Spc00674

ROYALTY – whether a payment for the Appellant’s services as stated in the document or a payment arising from the transfer of intellectual property and subject a declaration of trust in favour of his wife – the former – appeal dismissed

THE SPECIAL COMMISSIONERS

	PHILIP WILSON BRAITHWAITE	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	DR JOHN F. AVERY JONES CBE 

Sitting in public in London on 26 March 2008

Richard Vallat, counsel, instructed directly by the Appellant

Rebecca Stubbs, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	Mr Philip Wilson Braithwaite appeals against discovery assessments for 1998-99 to 2000-01 and an amendment to his self-assessment for 2001-02 attributing certain income returned by the Appellant’s wife to the Appellant.  The Appellant was represented by Mr Richard Vallat, and the Respondents (“the Revenue”) by Miss Rebecca Stubbs.
2.	The issue in this appeal is whether royalty payments based on sales of a product invented by the Appellant made pursuant to a deed of 10 July 1997 belong to the Appellant alone (as the Revenue contend) or to him and his wife equally (as the Appellant contends).
3.	There was an agreed statement of facts as follows:
(1)	Mr Braithwaite invented a dry powder Inhaler (“the Mark 1 Inhaler”).
(2)	Immediately before 24 October 1991, the intellectual property in the Mark 1 Inhaler was vested in a company called Technosystems Ltd (“T Ltd”).  Mr Braithwaite owned 25% of the share capital of T Ltd and was entitled to 25% of the net income derived from the commercial exploitation of the intellectual property in the Mark 1 Inhaler.
(3)	On 24th October 1991, T Ltd assigned the intellectual property in the Mark 1 Inhaler to a company called Innovata Biomed Ltd (“IBL”) pursuant to a deed to which Mr Braithwaite was also party (“the 1991 Deed”).  Under clause 3 of the 1991 Deed IBL was obliged to pay Mr Braithwaite the greater of (a) 25% of the net income received by it from the commercial exploitation of the intellectual property in the Mark 1 Inhaler and (b) £6,000 per half year.  Clause 3 was expressed to enure for the benefit of Mr Braithwaite, his personal representatives and his assigns.
(4)	Between 1994 and 2003 Mr Braithwaite was employed by IBL.
(5)	For all tax years up to and including 1996/97, Mr Braithwaite returned the full amount of the payments made to him under clause 3 of the 1991 Deed as his income.
(6)	By Declaration of Trust executed on 3 April 1997 Mr Braithwaite declared that he would thenceforth hold all his rights and interests under the 1991 Deed and the income therefrom on trust for himself and his wife in equal shares.
(7)	On 10th July 1997 Mr Braithwaite and IBL executed a deed (“the 1997 Deed”) under which IBL agreed to make certain payments to Mr Braithwaite linked to Mr Braithwaite discharging IBL of its obligations under the 1991 Deed and to the development of the Mark 1 Inhaler, including:
(a)	Under clause 3.1.1 the sum of £750,000;
(b)	Under clause 3.1.2 the sum of £66,000;
(c)	Under clause 5.1.1 the sum of up to £750,000, in three tranches, the payment of the first tranche being made on execution, the payment of the second tranche on the granting of certain EU marketing rights in relation to the Mark 1 Inhaler and the payment of the third tranche on the granting of certain US marketing rights in relation to the Mark 1 Inhaler; and
(d)	Under clause 5.1.2 the sum of 2.5 pence for each “Mark I Inhaler” sold (such sum to be increased in certain circumstances pursuant to clause 5.3).  (There was a further “top-up” provision under clause 5.2 to ensure that the payments made each half-year in respect of payments under clause 5.1.2 were at least £12,500.)
(8)	The payment under clause 3.1.1 of the 1997 Deed was returned as the capital (as to £375,000 each) of Mr and Mrs Braithwaite for the year ending 5 April 1998.  The payment under clause 3.1.2 represented accrued income under the 1991 Deed and was returned as the income (as to £33,000 each) of Mr and Mrs Braithwaite for the year ending 5 April 1998.
(9)	The first payment under clause 5.1.1 was returned as Mr Braithwaite’s income for the year ending 5 April 1998.
(10)	The second payment under clause 5.1.1 was made on 3 November 1998 and returned as Mr Braithwaite’s income for the year ending 5 April 1999.
