Case: Firestone Tyre and Rubber Company Limited Vs. Lewellin

5. The non-resident sought to be taxed is a company known as the Firestone Tyre and Rubber Export Co., being a company incorporated, I think, in the state of Maine but having its principal place of business in the city of Akron in the state of Ohio in the United States. I will call that company, hereafter, Akron.         6. The alleged regular agent which is to be taxed on behalf of the non-resident Akron is an English company known as the Firestone Tyre and Rubber Co. Ltd., whose factory and offices and place of business are at Brentford in the environs of London. That company I will refer to as Brentford. Brentford is in fact wholly controlled, as the judge pointed out, by Akron; but I agree, of course, with Sir James Millard Tucker that one cannot disregard the effect of the separate legal entity which Brentford is; one cannot answer the question raised in this appeal by treating Brentford as though it were a mere emanation of Akron.

Court's reasoning:
3. From the paragraphs in Schedule D which I have read, and the two rules, it follows that in the case of an attempt to tax, via a regular agent, a non-resident person, two requirements must be shown to be satisfied - first, the non-resident must be not merely trading with the United Kingdom but exercising, that is carrying on, a trade or profession within the United Kingdom; and, second, for the purposes of that trade there must be what is called an authorized person as regular agent of the non-resident trader.Whether the particular company sought here to be taxed, Firestone Tyre and Rubber Export Co., itself manufactures tyres is not a matter which appears to be proved in evidence, but I assume - and I base myself upon the finding of the commissioners - that this company is at any rate a member of, and an important member of, the general Akron organization; and the business of that organization is that of the marketing and distribution of Firestone tyres and other Firestone products. I observe that Firestone tyres are branded articles. The name Firestone, besides being in fact a trade mark, is part, and a valuable part, of the goodwill of Akron. I assume also that tyres which bear that mark as a guarantee of the reputation of Firestone are made in accordance with some particular process, whether patent or not, and that process, again is part, and a valuable part, of the business undertaking and property of Akron.11. The distribution of Firestone products outside the United States, and particularly in Europe, appears to be conducted by Akron through distributors under distributor agreements. I shall refer presently to the one which we have taken as a sample. But the substance of the obligation put upon such distributors was that they were bound to promote the sales in their countries of FIRESTONE products and not to sell any competing products themselves at the same time.12. In order that such a distributor should get supplies, Akron have also established, as the case mentions, as part of their organization controlled manufacturing companies (of which Brentford is one) whose function it is to make Firestone tyres and Firestone products according to the strict directions and specifications of Akron, and to dispose of those tyres subject to, and only subject to, the terms imposed by Akron.Upon the face of it, it seems to me clear enough that the effect of that master agreement was, although it was implicit perhaps rather than clearly expressed, that Akron would itself sell to Sweden such tyres and other products as Sweden should require, or at least would provide the tyres and so forth that Sweden would require at the prices and subject to the other conditions contained in the agreement. I pause to observe that throughout the case and in the other documents Sweden has been treated as and called a customer of Akron.14. I now pass to the second master agreement, again a typical one of a kind, namely, the agreement between Akron and Brentford, which I will call the Brentford master agreement.15. Upon the face of the document it is, I think, clearly contemplated that, when Akron received from any of its customers or purchasers an order, it would or might pass that order on to Brentford for execution with such directions as to price and so on as it then gave. Brentford would be bound to execute it, or at least to use its best endeavours so to do.17. But the fact is that things did not work out quite as the agreements, on the face of them, stated that they should. That, I think, undoubtedly was partly due to the English war-time controls which rendered Brentford unable to comply with any orders for tyres save such as the appropriate governmental authority either permitted or indeed directed them to do. The way in which the main difference in practice arose was this, that the orders were not sent to Akron by Sweden and then passed on to Brentford. They were sent direct to Brentford. It is not in doubt the variation in procedure was authorized, and that in fact Akron gave to those