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TMI Blog1956 (11) TMI 40X X X X Extracts X X X X X X X X Extracts X X X X ..... elating to the manufacture of pharmaceutical products and to the use of machinery plant appliances and devices used in such manufacture. (3) For facilitating the building and running of such factory Evans Medical propose to supply the Government of the Union of Burma with information and to organize the factory in the manner hereinafter mentioned. The agreement is then divided into separate parts-I, II, III, IV and V-and it may be said that the second and third recitals relate particularly to Parts I and II respectively. The first part, which I will read substantially in full, is as follows : Part I. In consideration of the payment to Evans Medical by the Government of the Union of Burma of the capital sum of 100,000 sterling payable in the United Kingdom free from any deduction whatsoever (A) Evans Medical will provide and make available to the Government of the Union of Burma all drawings designs and plans and technical and other data and 'know-how' necessary for the establishment erection and installation of the factory and the commencement of production thereat of the pharmaceutical and other products mentioned in the schedule hereto. (B) Evans Medical will supply to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on-disclosure to anyone else in Burma were expressed to be for the currency of the agreement. The period during which this agreement shall remain in force shall be seven years from the date hereof but this agreement may be renewed on the same or similar terms, and it is said that the parties should consider renewal by a certain date. Paragraph 2 provides : Subject as hereinafter mentioned the Government of the Union of Burma will not without the written consent of Evans Medical export to any other country any of the goods manufactured in accordance with the provisions of this agreement ; and there were provisos which qualified, to some extent not material for present purposes, that obligation. 7. Part V contained two provisions. 1. The Government of the Union of Burma will not divulge to any other Government person body or corporation such information as is conveyed to them by Evans Medical under the provisions of this agreement without the written consent of Evans Medical which consent is not to be unreasonably withheld. The last provision was more an aspiration than a bargain: It is the desire and intention of the parties to this agreement to enter into similar agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing thenceforward the required supply of pharmaceutical and other articles. By way of contrast, Part II imposed on the company an obligation for a specified period to manage the production business, when started, and for that purpose to train the necessary Burmese personnel, and in the meantime to provide trained personnel themselves. For the former obligation, the single sum of 100,000 was to be paid by the Burmese Government ; for the latter an annual sum of not less than 25,000, from the date of the agreement. Put as briefly as possible-and this is the substance of the company's case-the payment of 100,000 was a single lump sum payment, the price which the Government of Burma agreed to pay in order to be given the necessary information so as to be put in the required position to enable them to set up in Burma the means of production of the required pharmaceutical and other articles. 10. But, in my judgment, this analysis of the agreement does not in the end much advance the solution of the questions which have to be determined. These are stated by the judge thus : first, whether the transaction recorded in the agreement fell within the scope of the company's busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed counsel for the Crown upon this part of their contentions as recorded in paragraph 14(iv) of the case stated Paragraph 14 : (iv) that the provision of the facilities agreed to be furnished under Part I of the said agreement was within the trading objects of the company, and, in so far as the said sum of 100,000 was received in consideration for provision of these facilities, it arose to the company either from the trade it had previously carried on or from a new trade which it had commenced to carry on October 20, 1953 , and the particular contention was ultimately abandoned before him by the Crown. It may be that this course of events in some degree influenced the judge's conclusion. Agreeing with him, however, that the question is one essentially of fact I have found it impossible to accept his view that there was no evidence to support the commissioners' determination. 13. The situation which in Burma faced this world-wide business was that, as a matter of policy, the Government of that country had determined to undertake locally themselves or through some government agency the production of the pharmaceutical and other articles which had hitherto been impor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the argument of the Crown that the agreement marked the adoption by the company of a new and distinct trade, to which I have already referred. But, in my judgment, the sentence records the determination of liability-possibly not with entire accuracy in the circumstances-which flowed from the finding of fact in the all-important sentence preceding it, which in turn echoed the clear finding, based on the evidence of the chairman and managing director, contained in paragraph 11 of the case. I add a reference to a supplement issued by the directors to the company's report and accounts for the year 1953 which was exhibited to the case stated. In that document occur the following observations : Experience and technology, let us call it know-how, is becoming