, of course, a risk faced by casual employees who move from one job to another, and such casual employees are specifically covered by the Ordinance."
Casual employees are not specifically covered by the changing provisions of Schedule E, though provision is made for them in Regulation 50 of the PAYE Regulation S.I. 1973 No. 334. But it is, I think, clear from other passages in the Lee Ting Sang judgment that the specific mention of casual employment in the Hong Kong Ordinance was not essential to the decision in the case. Mr. Goldsmith submitted in effect that an employment properly so called is not the less an employment because it is casual rather than regular and that I would accept.
Mr. Goldsmith acknowledged that the work of Mr. Lorimer, unlike that of Mr. Lee Ting Sang, depended upon his own rare skill and judgment but submitted that the nature and degree of skill involved in the work cannot alone be decisive. Again I agree. A brain surgeon may very well be an employee. A window cleaner is commonly self‑employed.
Mr. Goldsmith invited us to adopt the same approach as that of Lord Griffiths in applying the test or indicia set out by Cooke J. to the facts of the present case. That is an invitation which I view with some reserve. In cases of this sort there is no single path to a correct decision. An approach which suits the facts and arguments of one case may be unhelpful in another. I agree with the views expressed by Mummery J. in the present case at page 944 D of the report where he says:
"In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity. This is not a mechanical exercise of running through items on a check list to see whether they are present in, or absent from, a given situation. The object of the exercise is to paint a picture from the accumulation of detail. The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole. It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details. Not all details are of equal weight or importance in any given situation. The details may also vary in importance from one situation to another.
The process involves painting a picture in each individual case. As Vinelott J. said in Walls v. Sinnett (1986) 60 T.C. 150, 164:
"It is in my judgment, quite impossible in a field where a very large number of factors have to be weighed to gain any real assistance by looking at the facts of another case and comparing them one by one to see what facts are common, what are different and what particular weight is given by another tribunal to the common facts. The facts as a whole must be looked at, and what may be compelling in one case in the light of all the facts may not be compelling in the context of another case."
Nonetheless in deference to the submission of Mr. Goldsmith I am prepared to follow his suggested path and see where it takes us. Listing the specific factors to which Cooke J. referred Mr. Goldsmith said that the production company in any given engagement controlled the time, place and duration of each programme, that Mr. Lorimer did not provide any of his own equipment, that he hired no staff to assist him in his work, that he ran no financial risk apart from the risk of bad financial debts and of being unable to find work, that he had no responsibility for investment in or management of the work of programme making and consequently he had no opportunity of profiting from the manner in which he carried out individual assignments.
Each of these points was considered by the Special Commissioner. He did not fully accept their validity as a matter of fact in all cases. Thus at page 27 of the bundle he said:
"Mr. Lorimer provides no equipment (i.e. he has no tools) he provides no "work place" or "workshop" where the contract is to be performed, he provides no capital for the production, he hires no staff for it. No; he does not. But that is not his business. He has his office, he exploits his abilities in the market place, he bears his own financial risk which is greater than that of one who is an employee, accepting the risk of bad debts and outstanding invoices and of no or an insufficient number of engagements. He has the opportunity of profiting from being good at being a vision mixer. According to his reputation so there will be a demand for his services for which he will be able to charge accordingly. The more efficient he is at running the business of providing his services the greater is his prospect of profit."
Mr. Goldsmith submits that the Special Commissioner was not entitled to attach significance to Mr. Lorimer's risk of having no engagements because as was pointed out in the Lee Ting Sang case, this is a risk faced by casual employees who move from one job to another. That is so, but the risk of bad debts and outstanding invoices is certainly not one which is normally associated with employment. Moreover, the income and expenditure accounts annexed to the stated case reveal that Mr. Lorimer incurred very substantial expenditure in the course of obtaining and organising his engagements and as an incident of carrying them out. For example, in the period from 1 February 1985 to 30 April 1986 his expenses, including the cost of running his car or otherwise travelling in the course of his work and of running his office from home, amounted to £9,250 against fees received of £32,875, though it may be that the figure for fees included some reimbursement of expenses. All of those expenses, as Mr. Allcock QC representing Mr. Lorimer told us, without contradiction, were considered to be deductible if Mr. Lorimer were assessed under Schedule D. In any event they would seem to me to be quite different in nature and scale from those likely to be incurred by an employee.
