Judgments - Venables and others (Appellants) v. Hornby (Her Majesty's Inspector of Taxes) (Respondent)

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    39.  The critical issue, in my opinion, is whether the retention by Mr Venables of an unpaid non-executive directorship barred him from being treated for the purposes of the pension fund rules and trust deed as having "retired". Under clause 3 of the trust deed, the trust fund is held upon trust to provide:

    "…. relevant benefits …. for such employees of the employers who become eligible to participate in the scheme in accordance with the trust deed and the rules."

"Employee" is defined in the trust deed as "a person in the service of the employer and includes a director". Under the rules and the trust deed the trustees had power "to award an immediate pension to a member who retires in normal health at or after age 50".

    40.  The revenue's argument accepted by the Court of Appeal and summarised by Lord Millett at paragraph 24, was that since "employee" was defined as including a director, "retirement" could not take place so long as the individual remained a director. I, like my noble and learned friend, am unable to accept this reasoning. On the findings of fact in this case, Mr Venables retired from all the executive responsibilities that he had previously held and on account of which he had received remuneration from the company. If "retire" is given its ordinary meaning as a word in the English language, Mr Venables retired on 30 June 1994. The definition of "employee" as covering both employees strictly so-called and directors does not, in my opinion, warrant giving the word "retire" or the concept of "retirement" a narrower meaning than it would ordinarily bear. A managing director, whether formally appointed or de facto, who gives up all his or her executive responsibilities and retains merely an unpaid non-executive office with the company "retires", in my opinion, both as a matter of ordinary language and for the purposes of the rules and trust deed with which your Lordships are concerned in the present case. Save that, in my opinion, Mr Venables was not an employee under a contract of service with the company, I am in full agreement with the reasons given by Lord Millett for allowing this appeal.


My Lords,

    41.  Since I have the misfortune to differ from the majority of your Lordships as to the outcome of this appeal I will express my opinion as shortly as possible. It was conceded that the special commissioner was incorrect in taking it as common ground that Mr Venables was an employee of Ven Holdings Ltd ("the company") before 30 June 1994. In my opinion the special commissioner would also have been wrong in making that finding of fact, since there was no evidence on which he could find that Mr Venables had a contract of employment (or a contract for services) with the company or any of its subsidiaries.

    42.  It is conceded that there was no written contract. Nor has a search of the company's minutes of board meetings and other records produced any resolution (such as would have been required under para 84 of Table A) authorising the company to enter into a service contract with Mr Venables. The agreed statement of facts makes no reference whatsoever to a service contract, written or oral. If there had been an oral contract there should have been a written memorandum of it under section 318 (1)(b) of the Companies Act 1985. There was before the special commissioner no evidence as to the amount of the salary to which Mr Venables was said to be entitled under any such contract, or otherwise as to its terms. Such material as can be gleaned from the documentary evidence (Mr Venables's tax return for 1994-95 and the company's unconsolidated financial statements for the years to 30 September 1994 and 30 September 1995) do not support the suggestion that Mr Venables was until 30 June 1994, entitled to a salary. For 1994-95 Mr Venables's income from employment was returned as nil (while his dividend income was £77,500). Directors' emoluments were shown in the company's 1994 accounts as: 1993 - £25,340; 1994 - nil and in the 1995 accounts as: 1994 - nil; 1995 - £992.

    43.  The fact is that the affairs of the group seem to have been managed with the high degree of flexibility, and some degree of informality, which often characterises a company or group dominated by a single individual. But it is precisely when a single individual is in a dominant position that proper procedures are most important. Any contract between Mr Venables and any group company must have raised an obvious conflict of interest (especially as he owned four fifths of the company's shares in a fiduciary capacity) and such a contract could have been properly effected only in accordance with the procedure prescribed by article 84. In practice Mr Venables seems to have been able to achieve what he wanted without having any service contract. In my opinion the only conclusion open to the special commissioner was that his right to emoluments from the company were limited to his rights under articles 82 and 83, which did not depend on an individual contract.

