Grainger & Son v Gough (Surveyor of Taxes)

Factual and Procedural Background

The Appellant is a firm of wine merchants based in The City. They act as the sole representative in the United Kingdom for a French champagne producer (“Foreign Merchant”) whose principal place of business is in The City (France). Under the arrangement:

• The Appellant canvasses for orders and forwards every order to the Foreign Merchant.
• The Foreign Merchant retains complete discretion to accept or reject each order; no contract is concluded until acceptance in France.
• The wine is shipped directly from France to the customer at the customer’s cost and risk; delivery therefore occurs abroad.
• Invoices are made out in the Foreign Merchant’s name and sent to customers via the Appellant. Payments are usually remitted directly to France, although the Appellant occasionally collects cash and cheques, crediting them against its commission.
• The Appellant’s remuneration consists solely of commission; it never holds or knows the principal’s net profits.

The Surveyor of Taxes (“Respondent”) assessed the Foreign Merchant to United Kingdom income tax under Schedule D, naming the Appellant as agent under section 41 of the Income Tax Act 1842. The Commissioners upheld the assessment; the Queen’s Bench Division and the Court of Appeal affirmed it. The Appellant sought relief before the House of Lords.

Legal Issues Presented

1. Whether the Foreign Merchant “exercises a trade” within the United Kingdom for the purposes of Schedule D of the Income Tax Act 1853.
2. If so, whether the Appellant is an “agent … having the receipt of any profits or gains” under section 41 of the Income Tax Act 1842 and therefore liable to be assessed in the Foreign Merchant’s name.

Arguments of the Parties

Appellant's Arguments

• The Foreign Merchant trades with but not within the United Kingdom; all contracts are completed, and delivery occurs, in France (Sulley v. Attorney General cited).
• No machinery exists to assess the Foreign Merchant because the Appellant never receives or knows his profits; the words “having the receipt of any profits or gains” in section 41 control the word “agent.”
• Section 41 historically contemplated only agents actually in receipt of profits, as shown by earlier statutes (39 Geo III c.13 s.38; 43 Geo III c.99 s.89).

Respondent's Arguments

• Extensive and habitual solicitation of orders, advertising, and inclusion in trade directories prove that the Foreign Merchant carries on business in the United Kingdom.
• The substantial part of the business—obtaining orders—occurs here; the place of contractual acceptance is not determinative (Turner v. Evans; Brampton v. Beddoes).
• The Appellant receives part of the gross receipts and is therefore within section 41 even if “having the receipt” modifies only “receiver.”
• Prior wine-trade cases (Tischler v. Apthorpe; Pommery & Greno v. Apthorpe; Werle v. Colquhoun) show that a foreign wine merchant may be taxed where an English agent secures orders.

Table of Precedents Cited

Court's Reasoning and Analysis

By a majority, the House of Lords focused on the locus of contractual formation and delivery:

• No UK Contracts: Orders taken by the Appellant were mere offers; acceptance occurred solely in France, where title and risk passed.
• Distinction Between Trading “with” and “within” the UK: Exporting goods to UK customers, even on a large scale, is not itself exercising a trade within the UK. Otherwise, every exporter would be deemed to trade wherever customers reside.
• Ancillary Activities Insufficient: Solicitation of orders, advertising, directory listings, or occasional receipt of funds are ancillary and do not transform the place of trade.
• Section 41 Construction: Although unnecessary to decide, a majority opined that “having the receipt of any profits or gains” likely qualifies factor, agent, and receiver alike; nonetheless, the Appellant never had the principal’s profits in hand.
• Dissent by Judge Morris: Emphasised the practical commercial presence created by the Appellant, the directory entry, and the authority perceived by customers; would have held that the Foreign Merchant exercised his trade in the UK and that the Appellant received profits within section 41.

Holding and Implications

HELD: The Foreign Merchant did not exercise a trade within the United Kingdom; therefore, no liability to United Kingdom income tax arose, and the assessment against the Appellant under section 41 was invalid. The judgments of the Queen’s Bench Division and the Court of Appeal were reversed, and the Respondent was ordered to pay costs.

Implications: The decision clarifies that, absent contractual formation or delivery in the United Kingdom, extensive solicitation of orders and limited collection activities do not amount to “exercising a trade” in the United Kingdom. The ruling narrows the circumstances in which foreign merchants can be taxed via local agents and leaves domestic traders and tax authorities to rely on explicit statutory amendments should broader coverage be desired.