SPC00501

Income Tax – referral under s28ZA(1)-(3) Taxes Management Act 1970 – termination of employment – redundant employee – settlement agreement reached after employment ended - stock bonus plan – benefits under stock bonus plan referred to in settlement agreement vesting more than two years after end of employment – benefits to be taxed under Income and Corporation Taxes Act 1988, s 148 and not under Income and Corporation Taxes Act 1988, s 19.

THE SPECIAL COMMISSIONERS

	W D B PORTER	Appellant

	- and -

	HER MAJESTY’S REVENUE AND CUSTOMS	Respondents

			Special Commissioner:	MALCOLM J F PALMER

Sitting in public in London on 30 June 2005

The Appellant in person

June Kennerly, Inspector of Taxes, for the Respondents

© CROWN COPYRIGHT 2005

DECISION

	The Appeal

1.	The issue in this appeal is limited to the determination of a question referred by Mr W D B Porter and Ms J Kennerley to the Special Commissioners under s 28ZA(1) – (3) Taxes Management Act 1970.  The question referred for determination is
“Should  disbursements from the J P Morgan Stock Bonus Plan made to Mr Porter in 2000/2001 be taxed under Section 148 or Section 19 ICTA 88?” 
Following the end of his employment with J P Morgan Mr Porter received a number of payments or benefits from J P Morgan.  These included a disbursement or vesting under the J P Morgan Stock Bonus Plan in February 2001 having the undisputed value of £64,726.71 in respect of which Income Tax of £14,239.72 and National Insurance of £45.90 was withheld.  It is this disbursement or benefit to which the only issue now referred to me relates.
2.	Mr Porter gave evidence at the hearing.  Before the hearing the tribunal was given:
(1)	An agreed bound bundle of legislation and documents divided into three sections, of which the first in pages A1 to A3 is a short seven paragraph agreed Statement of Facts Not in Dispute, the second in pages B1 to B17 is a set of copies of relevant legislation and the third in pages C1 to C211 has copies of various documents including the referral under s 28ZA, Mr Porter’s tax returns for the years ended 5 April 2000 and 2001, correspondence and certain documents relating to Stock Incentive Plans;  
(2)	A bound bundle, with pages D1 to D87, of correspondence between Mr Porter and Ms Kennerley and her colleagues with HMRC;
(3)	A witness statement from a Mr de Boissard.  The truth of the statements made by Mr de Boissard were not admitted by Ms Kennerley, although at the hearing she stated that she had no objection to me reading the statement to give it such weight as I thought fit; and 
3.	At the hearing I was given the first page of a letter dated 24 November 2000 from J P Morgan to Mrs J Mooney, who is an Inspector of Taxes, and a copy of a letter dated 9 June 2005 from Ms Kennerley to Mr Porter.
4.	Following the hearing on 5 July Mr Porter sent to me through Ms Kennerley documentation relating to the terms of his employment by the J P Morgan group.  This documentation is clearly more recent than the only copy of an employment agreement included in the original agreed bundle.  It was accepted by Mr Porter that this further documentation does not include all the terms of his employment.  This late submission is accepted by me as its submission to me was effectively made by both parties and before I had started to prepare my decision.  I will comment later on the unsatisfactory nature of this. 
5.	I was given extensive written argument.  Mr Porter gave me a 25 page skeleton of his arguments divided into 148 numbered paragraphs.  Ms Kennerley gave me a five page skeleton argument of 33 numbered paragraphs and a later 19 page reply to Mr Porter’s skeleton arguments.  I was also given copies of a total of 15 joint authorities.
6.	The Statement of Facts Not in Dispute has only four brief paragraphs covering facts prior to the payment of the sum in question in this appeal.  The skeleton arguments set out at considerable length the opposing arguments on the applicable law and tax treatment of the relevant payments.  At my suggestion, and with my confirmation that they would be carefully read or, in the case of Mr Porter’s skeleton reread, before making my decision, they were taken as read.  At the same time I made it clear at the beginning of the hearing and at a number of times in the course of the hearing that I did not want either Mr Porter or Ms Kennerley to leave the hearing without saying to me what ever they wished.  Much of the one day hearing was therefore directed by me towards trying to get an understanding of the documents and in particular the terms of the Stock Bonus Plan, and the nature of the payment of £64,726.71 made to Mr Porter in February 2001.. 
7.	As is often the case I had no assistance from any lawyer at the hearing.  In view of the complexity and technicality of the arguments that was for me perhaps unfortunate, but in view of the relatively small amount at stake, very understandable, at least in the case of Mr Porter.  I make that comment in no way to criticise Mr Porter or Ms Kennerley.
The Facts

