England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT (DYSON J)

		Royal Courts of Justice Strand, London, WC2A 2LL Friday 9 November 2001

LORD JUSTICE ROBERT WALKER:

1. There is a public interest in citizens providing financial protection for themselves and their families by personal savings, especially through the medium of life and endowment policies. For many years this was encouraged by a relief from income tax known as life assurance premium relief; and a capital sum received on maturity of a life or endowment policy was not generally subject to income tax or (after its introduction in 1965) capital gains tax.
2. However during the 1960's the tax-avoidance industry perceived that life policies, sometimes in very unconventional forms, could enable a taxpayer to avoid higher-rate tax without being committed to the regular, long-term payment of annual (or more frequent) premiums which was a feature of traditional life assurance. In order to counter these developments Parliament has made far-reaching changes, especially by the Finance Acts of 1968 and 1984. The first changes introduced an important distinction between qualifying and non-qualifying policies. Provisions for official certification of qualifying policies were introduced in 1976. Only qualifying policies attracted life assurance premium relief but in 1984 that relief was withdrawn, for policies effected or varied after then. Where relief is available to pre-1984 policies it is given at source by a reduction in the premium.
3. The distinction between qualifying and non-qualifying policies has continued to be important in relation to liability in respect of the proceeds of policies. The proceeds of qualifying policies are in general free from liability to income tax so long as they are not made paid-up, and are not surrendered or otherwise turned to account, during a minimum period of ten years. The general legislative purpose (although it is, as appears below, greatly elaborated in very detailed provisions) is that the policyholder must pay normal premiums for a minimum period of ten years if the policy is to obtain the advantages of a conventional life policy. Non-qualifying policies, on the other hand, generally attract a tax charge on any gain realised when they are redeemed, surrendered or otherwise turned to account. The basic rules for determining whether a policy is a qualifying policy are contained in Schedule 15 Part I to the Income and Corporation Taxes Act 1988 ("the 1988 Act"), as incorporated by s.267 of the 1988 Act.
4. This appeal from an order made by Dyson J in the Administrative Court on 13 December 2000 raises two issues. The first (also referred to as the specific) issue is whether an unusual form of policy submitted to the Commissioners of Inland Revenue ("the Revenue") in draft by Monarch Assurance plc ("Monarch") was a qualifying policy. The second (also referred to as the general) issue is whether the Revenue was obliged (under Part II of Schedule 15 to the 1988 Act) to certify a form of policy as a qualifying policy if it passed the statutory test, and (if it had a discretion) whether that discretion was exercised properly.
5. On the first issue the judge (whose judgment is reported at [2001] STC 92) held that the form of policy did meet the statutory test for a qualifying policy. On the second issue he held that the Revenue's function in certifying a policy is a discretionary power, not a mandatory duty, and that in the circumstances of this case the Revenue's refusal to issue a certificate was not irrational or otherwise improper. Monarch (which has appealed with the permission of Brooke LJ) challenges the judge's conclusion on the second issue, and by its respondent's notice the Revenue challenges his conclusion on the first issue.

The statutory provisions

6. Section 267 of the 1988 Act incorporates Schedule 15 and spells out its structure:

"Schedule 15, Part I of which contains the basic rules for determining whether or not a policy is a qualifying policy, Part II of which makes provision for the certification etc of policies as qualifying policies and Part III of which modifies Parts I and II in their application to certain policies issued by non-resident companies, shall have effect for the purpose of determining whether or not a policy is a qualifying policy; and, accordingly, any reference in this Act to a qualifying policy shall be construed in accordance with that Schedule."

Part III (paragraphs 23-27) is not in point on this appeal.

7. In Part I the provisions most directly in point are paragraph 1, subparagraphs (1), (4) and (7). But it is helpful to look at the general scheme of these complex provisions. Paragraph 1 is headed, "General rules applicable to whole life and term assurances". Paragraph 2 is headed, "General rules applicable to endowment assurances". The following paragraphs deal with particular types of policy such as friendly society policies, industrial assurance policies and mortgage protection policies. Paragraphs 13 and 14 relate to "connected policies".
8. Paragraph 1, relating to whole life and term policies, calls for closer attention. Subparagraph (1) sets out the structure of the conditions:

"(1) Subject to the following provisions of this Part of this Schedule, if a policy secures a capital sum which is payable only on death, or one payable either on death or on earlier disability, it is a qualifying policy if –

(a) it satisfies the conditions appropriate to it under sub-paragraphs (2) to (5) below, and

(b) except to the extent permitted by sub-paragraph (7) below, it does not secure any other benefits."