    44.  My noble and learned friend, Lord Millett (whose opinion I have had the advantage of reading in draft) has referred to the decision of the Court of Appeal in Secretary of State for Trade and Industry v Bottrill [1999] ICR 592. The issue in that case was whether a controlling director could be an employee for the purposes of section 230 of the Employment Rights Act 1996. The director had a written contract of employment which specified his duties, his working hours and his entitlement to remuneration (subject to annual review by his fellow directors). Nevertheless there was an issue as to whether the contract should be taken into account for the purposes of the Employment Rights Act. The case does not in my view assist as to the circumstances in which an oral contract should be inferred.

    45.  It is common ground that material relevant to the construction of the group pension scheme includes its fiscal context: the tax advantages of approved occupational pension schemes, the statutory provisions as to mandatory and discretionary approval, and (so far as notorious enough to be within the actual or presumed knowledge of the parties) the way in which the Superannuation Funds Office of the Inland Revenue exercised its statutory and managerial discretion at the material time. It was argued that Chadwick LJ went beyond that in his predisposition to give to an expression not defined in the rules—that is, "retirement" and allied expressions—the same meaning as in Chapter II of Part II of the Finance Act 1970.

    46.  I respectfully think that Chadwick LJ was right to start with that predisposition, and that he was also right to conclude that nothing in the trust deed (including its schedules) led to a different conclusion. Although the trust deed was (as your Lordships were told) based on a published precedent, the deed cannot be regarded as well drafted. It would be unsafe to treat any apparent nuances in its language as being significant. The safer course is to give "retirement" its normal meaning in the statutory scheme. If the issue had been posed the other way round—that is, if it had been in the Inland Revenue's interest to contend that "retirement" as used in the deed should be given some meaning different from its meaning in the statute—your Lordships would, I venture to think, have been disinclined to hear the argument sympathetically.

    47.  In my opinion it follows that Mr Venables was at all material times, by virtue (and exclusively by virtue) of his directorship of the company, an employee (as defined in the deed) in service (as defined in the deed) and that relationship continued until he ceased to be a director of the company. His retirement must be related to the end of his directorship, since it was the only qualification that he had for membership of the pension scheme. There was in my opinion no proper ground for treating his informal transition from executive to non-executive directorship as amounting to retirement.

    48.  Lord Millett has referred to anomalies resulting from the position in which (on the view taken by the Court of Appeal) Mr Venables would have found himself. I think, with great respect, that the first anomaly tends to overlook (as Mr Venables himself may possibly have overlooked) the difficulties arising from Mr Venables's conflicting interests while he was still an executive director—as the real driving force of the company, as a trustee of the pension scheme, and also as a trustee of the family settlement which held 80% of the shares in the company. It would not have been right for Mr Venables, with so many conflicting personal and fiduciary interests, and knowing that he was to be reappointed as a director the next day, to join in exercising in his own favour the discretion to permit early retirement. Moreover the figures in the tax return and accounts (although admittedly sketchy) suggest that he might in any event have had some difficulties in achieving what he wanted in the way of final remuneration.

    49.  If (contrary to the view of the majority) Mr Venables became subject to a large tax liability, I would feel some sympathy for his position, but that sympathy would be qualified. It was said that Mr Venables was a practical businessman who could not be expected to deal with the finer points of company law and pensions law. But he had lawyers, accountants and actuaries to give him expert advice. He hoped to obtain, through the company's approved occupational pension scheme, a large tax-free sum which it might have been difficult for him to obtain in any other way (I was unpersuaded by Mr McDonnell's submission, skilfully though it was put, as to the marginal attractions of approved pension schemes). It was incumbent on Mr Venables, in order to obtain those advantages, to ensure that matters were arranged properly. The difficulties arising from his fiduciary obligations (as pension trustee, family trustee and director of the company) were not simply a matter of formality.

    50.  I consider that the Court of Appeal were also correct in their view on section 600 of the Income and Corporation Taxes Act 1988. I would therefore have dismissed this appeal.


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