8.	I find the following facts based on that Statement, albeit to only a very limited extent, on the documents shown to me and on the evidence given at the hearing.
The terms of the J P Morgan Stock Bonus Plan are amended from time to time.  In particular in making the following findings of fact in relation to Mr Porter’s benefits under the relevant Stock Bonus Plan and the nature of the disbursements made in 2000-01 that are the subject matter of this referral I have taken into account: 
(1)	The limited oral evidence which Mr Porter gave at the hearing in explanation of the documents;
(2)	The payslip at C203;
(3)	The notification to Mr Porter summarising the distribution at D67;
(4)	The booklet issued by J P Morgan of the terms and amounts of the stock bonus/restricted stock awards granted on 22 January 1998 at C191 to 194;
(5)	The cover page and introduction to the booklet issued by J P Morgan giving the amounts and terms of the stock bonus/restricted stock awards granted on 15 January 1996 at C183 and 184;
(6)	The summary dated 17 February 2004 issued by J P Morgan Chase of the 1998 and similar earlier awards at C195;
(7)	The terms of the Stock Bonus Plan as at 1 March 1995 at C114 and C139 to 148;
(8)	The terms of the Stock Bonus Plan as described in a document dated 8 February 1996, being part of a prospectus, at C160 to 165;
(9)	Various letters and faxes sent in 2004 by Miss Caroline Jones of JP Morgan Europe Ltd to the Inspector of Taxes, Mrs J Lainson or Mrs G B Melling at C166 and C198 to 201 and 204.  In particular in relation to these letters and faxes I take into account that, although they are in the agreed documents bundle, Miss Jones was not available for questioning and, regrettably, I do not always have copies of any letters from Mrs Lainson requesting the information that they set out.
9.	Mr Porter, who was born in October 1957, was employed in 1998 as a Vice President in the London offices of J P Morgan.  For employment law purposes he had been in continuous employment with members of the J P Morgan Group since 3 September 1979 when he was first employed as a management trainee.  During this period Mr Porter was for a number of years employed or seconded within the J P Morgan Group for service abroad.  
10.	During his employment Mr Porter was entitled under the terms of his employment to benefits under the Stock Bonus Plan of J P Morgan & Co. Inc (“the Plan”), to stock options under the stock incentive plans of the same company and to shares purchased by him under the Morgan Guaranty share purchase plan.  He also had benefits under two JP Morgan pension plans.  These were the J.P.Morgan London Office Retirement Plan (“the London Pension Plan”) and the JP Morgan International Pension Plan (“the International Pension Plan”).  Together I shall refer to these two plans as “the Pension Plans”. 
11.	A significant proportion of the remuneration of senior employees at J P Morgan is given by way of incentive compensation in the form of various benefits that are deferred or, more accurately, do not become fixed as entitlements or amounts until time has past.  One of these benefits consists of awards under the Plan.  Article 1 of the Plan sets out its purpose as follows
“The purpose of the Stock Bonus Plan (‘the Plan’) is to promote the success of J.P.Morgan & Co. Incorporated (the ‘Company’) by providing a method whereby eligible employees of the Company and its affiliated companies may be awarded additional remuneration for services rendered and encouraged to invest in the Common Stock of the Company, thereby increasing their propriety interest in the Company’s business, encouraging them to remain in the employ of the Company or its affiliated companies, and increasing their personal interest in the continued success and progress of the Company.”
An award of incentive compensation in the form of an award under the Plan is thus at the time it is awarded both some sort of recompense for or recognition of employment in the period to which the award relates and in part an inducement to continue in employment.  Awards under the Plan can consist either of a number of share credits equivalent to shares of Common Stock awarded under the terms of Article 6 of the Plan or of what are described as Stock Unit Awards awarded under the terms of Article 7 of the Plan.
12.	Under the terms of Article 3.1(a) of the Plan it is administered by a Committee of not less than three Directors (“the Committee”) which has full power to grant to eligible persons Stock Bonus Awards under Article 6 or Stock Unit Awards under Article 7.  The same provision also gives the Committee full power and authority to delegate to senior officers of the J P Morgan or to officers of a Trust Corporation the power to act for it in such matters as the Committee may specify.  I might add that I see nothing in the terms of the Plan that indicates that it is established by any trust deed or that the Committee members are required to act as trustees.  
13.	Under the terms of Article 6.1 the Committee has wide powers to determine at the time when an award is granted when the awards shall become vested, when a vested award shall be paid and the number of share credits subject to each award. 
14.	Article 6.2 provides as follows, in so far as relevant,
“6.2. Vesting of Stock Bonus Awards.
(a) Subject to the rules of Sections 6.2(b), 6.2(c). 8.1 and 8.6, each Award shall fully vest and be 100% nonforfeitable on the Vesting Date.
(b) Subject to the Rules of Section 8.1, upon termination of a Participant’s employment prior to the Vesting Date for any reason … his Awards shall be forfeited and the Participant shall have no right with respect to such Awards. …
(c) Notwithstanding the provisions of Sections 6.2(a) and 6.2(b), upon termination of a Participant’s employment prior to 100% vesting under the rules of Sections 6.2(a) and 6.2(b), the Committee may, in its sole discretion, determine that the vested percentage of Awards granted to such Participant shall be increased.”
Section 8.1 and 8.6 referred to in Article 6.2 are provisions in the terms of the Plan that provide for the immediate vesting on a change in control of the J P Morgan or for the cancellation of awards at the discretion of the Committee before such a change of control. 
15.	The Vesting Date for an award is defined in Article 2.1(l) as the third anniversary of the date an award was granted “or such other time or times the Committee shall designate in respect of a Stock Bonus Award at the time of the grant of such Award”.
16.	On 22 January 1998 Mr Porter was granted as part of his incentive remuneration for 1997 a Stock Bonus Award under the terms of the Plan.  In his case the award consisted of 1,955.5254 share credits, each unit of which was equivalent to one share of Common Stock of $2.50 par value, of J.P Morgan & Co. Inc.  The grant price for this award was $101.469.  Thus this Stock Bonus Award to Mr Porter represented at the time of the award the possibility of deferred incentive remuneration then equivalent to some $198,425.
17.	The booklet (C191 -194) issued by J P Morgan setting out the 1997 Stock Bonus Awards granted on 22 January to managing directors and vice-presidents refers both to stock bonus awards and to what are described as “restricted stock awards”.  There is some confusion on the evidence as to which type of award was granted to Mr Porter.  Mr Porter in his evidence stated that he believed that his award was one of the restricted stock awards.  The essential difference was that the restricted stock awards included in the 1997 Awards would not normally become vested until January 2003, the fifth anniversary of the grant.  Other Stock Bonus Awards in the 1997 Awards would become vested in January 2000 with thereafter a mandatory three year holding period.  Both types of award were subject to the same provisions as to potential forfeiture.  These were stated in the booklet as follows:
“If you die prior to the vesting date, your award will become 100 percent vested immediately and distributed in the January following the year of death.  If you terminate employment for any other reason, including retirement, prior to the vesting date, all nonvested awards are subject to forfeiture.  At its discretion, however, Morgan may continue vesting based on individual circumstances pertaining to termination.  For instance, in the past, individuals who have voluntarily left Morgan’s employment but did not join a competitor organization (‘competitor’ being determined on a case-by-case basis) during the period prior to vesting have, in the absence of other circumstances deemed relevant by Morgan, received awards as scheduled.”  
18.	On 21 October 1998 Mr Porter was given at a termination interview a proposed employment termination agreement of that date (C84-86) signed by Christine Marshall, who was a Vice President of Human Resources and who, together with Mr Alan Collins a Vice President of the Interest Rate Trading Section, was at the meeting.  This document informed him that 
“your employment will terminate by reason of redundancy with effect from 10 November 1988”.  For the avoidance of doubt, you are no longer required to attend the office from today”
That date was referred to in the document as the “Leaving Date”.  The penultimate paragraph of the body of that document requested Mr Porter to sign and return a duplicate within 5 days “as acknowledgment of your agreement to the above terms”.  This was stated to be a precondition to Mr Porter receiving the payments and benefits set out in the proposal.  Paragraph 6 of that draft document was marked by Mr Porter.
