ON APPEAL FROM THE HIGH COURT, CHANCERY DIVISION
MR JUSTICE MANN
Strand, London, WC2A 2LL
B e f o r e :
LORD JUSTICE HUGHES
LORD JUSTICE PATTEN
| Commissioners For Her Majesty's Revenue And Customs
|- And -
|Smallwood & Anor
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
Mr Kevin Prosser QC and Ms Elizabeth Wilson (instructed by Messrs Gregory Rowcliffe Milners) for the Respondents
Hearing dates : 8th and 9th March 2010
Crown Copyright ©
Lord Justice Patten :
"86. Attribution of gains to settlors with interest in non-resident or dual resident settlements
(1) This section applies where the following conditions are fulfilled as regards a settlement in a particular year of assessment –
(a) the settlement is a qualifying settlement in the year;
(b) the trustees of the settlement fulfil the condition as to residence specified in subsection (2) below;
(c) a person who is a settlor in relation to the settlement ('the settlor') is domiciled in the United Kingdom at some time in the year and is either resident in the United Kingdom during any part of the year or ordinarily resident in the United Kingdom during the year;
(d) at any time during the year the settlor has an interest in the settlement;
(e) by virtue of disposals of any of the settled property originating from the settlor, there is an amount on which the trustees would be chargeable to tax for the year under s.2(2) if the assumption as to residence specified in subsection (3) below were made.
(2) The condition as to residence is that –
(a) the trustees are not resident or ordinarily resident in the United Kingdom during any part of the year….
(3) Where subsection (2)(a) above applies, the assumption as to residence is that the trustees are resident or ordinarily resident in the United Kingdom throughout the year; …..
(4) Where this section applies –
(a) chargeable gains of an amount equal to that referred to in subsection (1)(e) above shall be treated as accruing to the settlor in the year."
"(1) Where in a year of assessment:
(a) chargeable gains accrue to the trustees of a settlement from the disposal of any or all of the settled property,
(b) after making any deduction provided for by s.2(2) in respect of disposals of the settled property, there remains an amount on which the trustees would, disregarding s.3, be chargeable to tax for the year in respect of those gains, and
(c) at any time during the year the settlor has an interest in the settlement;
the trustees shall not be chargeable to tax in respect of those but instead chargeable gains of an equal amount to that referred to in paragraph (b) shall be treated as accruing to the settlor in that year."
"Article 1: Personal scope
1. This Convention shall apply to persons who are residents of one or both of the Contracting States.
Article 2: Taxes covered
2(1) The existing taxes to which this Convention shall apply are:
(a) in the United Kingdom of Great Britain and Northern Ireland:
(i) the income tax;
(ii) the corporation tax; and
(iii) the capital gains tax;
(hereinafter referred to as "United Kingdom tax");
(b) in Mauritius:
(i) the income tax;
(ii) the capital gains tax (morcellement);
(hereinafter referred to as "Mauritius tax");
Article 3: General definitions
(d) the terms "a Contracting State" and "the other Contracting State" mean the United Kingdom or Mauritius as the context requires;
(e) the term "person" comprises an individual, a company and any other body of persons, corporate or not corporate;
(j) the term "tax" means United Kingdom tax or Mauritius tax as the context requires.
Article 4: Residence
4 (1) For the purposes of this Convention, the term 'resident of a Contracting State' means, subject to the provisions of paragraphs (2) and (3) of this Article, any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. The terms 'resident of the United Kingdom' and 'resident of Mauritius' shall be construed accordingly.
(2) Where by reason of the provisions of paragraph (1) of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall determine the question by mutual agreement.
(3) Where by reason of the provisions of paragraph (1) of this Article a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident of the Contracting State in which its place of effective management is situated.
Article 13: Capital gains
13(1) Capital gains from the alienation of immovable property, as defined in paragraph (2) of Article 6, may be taxed in the Contracting State in which the property is situated.
13(2) Capital Gains from the alienation of movable property forming part of the business property of a permanent establishment which an enterprise of a Contracting State has in the other Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State.
13(3) Notwithstanding the provisions of paragraph (2) of this Article, capital gains from the alienation of ships and aircraft operated in international traffic and movable property pertaining to the operation of such ships and aircraft shall be taxable only in the Contracting State in which the place of effective management of the enterprise is situated.
13(4) Capital gains from the alienation of any property other than that mentioned in paragraphs (1), (2) and (3) of this Article shall be taxable only in the Contracting State of which the alienator is a resident.
13(5) The provisions of paragraph 4 of this Article shall not affect the right of a Contracting State to levy according to its law a tax on capital gains from the alienation of any property derived by an individual who is a resident of the other Contracting State and has been a resident of the first-mentioned Contracting State at any time during the five years immediately preceding the alienation of the property.