More generally, as the Special Commissioner noted, the special feature specified in the Revenue list would be found in the case of many individuals who exploit their talents in the theatrical, operatic, orchestral, sporting fields but who are nonetheless independent contractors. Mr. Goldsmith submitted that the fundamental distinction between a contract of employment and a contract for service is that in the former the contracting party sells his skill or labour; in the latter he sells the product of his labour. In one case the employer buys the man; in the other he buys the job. If that were right, it would have provided a short and simple answer in the Market Investigation, Fall v. Hitchen and Lee Ting Sang cases, but that aside, I find the distinction very hard to apply in the case of a professional man. Surely the self‑employed barrister advising in his chambers or the doctor advising in his surgery is selling his skill and labour and not its product. If the scene shifts to the court or to the operating theatre can the client or patient really be said to be buying the product which may be disastrous in spite of the best efforts of the advocate or the surgeon in the litigation or operation?
Again the question, whether the individual is in business on his own account, though often helpful, may be of little assistance in the case of one carrying on a profession or vocation. A self‑employed author working from home or an actor or a singer may earn his living without any of the normal trappings of a business. For my part I would suggest there is much to be said in these cases for bearing in mind the traditional contrast between a servant and an independent contractor. The extent to which the individual is dependent upon or independent of a particular pay master for the financial exploitation of his talents may well be significant. It is, I think, in any event plain that Cooke J. was not intending to lay down an all purpose definition of employment. For example, his test does not mention the duration of the particular engagement or the number of people by whom the individual is engaged. At page 188 of the report Cooke J. said that he took account of the fact that the lady concerned was free to work as an interviewer for others but added that there was no finding that she did so. This is of little assistance in the present case of which the most outstanding feature to my mind is that Mr. Lorimer customarily worked for 20 or more production companies and that the vast majority of his assignments, as appears from the annexures to the stated case lasted only for a single day.
With these considerations in mind I am unable to accept the submission that the conclusion reached by the Special Commissioner was inconsistent with the facts found by him.
Was it however reached on the basis of a misunderstanding of the law? Three points are relied upon by Mr. Goldsmith in this context. First, he says that the Special Commissioner erred in placing reliance on the decision of Rowlatt J. in Davis v. Braithwaite (1931) 2 KB 628 as an authority on the meaning of employment for the purposes of Schedule E in its modern form. It is not surprising that the Special Commissioner attached importance to the case because it concerned an actress, Miss Lillian Braithwaite, whose income earning activities had much in common with those of Mr. Lorimer. Basing himself upon the fact that the legislature in 1922 had moved private employments from Schedule D to Schedule E, which dealt primarily with public offices and employments. Rowlatt J. concluded that the legislature "had in mind employments which were something like offices, and I thought of the word "posts" as conveying the idea required." Mr. Goldsmith rightly points out that since 1956 the charging provisions of Schedule E have simply referred to "any office or employment" and that, as has been agreed in the present case, in accordance with the decision of Pennycuick V.‑C. in Fall v. Hitchen the word "employment" should be accepted as synonymous with contract of service. Rowlatt J.'s conception of a "post", if by that is meant something which could be filled by successive holders, is therefore no longer a helpful analogy in deciding whether or not an employment exists. But his judgment continued:
"When a person occupies a post resting on a contract, and if then that is employment as opposed to a mere engagement in the course of carrying on a profession, I do not think that is a very difficult term of distinction, though perhaps a little difficult to apply to all cases. But I would go further than that and say that it seems to me that where one finds a method of earning a livelihood which does not consist of the obtaining of a post and staying in it, but consists of a series of engagements and moving from one to the other ‑ and in the case of an actor's or actress's life it certainly involves going from one to the other and not going on playing one part for the rest of his or her life, but in obtaining one engagement, then another, and a whole series of them ‑ then each of those engagements cannot be considered employment, but is a mere engagement in the course of exercising a profession, and every profession and every trade does involve the making of successive engagements and successive contracts and, in one sense of the word, employments.