19.	Paragraph 6 reads as follows
“In accordance with Article 6.2(c) of the Stock Bonus Plan of J.P. Morgan and Co. Inc, as amended from time to time, the Company confirms that the Committee (as defined in Article 2 of the aforesaid Plan) will in its sole discretion determine that all Awards (as defined in Article 2) made to you prior to the Leaving Date, shall vest in full in accordance with the vesting schedule notified to you at the date of your Award, as amended from time to time, notwithstanding the termination of your employment, subject to the right of the Committee to take into account your conduct towards the Company from the Leaving Date up to the dates of the vesting.”
20.	Mr Porter left his office and ceased to do any work after the meeting on 21 October.  His position was not replaced in this country.  Mr Porter’s responsibilities were taken on by an executive of J P Morgan employed in New York who, working in New York, combined them with his other existing responsibilities.  The proposed agreement was not signed by Mr Porter within the five day period.  He negotiated with his employers.  These negotiations were primarily on the details of his entitlements under the Pension Plans.  He did not get his next salary payment which would have been due on 15 November 1998.  
21.	 I make no clear finding on whether the short notice for this termination was or was not in accordance with the written terms of his contract of employment.  I have not seen that part of his contract of employment which spelt out his employer’s contractual right to bring his job to an end.  I have had no explanation from Mr Porter as to why only part of his contract has been provided to me.  This is unsatisfactory.  I find it equally unsatisfactory that Ms Kennerley did not supply me with evidence on this point.  The Revenue were clearly authorised, or treated themselves as authorised, to ask questions of Mr Porter on the terms of his employment.  They did so at length in respect of his rights under the Plan.  I have already expressed regret that I have only seen one side of that correspondence.  There are also clear indications (see D76 and the letter dated 9 June 2005) that the Termination Payments Team and Ms Kennerley were aware from other sources of the terms of J P Morgan’s employment contracts.
22.	 Christine Marshall signed an amended copy of the termination letter agreement dated 19 November 1998.  On 11 January 1999 Mr Porter started a new job with another financial group.  Mr Porter signed the amended document on 20 January 1999 after he had made a hand written amendment to the signatory paragraph at the end.  That paragraph as amended reads as follows
“I hereby confirm that I have read and agree to the terms of this letter, and accept the payments set out above in full and final settlement of any claim that I may have against the Company or any Associated Company in respect of my employment or its termination, save for any claim against the company or its Associated Companies, trustees or agents relating to pension entitlements.  Pursuit of such claims will not be prejudicial to clause 6 above.
23.	 On 18 February 1999 Mr Porter sent this revised termination letter agreement signed by him to Christine Marshall with a covering letter which included the following and principal paragraph
“I enclose my compromise letter of 19 November 1988, signed.  As you are aware and as the letter refers, I am currently in negotiations with the firm over the terms of its pension obligations to me.  My intention is to pursue my contractual and statutory rights to the full if necessary, although I hope the situation can be negotiated amicably.  Given that the letter is signed while that situation is being resolved, it would be my understanding that Clause 6 of the letter envisages me being able to pursue those rights without losing my entitlement to deferred stock compensation.  Please let me know if that is not the case.”
24.	 I shall refer to the amended agreement eventually signed and exchanged in November 1998 and February 1999 as “the Termination Agreement”.  The exact date that this agreement was made is not clear to me.  Mr Porter may, I suppose have accepted it before he sent it back on 18 February 1998.  I find that it was accepted and, therefore, made at some time between 20 January, which was the date given by him for his signature, and 18 February 1998.  In any event I find that it was made some considerable time after his employment with J P Morgan had ended and a shorter time after he had started a new job. 
25.	The Termination Agreement had only a few amendments from the draft presented to Mr Porter at the meeting on 21 October.  Not surprisingly the new letter made no reference to the fact that he was no longer required to attend the office.  It now referred to Mr Porter’s entitlements under the International Pension Plan.  The earlier draft had referred to only the London Pension Plan.  In particular paragraph 6, which I have already set out in my 19 on page 6, remained unchanged. 
26.	 In summary the Termination Agreement included the following terms
(1)	In the introductory paragraphs Mr Porter is told 
“..it is with regret that your employment will terminate by reason of redundancy with effect from 10 November 1998.  The date on which your employment terminates is referred to in this letter as your Leaving Date… the terms and conditions which will apply to the termination of your employment due to redundancy are as follows:”
(2)	Under paragraph 1 Mr Porter would receive normal salary up to 10 November and any accrued holiday entitlement less normal deductions.
(3)	Under paragraph 2 he would receive the sum of £128,605 made up of (a) £20,008 pay in lieu of notice less normal deductions and (b) £108,597 described as “an ex gratia redundancy payment” taking into account that he would no longer be eligible to receive any bonus for the year ended 31 December 1998 and to be paid “without any admission of liability”.
(4)	Paragraph 6 was in the unchanged terms which I have already set out in my 19 on page 6.
(5)	All vested and unvested stock options would be forfeit effective 10 November 1998.
(6)	Mr Porter was entitled to retain any shares previously appropriated to him.
(7)	In paragraph 13 he agreed 
“to accept the amount of compensation referred to above in full and final settlement of all and any claims (whether statutory, contractual or otherwise) and rights of action you may have against the Company or any associated company or any officer or employee thereof arising out of or in connected with your contract of employment or its termination.  You will, if requested by the Company, co-operate with it to record these arrangements in a further agreement, the form of which will ensure that you cannot bring any claims under the Employment Rights Act 1996.  You agree that except for the sums referred to above, no other sums or benefits are due to you from the company”
(8)	In the penultimate paragraph of the body of the letter Miss Marshall wrote
“I should be grateful if you would kindly sign the duplicate of this letter and return it to me as acknowledgement of your agreement to the above terms within 5 working days.  This is a pre-condition to you receiving the payments and benefits referred to above.  Such payments will then be made to you within 21 days of your Leaving Date.”
27.	 Mr Porter received a number of payments and benefits from J P Morgan after the termination of his employment that are not the subject matter of this referral.  The referral made to me requires me to determine the tax treatment of only the “disbursements” from the Plan made to Mr Porter in the year ended 5 April 2001.  In fact, as I will try to explain, I do not consider that these were all disbursements of cash, but rather in part the payment of income tax which J P Morgan considered it was under an obligation to withhold and pay and in part the value of Common Stock in J. P. Morgan deposited in Mr Porter’s name.  In any event the figure of £64,726.71 was not in dispute before me.  Other payments or benefits were clearly made to Mr Porter under the terms of the Termination Agreement, including a substantial payment or payment in that tax year.  But I shall not attempt to analyse or find facts determining the nature of these other payments or benefits.
28.	The award of 1,955.5254 stock units to Mr Porter vested on 9 January 2001.  This was not the expected vesting date under the terms of the booklet issued to Mr Porter for either type of award.  I am nevertheless fully satisfied that that date was the date on which this 1997 award vested.  It may well be that the unexpected date was due to an early vesting under the provisions (C145) in article 8 of the Plan relating to a change in control of J P Morgan, but I make no finding as to why the date was changed.
29.	When this award vested the stock price was $49.2188.  This was much reduced from the stock price of $101.469 at the date the award was granted.  The value of the award at vesting was, therefore, $96,248.61.  J P Morgan calculated that at the exchange rate of £1: US$1.4870 this resulted in a vesting at a value in pounds sterling of £64,726.  The mechanics of the vesting of the award were as follows.  450 shares and the fractional shares of 0.5254 were treated as raising $22,174.32 to cover the amount of tax and National Insurance withheld under PAYE of £14,912.12.  The remaining 1,505 shares covered by the award were deposited in book entry form in an account in the name of Mr Porter.
The legislation

