Beta This part of GOV.UK is being rebuilt – find out what this means

HMRC internal manual

International Manual

HM Revenue & Customs
, see all updates

Non-residents trading in the UK: trading/contracts made in the UK: case law (1)

Erichsen v Last

Erichsen v Last [TC351 and 4TC422] is an important 1881 Court of Appeal decision concerning whether trade was exercised in the UK by reference to the place of contract. The nature of the trade being the relaying of telegraph messages makes the facts unusual in relation to modern commerce. Nevertheless, the principle emerging from Erichsen v Last can be applied to modern circumstances.

Erichsen was the United Kingdom representative of the Great Northern Telegraph Company of Copenhagen. The company was not resident here but it had three cables running across the North Sea to bases in Scotland and it had a staff of operators here. Messages were collected through an arrangement with the Postmaster General. The Post Office collected the money and deducted its agreed remuneration before handing over the messages to the company’s operators here. The company’s own staff then transmitted the messages across the North Sea. Thereafter, depending on their destination, they passed through cables owned by the Danish and Russian governments to their destinations, which might have been as far off as Japan. The company made a weak sort of claim that it was not trading here but it went on to say that if it was, it ought to be taxed only on the profit arising from the relaying of the messages along the main cable to Denmark. It was making the point that some of the profit arose from the transmission along other cables which had absolutely nothing to do with the United Kingdom.

The judgement in the Court of Appeal made clear that the matter was wholly one of fact. The judgement then separated two questions for decision. First, is there trading in the United Kingdom? And second, if so how much were the profits chargeable in the UK? Brett LJ covered the first question on page 425. His words are important because it is here that the significance of contract - place of contract - begins.

`Now, I think it would be first of all nearly impossible and second wholly unwise to attempt to give an exhaustive definition of when a trade can be said to be exercised in this country. The only thing that we have to decide is whether upon the facts of this case it can be said that this company is carrying on a profit earning trade in this country. Now I should say that wherever profitable contracts are habitually made in England by or for a foreigner with persons in England, because those persons are in England, to do something for or supply something to those persons, such foreigners are exercising a profitable trade in England, although everything done by or supplied by them in order to fulfil their part of the contract is done abroad. The profit arises to them from the contract which they make. The profit which they derive can only be derived from the payment which is to be made to them by the person with whom they contract. In the given case they would not have any such contract as they are in the habit of making unless it was a contract made in England with a person who is in England because he is in England. Observe, if the person or someone acting for him were not in England he would not be wanting to send a telegraph message from England’.

Although the language is now very unusual its meaning is plain and answers the second question too on whether all of the profits were chargeable in the UK or some smaller part commensurate with the extent to which the cable was in the UK. The Court was saying- `You, the customer, are in England and because you are here you want goods here (or in the case in point, you want a message sent from here). The profit comes from the contract, the contract is here and there is trading in England and it is nonetheless trading in England even though the goods come from abroad or the service is provided through electric cables which are partly abroad. All of the profits from the contract made in the UK are chargeable profits in the UK’.