Note. When is gift of annuity free of income tax?

The general rule seems to be that unless a testator directs in so many words, or in words which can leave.no doubt as to his intention, that an annuity shall be free from income tax, the annuitant, and not the estate, must pay the tax. A direction that the annuity shall be "clear" or that it shall be "free from all deductions," without more, is not sufficient to cast upon the estate the burden of the tax. Sir John Romilly, Master of the Rolls, said in Abadam v. Abadam, 33 Beav. 475, 55 Eng. Reprint, 452, 33 L. J. Ch. N. S. 593, 10 Jur. N. S. 505, 10 L. T. N. S. 53, 12 Week. Rep. 615, that the cases that have considered this question all come back to this: What was the intention of the testator; was it directed against the income tax, and did he consider it in the nature of a deduction from the legacy?

An annuity "free of all duties" was held not free of income tax, in Re Saillard [1917] 2 Ch. 401, 86 L. J. Ch. N. S. 749, 117 L. T. N. S. 545.

And an annuity to be payable without any deduction whatever is held not given free of income tax, in Abadam v. Abadam, supra.

And an annuity clear of legacy duty and every other duty whatsoever was held in Lethbridge v. Thurlow (1851) 15 Beav. 334, 51 Eng. Reprint, 567, 21 L. J. Ch. N. S. 538, not to be clear of income tax. The court stated that “such tax is not properly a deduction out of the estate or legacy, but a charge which the legislature has fixed on the person himself."

And in Wall v. Wall (1847) 15 Sim. 513, 60 Eng. Reprint, 718, 16 L. J. Ch. N. S. 305, 11 Jur. 403, an annuity clear of all taxes and deductions was held to be subject to property tax.

So, too, a free yearly allowance in a deed of separation is not free from income tax. Dalrymple v. Dalrymple (1902) 4 F. 545, as set out in 12 Mews. Eng. Case Law Dig. Supp. (1898-1910) col. 1249.

And an annuity clear of all deductions, provided for by an agreement of separation, is not clear of income tax. Shrewsbury v. Shewsbury (1906) 22 Times L. R. 598.

An annuity of a clear yearly sum free from all deductions and abatements whatsoever was held in Gleadow v. Leetham (1882) 52 L. J. Ch. N. S. 102, 22 Ch. D. 269, 48 L. T. N. S. 264, 31 Week. Rep. 269, not to have been given free from income tax. This was, however, really a case of adherence to the doctrine of stare decisis, as the court confessed that it was hard to believe that the testator did not have in mind that the income tax should be paid out of the estate.

On the other hand, a clear annuity free from all deductions in respect of any present or future taxes, charges, assessments, or impositions or other matters, cause, or thing whatsoever, was held in Ban

nerman's Estate (1882) 51 L. J. Ch. N. S. 449, 21 Ch. D. 105, to be clear of income tax.

And in Lovat v. Leeds (1862) 2 Drew. & S. 62, 62 Eng. Reprint, 545, 31 L. J. Ch. N. S. 503, 6 L. T. N. S. 307, 10 Week. Rep. 397, it was held that a direction that all taxes affecting the hereditaments given to devisee be paid out of the testator's estate, exempted an annuity from income tax, the court holding that an income tax is a tax affecting the hereditaments. The court further held that such an exemption does not contravene the Income Tax Law, in effect. overruling Wall v. Wall, supra, which held that a direction that an annuity should be free of income tax would be illegal and could not prevail.

Also a rent charge to be paid without any deduction or abatement whatsoever on account of any taxes, charges, impositions, or assessments already or to be thereafter taxed, charged, assessed, or imposed on the hereditaments securing said charge, or on the rent charge or on the donee or her assigns in respect thereof by authority of Parliament or otherwise howsoever, was held in Festing v. Taylor (1862) 3 Best. & S. 235, 122 Eng. Reprint, 89, 32 L. J. Q. B. N. S. 41, 9 Jur. N. S. 44, 7 L. T. N. S. 429, 11 Week Rep. 70, to be free from deduction in respect of income tax.

So also in Turner v. Mullineux (1861) 1 Johns. & H. 334, 70 Eng. Reprint, 775, the testator gave three annuities,-the first, free from income or property tax or any other deduction; the second, free from all deductions; and the third, free from deduction; and all were held to be free from income tax. Wood, V.C., said: "I think, upon this will, though solely upon the particular words of the will, that the annuities must be free from income tax. This court always holds that income tax is not a deduction; but here the testator, in the first instance, speaks of income or property tax and all other deductions,' which explains that he understands the word 'deduction' as extending to income tax. When he afterwards goes on to give other annuities, he shortens his form of expression, first to free from all deductions,' and then to 'free from deduction.' The true way of construing the will is not to interpret the last gift and carry back that construction of the word 'deduction' to the earlier clauses, but to read the word throughout in the sense in which it is first used." In Re Buckle [1894] 1 Ch. 286, 63 L. J. Ch. N. S. 330, 7 Reports, 72, 70 L. T. N. S. 115, 42 Week. Rep. 229, the testator directed the payment of annuities "clear of all deductions whatsoever except income tax," and by codicil directed that they were to be "free of legacy duty and every other deduction ;" and it was held that they were clear of income tax, since the testator treated the income tax as a deduction.

And see also Peareth v. Marriott (1882) 52 L. J. Ch. N. S. 221, 22 Ch. D. 182, 48 L. T. N. S. 170, 31 Week. Rep. 68, to the effect that

an annuity is to be received clear of income tax where the testator in express terms directs "that no deduction shall be made from any of the legacies given by this my will or to be given by any codicil thereto, for the legacy tax or any other matter, cause, or thing whatsoever." J. H. B.