30.	At the relevant time ss 19, 131(1) and 148 of the Income and Corporation Taxes Act 1988, (“the Taxes Act”) in so far as relevant, provided as follows:-
“Section 19 SCHEDULE E
1 Tax under this Schedule shall be charged in respect of any office or employment on emoluments therefrom which fall under one or more than one of the following Cases-
Case I:	any emoluments for any year of assessment in which the person holding the office or employment is resident and ordinarily resident in the United Kingdom …
Section 131.- Chargeable emoluments.
Tax under Case I … of Schedule E shall, except as provided to the contrary by any provision of the Taxes Acts, be chargeable on the full amount of the emoluments falling under that Case, subject to such deductions only as may be authorised by the Tax Acts, and the expression ‘emoluments’ shall include all salaries, fees, wages, perquisites and profits whatsoever.
Section 148.-Payments and other benefits in connection with termination of employment, etc.
Payments and other benefits not otherwise chargeable to tax which are received in connection with-
(a) the termination of a person’s employment, or
	(b) …
are chargeable to tax under this section if and to the extent that their amount exceeds £30,000.
(2) For the purposes of this section ‘benefit’ includes anything which, disregarding any exemption-
(a) would be an emolument of the employment, or
	(b) would be chargeable to tax as an emolument of the employment,
if received for the performance of the duties of the employment.”