Article 24: Elimination of double taxation
24(1) Subject to the provisions of the law of the United Kingdom regarding the allowance as a credit against United Kingdom tax of tax payable in a territory outside the United Kingdom (which shall not affect the general principle hereof):
(a) Mauritius tax payable under the laws of Mauritius and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within Mauritius shall be allowed as a credit against any United Kingdom tax computed by reference to the same profits, income or chargeable gains by reference to which the Mauritius tax is computed.
24(3) Subject to the provisions of the law of Mauritius regarding the allowance as a credit against Mauritius tax of tax payable in a territory outside Mauritius (which shall not affect the general principle hereof):
(a) The United Kingdom tax payable under the laws of the United Kingdom and in accordance with this Convention, whether directly or by deduction, on profits, income or chargeable gains from sources within the United Kingdom shall be allowed as a credit against any Mauritius tax computed by reference to the same profits, income or chargeable gains by reference to which the United Kingdom tax is computed.
24(4) For the purposes of paragraphs (1) and (3) of this Article, profits, income and chargeable gains owned by a resident of a Contracting State which may be taxed in the other Contracting State in accordance with this Convention shall be deemed to arise from sources in that other Contracting State."
"Article 13 in general deals with a conflict between taxation on the basis of source and on the basis of residence. It states that if the alienator is Treaty Resident in one state, the gains are taxable only in that state. Any dual residence, which we have equated with chargeability, should have been solved by the tie-breaker determining the Treaty Residence before one arrives at Article 13."
"the real top level management (or the realistic, positive management) of the trustee qua trustee is found. "
"13(5) The provisions of this Article shall not affect the right of a Contracting State to levy according to its law a tax chargeable in respect of gains from the alienation of any property on a person who is a resident of that State at any time during the fiscal year in which the property is alienated, or has been so resident at any time during the six fiscal years immediately preceding that year."
"(1) It is necessary to look first for a clear meaning of the words used in the relevant article of the convention, bearing in mind that 'consideration of the purpose of an enactment is always a legitimate part of the process of interpretation': per Lord Wilberforce (at 272) and Lord Scarman (at 294). A strictly literal approach to interpretation is not appropriate in construing legislation which gives effect to or incorporates an international treaty: per Lord Fraser (at 285) and Lord Scarman (at 290). A literal interpretation may be obviously inconsistent with the purposes of the particular article or of the treaty as a whole. If the provisions of a particular article are ambiguous, it may be possible to resolve that ambiguity by giving a purposive construction to the convention looking at it as a whole by reference to its language as set out in the relevant United Kingdom legislative instrument: per Lord Diplock (at 279).
(2) The process of interpretation should take account of the fact that—
'The language of an international convention has not been chosen by an English parliamentary draftsman. It is neither couched in the conventional English legislative idiom nor designed to be construed exclusively by English judges. It is addressed to a much wider and more varied judicial audience than is an Act of Parliament which deals with purely domestic law. It should be interpreted, as Lord Wilberforce put it in James Buchanan & Co. Ltd v. Babco Forwarding & Shipping (UK) Limited,  AC 141 at 152, "unconstrained by technical rules of English law, or by English legal precedent, but on broad principles of general acceptation': per Lord Diplock (at 281–282) and Lord Scarman (at 293).'
(3) Among those principles is the general principle of international law, now embodied in article 31(1) of the Vienna Convention on the Law of Treaties, that 'a treaty should be interpreted in good faith and in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose'. A similar principle is expressed in slightly different terms in McNair's The Law of Treaties (1961) p 365, where it is stated that the task of applying or construing or interpreting a treaty is 'the duty of giving effect to the expressed intention of the parties, that is, their intention as expressed in the words used by them in the light of the surrounding circumstances'. It is also stated in that work (p 366) that references to the primary necessity of giving effect to 'the plain terms' of a treaty or construing words according to their 'general and ordinary meaning' or their 'natural signification' are to be a starting point or prima facie guide and 'cannot be allowed to obstruct the essential quest in the application of treaties, namely the search for the real intention of the contracting parties in using the language employed by them'.
(4) If the adoption of this approach to the article leaves the meaning of the relevant provision unclear or ambiguous or leads to a result which is manifestly absurd or unreasonable recourse may be had to 'supplementary means of interpretation' including travaux préparatoires: per Lord Diplock (at 282) referring to article 32 of the Vienna Convention, which came into force after the conclusion of this double taxation convention, but codified an already existing principle of public international law. See also Lord Fraser (at 287) and Lord Scarman (at 294).