In this case I think it is quite clear that the respondent must be assessed to income tax under Sch. D, because here she does not make a contract with a producer for a post. She makes a contract with a producer for the next thing that she is going to do, and then another producer, and then a third producer, and at any time she may make a record for a gramophone company or act for a film. I think that whatever she does and whatever contracts she makes are nothing but incidents in the conduct of her professional career."
In Fall v. Hitchen at page 295 of the report Sir John Pennycuick quoted that passage and continued:
"In that judgment, Rowlatt J. holds that the word "employment" means a post, and distinguishes it from a succession of engagements made in the course of carrying on a profession. He then goes on to hold that, on the particular facts of that case, Miss Braithwaite did not hold any post and that none of her particular engagements could be treated as post, but that on the contrary all her successive engagements must be treated as incidents in the conduct of her profession. Rowlatt J. nowhere says that if an actor enters into a contract in such terms as to amount to what he calls a post, then that actor is not chargeable under Schedule E but under Schedule D. On the contrary, it is implicit in the whole of his judgment, it seems to me, that if a professional person, whether an actor or anybody else, enters into a contract involving what Rowlatt J. calls a post, then that person will be chargeable in respect of the income arising from the post under Schedule E notwithstanding that he is at the same time carrying on his profession, the income of which will be chargeable under Schedule D. The instance of a musician puts that point very neatly.
I do not think that most people today would use the word "post," which does not seem very apt to cover the countless instances of employment in the sense of a contract of service; but every word of that judgment is applicable as between the carrying on of a profession and an engagement in the course of carrying on that profession, on the one hand, and a contract of employment, on the other hand."
With those words of Pennycuick V.‑C. I would respectfully agree as another helpful statement carrying general weight in the consideration of problems of this kind. The Special Commissioner was referred to Fall v. Hitchen as well as to Davis v. Braithwaite and I see no reason to suppose that he misunderstood or misapplied the latter decision in any respect.
Then it is said that the Special Commissioner was not referred to Lee Sing Tang and so was mistaken in his expressed belief that there was no reported case in this field where the individual provided service to an appreciable number of different people on very short engagements. But the report of the Lee Sing Tang case, to which I have referred, tells us nothing about the number or duration of the applicant's other engagements. I do not accept that the Special Commissioner was led by his unawareness of the case into an erroneous conclusion.
Finally, it is said that the Special Commissioner, and for that matter the learned judge, was wrongly influenced by the decision of this court in O'Kelly v. Trust House Forte PLC (1984) QB 90 and failed to appreciate that in that case there was a finding of the custom and practice in the industry which had no counterpart in the present case. But the Special Commissioner merely expressed interest in the Trust House Forte decision. He does not appear to me to have placed any particular reliance upon it. Even if he did so and did so wrongly, his conclusion would seem to me to be amply justified by the other authorities to which he referred.
Mr. Goldsmith told us that in pursuing this appeal the Revenue were not trying to extend the scope of the Schedule E charge but were concerned to prevent it from being eroded in the case of casual employments. The decision of the Special Commissioner in the present case does not appear to me to justify this concern. On the contrary, it seems to me to be fully in line with the earlier cases. Therefore, despite Mr. Goldsmith's careful and attractively presented submissions I would dismiss the appeal.
LORD JUSTICE DILLON: I agree.
LORD JUSTICE ROCH: I also agree.
(An application for costs was granted to the respondent)