(11)	The third payment under clause 5.1.1 has not yet been triggered.
(12)	The following payments have been made under clause 5.1.2:
(a)	Year to 5 April 1999	£33,332
(b)	Year to 5 April 2000	£25,000
(c)	Year to 5 April 2001	£24,072
(d)	Year to 5 April 2002	£24,210
These payments have been returned as income by Mr and Mrs Braithwaite as to 50% each for the relevant year of receipt.
(13)	HMRC have not challenged the returns described at 3(8), (9) and (10) above.
(14)	HMRC have assessed Mr Braithwaite to tax in respect of the full amount of the payments described at 3(12) above on the basis that those payments belong exclusively to Mr Braithwaite for tax purposes.
4.	I heard evidence from the Appellant and Mr Stuart William Sim, formerly group finance director of ML Laboratories plc.  I find the following facts:
(1)	In 1990 T Ltd became a subsidiary of IBL which shortly thereafter itself became a subsidiary of ML Laboratories plc.  IBL then owned 75% of the shares in T Ltd (25% having been transferred to it for nominal consideration by the Appellant’s former business partner) and the Appellant 25%.  When it became clear that further development of the Mark I Inhaler would require significant expenditure the 1991 Deed was entered into containing an assignment for £1 by T Limited to IBL of the intellectual property (“IP”) in the Mark I Inhaler then consisted of four or five pages of sketches which comprised two UK registered designs and three patent applications.  The Agreement recited that since the Appellant owned 25% of the shares in T Limited he was entitled to 25% of the net income from the commercialisation of the IP and the intention was that he should not be prejudiced by the assignment of the IP to IBL for nominal consideration.  The Appellant became entitled under the 1991 Deed to 25% of the net income from the commercialisation of the IP calculated in accordance with standard accounting practice after deducting reasonable costs directly incurred in relation to such commercialisation.  It was expected that IBL would licence the IP to a third party and so the only income would be a royalty.  
(2)	In 1992 IBL licensed the IP to Bespak plc.  The intention was that IBL would continue to develop a version of the Mark I Inhaler for its own pharmaceutical product, which Bespak would manufacture, and that Bespak would seek other customers and further develop and manufacture for those customers for a royalty based on sales.
(3)	IBL set up a facility for the development of the Mark I Inhaler and other products.  The Appellant managed this initially as a part-time consultant, and from 1994 as a full-time employee earning £35,000 to £40,000 pa.  By 1993-4 about 20 people were working there on the Mark I Inhaler and other development projects for group companies and third parties.
(4)	Between 1992 and 1996 IBL changed from producing small numbers of prototype units to larger production.  The Mark I Inhaler had also evolved from a mechanical device into one backed up by clinical trials requiring a pharmaceutical product licence.  This licence was obtained and an agreement made with a pharmaceutical company, Mediva plc.  Bespak had not performed as well as hoped and a termination of the licence was negotiated under which IBL reacquired the unincumbered IP.  The Appellant understood that Bespak paid IBL about £4m to IBL on termination of the licence and had a continuing role only as contract manufacturer for IBL.  By that time the Mark I Inhaler was a virtually finished product with a commercial value, although it was difficult to value.
(5)	The profit share arrangements in the 1991 Deed were unsuitable in the light of IBL no longer being merely a licensor.  On 31 January 1997 Mr Sim, wrote a “subject to contract” letter to the Appellant confirming the agreement reached between them “for the purchase of your rights in the Mark I Inhaler” for £1m on signing the contract, payments of £250,000 on being granted the European marketing authorisation for the use of beclomethasone in the Inhaler, and the same on being granted a similar US agreement, at the times when Mediva plc would be making payments to IBL. The letter also provided for payment of the amounts outstanding under the 1991 Deed, and a royalty of 2.5p per Inhaler sold with a minimum of £12,500 per half year with provision for increase of the 2.5p.  (I shall for convenience continue to describe this payment as a royalty, although that expression usually means a payment for the use of intellectual property whereas IBL already owned such property.)
(6)	Mr Sim left the details of turning the 31 January 1997 letter into an agreement to his deputy Mr Shennan who instructed solicitors.  The Appellant instructed solicitors, Martineau Johnson in Birmingham on the advice of his family solicitor.  Drafts dated April and June 1997 were produced and eventually the 1997 Deed was signed on 10 July 1997.  