Subparagraphs (2) and (3) respectively relate to whole life policies and term policies where the term is of more than ten years' duration: the general effect of the conditions which they impose is to require the payment of annual (or more frequent) premiums of reasonably uniform amounts for all or most of the relevant life or term.

9. Then comes subparagraph (4):

"(4) If the capital sum referred to in sub-paragraph (1) above is payable only if the event in question happens before the expiry of a specified term ending not more than ten years after the making of the insurance, or only if it happens both before the expiry of such a term and during the life of a specified person, the policy must provide that any payment made by reason of its surrender during the period is not to exceed the total premiums previously paid under the policy."

This relatively simple condition reflects the fact that a term policy covering a period of less than ten years (what might be called a short-term policy) is unlikely to be effected as a medium for personal savings. It is more likely to be effected in order to cover a particular risk (such as the risk of inheritance tax on the failure of a conditionally exempt gift to achieve exemption).

10. Subparagraph (5) contains a further complicated condition applicable to most term policies (whatever the length of the term) and relating to the adequacy of the death benefit. The judge recorded that it was common ground that this further condition was satisfied, and neither side based any submission on it. It is not therefore necessary to go further into the intricacies of subparagraph (5).
11. Subparagraph (7) is in the following terms:

"(7) Notwithstanding sub-paragraph (1)(b) above, if a policy secures a capital sum payable only on death, it may also secure benefits (including benefits of a capital nature) to be provided in the event of a person's disability; and no policy is to be regarded for the purposes of that provision as securing other benefits by reason only of the fact that –

(a) it confers a right to participate in profits, or

(b) it provides for a payment on the surrender in whole or in part of the rights conferred by the policy, or

(c) it gives an option to receive payments by way of annuity, or

(d) it makes provision for the waiver of premiums by reason of a person's disability, or for the effecting of a further insurance or insurances without the production of evidence of insurability."

12. Paragraph 21 in Part II of Schedule 15 deals with the Revenue's function of certifying qualifying policies:

"(1) A policy of life insurance issued in respect of an insurance made on or after 1st April 1976 or varied on or after that date (other than one to which paragraph 22(2)(c) below applies shall not be a qualifying policy unless –

(a) it is certified by the Board as being a qualifying policy; or

(b) it conforms with a form which at the time the policy is issued or varied is either –

(i) a standard form certified by the Board as a standard form of qualifying policy; or

(ii) a form varying from a standard form so certified in no other respect than by making such additions thereto as are, at the time the policy is issued, certified by the Board as compatible with a qualifying policy when made to that standard form and satisfy any conditions subject to which they are so certified;

and any certificate issued in pursuance of paragraph (a) above shall be conclusive evidence that the policy is a qualifying policy.

(2) In issuing a certificate in pursuance of sub-paragraph (1) above the Board may disregard any provision of the policy, standard form or addition which appears to them insignificant.

(3) Where the Board refuse to certify a policy as being a qualifying policy, the person to whom it is issued may appeal to the General Commissioners or, if he so elects, to the Special Commissioners.

(4) Sub-paragraphs (1) to (3) above do not apply in relation to such a policy as is mentioned in paragraphs 3 to 6 above(a)."

13. By s.55 of the Finance Act 1995 as amended by s.162 of the Finance Act 1996, paragraph 21 is to be repealed as from an appointed day. But no appointed day has yet been fixed, so that the repeal remains in limbo.
14. It is noteworthy that paragraph 21 distinguishes in two ways between a policy which has actually been issued (and is therefore an asset belonging to a particular policyholder) and a standard form (or variant on a standard form) which would normally be submitted by a life office in draft (as Monarch did in this case). It is only in the case of an issued policy that a Revenue certificate is conclusive, and it is only in that case that the refusal of a certificate gives the policyholder a right of appeal to the General or Special Commissioners.