The submissions of Mr Porter

31.	 The principal submissions made by Mr Porter in his skeleton and at the hearing in summary included the following:
(1)	The benefits which Mr Porter received in January 2001, he referred to in his skeleton as the payment in question and defined as the “PIQ”.  I shall use the same definition.
(2)	The PIQ was not “from” his employment, and was not crystallised by the termination of his employment.
(3)	The Plan was established as a loyalty scheme.  An award under that Plan gave no rights prior to vesting.  The right to payments under it required employment from the date of award up to the time of vesting. Under the terms of the Plan Mr Porter’s entitlement to the PIQ was specifically forfeit on termination of his employment.  On termination of his employment Mr Porter lost the right to earn loyalty bonuses under the Plan in later years. 
(4)	The Termination Agreement, which was a precondition for payment of the PIQ and the other post employment payments, included in clause 6 the provision “in accordance with Article 6.2(c) of the Stock Bonus Plan … the Committee will (Mr Porter’s emphasis) in its sole discretion determine that all Awards … shall vest in full … notwithstanding termination of your employment …
(5)	His entitlement to claim the PIQ was restored under the terms of his Termination Agreement, which was made after his employment had ended.  Vesting continued to be discretionary.  He earned the right to the exercise of that discretion and the eventual vesting, not as an employee but as a loyal ex-employee.  He considered that the reason for the continuing discretion was that he must not do anything prejudicial to J P Morgan such as, in particular, suing them.
(6)	He cited Henley v Murray 1950 31 TC 351 and the statement of Sir Raymond Evershed MR in that case
“This was not a sum paid in advance because there was no future claim which the taxpayer could ever assert, nor was it reward for his past service.  It was a cash consideration paid for his agreeing to submit to the terms which the assurance society sought fit to impose.”
in support of his submission that the PIQ was paid as consideration for “the abrogation of his contract of employment” and was not an emolument from his employment taxable under s 19 of the Taxes Act.
(7)	He distinguished the decisions in Richardson v Delaney 2001 IRLR 663 and EMI v Caldicott 71 TC 455, CA as decisions where the payments were made under a contractual provision in the employment agreement.
(8)	He submitted, as an alternative, that the PIQ satisfied most, if not all, of the criteria of a redundancy payment as given by Lord Woolf in Mairs v Haughy 66 TC 273.
The submissions of Ms Kennerley

32.	The principal submissions of Ms Kennerley in summary included the following
(1)	Referring to article 1 of the Plan, Ms Kennerley submitted that the Plan is a method of awarding additional remuneration and encouraging them to remain in employment.  It is thus, she submitted designed to incentivise employees by increasing their remuneration for services as employees.
(2)	The forfeiture under article 6.2(b) of an award on termination of employment before vesting is consistent with the aim of encouraging employees to remain in the employment of J P Morgan.
(3)	Where the discretion under article 6.2(c) or 6.4 is exercised then the forfeiture under article 6.2(b) never takes place.  For that reason no forfeiture took place here.
(4)	Ms Kennerley refuted Mr Porter’s view that the character of the PIQ changed its character by inclusion in the Termination Agreement.  The PIQ was made under the Plan and its character is, therefore determined by the terms of the Plan.
(5)	She cited Carter v Wadman 28 TC 41, CA and Richardson v Delaney 74 TC 167 in support of her contention that the fact that some benefit is mentioned in a termination agreement does not mean that there is some wall around it which prevents it from being sourced from the employment.
(6)	Ms Kennerley disputed that, in the absence in the evidence of a copy of the full terms of Mr Porter’s employment agreement in effect in October 1998, his contract was breached. 
(7)	Ms Kennerley submitted that the PIQ was not paid as compensation for redundancy.  She considered that such a discretionary reason for the PIQ would be outside the powers of the Committee under the Plan.  She submitted that the services that resulted in the award had been performed by Mr Porter before its grant and “all that remained was the arrival of the vesting date” which was reached because the rule depriving him of vesting on termination of employment was not put into effect.
(8)	She referred to the statement in the letter from Miss Caroline Jones at C166 that the documents that she had sent to the Inspector of Taxes demonstrated “that discretion was exercised to permit normal vesting of this stock post employment” in support of her submission that normal vesting is what had happened here.
(9)	She submitted that in the absence of evidence there can only be speculation as to why the Committee exercised its discretion to allow vesting.  The reference to a discretion in clause 6 of the Termination Agreement was simply one aspect of tying up all the loose ends following from termination of Mr Porter’s employment.  She submitted that the qualification in clause 6 was an “ex post facto condition on the payment of remuneration” and that the character of the PIQ comes from the rules of the Plan.