customers or distributors a list of persons or firms in European and other countries to whom they could send, direct, their orders.18. The method of business activity is again best found in the case itself, and I think it desirable to read from the case, particularly since one passage I am about to read constitutes a deliberate finding of fact. [His Lordship read paragraphs 12 and 16 (c) of the case, and went on :] It may be said that, since there was difficulty in transmitting money from the United Kingdom to America, the amounts for which Brentford were accountable to Akron were treated as though they were loans by Akron to Brentford.19. I will dispose first of all of two particular transactions, namely, supplies of Firestone tyres first to the Government of New Zealand and, second, to the Government of France in Great Britain, the so-called Free French Government. These two orders covered goods to the value of Pounds 49,000 out of a total of goods with which this case is concerned amounting to Pounds 782,000. The supplies to the New Zealand and Free French Governments were not in fact in accordance with the Akron/Brentford arrangements or the Akron master agreements; they were directed by the British Government. They were, however, treated by Brentford quoad Akron as though they had been within the scope of the master agreements; and the Crown has in fact - no one can say that it was not fair and just so to do - been content to treat them as though they were in consimilicasu with the whole of the rest of the transactions. I say no more about those particular orders.Sir James has said that there are two results. Either, first, the sole trading operation was an operation between Sweden on the on hand and Brentford on the other, an English contract, becoming in due course an English sale; the arrangement between Brentford and Akron about the subsequent apportionment of the purchase price collected is something altogether outside the scope of the trading operation; it therefore follows, as night the day, that Akron is not trading or carrying on a trade within the United Kingdom. Or, second a contract upon the giving by Sweden of the order comes into existence, a new contract between Sweden and Akron, or alternatively a contract between Brentford and Akron, with the purpose or having the effect that the 1,000 tyres which are to be delivered to Sweden become the property of Akron. In either case there is a point of time when the property passes to Akron, and from that time forward the transaction is exclusively governed by the terms of the Swedish master agreement, which is an agreement made out of England and governed by the laws of the state of Ohio; and, therefore, it follows also that Akron is not carrying on a trade within the United Kingdom at all.23. First, to revert to my imagined simple case, I think that upon the order being given by Sweden and accepted by Brentford there arises between Brentford and Sweden a contract of sale made in England, a contract which according to the Sale of Goods Act, 1893, becomes a sale when, in accordance with the other arrangements, the tyres are delivered by Brentford f.a.s. I reject, as did the judge, the notion that there arose at some point of time what I think was aptly described by Harman J. as a philosophical contract between Brentford and Akron sufficient to pass the property in those tyres from Brentford to Akron before delivery. It is, I think, possible - the judge assumed it was the fact, but I do not myself go so far - that when Sweden sends its order to Brentford there also arises a subsidiary contract, that is, subsidiary to the Swedish master agreement, between Sweden and Akron on the footing that, properly construed, the Swedish master agreement operated as a continuing offer by Akron to sell or to provide tyres, that offer being accepted when Sweden gave an order for tyres in pursuance of and in reliance upon it. I think that if such a fresh contract came into existence it would occupy a very subsidiary and ancillary position. If, for example, to go back again to may case, Brentford committed same default, having accepted the order, I think that on my analysis Sweden would be entitled to sue Brentford for breach of contract. I think it may be that Sweden could also sue Akron under the Swedish master agreement for having failed to provide the tyres; and it may also be that Sweden could set up against Akron what I have called a subsidiary and ancillary contract also; but having stated as best I can the effect of that supposed breach I think it will be seen at once that on my analysis any such contract between Akron and Sweden is of a purely incidental character.It suffices, in my judgment, to state, as I have done, that on the happening of the case I am supposing of Sweden sending an order for tyres to Brentford, there came into existence in England a contract for sale between Brentford and Sweden.25. If that is so, is Akron carrying on a trade within the United Kingdom  In my judgment it is. In my judgment the typical English contract