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Haulier's Salary Ranks as Profit for Compensation

13th March 1953, Page 30
13th March 1953
Page 30
Page 30, 13th March 1953 — Haulier's Salary Ranks as Profit for Compensation
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AONE-MAN haulier whose business was nationalized was entitled to include the amount of his own remuneration as proprietor in calculating the net average annual profit of the undertaking, on which compensation was based, the House of Lords ruled on Monday.

In a reserved judgment their Lordships dismissed an appeal by the Road Haulage Executive from a decision of the First Division of the Court of Session in Scotland in favour of William Elrick, trading as Elrick and Hutcheon, of Pittodrie Lane, Aberdeen.

The appeal arose on a case stated by the Scottish Transport Tribunal at the request oT the Executive. The Tribunal's finding that Mr. Elrick was entitled to include in the profit of' the business a sum of £700 received by him annually as proprietor's remuneration was upheld by the First Division.

Sole Owner Lord Reid said that Mr. Elrick was the sole owner of the business, which he conducted himself. The Executive contended that in order to determine the profits of the business for each year taken into account in ascertaining the average net annual profit, on which compensation for cessation of business was based, there ought to he deducted from the profit which would be shown in • a profit and loss account, a sum representing the value of the owner's services to the business.

To decide whether or (tot that contention was correct it was necessary to determine the meaning of the phrase "average net annual profit." The section which provided for compensation. referred to the ninth schedule to the Transport Act, 1947, but there was no definition to be found there, and in the absence of a definition one would assume that, apart from these special matters, the word "profit" must be taken to have its ordinary.meaning.

Everything Profit "In the ordinary way everything that an owner gains in running his business is profit," said Lord Reid, "and there is no question of dividing up his gains before the amount of the profit is ascertained and calling a part remuneration for his services and the rest profit. The owner does not pay wages or salary to himself and deduct that as an expense of running the business.

"It is true that sometimes the owner may draw so much a week for himself and for convenience enter that separately in his accounts. Mr. Elrick did that in this case: he entered £700 per annum in his accounts as proprietor's remuneration, but that was a mere book-keeping entry, without legal or practical significance.

"He chose to apportion his profit in this way, but what he did with his profit after he had earned it cannot affect the amount of the compensation to which he is entitled. The Executive's case would have been the same if he had never made any such appropriation."

A28 Lord Reid went on to refer to the contention of the Executive that the compensation provisions of the Act, taken as a whole, showed that " profit " was intended to mean not the profit actually earned, but the profit-earning capacity of the undertaking. It was said that the profit-earning capacity must be the same whether the owner himself did the work or paid someone else to do it for him, and that in the latter case the sum so paid would be a deduction from the profits shown and, therefore, when he did the work himself a similar deduction must be made.

"I cannot find anything in the Act to support this distinction between profitearning capacity and the profit actually made," said Lord Reid. "If the Act had intended compensation to be based on an estimate of profit-earning capacity it would have been easy to say so; but in fact the ninth schedule deals with profit actually earned in the past, and compensation is based on that." He would therefore dismiss the appeal with costs. Lords Normand, Oaksey, Asquith and Cohen concurred, and the appeal was dismissed.


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