Monarch's draft policy

15. Monarch is an English company with its registered office in London, and it does business in the United Kingdom with authorisation under the Insurance Companies Act 1982. However its head office is at Manxonia House, Port St Mary, Isle of Man. This is also the business address of Mr Patrick Taylor, Monarch's managing director. Mr Taylor is an English solicitor who specialises in tax-avoidance schemes of an artificial nature.
16. A draft of an "increasing term policy" to be issued by Monarch was sent on 9 November 1999 to the Revenue's Financial Institutions Division with a request that it should be certified as a qualifying policy. It was considered by an experienced official, Miss Delores Boase, who found some of its provisions extremely unusual. However she decided that she should not certify it on the simple ground that its wording failed (although only by a single day) to bring the policy within paragraph 1(4) of Schedule 15 , and it was incapable of meeting the requirements of paragraph 1(3). By a short letter dated 15 November 1999 the Revenue declined certification on that ground.
17. However by then Monarch's letter of 9 November had been seen by Mr Timothy Leach, a Senior Inspector of Taxes at Somerset House who was then acting as a policy and technical adviser to the Insurance Group of the Revenue's Financial Institutions Division. In a previous post he had been in charge of the team responsible for certifying qualifying policies. He had for some years been aware of Mr Taylor's activities as a tax-avoidance specialist and he decided that he should take a personal interest in the application. The final decision to refuse certification (announced on 8 June 2000, after judicial review proceedings had been launched on 25 May 2000) was his. Mr Leach said in his witness statement made on 21 September 2000:

"I would emphasise here that when I refused certification in this case, this was not because Mr Taylor was involved. I did however scrutinise the documentation, and such explanations as were offered, with some care, having regard to their source."

The reason why Mr Leach said this was that he had earlier in his witness statement referred to some reported cases in which Mr Taylor's tax-avoidance activities had attracted adverse comment from the court.

18. The original draft submitted to Miss Boase was twice amended and resubmitted to the Revenue. The final draft was submitted on 28 February 2000. Some of the changes reflected the timing point raised by Miss Boase but others seem to have been the product of further thought by Mr Taylor or others in his team. The summary that follows relates to the final draft. In their skeleton argument counsel for the appellant (Mr Leolin Price QC and Mr Evan Price) have suggested that the judge was referring to an earlier draft, but that suggestion seems to be mistaken.
19. The general form of the draft was fourfold: the main operative part of the policy, a schedule of particulars, general conditions, and special conditions. By the operative part Monarch undertook "in consideration of the Initial Policy Consideration and any Additional Policy Consideration(s) (if applicable)" to pay the "Applicable Sum Assured" on the "Applicable Specified Date" (the reference to clause 1 of the special conditions should, it seems, have been amended to clause 3). The Initial Policy Consideration was the first premium as stated in the schedule. The payment of further premiums was (as was confirmed in discussions between Miss Boase and Mr Taylor) to be optional. That was reflected in clause 2 of the special conditions, which Miss Boase and Mr Leach found very unusual:

"Where an Additional Policy Consideration is payable as set forth in the Schedule this policy shall not lapse once the Initial Policy Consideration has been paid but the Applicable Sum Assured shall not increase until the next due payment of the balance then due of the Applicable Policy Consideration as also set forth in the Schedule the intention being that the Applicable Sum Assured payable under the Conditions of this policy shall not be increased until there has first been paid to the Company by the Life Assured the applicable part of the Additional Policy Consideration and following which payment the corresponding part of the Applicable Sum Assured then becomes payable under the Conditions of this policy."

20. The Applicable Sum Assured was to be shown by reference to ten Applicable Specified Dates at yearly intervals. These definitions brought in a reference to the death of the life assured before midnight on the preceding day. It seems that the Applicable Sum Assured was to increase annually (subject to clause 2 of the special conditions) but as none of the drafts provided any specimen figures this (like much else about the proposed policy) was a matter for conjecture. When Mr Leach finally wrote on 8 June 2000 (after Monarch had launched judicial review proceedings) stating that the Revenue could see "no actuarial logic or economic purpose" in a with-profit term policy his letter did not produce any helpful explanation. Instead it produced a lengthy letter dated 14 June, dictated but not signed by Mr Taylor, attacking the Revenue's attitude as "improper and unacceptable". It stated that "marketing matters" were not for the Revenue to pass judgment on. It also stated that the policy was not intended to form part of a wider financial arrangement and that

" … the policy in its submitted form offers substantial economic benefits for policy holders and for Monarch. The benefits are obvious to anyone who reads and understands the policy."