My decision and the reasons for it

33.	 My first point of reference is that liability under s 148 can arise only if there is no liability under s 19.  Section 148 charges payments and other benefits in connection with the termination of a person’s employment that are “not otherwise chargeable to tax”.  So if there is a charge under s 19 there cannot be a charge under s 148.  Ms Kennerley did not seek to argue that there was any provision other than s 19 under which the benefits in issue here might have been charged.  She did not seek to argue in the alternative that there might be a charge under s 313.  There was no dispute that the PIQ was, if it were from an office or employment, capable of being charged as an emolument.  The only issue for me is, therefore, whether the PIQ was, in respect of Mr Porter’s employment by J P Morgan, an emolument “therefrom”.  Or, to express it in more normal language, whether the PIQ was “from” the employment, or whether it was from something else.
34.	At this point I turn to the facts I have set out to try and express briefly why in substance in my view the PIQ was received.
35.	In February 1998 Mr Porter had been awarded 1,955.5254 share credits under the Plan.  Although these credits had a notional value at the time of the award, that value was in no way an agreement to pay a deferred benefit in that amount at any time in the future.  The award was a loyalty incentive.  The value might go up, or as happened, fall substantially.  Under the clear terms of the Plan – section 6.2(b) - Mr Porter would lose any enforceable right to claim any award on the vesting day if he had left the employment of J P Morgan before that date for any reason.  Any rights he might have would depend upon the exercise of a discretion by the Committee.  Under the terms of the Plan and the specific award of these credits, if he was dismissed at the option of J P Morgan, Mr Porter could reasonably expect that this discretion might be exercised in his favour.  But he had no contractual right to insist that the discretion would continue or that it would be exercised in his favour.
36.	On 21 October 1998, some considerable time before the relevant vesting date, Mr Porter was fired.  This was because he was redundant.  He was asked to leave the office and was told that the effective date of the ending of his employment was 10 November 1998.  This was a mere three weeks after the notice of termination was given.  This would seem to me to be probably in breach of statutory rights that Mr Porter would have had in view of his long service.  
37.	Mr Porter asked me to find that his employment was terminated on or before 15 November 1998.  That was the date when, if his employment was still then continuing, his unpaid November salary payment would have been due for payment.  That would have been in his view a clear repudiation of his employment agreement.  I am willing to accept that, but I also take the view that his employment agreement probably ended on the notified date of 10 November.  In any event it clearly had ended by mid November.
38.	I note Ms Kennerley’s submission that, in the absence of evidence on the notice terms in Mr Porter’s employment agreement, there is no evidence of any breach of contract.  However it is clear to me from the documents I have seen that, when Christine Marshall and Mr Collins met Mr Porter on 21 October 1998, they believed, to put it at its lowest, that Mr Porter might well have claims against his employer.  The letter put to him at the meeting was an offer to settle those claims.  It was not an offer to change his employment rights nor was it expressed to be made under any contractual rights of the employer.  
39.	The terms offered to Mr Porter at the meeting were not immediately acceptable to him even if he had then been in a frame of mind to accept them.  In particular he wanted to negotiate something that would clarify his rights under the International Pension Plan.
40.	Eventually in early 1998 the Termination Agreement was entered into. It included the provision in paragraph 2 for the payment of £108,597 described as an “ex gratia redundancy payment”, but clearly paid in recognition of his lost expectation of an award under the Plan to senior employees employed throughout 1998.  It also included in paragraph 6 a provision that the discretion under the Plan would continue to be available to him.  I take the immediate effect of Clause 6 of the Termination Agreement (and the earlier offer put to him) as an undertaking to waive (or earlier an offer to waive) the Plan’s provision that Mr Porter’s rights under the Plan ended once his employment ceased for any reason.  With that waiver Mr Porter would continue to have discretionary rights under the Plan.  Without that waiver and any settlement agreement his claim would have been limited to an immediate, but uncertain, claim to damages.  Here the waiver was part of the settlement and part of the Termination Agreement.  It was not a final exercise of any discretion under the Plan.  It did not crystallise his benefits under the Plan.  If it was in part an exercise of a discretion by the Committee that was within the powers of delegation under the Plan.
41.	Benefits that in normal circumstances of continuing employment are received under the Plan are not simple deferred remuneration.  They require continued employment.  They are very clearly in my view in large part, if not wholly, loyalty incentives.  The employees who hope to receive any financial benefit from their awards must remain in employment.  Their service during the period between the date of the awards and their vesting is vital.
42.	In this case it was not sufficient for Mr Porter to get the waiver in paragraph 6 of the Termination Agreement in order to receive any financial benefit.  His loyalty must continue even though he was no longer an employee.  This discretionary right of the Committee or its delegates to withhold any benefit was not mere boiler plate.  It concerned Mr Porter.  He only signed the Termination Agreement on the basis that any attempt by him to pursue his rights under the Pension Plans would, because of this continuing discretion, not prejudice the eventual vesting of his award.
43.	With that analysis, and before again reviewing the authorities and the points made by Ms Kennerley, I ask myself whether the eventual receipt by Mr Porter of PIQ was from his employment or was it for some other reason.  To my mind, subject to that repeated review, it is clear to me that the PIQ was not “from” Mr Porter’s employment.  I consider that it was firstly from the terms of settlement reached as a result of the ending of his employment agreement.  It was not paid under the terms of his employment agreement, but rather under the terms of the Termination Agreement which, in my view, reflected the fact that his employment agreement had been ended, that he was no longer in employment and that he might have claims as a result of that ending.  Secondly it was paid because he did not, while an ex-employee, cause the Committee or its delegates to consider exercising the discretion that they continued to have as a result of the Termination Agreement.  His conduct in that period did not justify the withholding of the vesting: he had remained a loyal ex-employee.  
44.	In these circumstances and on that review of the facts I ask myself whether the PIQ was from his employment?  Neither of those reasons leads me to conclude that the PIQ was “therefrom”.  It was from the ending of his employment, from the settlement of claims relating to benefits that he might reasonably have expected to come to him after the date his employment ended if he had continued in employment and his action or inaction as an ex-employee.  Clearly it was “in connection with the termination of” his employment.
45.	I turn now to consider whether the authorities cited to me or the points made to me by Ms Kennerley require me to come to another conclusion.
46.	In one sense the PIQ could be said to be from his employment.  Without his earlier employment he would not have been able to reach the terms of the Termination Agreement under which the PIQ became due.  I take as my guideline the comments of Lord Radcliffe in Hochstrasser v Mayes 38 TC 673, HL at page 699 when he supported the unanimous decision of the House of Lords that certain payments under the employer’s housing scheme to individuals in employment were not a profit “therefrom”, that is to say from the employment.  His comments to which I refer were
  “… it is not easy in any of these cases in which the holder of an office or employment receives a benefit which he would not have received but for his holding of that office or employment to say precisely why one considers that the money paid in one instance is, and in another instance is not, a ‘perquisite or profit … therefrom’.
	The test to be applied is the same for all.  It is contained in the statutory requirement that the payment, if it is to be the subject of assessment, must arise ‘from’ the office or employment.  In the past several explanations have been offered by Judges of eminence as to the significance of the word ‘from’ in this context.  It has been said that it must have been paid to the employee ‘as such’.  It has been said that it must have been made to him ‘in his capacity of employee’.  It has been said that it is assessable if paid ‘by way of remuneration for his services’, and said further that this is what is meant by payment to him ‘as such’.  These are all glosses and they are all of value as illustrating the idea which is expressed by the words of the Statute.  But it is perhaps worth observing that they do not displace those words.  For my part I think that their meaning is adequately conveyed by saying that, while it is not sufficient to render a payment assessable that an employee would not have received it unless he had been an employee, it is assessable if it has been paid to him in return for acting as or being an employee.”
Lord Radcliffe was considering payments made while the individuals remained in employment.  He was also considering the issue before the separate liability under s 148 at had been introduced.  But I take his test as still relevant.  Mr Porter “had been an employee” and without that fact there would have been no PIQ, but that of itself is not sufficient for liability under s 19.
47.	 The principal authority cited by Mr Porter for his view that the source of the PIQ was the Termination Agreement and that, therefore, it could not be taxable under s 19 was Henley v Murray 31 TC 351, CA .  Mr Henley had been the Managing Director of a property company.  His service agreement entitled him to continue in that office until 31 March 1944.  The company was in financial difficulties.  Debenture stock trustees, as a condition for disposal of property charged under the terms of a debenture trust deed, required the termination of Mr Henley’s appointment.  Mr Henley agreed to resign on 6 July 1943 and in that way meet the requirements of the trustees, on condition that various payments were made to him in consideration for his giving up his contractual rights and ceasing to serve as director, managing director or otherwise.  The appeal related to the sum of some £2,000 paid to him under this agreement.  That was the sum that would have been paid to him for the period from 6 July 1943 to 31 March 1944 if his appointment had continued.  He was also paid a separate and smaller sum equal to the amount due to him for the period up to 6 July 1943.  He made no appeal, or in any event no appeal to the Court of Appeal, against the assessment to tax on the smaller amount.
48.	Jenkins, L.J., who was in agreement with the unanimous decision to allow Mr Henley’s appeal, made the following statements at pages 366 and 367