(5) Subsequent commentaries on a convention or treaty have persuasive value only, depending on the cogency of their reasoning. Similarly, decisions of foreign courts on the interpretation of a convention or treaty text depend for their authority on the reputation and status of the court in question: per Lord Diplock (at 283–284) and per Lord Scarman (at 295).
(6) Aids to the interpretation of a treaty such as travaux préparatoires, international case law and the writings of jurists are not a substitute for study of the terms of the convention. Their use is discretionary, not mandatory, depending, for example, on the relevance of such material and the weight to be attached to it: per Lord Scarman (at 294)."
"1. A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose.
2. The context for the purpose of the interpretation of a treaty shall comprise, in addition to the text, including its preamble and annexes:
Any agreement relating to the treaty which was made between all the parties in connection with the conclusion of the treaty;
Any instrument which was made by one or more parties in connection with the conclusion of the treaty and accepted by the other parties as an instrument related to the treaty.
3. There shall be taken into account together with the context:
any subsequent agreement between the parties regarding the interpretation of the treaty or the application of its provisions;
any subsequent practice in the application of the treaty which establishes the agreement of the parties regarding its interpretation;
any relevant rules of international law applicable in the relations between the parties.
4. A special meaning shall be given to a term if it is established that the parties so intended."
"This analysis supports the submissions of the taxpayer that Article 13(4) is doing the same thing. It is pointing to a single jurisdiction in which tax can be charged, and that is the state of residence. In order to make that workable one has to find a date at which residence has to be judged. There is no other realistic candidate for that point of time other than the date the gain arose (or the date of the disposition, which in this case is probably the same point of time). If there is competition between both states in relation to that point of time, then the tie-breaker applies to produce a single state in respect of which residence (in the status sense used in Article 4) exists."
"It will be apparent from these analyses that neither [side] adopts the reasoning of the Commissioners as identified above. I have set out their core paragraph (paragraph 107) above. It is not clear to me how they arrive at their conclusion, which involves turning factual residence for part of the year into deemed residence (for tax purposes) for the whole of the year. Thus residence in Mauritius for part of the year turns into deemed residence for the whole of the year; and the same with UK residence. This, I think, is their concept of Treaty Residence. I am afraid I cannot see how it is justified by the wording of the Treaty. There is nothing in the Treaty that requires it; nor is there anything in the UK tax legislation which requires it either. The UK tax provisions set out above create certain tax consequences for gains in a given year if trustees, or beneficiaries, are resident here for part of the year. Where they apply, residence in part of the year gives rise to a charge to tax on gains made in another part of the year, but they do not do so by deeming the residence to be for any period longer than the actual period of residence. They do so simply by defining the gains by reference to the period in which they arise. There is a difference between those approaches, and I do not consider this distinction to be too subtle for the purposes of the Treaty (pace the Commissioners). There is no reason why the Treaty should not acknowledge it, without the need for the creation of the artificial deeming concept created by the Commissioners. There is therefore no warrant for the construction of the Commissioners, and the parties are right to disclaim it. I think that the true analysis lies elsewhere."
"The other significant point favouring Mr Prosser's analysis is Article 24, which Mr Prosser submits does not work properly (or at all) if one is trying to resolve a conflict between two charges based on residence. I think that he is right about that, and Mr Brennan went so far as to accept that its operation is "a bit obscure" in relation to resolving the competition where two states seek to charge on the basis of successive periods of residence (which is his case as to what should happen here). I do not think that "a bit obscure" really does it justice. It does not really work. The essence of the provision is as follows. Each of the UK and Mauritius will give credit for tax paid on sources from within the other territory. Thus the UK gives credit for Mauritius tax paid where the source of the tax was in Mauritius, and vice versa. Residence is used to help resolve any difficulties of where to start - see Art 24(4). It presupposes that a taxpayer is resident in one, and one only, Contracting State. The presupposition is not explicit, but looking at the mechanics it is apparent that it cannot be made to work if the taxpayer is resident in both states. So Mr Brennan's own resolving mechanism is against him. The Commissioners thought that Article 24 could be made to work by a process of iteration. No-one sought to explain to me how that could work, and I do not see how it can. If a process of iteration is to work, one has to have a starting point. The starting point is not clear - is it to be Mauritius or the UK? That may not matter if there is a process of iteration which gives the same result no matter where one starts, but I do not understand what that process is. And if it were to work I cannot accept that this sort of process, which might be entertaining to mathematicians but not to anyone else, is a sensible basis for construing a Treaty which is supposed to have a practical application. Nor is it practicable to look to Article 27 as a provision of last resort in this sort of case, which Mr Brennan says it is. I have not set it out, but it provides for the resolution of disputes by dealings between the States. The draftsman (or the States) cannot sensibly have thought that this was a practical way of resolving an Article 24 dispute in circumstances such as these. There is an alternative approach which makes that unnecessary, and is therefore more attractive as an answer to the problem of construction. That answer is Mr Prosser's approach."