21. So the Revenue, and anyone else who has found it difficult to understand the policy, have been left to try to work it out for themselves. The other features of the policy which have attracted particular attention are found in clauses 5 and 6 of the special conditions. Clause 5 (read in conjunction with the references in the schedule to "New Policy Consideration" and "Additional Specified Dates", which were from the 11th to the 20th anniversaries of the date of commencement of the original policy) gave the policyholder the right to successive increases in the Applicable Sums Assured, without proof of his continued insurability (clause 5(b)). Clause 5(c) gave an option for these rights to be continued even beyond the twentieth anniversary of the commencement date. Clause 5(d) made these rights conditional on the payment to Monarch of the "Additional Premium" as specified in the schedule. In fact the schedule provided for "Initial Policy Consideration" "Additional Policy Consideration(s)" and "New Policy Consideration" but did not in terms refer to "Additional Premium". That is typical of the turgid and imprecise draftsmanship of the policy.
22. Moreover although the heading to clause 5 is "Option for new policy on expiration of this policy without proof of continuing insurability" the language of clause 5 points to an extension of the original policy, rather than its replacement by a new policy. The only language pointing to a new policy is in clause 6(b) and (d). Clause 6(a) provides for the policy to participate in profits. Clause 6(b) begins:

"On the 31st December in each of the years that this Contract and any new Contract which comes into existence as a result of any exercise by the Policyholder of the option in his favour conferred by clause 5 … "

and it goes on to set out elaborate provisions for the declaration of a share of profits as an annual reversionary bonus. Clause 6(c) provides for the declaration on the death of the life assured of what is called a "mortuary bonus". Clause 6(d) provides:

"Thereupon the Company shall be obliged to pay not only the Applicable Sum Assured but also a further amount equal to the aggregate of all bonus amounts declared as reversionary bonuses and attributable to this Contract or to any Contract having effect in its place consequent upon the exercise most recently prior to the becoming payable of the Applicable Sum Assured of any option exercised pursuant to clause 5 of the Special Conditions."

The specific issue

23. The judge first considered what he called the specific issue, which he decided in favour of Monarch. It is therefore a matter raised in the respondent's notice, rather than the appellant's notice. Nevertheless it seems natural and logical to consider it first.
24. The judge summarised the argument of Mr Timothy Brennan QC (for the Revenue) that the combined effect of clauses 5 and 6 of the special conditions was to enable the policyholder to carry forward to a new policy, extending beyond the initial ten-year period, the reversionary bonuses declared during that initial period. That, Mr Brennan submitted, meant that the policy operated to secure other benefits to an extent greater than that permitted by paragraph 1(7). Mr Brennan accepted (both below and in this court) that the effect of clauses 5 and 6 was to produce a new policy, and not merely an extension of the original policy.
25. The judge rejected those submissions. He said ([2001] STC at p.97):

"In my view, the right to receive the reversionary bonus pursuant to special condition 6 is a right to participate in the profits of the initial policy, and does not fall foul of para 1(1)(b). The annual bonus declared during the currency of the initial policy is part of the established surplus that is attributable to that policy. The right to the annual bonus accrues from year to year during the currency of the initial policy. The right to receive payment does not arise until the applicable sum assured becomes payable. No doubt, that is why the annual bonus is called a reversionary bonus. But that does not mean that the bonus is not a share of the profits of the initial policy. The reversionary bonus declared during the first policy does not become part of the profits of the subsequent policy. It is merely that the first policy provides that the bonus is not payable until the applicable sum assured becomes payable. The point of construction is a short one and, as so often is the case, is not capable of much elaboration."