  “As the many cases on this topic show, it is often very difficult to determine the character of a payment made to the holder of an office when his tenure of the office is determined … , and the question in each case is whether, on the facts of the case, the lump sum paid is in the nature of remuneration or profits in respect of the office or is in the nature of a sum paid in consideration of the surrender by the recipient of his rights in respect of the office.”
This is much the same question and difficulty as I have in this appeal.  
…
“The board requested the Appellant to resign.  He agreed and this payment was made to him.  It is not to be assumed that the payment was voluntarily made by the company for no consideration, and I think the necessary inference is that the bargain was to the effect that the Appellant should resign and that in consideration of his so resigning the company should make him this payment.
  On those facts, the only possible conclusion of law in this particular case seems to me to be that the payment in question was not a payment of remuneration but was a payment in consideration of the Appellant at the request of the company, giving up his right to continue to be employed by the company down to 31 March 1944, and to earn and receive his contractual remuneration down to that date. …
Accordingly by a process of elimination I arrive at the conclusion that this sum can only be regarded on the facts of this case as paid to the Appellant in consideration of his surrendering his right to serve on and be remunerated down to the end of his contractual engagement.
For those reasons the sums were treated as not from employment and the appeal was allowed.
49.	 Therefore, Henley v Murray is Court of Appeal authority for the perhaps rather obvious proposition that a payment made in consideration for an agreement to surrender rights of employment can be treated as a payment that is not for employment.  It is of course a decision on its own facts, but the argument here seems to me much stronger for denial that the PIQ is from the employment.  Mr Porter did not agree to surrender his rights to employment.  His employment had ended.  In substance he was surrendering his rights, or feared rights, to pursue a possible claim for damages.  He was surrendering those rights in part in consideration of a promise not to treat his possible benefits under the Plan as lapsed because his employment had ended.  The case is also a warning – the point was not in issue - that a payment under such a promise that specifically represents remuneration up to the date of termination may nevertheless be treated as from the employment.
50.	I turn now to the submission by Ms Kennerley that Carter v Wadman and Richardson v Delaney show that, because some benefit or payment is covered by and described in a termination settlement agreement, does not mean that there is some kind of wall around it which prevents any amount sourced in the employment from continuing to be taxed under s 19 as from the employment.
51.	 In Carter v Wadman the issue related to the liability of a former manager of licensed premises on a payment of £2,000 paid in December 1942.  Mr Carter had been entitled to a weekly salary and to a share of profits.  His employment agreement was due to continue until June 1949.  On a transfer of the licence the employment of Mr Carter was terminated.  The £2,000 was paid under an agreement “in full settlement of all past, present and future claims” under his service agreement which was ended by consent.  Lord Greene, M.R. in his agreed judgment of the Court said
“In the present case the £2,000 does not purport to be paid as damages.  It is, no doubt, in part the price of the cancellation of the agreement, but it is also by the very terms of the letter of 2nd December, 1942, paid partly in settlement of past and then present claims.  One of those claims was the claim to a fourth part of the profits of the business down to 2nd December, 1942.  The Appellant’s right to this claim was, in our opinion, clearly a profit arising from an employment of profit within Schedule E. 
In effect the Court of Appeal held that an apportionment must be made in that case between that part of the lump sum payment that related to amounts already due and payable, if not yet calculated, under the employment agreement and that part relating to the unexpired part of the agreement.  This it seems to me reinforces the warning I have mentioned in Henley v Murray.  Thus I must distinguish between, on the one hand, payments under a settlement agreement such as the Termination Agreement that are in satisfaction of entitlements to remuneration or a share of profits existing at the time of the agreement or earlier ending of employment and, on the other hand payments in compensation for later rights that have been surrendered or lost.   Was the PIQ a payment made in satisfaction of an existing entitlement to remuneration or was it paid under the Termination Agreement in satisfaction of or for something else?
52.	Before I review Richardson v Delaney I shall briefly consider the Court of Appeal Decision in EMI Group Electronics Ltd v Coldicott TC 71 483, which predates Richardson v Delaney.   
53.	 The EMI appeal related to payments made to two senior employees who were dismissed because the employer considered their services as no longer needed for the business.  In other words, as here, they were redundant.  Their service contracts specifically included provisions reserving the right of the employer on payment of “the equivalent of salary in lieu of notice” to terminate employment on less than what would otherwise have been the contractual period of notice.  We made no finding of fact or conclusion that there was any settlement agreement between employer and employee – as there is here.  The employees were simply notified by letter that the employments would end on the date of the notice of termination, or shortly thereafter.  For each of the two employees the employer paid the relevant amount fixed in accordance with the contracts of employment that would have been earned over a full notice period, which were described as payments in lieu of notice.  They were also paid specific sums covering their statutory redundancy entitlements and sums under the employer’s severance payment scheme that were described as “Redundancy Payment”.  It was accepted that these specific redundancy payments were taxable under s 148 and not under s 19.  The issue was much the same as here: whether the payments described as in lieu of notice (here the benefits from the vesting under the Plan) were taxable under s 19 or s 148.  We came to the conclusion that they were “from” the employment agreement.  That conclusion was supported by Neuberger J. and unanimously in the Court of Appeal.
54.	  The employer’s argument that the payments were not from the employment and, therefore not taxable under s 19 was put on the basic distinction between, on the one hand, payments made as an inducement to become an employee (and I suppose payments made to continue in employment would have been similarly categorised), payments for being an employee or payments for having been an employee, and, on the other hand payments, such as a payment in lieu of notice, for ceasing, or having ceased, to be an employee.  It was argued that the relevant payments were from the disappearance of the employment and thus not from the employment.
55.	That argument was not accepted by the Court of Appeal.  Chadwick L.J. gave the single unanimous decision.  At page 488 he referred to the four principal different senses in which a payment made on termination of employment might be described as a payment in lieu of notice as they were described by Lord Browne-Wilkinson in Delaney v Staples [1992] 1 AC 687 at page 692C-H.  Summarising those four senses, they are
(1)	The employee is given full and proper notice, but is put on gardening leave: he need not work during the period of notice, but, rather than being paid periodically during the gardening leave he is paid up front his pay for the full notice period.
(2)	The contract of employment provides expressly that the employment may be terminated either by notice or summarily, but with a payment in lieu of the notice.
(3)	At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice.
(4)	The employer summarily dismisses the employee, so that he is in breach of contract, but tenders a payment in lieu of notice.
56.	Chadwick L.J. at pages 488-489 found that the facts fell within the second category and made the following comments on this category
“Payments in the second category have two important features in the present context.  First they are payments made under and in accordance with the contract of employment; second they are not payments for work done under the contract of employment.  But, there is a third feature, which may be regarded as the obverse of the first: they are not payments made by way of compensation or damages for breach of the contract of employment.”
After some 11 pages of analysis of the authorities Chadwick L.J. concluded
  “I am satisfied, therefore, that there is nothing in the authorities which requires this court to reach the conclusion that a payment in lieu of notice, made in pursuance of a contractual provision, agreed at the outset of the employment, which enables the employer to terminate the employment on making that that payment, is not properly to be regarded as an emolument from that employment.  In my view, for the reasons I have set out, such a payment is an emolument from the employment.” 
57.	 There are significant differences between the facts in that case and the facts as I find or infer here.  At least they seem significant to me.  There was no negotiated settlement of rights, or, if there was, it was at the time of the original employment agreement.  There was no termination agreement as there is here.  Perhaps more significantly the termination was accepted as in accordance with the contractual rights of the employer.
58.	 Richardson v Delaney has much in common with this appeal.  There the employee, as all employees, had entitlement to a period of notice.  In Mr Delaney’s case it was a long period; it was eighteen months.   But the service agreement specifically provided
“The Company may in its absolute discretion elect to terminate the employment of the Executive with immediate effect by paying to the Executive salary in lieu of notice.”
Mr Delaney was given notice to terminate his employment.  He was told to go on garden leave and to be available to be contacted during office hours in relation to work related matters.  The notice was not treated by either employer or employee as having immediate effect.  The notice had no certain time period.  During the garden leave Mr Delaney came to an agreement with the employer for payment to him of an agreed sum and the ending of his employment.  Lloyd J considered that the employer had been acting in pursuance of its rights under the employment contract, that there was no breach of contract and that there was no basis for the finding of the General Commissioners that there was such a breach.  He, therefore, considered their original finding in favour of the taxpayer to be fundamentally flawed. 
59.	 But in my view there is a fundamental difference between the facts relating to Mr Delaney’s termination of employment and those relating to the end of Mr Porter’s employment: in Mr Porter’s case the agreement on the terms to settle any claim he might have was not made until after his employment, including any period of garden leave, had ended.