an increasingly important export commodity. Under-developed countries are no longer content to buy goods of the Western world, they want to make the goods themselves. So the West must be prepared to sell know-how ..Some time ago the Burmese Government decided to set up a pharmaceutical industry to make Burma less dependent on outside supplies of necessary medical goods. It was no use, in Britain, to shed tears about the possi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh received in the course of trade generally, capital in the hands of the company ? The judge answered Yes. He said [1956] 1 WLR 794, 805 : The effect of the contract was this : the company parted with its secret processes to the Burmese Government for ever, but upon the terms that the Government would not without the consent of the company impart such information to another, such consent not to be unreasonably withheld. The company remained at liberty to carry on its wholesale trade there, and, in legal theory, could no doubt have thereafter set up a competing factory in Burma. In addition, the company was to supply technical data, drawings, designs and plans for the erection of a factory and of the installation of machinery appropriate and suitable for the manufacture of these known pharmaceutical products and for their processing by these secret processes. After the expiry of the contract (but not before), the company was at liberty to impart its 'know-how' in relation to these matters to others in Burma. The judge thought, and I agree with him, that for this purpose the recitals which I have already read (particularly the second recital) were important. As appears ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thereby involved. Consequently, thirdly, once it is agreed or held that the transaction was within the scope of the ordinary existing business of the company, there is nothing amounting to a parting at all with a capital asset. To my mind these arguments are formidable. There is no evidence that the 100,000 was paid for the company's superiority in this field of business. There are no grounds, as Sir Frank Soskice observed, for saying that any secret processes or knowledge were necessarily impaired ; it may be that their value might be enhanced. In other words, on this argument, there is no capital asset involved, and, in any case, no parting with it. On the other side, Mr. Senter has said that the secret processes were in fact extremely valuable assets, and that the obligation in Part I was to give the benefit of them to the Burmese Government. In other words, says he, the sum paid by the Burmese Government was to put them in a position to start up their work. An example was given in the course of the argument of a well-known beverage, made according to a secret formula. If the proprietors of that beverage agreed to disclose that formula to someone else, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the taxpayer was in respect of the disclosure by him of secret processes. The question arose, therefore, as it has arisen here, whether the disclosure could be regarded sensibly as in the nature of the sale of some asset or piece of property. In that connexion, the late Lord Romer, when sitting as a member of this court, said Ibid. 359 : A patentee has, of course, a monopoly, and that monopoly, which is a right of preventing other people utilising his invention, is a capital asset in his hands. He may exploit that capital asset in either or both of the following ways : he can himself exercise his invention for profit, or he can grant licences to others to do so on payment of royalty. The profit he derives by exercising the invention himself or the profit he derives from the royalty are profits and gains within the meaning of Schedule D, notwithstanding the fact that every year his capital asset is diminishing in value. If, on the other hand, he sells the monopoly, or if-I cannot remember that such a case has ever happened-he surrenders his monopoly in consideration of a payment, the payment he received for the sale of the patent or the payment he received for surrendering his mon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that no sale or disposition of a capital asset has been involved, but that the 100,000 was a fee for general services rendered in the course of business. 24. It was pointed out in support of this view that, as I have already recited, the obligations in Part I, like those in Part II, would endure over a period of time. It was also observed that the factory has not yet, in fact, been built ; and Mr. Senter agreed, as I understood him, that the company would have to disclose relevant information and know-how acquired at least up to the date when the factory was completed. Paragraph (D) of Part I is in terms linked with the whole period of the agreement, and by those terms the company undertakes not to furnish facilities to anyone else in Burma. In these respects, there is an obvious similarity between Part I and Part II. This is not a case of making once and for all and at one time disclosure of some secret formula or secret formulae, as in the suggested case of the beverage which I have mentioned. Moreover, there is undoubtedly some overlap between Part I and Part II-the obligation to give advice so as to enable the Government to proceed with the building of the factory in p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld exercise that discretion. But the right to treat the 100,000 as capital must be limited to the extent to which it was referable to secret processes properly so called ; that is, to formulae or secret processes truly analogous to the subject-matter of letters patent, copyright and things of that kind. It would not, for example, include the sort of information recorded in the plans which were shown to us illustrating the way in which the company would lay out the factory and dispose the apparatus therein. Plans and designs of that kind only represent, I think, the recorded fruit of practical manufacturing or operational experience. 