Shepherd v. Federal Commissioner of Taxation

(1965) 113 CLR 385
39 ALJR 351

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(Judgment by: Owen JJ.)

SHEPHERD
v. FEDERAL COMMISSIONER OF TAXATION

Court:

Judges: Barwick C.J.
Kitto

Owen JJ.

Judgment date: 17 December 1965

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Judgment by:
Owen JJ.

The appellant taxpayer was at all material times the grantee of certain letters patent relating to furniture castors. By deed dated 12th March 1954 he granted to one Mark Cowen an exclusive licence to manufacture and sell the castors in return for a royalty of five per cent on the amount of the gross sales made by the licensee. In November 1954 the appellant and the licensee agreed that the latter might grant to a company called Shepherd Castors Pty. Ltd. a sub-licence to manufacture and sell the castors upon the terms contained in the deed of 12th March 1954 and that the Company should pay whatever royalties became due direct to the appellant. Thereafter the Company manufactured and sold the castors and from time to time paid to the appellant the royalties for which the licence provided. On 23rd July 1957 the appellant executed a deed in the following terms: "I George Frederick Shepherd of 11 Manor St. Brighton in the State of Victoria Engineer Do Hereby Assign absolutely and unconditionally to the persons hereinafter named and described and in the proportions hereinafter specified all my right title and interest in and to an amount equal to ninety per centum of the income which may accrue during a period of three years from the date of this assignment from royalties payable by Mark Cowen of 370 Orrong Road Caulfield in the said State manufacturer under a Deed made on the twelfth day of March 1954 between myself the said George Frederick Shepherd and the said Mark Cowen in respect of a license granted by me to the said Mark Cowen to make use exercise and vend castors under and in accordance with the Inventions protected by Letters Patent of the Commonwealth of Australia No. 122566 in respect of an Invention entitled 'Improved Castor' and Letters Patent of the Commonwealth of Australia No. 136548 in respect of an Invention entitled 'Improvements Relating to Castors' and Letters Patent of the Dominion of New Zealand No. 99930 for an Invention entitled 'Improvements relating to Castors'.

The names and descriptions of the persons to whom my right title and interest in such income is assigned and the proportions in which the amount of ninety per centum of such income is assigned are:. . . ". There followed the names and addresses of five persons, a percentage being set against each name. The deed was made without consideration.

During the year ended 30th June 1958 the total royalties which became payable amounted to 7,030 pounds. Of this amount the Company paid to the taxpayer 999 pounds and to each of the other persons named in the deed it paid amounts totalling 6,031 pounds. These are the figures set out in the stated case but it is not clear to me how they were arrived at since ninety per cent of 7,030 pounds is 6,327 pounds and ten per cent of 7,030 pounds is 703 pounds. However that may be, the fact is that in his return of income for the year the appellant showed the receipt of 999 pounds but did not include the balance of 6,031 pounds. The Commissioner of Taxation took the view that this last amount was properly to be regarded as part of the income derived by the appellant and assessed him to tax accordingly.

The first task is to construe the deed. Did the appellant, by it, make an equitable assignment of a presently existing contractual right to be paid portion of moneys which might become due to him in the future by way of royalty or did he merely covenant that, in the event of royalties accruing to him in the future, he would pay to the named persons varying amounts to be ascertained by reference to the amount of those royalties? The opening words of the provision point to the conclusion that what was being assigned was a then existing right but the difficulty that seems to me to lie in the way of the construction for which the appellant contends is that what was expressed to be assigned was not the appellant's right, title and interest in and to ninety per cent of the royalties that might thereafter become payable under the licence. It was his "right title and interest in nd to an amount equal to ninety per centum of the income which may accrue . . . from royalties payable by Mark Cowen" and "the income which may accrue" is plainly a reference to income which may accrue to the covenantor. Notwithstanding the opening words of the covenant I think it is one by which the appellant undertook to pay to each of the persons named an amount to be measured by reference to the amount of royalties if and when they accrued to him under the licence. For the appellant reliance was also placed upon the fact that the later provision of the deed, which named the persons to whom the payments were to be made and defined the amount to be paid to each of them, speaks of the persons "to whom my right title and interest in such income is assigned and the proportions in which the amount of ninety per centum of such income is assigned" and the words "such income" refer back to "the income which may accrue from royalties".

It was submitted that this shows that by the earlier clause it was intended to assign the appellant's contractual right to receive royalties if and when they became payable or at least to assign so much of that contractu al right as would have entitled him to receive ninety per centum of such royalties. It is true that the two clauses do not run well together. One or the other must be moulded to some extent to fit the other but the first is the operative provision and the purpose of the later clause is merely to identify the persons who are intended to be benefited and specify the extent to which each is to benefit.

In the result, therefore, I am of opinion that what the appellant covenanted to do was to pay to the persons named amounts to be ascertained by reference to so much of his future income as might consist of royalties and that he did not assign a contractual right to receive any part of that income.

In these circumstances I would answer the questions (1) "No", (2) "Yes", and it is unnecessary for me to consider the further submissions made by counsel for the Commissioner.