(7)	During the negotiations for the 1997 Deed, on 3 April 1997, on the advice of Martineau Johnson, the Appellant entered into the declaration of trust declaring that he held the rights under the 1991 Deed and the income from it on trust for himself and his wife in equal shares.
(8)	The 1997 Deed entered into on 10 July 1997 contains the following provisions:
(a)	Recitals that since 1991 the Appellant had provided services to IBL relating to the further research, design and development of the Mark I Inhaler, and a final recital that: 
“(E) The parties have agreed to formalise the arrangements between them for the provision of certain consultancy services by [the Appellant] in respect of the Mark I Inhaler and his payment in respect of those services.”
(b)	Cause 2, headed “Discharge of IBL’s obligations,” contained a discharge by the Appellant of all obligations of IBL to make payments to him under the 1991 Deed; the Appellant waived all his rights and remedies to exercise and enforce the 1991 Deed; and for the avoidance of doubt he confirmed that he had no rights and remedies relating to the Mark I Inhaler otherwise than under the 1991 Deed.
(c)	Clause 3, headed “Discharge payments,” provided for the payment of £750,000 to the Appellant on execution and payment of £66,000 accrued payments under the 1991 Deed.
(d)	Clause 5, headed “Payments,” stated:
“In consideration of [the Appellant] having provided certain consultancy services and in respect of any such services he may provide in the future to IBL to develop the Mark I Inhaler IBL shall make the following payments to [the Appellant]…”
The payments were £250,000 on signing; the same amount on IBL being granted marketing authorisation for the sale of the Mark I Inhaler for use with beclomethasone; the same amount on similar authorisation in the US (which has not occurred); and the royalty of 2.5p subject to increase in accordance with a formula based on UK sales and, until expiry of the patents, subject to minimum half-yearly payments.
(e)	Clause 6 provided for an assignment by the Appellant to IBL for £1 of his present and future intellectual property rights (if any) relating to the Mark I Inhaler.
(f)	The Schedule lists patents in 25 territories and what are described as divisional patents (I understand that the patents were deemed to cover two separate inventions) in 16 territories.
(9)	A side letter stated that the 1997 Deed did not apply to the Mark II Inhaler which would continue to be governed by the provisions of the Appellant’s 1992 consultancy agreement (no signed copy was produced) under which he was entitled to a 25% profit share.  This was a different type of inhaler which had commercial potential but no value could be agreed for it.  Similarly the 1997 Deed did not apply to the income from the Catheter Connector System, which was unlikely to have any value.
(10)	The Appellant’s employment with IBL continued until 2003.
(11)	In his tax returns for 1997-98 the Appellant included £250,000 as consultancy fees and £33,000 (being half the accrued income under the 1991 Deed the other half being returned by his wife) as royalties both as “other income”; and for the year 1998-99 £250,000 as consultancy fees and £16,666.50 (being half the royalty, the other half being returned by his wife) as royalties, also as “other income” and he claimed to reduce his payments on account on the basis that for the following year the consultancy fee would be nil and royalties £12,500.  In all successive years half the royalty of 2.5p (or that amount as increased) per unit sold were returned by him and his wife equally.
5.	Mr Vallat, for the Appellant, contends:
(1)	While the 31 January 1997 letter cannot be directly used as evidence of the parties’ intentions it can be taken into account as part of the genesis and aim of the transaction, see Prenn v Simmonds [1991] 1 WLR 1381, 1385.
(2)	The 1997 Deed should be construed as a whole and not by looking at any part in isolation.  The royalty clearly relates to the same IP as the payments under the 1991 Deed.  There is no provision for termination of the royalty on the Appellant ceasing to provide services on death or otherwise.  The formula for increasing the royalty is based entirely on sales.  There is no obligation on the Appellant to provide any services under the 1997 Deed.  In any case any services he supplied were as an employee.
(3)	Every factor other than the drafting of clause 5 of the 1997 Deed points to the royalty being for the discharge of the obligations under the 1991 Deed.