of sale between Brentford and Sweden which I have supposed is an incident, and an incident, deliberately contrived, of Akrons business of marketing and distributing Firestone branded tyres in England and in Europe, and indeed in every country of the world. I do not repeat all the matters which I have previously mentioned as to the nature of the articles which are supplied, but merely state compendiously by way of reminder that Firestone tyres are branded proprietary articles of the Akron organization.26. My conclusion does not involve the proposition that Brentford, in stead of being an independent legal entity, is a mere branch of Akron; but Brentford, though a separate entity, is in fact wholly controlled by Akron, and in the making of what may be described as Akron proprietary branded articles it acts under the close direction of Akron in all respects, and in selling those articles to Akrons customers it does so on terms fixed by Akron so that after allowing Brentford its costs and a percentage thereon the whole of the profits on the transactions go to Akron.27. We were referred in the course of the argument, as was the judge, to Weiss Biheller & Brooks Ltd. v. Farmer, in which a Dutch company (which manufactured gas mantles in the Netherlands) made a business arrangement with an English company for the distribution and marketing of its gas mantles here. The substance of the arrangements was that the Dutch company sold the gas mantles first to the English company, the two companies acting as principals, vendors and purchasers, and then the English company sold them again to customers in England, again acting as principle, as vendor. Ultimately, the profits of those transactions were divided between the Dutch and the English companies, in certain proportions. I do not suggest that that case is entirely parallel with the present case, and the reference in the somewhat obscurely worded agreement between the Dutch company and the English company to del credere certainly lends much force to the view that the English company was, in some respects at any rate, regarded as an agent of the Dutch company. But the case does, I think, show, and it is an illustration of the principle, that the fact that the English company, when it sells particular goods, sells them as a principal to the customers does not negative a proposition that the parent company, from which in some sense or another the goods emanated, may not equally be carrying on or exercising a trade within the United Kingdom. I think that the case which I have mentioned was rightly regarded by Harman J. as lending some support to the view which he formed.If Akron is carrying on this trade within the United Kingdom, then for the purposes of rules 5 and 10 is Brentford its regular agent  To my mind, the answer to that question must be in the affirmative. If the conclusion is right that Akron is trading in the United Kingdom, then it must be doing so through someones agency, since, admittedly Akron is not itself here, nor are any of its officers, nor has it got here any branch or office. Indeed, as I understood him, Sir James did not really argue otherwise than that, given the premise that Akron was exercising a trade in the United Kingdom, and doing so by means of or as a result of Brentfords sale transactions, Brentford really must be treated as a regular agent within the terms of rule 10. There certainly could not be any doubt, having regard to the Brentford master agreement, that if Brentford is for this purpose an agent at all, it certainly is a regular agent, and not merely (to use the phrase to be found in the cases) an irrelevant agent.29. The view of the case which I have taken makes it unnecessary for me to discuss the further question also debated before us, namely, whether, on the assumption that contracts for sale to Sweden of tyres were contracts with Akron made outside the United Kingdom and governed by United States law, Akron was still trading here - that is, exercising a trade within the United Kingdom - because so many incidents of the performance of the contract (for example, delivery, receipt of the purchase price, and so forth) took place here : in other words, the point that the exceptional facts of this case take the matter out of the general rule enunciated by Lord Cave L. C. in Maclaine & Co. v. Eccott in the passage which I have already cited. The Judge was inclined to the view that an affirmative answer should be given to that question, that the case was one so exceptional in its facts that he could invoke, to support his answer, the language used, for example, by Atkin L. J. in the earlier case of F. L. Smidth & Co. v. Greenwood, where the Lord Justice said : I think that the question is, where do the operations take place from which the profits in substance arise  In the view which I have taken it is unnecessary for me to discuss that matter, and I, therefore, prefer, for my part, to express no conclusion about it; but for the reasons which I have earlier given I think Harman J. came to a correct conclusion