26. I agree that the point is a short one but I respectfully disagree with the conclusion which the judge reached on it. Participation in profits (paragraph 1(7)(a)) is a commonplace feature of life policies of all sorts (except, perhaps, short-term policies). The right to effect a further insurance without production of evidence of insurability (paragraph 1(7)(d)) is also commonplace in certain types of policy. But the draftsman of Monarch's form of policy has attempted to combine these two features in such a way as to subvert the clear distinctions (established by paragraph 1(2), (3) and (4)) between a whole life policy, a term policy for a term of more than ten years and a term policy for a term not exceeding ten years.
27. I cannot improve on the clarity of the reasoning in paragraph 30 of Mr Brennan's skeleton argument:

"The objection to the carry-forward of bonuses is that para 1(7)(a) envisages that the participation in profits occurs by virtue of the policy itself, and that the "profits" would be paid with any capital sum under the policy. "Participation in profits" for the purposes of para 1(7)(a) does not extend so far as to allow the policyholder of the expired policy to transfer into some other contract the profits of the expired policy. The whole point of para 1(1)(b) is to prohibit the provision of "other benefits" outside those provided by the policy itself. The proposed Monarch form of policy is effectively a whole-of-life policy, with premiums payable once every 10 years, represented to be a term assurance policy lasting no more than 10 years. If the applicable sum assured payable under a later contract [consists] partly of a share of profits of the initial policy, this would mean that the initial policy confers a right to pay a sum on death more than 10 years after the initial policy was made. This would contravene para 1(4)."

28. Mr Brennan put the point neatly in his oral submissions when he said that it is of the essence of a term policy that it is worthless if the life assured is still living when the term expires. The form of policy devised by Monarch is not worthless after ten years and the "other benefit" provided by clauses 5 and 6 goes far beyond a waiver of the requirement for evidence of continuing good health.
29. This point was not a new one. It had been raised (although not so fully developed) in Mr Leach's witness statement made on 21 September 2000 in which he recorded his initial view that the wording of the policy

"was intended to have the economic effect of a with profits whole of life policy while carrying the structure of a renewable term assurance for a term not exceeding ten years."

30. The appellants' skeleton argument on the specific issue does not address this point at all. It considers the various elements of paragraph 1 (and in particular, the four heads in subparagraph (7) of paragraph 1) separately and in isolation and provides no answer to Mr Brennan's reasoning. In his oral submissions Mr Price challenged the suggestion that profits earned during the currency of the original policy were carried forward to the new policy. He pointed out, correctly, that a life office does not hold any share of its assets as a trustee for its policyholders. He said that the profits from the original policy were merely the measure of what the policyholder could expect to receive as part of the benefits eventually payable (under clause 6(d) of the special conditions) on a claim arising under the new policy.
31. In my judgment this argument cannot assist Monarch. Lord Wilberforce once said (in IRC v Holmden [1968] AC 685, 712) that a man is not to be taxed by a dilemma. But here Mr Price was facing an unanswerable dilemma. One possibility is that the draft policy fell within paragraph 1(4) (as a short-term policy) but offended paragraph 1(1)(b) by providing another benefit (the value of the profits passed on to the new policy) in a way which was not permitted by paragraph 1(7). The alternative possibility was that the profits eventually paid under the new policy (perhaps twenty years after the original policy was effected) should be regarded as somehow paid under the original policy, in which case that policy should not be tested under paragraph 1(4) at all, but under paragraph 1(2) or (3) (under which it clearly fails the test). The obscure drafting of the policy leaves room for debate about which analysis should be preferred, but neither leads to the result for which Monarch contends.

The general issue

32. My conclusion on the first, specific issue (with which I understand my lords to agree) is sufficient to dispose of the appeal. But since this court has heard argument on the second, general issue, and since it is of some importance, it is right to consider it.
33. The judge took as his starting point the absence from the 1988 Act of any express statement of whether the Revenue's function of certification was a duty or a power. He observed (at pp.97-8):

"It would have been simple enough for Parliament to have provided that if a policy satisfies the conditions specified in para 1(1), then the Board 'shall issue a certificate to that effect'. The fact that the language of obligation has been avoided suggests strongly that Parliament did not intend to impose a duty on the Board.

Moreover, it is inherently unlikely that Parliament intended to impose an absolute duty on the Board to issue certificates in advance to insurance companies in respect of draft policies, where the purpose for which certificates are sought (as in the present case) is to enable them to be marketed. As we have seen, the principal reason why the Revenue have refused to certify in the present case is because they believe that the proposed policies are part of a larger hidden scheme which may have been devised for the purposes of tax avoidance."

34. The judge noted that that allegation had been denied (as it was, in strong terms, in Mr Taylor's letter of 14 June 2000). But it was not in dispute that a policy which technically satisfied paragraph 1(1) of Schedule 15 might be part of a wider tax-avoidance scheme. He continued (at p.98):

"A certificate is conclusive evidence that a policy is a qualifying policy and that it attracts the tax advantages of such a policy. It would be very surprising if Parliament had intended that the Revenue should be obliged to issue a certificate which had that effect, even where it was clear that the policy was merely part of an artificial tax avoidance scheme."