(4)	The evidence shows that the intention of the parties was not reflected in the 1997 Deed which it would be open to the Appellant to seek rectification, see James Hay Pension Trustees Ltd v Hird [2005] EWHC 1093 (Ch) for a summary of he law on rectification.  If this submission was accepted the appeal should be adjourned to enable him to apply for rectification within a reasonable period.
(5)	The Appellant held his rights under the 1991 Deed as trustee following the 3 April 1997 declaration of trust and it is objectively unlikely that he would seek to defeat those rights by substituting payments for consultancy services on 10 July 1997.  Had he done so it would have been a breach of trust and he would hold the profits as constructive trustee for himself and his wife as in Boardman v Phipps [1967] 2 AC 46.  While he could negotiate a separate contract for his services the clause 5 payments were not full consideration for such services since he was not under any obligation to provide such services and any services were already being provided under his employment contract.  Payments also continued after termination of the employment relationship in 2003.
6.	Miss Stubbs, for the Revenue, contends:
(1)	The Appellant’s subjective intentions are irrelevant as are the negotiations and drafts of the 1997 Deed (including in particular the 31 January 1997 letter).  Where there have been earlier drafts without legal effect leading up to a final considered legal document, its meaning cannot be determined by the earlier less formal, less considered and less clearly drafted documents, see Britoil plc v Hunt Overseas Oil Inc [1994] CLC 561, 572-3.  The reference in Prenn v Simmonds relied on by Mr Vallat to the aim of the transaction is to that aim objectively ascertained.
(2)	The declaration of trust related to the Appellant’s rights under the 1991 Deed.  These were terminated by the 1997 Deed on payment of the clause 3 payments of £813,000 correctly received by the Appellant and his wife.  The clause 5 payments under the 1997 Deed are expressly in consideration of past and future services by the Appellant alone.  This is supported by Recital (E).  These were new rights to income attributable to the Appellant alone.  The Appellant cannot re-allocate the payments provided for in the 1997 Deed.  The royalty could have been expressed as a further payment for termination of the 1991 Deed but was not.  Commercially, in the 1997 Deed the parties were re-visiting the payments made to the Appellant in the light of the successful development of the Mark I Inhaler, or alternatively the Appellant retained some rights not dealt with by the 1991 Deed that were dealt with by the 1997 Deed. 
(3)	The fact that the royalty payments were not conditional on his continuing to provide consultancy services and continued after his death was not relevant as they were expressed to be primarily attributable to past services.  The fact of returning the payments for tax as royalties cannot be used as an aid to construction of the 1997 Deed, see James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 572, 603 “…it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made.”
(4)	Whether the payments are royalties or for consultancy services was not determinative.  The issue was whether Mrs Braithwaite has a beneficial interest in them.
(5)	It is too late for the Appellant to rectify the 1997 Deed.  The evidence does not show a different common intention of the parties from the terms of the Deed.  This would require strong evidence for a document entered into on legal advice after lengthy negotiations, see Joscelyne v Nissen [1970] 2 QB 86, 95.  As Mustill J said in The “Olympic Pride” [1980] 2 Lloyd’s Rep 67, 73 “The Court is reluctant to allow a party of full capacity who has signed a document with opportunity of inspection, to say afterwards that it is not what he meant.”
(6)	The Appellant was not constructive trustee.  The contention is contrary to the understanding of IBL, Martineau Johnson and the Appellant’s tax returns.
7.	My task is to construe the 1997 Deed in accordance with the principles set out by Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-3:
“(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
(2) The background was famously referred to by Lord Wilberforce as the ‘matrix of fact,’ but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
(3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
(4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax: see Mannai Investments Co. Ltd. v. Eagle Star Life Assurance Co. Ltd.  [1997] A.C. 749.
(5) The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera S.A. v. Salen Rederierna A.B.  [1985] A.C. 191, 201:
‘if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”
I have considered Mr Vallat’s ingenious and persuasive arguments to the contrary but I agree with Miss Stubbs that the 31 January 1997 letter and the drafts of the 1997 Deed are irrelevant to construing the 1997 Deed.