27. The form of the order may require to be considered so as to give the greatest possible help to the commissioners and to the parties, and this can be discussed by counsel after my brethren have delivered their judgments. 28. I would discharge the order made by the learned judge and substitute the order which I have indicated in its place. Birkett L.J. I agree with the judgment of the Master of the Rolls, and I have had the opportunity of reading and considering in advance the judgment which is about to be delivered by Romer L.J., and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... strued the language of the document in the light only of admissible surrounding circumstances, I do not know. 33. It is, of course, quite true that regard must be had to a written instrument as a whole in order to ascertain the meaning of each and every part of it ; and it would be permissible, and indeed, obligatory, to consider the whole of the agreement of 1953 in inquiring, for example, as to the true nature of the activities into which the company was entering, and whether such activities did or did not constitute a new or different trade from that which it had carried on before. But where the commissioners went wrong, as I think, was to alter a clear and specific provision in the agreement because of the general complexion which they attributed to the agreement as a whole, The document is divided into five parts. Under Part I, the companjr, in consideration of the payment to them of 100,000, undertook the obligations which were set forth in that part. Under Part II, the company undertook the further obligations therein mentioned and as remuneration for the services provided for in Part II were to receive the annual payments provided for by paragraph 5 of that part. It a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, which were secret. I therefore conclude that part, at all events, of the 100,000 which was to be paid to the company was in respect of secret information as to pharmaceutical products which the company was to impart to the Government. That this information was of value sufficiently appears from certain findings of the commissioners which are stated in the case. By paragraph 4 the commissioners, after referring to the Burmese Government's decision in 1953 to build a factory and laboratories for the purpose of establishing an industry for the production of pharmaceutical and other products, said : Accordingly, the Burmese Government despatched a trade mission to Europe, with a view to inducing some leading firm of manufacturing chemists to advise as to the erection of such a factory, the supply of equipment for manufacture, and to impart to them the processes, formulae, and knowledge necessary to the production and manufacture of pharmaceutical products in Burma. Then, in paragraph 10 of the case it is stated that all the products referred to in the schedule to the agreement are general types and do not include any of the company's proprietary products. By far the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the skill and 'know-how' of the company could embark on an export trade which could compete with the company's own products in other countries. In that sense the company was dissipating its asset, and it must be remembered that a secret process once communicated to another is in jeopardy ; if it gets into wrong hands, the grantor has no protection. I find myself in complete agreement with this analysis of the position. 37. As to the decision of the commissioners, they were, I think, in strictness correct in saying that the company had not sold or assigned any property. The company had not sold or assigned anything. What it did was to share commercial information which was known only to itself, information as to secret processes. In my judgment, however, it was not open to the commissioners, in view of the decision of this court in Handley Page's case (supra) to hold that the secret processes which the company owned were not property . In referring in that case to certain designs which the well-known aircraft designer Mr. Frederick Handley Page had worked out, but which were not capable of being registered or of being the subject of letters patent, Slesser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this, it is realized that the Government wanted the information in order to inaugurate and carry on the manufacture and sale in Burma of products in which the company had hitherto enjoyed a factual monopoly, I cannot doubt but that the imparting of the information diminished the value to the company of its secret processes. What then is the result ? If the property, said Lord Greene M.R. in Nethersole v. Withers 28 TC 501, 511, is permanently diminished or injuriously affected, it means that the owner has to that extent realized part of the capital of his property as distinct from merely exploiting its income-producing character. Lord Greene M.R. was there speaking of copyright, but in my opinion exactly the same principle applies in the case of secret processes. Supposing , said Romer L.J., in Handley Page's v. Butterworth 19 TC 328, 360 he sells his secret process, or supposing, as here, he surrenders his quasi monopoly by making it public to the world, then I say that, if he gets paid for doing either one or the other of those things, the money he receives in payment is a capital asset. The difference between sharing a secret process with the world and sharing it wit ..... X X X X Extracts X X X X X X X X Extracts X X X X
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