[ENGLISH DIVISIONAL COURT.]

IN RE AN ARBITRATION BETWEEN RUBEL BRONZE & METAL COMPANY, LIMITED, and Vos.

[1918] 1 K. B. 315.

Also Reported in 87 L. J. K. B. N. S. 466, 34 Times L. R. 171, 118 L. T. N. S. 348.

Master and servant Wrongful dismissal — Nature of action.

The right to bring an action for "wrongful dismissal" is a mere illustration of the general legal rule that an action will lie for an unjustifiable repudiation of a contract.

Refusal to permit employee to perform duty.

One who has been employed by a company as the general manager of its works for a term of three years at a fixed salary and commission upon the net profits of the business, and who, before the expiration of such term, has been "suspended" from the exercise of his duties pending an investigation as to his efficiency, required to deliver up his business keys and all cash belonging to the company, and informed that he must not return to the works, as he is not wanted, may properly be found to have been wrongfully dismissed, even though it is not found that the company was unwilling to continue the payment of the agreed remuneration, inasmuch as he is prevented from exerting his opportunities as a manager to increase the net profits of the company.

Turner v. Sawdon & Co. [1901] 2 K. B. 653, 2 B. R. C. 751, 70 L. J. K. B. N. S. 897, 49 Week. Rep. 712, 85 L. T. N. S. 222, 17 Times L. R. 645, distinguished and doubted.

(December 21, 1917.)

AWARD in the form of a special case stated by an umpire. The following statement of the facts is taken from the judgment of the learned judge:

"In this arbitration Sir Ernest Pollock, K.C. (the duly appointed umpire), has stated his award in the form of a special case. Mr. [316] Vos claimed against the Rubel Company for breach of a service agreement. The umpire awarded him the sum

of 6501. damages. In this judgment I shall refer to Mr. Vos as the plaintiff and to the Rubel Company as the defendants. Important points upon the law of wrongful dismissal arose, and hence I put my judgment into writing. The facts may be briefly stated.

"On November 10, 1915, the plaintiff entered into a written contract with the defendants whereby the defendants agreed to employ him as a general manager of their Birmingham works. The following clauses of the agreement are material: Clause 1. "The company agrees to appoint the manager as general manager of its temporary works, and of its intended permanent works at Birmingham or at such other place as it may hereafter establish.' Clause 2. The duties shall be those usually appertaining to the post, and such other duties consistent therewith as the board of directors may from time to time determine.' Clause 3. "The term of the appointment shall be three years from October 1, 1915, to be extended for a further period of three years as hereinafter provided.' Clause 4. 'The remuneration of the manager shall be as follows: (a) A fixed salary of 400l. per annum payable monthly, with a monthly allowance of 167. 13s. 4d. for expenses. (b) A commission upon the net profits of the business available for dividend arising from all manufacture purchases and/or sales upon a rising scale as follows: Upon the first 10,000l. or less 2 per cent; between 10,000l. and 20,000l., 4 per cent; between 20,000l. 30,000l., 8 per cent; upon any sum in excess of the first 30,000l., 12 per cent. In the event of having to calculate for any less period than one year, then a proportionate part of the said year shall be taken so soon as the net profits for the completed year have been ascertained. . Clause 5. 'The manager shall devote his whole time and attention to the business of the company, shall be faithful and diligent and effcient in the discharge of his duties, shall keep true and accurate records in the books of the company of all transactions, and shall at all times carry out the instructions of the board of directors or of any person duly appointed by them.' Clause 7. If the net profits under clause 4 have amounted for the two years commencing October 1, 1916, to a sum equal to 10 per cent per annum upon the company's issued capital ranking for dividend during that period, [317] this agreement shall be continued for a

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further period of three years upon the same terms and conditions.'

"It is clear from clause 4 that the plaintiff might derive a very substantial part of his remuneration from commission on the net profits of the business. Those net profits might depend largely upon the knowledge, ability, and energy of the plaintiff as general manager.

"The parties worked satisfactorily together until the end of 1916. Differences then arose. On January 1, 1917, the defendants did three things: (1) They purported to 'suspend' the plaintiff from the exercise of any of his duties pending an investigation as to his efficiency. (2) They compelled the plaintiff (in spite of his protest) to deliver up the badge he held as a person engaged in munition work at a controlled establishment under the Munitions of War Act 1915 (5 & 6 Geo. V. chap. 54), and the Munitions (War Service Badges) Rules 1915. The ground for such demand was that the plaintiff was no longer 'indispensable.' (3) They appointed a Mr. Moore to take charge of the works instead of the plaintiff.

"On January 2, 1917, the defendants took from the plaintiff his business keys, and they informed him that he must not return to the works as he was not wanted. They also required him to deliver up all cash belonging to them. As a result of such acts the plaintiff elected to treat the contract of November, 1915, as repudiated by the defendants, and he claimed damages for wrongful dismissal.

"The defendants, however, refused to recognize such claim and denied that they had dismissed the plaintiff. About a week later the defendants required the plaintiff to appear before the board of directors; but he declined to do so save on the terms that he should attend without prejudice to his claim that he had already been wrongly dismissed. Thereupon the defendants expressly dismissed the plaintiff from his employment by resolution of the directors duly passed on January 29, 1917.”

The agreement contained a provision that any dispute under it was to be referred to arbitration. Before the arbitrators it was contended on behalf of the plaintiff that the defendants had wrongfully repudiated the contract and had wrongfully dismissed the plaintiff, and that he was entitled to damages.