8.	The factual matrix was that IBL already owned all the IP rights in the Mark I Inhaler under the 1991 Deed subject to making the profit share payments to the Appellant.  The Appellant had worked on developing the Mark I Inhaler initially as a consultant until 1994 and then as a full-time employee of IBL.  The commercial prospects had changed from being entirely speculative at the time of the 1991 Deed to commercial exploitation being in prospect with product licenses for drugs to be used in the Mark I Inhaler expected in the near future.  The profit share in the 1991 Deed only made sense if the IP rights were licensed by IBL, as they were originally to Bespak.  Bespak had paid £4m to IBL on termination of its licence, 25% of which the Appellant could expect to receive.  Now that IBL was going to market the Mark I Inhaler itself a royalty per unit sold was much more suitable than a profit share which would probably be impossible to calculate.  Since on 3 April 1997 the Appellant declared that he held his rights under the 1991 Deed on trust for himself and his wife, there was no apparent reason to terminate those rights in July 1997.
9.	The problem is that given that factual matrix I would not have expected a reasonable person to have entered into the 1997 Deed.  I would have expected the parties merely to vary the 1991 Deed to substitute the 2.5p royalty for the profit share but with the Appellant receiving 25% of what Bespak had paid to terminate its licence and receiving further payments on the grant of the product licences that were then envisaged (both of which would have been included in the profit share if the 1991 Deed had continued).  If that had been done there would have been no doubt that all the payments would continue to be caught by the declaration of trust.  The form of the 1997 Deed bears no relation to what I would have expected and I cannot understand why either party should have wanted to enter into it.  It terminates the 1991 Deed, which contained the only rights the Appellant had to receive anything for his invention of the Mark I Inhaler.  In doing so the parties apportioned £750,000 of the £1m (being the Appellant’s share of the payment from Bespak) to a termination payment, and the remaining £250,000 to the initial clause 5 payment for consultancy services, for reasons that are unclear on the face of the document.  Since on termination of the 1991 Deed the Appellant had no right to be paid anything, clause 5 provides that the further payments are in consideration of the Appellant’s past and possible future consultancy services (which may not have been the case as the Appellant had been a full-time employee since 1994, although it does appear from the side letter that the 1992 consultancy agreement continued at least in relation to the Mark II Inhaler) with recital (E) saying that the parties were formalising the provision of consultancy services and payment for them (which the Deed does not).  Clause 2 provides for the avoidance of doubt that the Appellant had no rights in the Mark I Inhaler otherwise than under the 1991 Deed (now terminated) and in clause 6 he assigned all his IP rights (if any) to IBL for £1.  
10.	I can speculate that the 1997 Deed came about because Mr Sim, having made a deal “for the purchase of your rights in the Mark I Inhaler” (which was not the case since IBL already owned the IP) left it to Mr Shennan to instruct solicitors who took the letter to mean that the 1991 Deed was to be terminated, and searched around for why the Appellant was now being paid anything and thought it must be for consultancy services, but were not told that he was an employee.  Presumably the Appellant failed to instruct Martineau Johnson properly and it certainly looks as if the person in that firm who made the declaration of trust failed to communicate with the person dealing with the 1997 Deed since on 10 July 2007 this terminated the rights dealt with by the declaration of trust on 3 April 1997.  How either party can have knowingly signed such a Deed is something I cannot explain.  It must have been obvious to both parties that they did not want to terminate the 1991 Deed (particularly to the Appellant who had declared himself trustee of his rights under that Deed only three months earlier during the negotiations for the 1997 Deed), that the Appellant was an employee and may not have provided consultancy services (at least in relation to the Mark I Inhaler), and that clause 5 payments were not being made for consultancy services but because they derived from the Appellant’s rights under the 1991 Deed and were replacing the profit share under that Deed.  I fear that it was a case of both parties leaving what they saw as legal formalities to solicitors and assuming that the result was what they wanted without bothering to read or understand it.  The Appellant’s actions in returning for tax purposes the two £250,000 payments under clause 5 as consultancy fees and half the royalty as royalties as his own income for both 1997-98 and 1998-99 are not only inconsistent, but they indicate that he thought that the former were consultancy payments.  Again it looks as if he left the tax return to his accountants, who had correctly followed the 1997 Deed at least in relation to the lump sum consultancy payments and signed it without considering it.
11.	The above speculation on my part is not relevant to my task of interpreting the 1997 Deed.  As Jessel MR said in Smith v Lucas (1881) 18 ChD 531, 542:
“The settlement is one which I cannot help thinking was never intended by the framer of it to have the effect I am going to attribute to it; but, of course, as I very often say, one must consider the meaning of the words used, not what one may guess to be the intention of the parties.”