It is not entirely clear whether, in this passage, the judge had in mind that a certificate relating to a draft form of policy is not conclusive. But most probably he did, since he immediately went on to refer to the limited right of appeal under paragraph 21(3), observing (at p.98):

"The scope for challenge by judicial review is far more limited than it is on a tax appeal. In my view, it is clear that Parliament did intend that refusals of certification should be less susceptible to challenge by insurance companies than by policyholders. But this does not throw light on the question of whether the function of certification is the exercise of a discretionary power or the performance of a duty."

35. For these reasons, supported by other indications drawn from the scheme and language of the 1988 Act, the judge concluded that the Revenue's function of certification of qualifying policies was "not the performance of a duty, but the exercise of a discretionary power".
36. The judge went on to hold that Mr Leach's decision to refuse certification was not irrational, or otherwise flawed, despite the mistaken view which Mr Leach had taken (as the judge decided) on the specific issue. After analysing the practical and tax implications of the form of policy the judge said (at p.101)

"In my view, the Revenue were entitled to take the view, despite the contrary assertions of Mr Taylor and his fellow director Mr Walker, that the proposed policies were not marketable unless they formed part of some wider, but undisclosed, scheme."

37. Mr Price launched a strong attack on both parts of the judge's decision on the general point. He drew attention to a number of other statutory provisions under which the Revenue may give advance clearance of particular transactions (for instance section 215 of the 1988 Act in relation to certain distributions by companies, section 707 in relation to certain transactions in securities and section 776 in relation to certain transactions in land). Where Parliament intended clearance to be withheld if there was a tax-avoidance element, it said so in plain terms (see sections 215(2), 703(1) and 776(11)). Paragraph 21 has no comparable provisions.
38. Mr Price also submitted that if the Revenue does have a discretion, it cannot possibly be so wide as to enable the Revenue to refuse certification of a policy on the ground that it appeared actuarially unsound or not worth marketing (which was, he suggested, the thrust of Mr Leach's letter of 8 June 2000). That was the function of other regulatory bodies, not the Revenue.
39. I should add that Mr Leach himself, in his witness statement, accepted that his letter was open to criticism because it did not identify the particular 'vice' of the form of policy which Mr Leach had noted (as mentioned in paragraph 29 above). The letter did not give clear reasons for the official decision.
40. In supporting the judge's conclusion on the general issue Mr Brennan submitted that section 267 laid down not one, but two sets of criteria for policies effected since 1976 – Part I and Part II of Schedule 15 – and that effect must be given to both. He also emphasised the importance of the distinction between an issued policy, in which an individual policyholder has a proprietary interest, and a draft form of policy submitted to the Revenue for approval as a preliminary to marketing.
41. I am of the clear view that paragraph 21 does not impose an unqualified and mandatory duty to certify a draft form of policy submitted to it, even though the form appears to meet the requirements of Schedule 15, Part I. One instance would be if the draft were submitted by or on behalf of a company which was not authorised (and had no prospect of being authorised) under the Insurance Companies Act 1982. It would not be usurping another regulatory function for the Revenue to decline to make any ruling. Another instance (on which the Revenue might have relied in this case quite apart from the paragraph 1(1)(b) point) would be if the draft submitted were so obscure, and contained so many blanks in the form of policy, that there was real doubt as to its legal effect (a necessary precondition to determining its fiscal effect).
42. I am however doubtful whether the Revenue's discretion is much wider than that. I can see that there are powerful policy reasons why the Revenue's skilled resources should not be devoted to what might appear (in an extreme case) to be assisting part of the tax-avoidance industry to improve and perfect its latest product. But with statutory provisions as complicated as those of Schedule 15, Part I in force, and with certification as a qualifying policy as a potentially valuable prize, life offices and their tax advisers must be expected to explore the limits of what can be achieved under the provisions of Part I. Not all those approaches could fairly be dismissed as tax avoidance (and certainly not as obviously artificial tax avoidance) as opposed to tax mitigation.
43. If there is a boundary between tax avoidance and tax mitigation it is not easily discerned (see the observations of Lord Hoffmann in Macniven v Westmoreland Investments Ltd [2001] 2 WLR 377, 396-7). It is not a very satisfactory basis for decisions by the Revenue whether to refuse certification of a form of policy, which apparently meets the requirements of Schedule 15, Part I. But I would not exclude the possibility that some wider arrangement (even though not caught by Schedule 15, paragraphs 13 and 14, dealing with connected policies) might influence the true legal effect (and so the fiscal effect) of a life policy. The speeches of Lord Steyn and Lord Cooke in IRC v McGuckian [1997] 1 WLR 991, 1000, 1005 explain that these questions are ultimately questions of construction, not of conjuring up the "penumbral spirit" of a taxing statute (see Lord Hoffmann in Macniven v Westmoreland Investments Ltd at p.397).
44. However it is not necessary, in order to dispose of this appeal, to express any definite view on these difficult questions, and I think it is better not to do so. I would dismiss this appeal on the specific issue raised in the respondent's notice.