60.	 I also need to consider the decision in Mairs v Haughey, which was cited by Mr Porter.   The relevant payments were not primarily relating to the termination of an employment agreement but rather to the imposition of new terms and, coincidentally, a new related employer.  They arose out of the privatisation of Harland & Wolff.  The employees had been entitled in addition to their normal statutory redundancy rights to additional rights under a non-statutory Enhanced Redundancy Scheme.  Under the terms of the privatisation buyout the employees accepted an offer to two payments, described as ex gratia. The first of the two was paid by the old employer to each employee and was equal to one third of the amount which the employee would have received under the Enhanced Redundancy Scheme, if he or she had been declared redundant; the second was paid by the buyout company representing £100 for each year of service with the old Harland & Wolff.
61.	 On the eventual appeal to the House of Lords it was not contended by the Revenue that the payments were in connection with the termination of employment and, therefore it was not contended that s 148 was applicable.  The issues were, therefore, whether and, if so to what extent, the payments were not from employment taxable under s 19, but rather from the termination of the Enhanced Redundancy Scheme.  It was held that the characteristic of a redundancy payment is to compensate and relieve an employee from the consequences of becoming unemployed and, therefore, it is not to be treated as an emolument from employment.  Similarly a payment made to satisfy a contingent right to a redundancy payment will derive its character from the nature of the payment which it replaces.  Thus when a sum is paid to satisfy a right to a redundancy payment it is also not chargeable under s 19.  This was in part the reason for the payments to the employees of Harland & Wolff and, therefore, a part of the payments to them could be apportioned and treated as not chargeable under s 19.
62.	Mr Porter in support of his submission that the PIQ was not from his employment cited the following passage in the judgment of Lord Woolf at page 346 -
“Prima facie, a payment made after the termination of employment is not an emolument from that employment.  It can be, however, an emolument from the employment if, for example, it is a lump sum payment in the nature of deferred remuneration.  As Lord Hanworth M.R. indicated in Henry v Foster 16 TC 605, at pages 629-630, in order to determine whether this is the situation it is necessary to look at the substance of the matter.  If a payment relates to the services rendered then the fact that the payment is made after employment comes to an end does not mean that it is divorced from the employment.  The distinction between deferred payment of wages or salary and a redundancy payment may be narrow but it is nonetheless real.  In the case of a deferred payment once the employment comes to an end the right to payment will inevitably accrue.  In the case of a redundancy payment, the sum is only payable in limited circumstances and there will be no entitlement if, for example, the employee leaves the employment on his own accord.
63.	 Ms Kennerley cited the same extract in support of two contentions.  Firstly that, even if the PIQ was a payment in satisfaction of, or otherwise in substitution for, a payment that would otherwise, subject to some contingency, have been paid, it would take on the character of the payment it was in satisfaction for.  In other words it would take on the character of an emolument of the employment.  Secondly that the PIQ was in the nature of deferred remuneration and was a reward for Mr Porter’s past services as an employee.  A number of times she specifically described them as remuneration for Mr Porter’s services in 1997.
64.	Three or four significant events had occurred between February 1998 and the eventual vesting in January 2001.  Firstly Mr Porter had ceased to be employed.  Secondly, after he had ceased to be employed he had reached a settlement of any rights he might have had as a result of the involuntary ending of his employment.  Thirdly the settlement had specifically provided, in a paragraph which Mr Porter had clearly considered to be important, that a decision whether to exercise the discretion to pay the PIQ - in a then uncertain amount – would be made;  and thirdly, although no longer employed by J P Morgan, time had passed during which he had remained loyal to J P Morgan in the sense that he had not taken any action of which J P Morgan was aware that might trigger their continuing discretion to declare his rights under the Plan as void.  
65.	I am satisfied that the Termination agreement was a genuine settlement by J P Morgan and Mr Porter of his possible rights as a result of the involuntary termination his employment.  Whether or not there was any action by J P Morgan that would have been found by a court as a breach of contract is a fact that I have deliberately left undecided.  But what is clear to me is that the whole tenor of the letter constituting the Termination Agreement and the facts leading up to it show that it was a genuine settlement by the parties of rights that J P Morgan considered Mr Porter might have.  When determining whether a payment is from the employment or for some other reason I find it hard to distinguish between 
(1)	a payment of a sum in satisfaction of an award for damages for breach of employment rights; 
(2)	a sum paid in settlement of an action commenced for damages for breach of employment rights, as in Du Cros v Ryall 19 TC 444; 
(3)	a sum paid in settlement of claims that, if made in an action for breach of employment rights, would succeed; and 
(4)	a sum paid in settlement of such claims that the employer fears might succeed.  
If a sum paid in satisfaction of a court action is accepted to be for something other than from employment, then I see no reason why a sum paid in category 4, as here under and as a result of a genuine settlement agreement, should not also be regarded as from something other than from the employment.
66.	 For these reasons I do not accept Ms Kennerley’s submission that the eventual payment of the PIQ contemplated by the Termination Agreement takes on the category of remuneration.
67.	I accept that the authorities show that there must be some distinction made for a payment, or an apportionment of a payment, that represents rights that had accrued for services rendered up to the time of the ending of the employment.  They show that I must still answer the question I posed at the end of my paragraph 51 on page 17.  Was the PIQ agreed under the Termination Agreement made in satisfaction of an existing entitlement to remuneration earned during the period of employment?  But the benefits to Mr Porter that came in January 2001 were not deferred benefits in this sense.  When an award is made the employee will still have to continue in loyal employment for a number of years before he or she has an enforceable right to the benefit.  It is clearly an award, at least in significant part, for services rendered in the time between the formal award and the time of vesting.  It certainly cannot be treated as simply remuneration for services rendered in the year to which the award relates, in this case 1997.  On the ending of Mr Porter’s employment there was no inevitability about them.  Without the terms of the later Termination Agreement, and in particular its revival by paragraph 6 of his lapsed rights under the Plan, he would have had no clear discretionary right to the vesting and, furthermore, until the eventual vesting dates came he needed to watch his steps and do nothing that might be treated as disloyal to his former employer.  I was not asked to make any apportionment.
68.	I now turn to some of the specific points made by Ms Kennerley.  I do not accept that the document setting out the Plan is “the governing document”.  That might be the case for an employee who remains in the employment of J P Morgan until the relevant vesting day.  Such an employee would I assume have a liability to a charge under Schedule E on the full value of each award as it vests.  Possibly the terms of the notice of award would also relate to the liability.  But in Mr Porter’s case the Termination Agreement is key: without it Mr Porter would have had no enforceable right to any vesting and no right to require any exercise of a discretion.  
69.	I accept that the Committee would have had a discretion under the Plan that might have been exercised by them if Mr Porter’s employment had been ended involuntarily because of redundancy.  But he had no right to require them to exercise that discretion until the Termination Agreement placed upon J P Morgan an obligation to exercise the discretion one way or the other. This was not a simple case of an exercise of a discretion under Article 6.2(c): the Termination Agreement required that the Committee “will in its sole discretion determine that all Awards made to [Mr Porter] … shall vest, subject to the right of the Committee to take into account [Mr Porter’s] conduct towards [J P Morgan] from the Leaving Date to the dates of the vesting”.  The terms of the discretion were laid down by the Termination Agreement. It follows that I do not accept that the character of the PIQ is determined or governed by the terms of the Plan.  
70.	I do not see that the Committee was in Mr Porter’s case exercising some discretion that they had no power to exercise under the terms of the Plan.  The terms of the Plan and the awards in 1998 clearly envisaged that such a discretion might, at the choice of the Committee, be exercised.  The Termination Agreement required them to exercise a discretion that they had power to exercise. 
71.	I note the statement made to the Revenue by J P Morgan in February 2004 that “discretion was exercised to permit normal vesting of this stock post-employment”.  But I cannot accept that, therefore, “normal vesting” is what happened in the sense that the vesting was only because of, and therefore, “from” the employment.  The Termination Agreement, the settlement of the possible disputes and claims that it resolved and the post-employment conduct of Mr Porter were all key factors in determining that the PIQ was made.
72.	I do not see that the PIQ was made in “abrogation” or in consideration for the abrogation of Mr Porter’s employment contract.  To that extent I may be in agreement with Ms Kennerley.  I rather see it as made following and under one of several undertakings in the Termination Agreement that settled and resolved the possible claims that Mr Porter might otherwise have had, whether on account of his evident redundancy or otherwise, because of the earlier involuntary ending of his employment on short notice.  That does not seem to me to be a payment that can properly be described as “from” employment.  
73.	It was suggested to me that the PIQ was equivalent to a redundancy payment.  Mr Porter was redundant.  That was why he was dismissed.  But I do not have sufficient evidence to know that the reason for the inclusion of paragraph 6 in the Termination Agreement was the redundancy of Mr Porter.  That he might have claims for redundancy was no doubt one of the reasons for the settlement.  But J P Morgan could have decided to settle on these terms simply because they would have had to acknowledge that the ending of his employment was not of his making or wish, but their decision for no fault of his.
74.	For these reasons I determine in principle that the disbursement of £64,726.71, made to Mr Porter in 2001-2002 is to be taxed under s148 ICTA 1988 and not under s19 of that Act. 

MALCOLM J F PALMER

SPECIAL COMMISSIONER
                                    Release Date: 7 September 2005

SC/3040/2004

Cases cited but not referred to:-

Comptroller-General of Inland Revenue v Knight [1973] AC 428

Corbett v Duff 23 TC 763

Dale v de Soissons 32 TC 118

Henry v Foster, Hunter v Dewhurst 16 TC 605

Laidlaw v Perry 42 TC 351

Moorhouse v Dooland CA [1955] 1 Ch. 284

Shilton v Wilmshurst 64 TC 78