I do not see any difficulty in seeing what the Deed would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties.  They clearly stated that they wanted to terminate the 1991 Deed on payment of a lump sum and to provide in its place for payments to the Appellant for his services that had led to the successful development of the Mark I Inhaler.  The Deed means what it says.  The clause 5 payments are for the Appellant’s services.  While I agree with almost everything Mr Vallat said about the likely intention of the parties being different, the fact is that they entered into the 1997 Deed on legal advice and there is nothing unclear about what they said in that Deed.  My task is to determine what the Deed would convey to a reasonable person, not to say that a reasonable person would not have entered such an arrangement.  
12.	This brings me to rectification.  From my speculation of what the parties really wanted (which is not based on seeing either side’s files of the negotiations, which are not relevant to construction of the Deed) I expect that if in 1997 they had applied for rectification they might well have been successful.  But I consider that my task in 2008 is to take the 1997 Deed as I find it.  Mr Vallat suggested that if I accepted the Appellant’s arguments about his intention I should adjourn to allow him to seek rectification within a limited time because otherwise my decision would finalise the tax liability for the years under appeal which the Revenue might refuse to reopen even if rectification was granted.  I sympathise with this but it is now 2008 and in the course of construing the 1997 Deed the Appellant’s intention is not relevant and so I cannot form a view of what his intention was, and nor did Mr Sim clearly say that the 1997 Deed did not correspond to his intentions.  All he said in his witness statement was “...for reasons I cannot recall, part of the consideration is allocated to the provision of previous consultancy services and any he may provide in the future.”  Given the lapse of time I am doubtful about the prospects of success for rectification and I am not willing to adjourn this appeal to enable him to try.  In deciding this I have taken into account that this appeal was transferred to the Special Commissioners as long ago as 7 December 2004 and the Appellant’s progress in complying with directions issued on 16 December 2005 has been painfully slow to the extent that on 23 March 2007 I gave the Appellant a final 21 days to comply with direction No 2 and it was only after one of my colleagues made an “unless order” on 13 June 2007 specifying the amount of the penalty for not complying within a further 21 days that he (or rather his then advisers) did so.  This is an appeal that could easily have been determined by the end of 2005.  If the Appellant does succeed in obtaining rectification then he will have to rely on the goodwill of the Revenue to reopen earlier years.
13.	On the basis of my decision on the interpretation of the 1997 Deed, Mr Vallat’s contention about the Appellant being a constructive trustee is at first sight more promising.  It could certainly be argued that the Appellant has used his position as trustee of the benefits under the 1991 Deed to obtain benefits for himself under the 1997 Deed.  If he has, did Mrs Braithwaite consent to this having been given full information and, if so, why would she have consented to the Appellant keeping the first two of the clause 5 lump sums totalling £500,000 but not the royalty?  If she has not consented, what would a court have awarded the Appellant as remuneration for his services in bringing the Mark I Inhaler from a few sketches to a virtually finished product with a commercial value?  I do not know the answer to any of these questions because Mrs Braithwaite has never made any such claim.  Had she done so at any time since 1997 and succeeded in her claim the tax position would no doubt follow.   But in the absence of her not having done so over a long period I believe I am entitled to disregard the possibility.  
14.	My decision is that the clause 5 payments under the 1997 Deed are the Appellant’s alone.  Accordingly I confirm the discovery assessments for 1998-99 (tax £6,666.61), 1999-2000 (tax £5,000) and 2000-01 (tax £4,814.40) and the amendment to the self-assessment for 2001-02 (increasing the tax by £4,842) and dismiss the appeals.  To the extent that his wife (who has not appealed) has been taxed on them I trust that the Revenue will take the tax paid into account.

JOHN F. AVERY JONES

SPECIAL COMMISSIONER
RELEASE DATE: 1 April 2008

SC 3004/05

Authorities referred to in skeletons and not referred to in the decision:
Thomas Bates and Sons Ltd v Wyndham’s (Lingerie) Ltd [1981] 1 WLR 505
HIH Casualty and General Insurance Ltd v New Hampshire Insurance Co [2001] EWCA Civ 735