MR JUSTICE LADDIE:

45. I agree.

LORD JUSTICE PILL:

46. I agree. Monarch's form of policy secures a capital sum which is payable only on death. It can be a qualifying policy in present circumstances only if it "does not secure any other benefits" (paragraph 1(1)(b) of Schedule 15 to the Insurance and Corporation Taxes Act 1998). Robert Walker LJ has set out in his judgment the relevant clauses in the policy. It purports to provide an "option for a new policy on expiration of this policy" with reversionary bonuses attributable to the first policy payable upon a death occurring during a subsequent policy (Clause 6(d)). Dyson J held that the reversionary bonus declared during the first policy did not in those circumstances become part of the profits of the subsequent policy, and thereby an "other benefit" but merely delayed payment of the bonus under the first policy until the applicable sum assured became payable.
47. I take a different view. The first policy provides for the payment of a capital sum, potentially augmented by a share of profits, if death occurs within ten years. The right to share in profits in not an "other benefit" because paragraph 1(7) of Schedule 15 provides that conferring a right to participation in profits does not have that effect. The right to carry forward the right to a subsequent policy is, however, plainly an "other benefit" in my view. The first policy secures a capital sum payable only on death so that the policyholder who survives the ten-year period of the policy receives no benefit. If he survives, the right to a subsequent policy into which a benefit secured by the first policy is incorporated is an "other benefit" within the meaning of paragraph 1(1)(b). I agree with Robert Walker LJ and with the reasoning of Mr Brennan QC for the respondent.
48. Having regard to the conclusion reached on the specific issue, it is not necessary to decide what has been called the general issue. I agree with Robert Walker LJ that it is better not to attempt to define what discretion the Revenue may have, under Part II, paragraph 21 of Schedule 15, to refuse to certify. Certification of a form of policy by the Revenue as a qualifying policy is clearly a potentially valuable prize, as Robert Walker LJ has stated. A form of policy which the Revenue declines to certify would be extremely difficult to market. The "qualifying conditions" are specified in great detail in Part I of Schedule 15 and yet Part II provides that a policy shall not be a qualifying policy unless certified by the Revenue as such or conforming with a form certified as such.
49. It would be surprising if Parliament intended to confer a broad discretion on the Revenue to decide (by declining to certify) that a form of policy which met all statutory qualifying conditions was not a qualifying policy. That there is discretion in the circumstances contemplated by Robert Walker LJ in paragraph 40 of his judgment I agree.
50. Mr Brennan submits that the broad wording of section 267 of the 1988 Act, which incorporates Schedule 15, indicates that the discretion is a broad one. It provides that Part II of the Schedule "makes provision" for the certification of policies as qualifying policies and that the entire Schedule "shall have effect for the purpose of determining whether or not a policy is a qualifying policy". If the Revenue reasonably believe that they have not been given "the full picture" they are entitled not to certify it, it is submitted, bearing in mind their duty to protect members of the public from forms of policy which in the end may be found not to qualify. I would leave open the question whether a refusal to certify is justified on the basis of a reasonable belief that a policy which meets the qualifying conditions is, or could be, part of a tax avoidance scheme.
Order: Appeal dismissed with costs, including costs of the respondents' notice, detailed assessment is not agreed; application for permission to appeal to House of Lords refused. (Order does not form part of the approved judgment)