"As a result of these considerations, the 'place of effective management' has been adopted as the preference criterion for persons other than individuals. The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity's business are in substance made. The place of effective management will ordinarily be the place where the most senior person or group of persons (for example a board of directors) makes its decisions, the place where the actions to be taken by the entity as a whole are determined; however, no definitive rule can be given and all relevant facts and circumstances must be examined to determine the place of effective management. An entity may have more than one place of management, but it can have only one place of effective management at any one time."
"Nevertheless during the Mauritius period the influence of Mr Smallwood, who was the settlor and who alone had the power to appoint new trustees, and the guiding hands of Mr Gadd and Mr Turbervill of KPMG Bristol, were evident throughout. We first consider the evidence about the role of KPMG Bristol."
"136. We accept the evidence of Ms Taher that there was no formal appointment by PMIL as trustee of the Trust for KPMG Bristol to advise PMIL "but then they were all part of the KPMG network, and they had introduced the [Trust] client to us, so it was normal practice for us to deal with another KPMG office; it was normal practice for us to take some advice from the other KPMG offices who were dealing with the particular company or trust". Mr Jingree told us that it was normal practice within his firm to get in touch with the person who had introduced a client and to keep the introducer briefed about progress.
137. In the light of this evidence we find that KPMG Bristol saw themselves as tax advisers to the trustees of the Trust, being first Lutea and then PMIL. There was no formal appointment by PMIL but that was not regarded as necessary as both KPMG Bristol and KPMG Mauritius were "under the KPMG umbrella". With that conclusion in mind we turn to examine the facts relevant to the place of effective management.
The relevant facts
138. The tax planning scheme was devised by KPMG Bristol as tax advisers to Lutea, the previous trustee of the Trust. Mr Smallwood had retired as Chairman of FirstGroup and any restrictions on the sale of the FirstGroup shares had been lifted. A tax efficient way of diversifying the portfolio of investments held for the Trust was needed. The appointment of trustees in Mauritius had been the idea of Mr Turbervill and the details were described to Mr Smallwood as early as August 2000. Mr Smallwood had the power to appoint new trustees. It was Mr Turbervill who approached PMIL and told them about the tax planning proposals and set out the basis of their appointment in the email of 24 November 2000. That made it clear that the confident expectation was that the shares would be sold before 5 April 2001.
139. We accept the evidence of Ms Taher that she did not understand "the basis" referred to in the email of 24 November 2000 as to mean that the sale of the shares was a condition for PMIL to accept the appointment as trustee; her evidence was that the trustees would wish to receive appropriate advice and recommendations. However, she accepted that eventually as part of the tax planning exercise the shares would be sold at some time. We accept the evidence of Mr Jingree that there was no agreement that PMIL would behave in a certain way or make certain decisions as a quid pro quo for the introduction of the Trust. PMIL's duties as trustee were laid down in legislation and in the trust deed and PMIL would only act within the context of what it was allowed to do. We also accept the evidence of Mr Jingree that the whole point of the tax planning exercise was to sell the shares and to realise the gain and to avoid tax on the gain.
140. The facts surrounding the appointment of PMIL lead us to the view that the real top level management, or the realistic, positive management of the Trust, remained in the United Kingdom. We accept that the administration of the Trust moved to Mauritius but in our view the "key" decisions were made in the United Kingdom.
141. This view is confirmed by subsequent events. The sale of the FirstGroup shares was not an isolated decision taken by PMIL on 10 January 2001. It had been carefully arranged beforehand by the transfer of the shares to Quilter to be held in their nominee account. Further, Mr Bazzone of Quilter had been told of the tax planning exercise and that Quilter would be asked to dispose of the holding of FirstGroup shares after PMIL had been appointed. It was when Mr Bazzone of Quilter told Mr Gadd on 4 January 2001 that he needed instructions from the new trustees that Mr Turbervill prompted PMIL to get on with what they should be doing. At no time did Mr Bazzone recommend the sale of all the shares but the sale of all the shares fitted in with the tax planning scheme. When Mr Bazzone wrote on 6 January to PMIL about the sale of the shares Mr Jingree was away from the office and Mr Shah asked Mr Turbervill for advice. There was then a delay in PMIL receiving the deed of indemnity and Mr Turbervill sent his email of 8 January to PMIL, Lutea and Mr Bazzone that no instructions to sell the shares should be given until the deed had been received. PMIL also asked Mr Turbervill to help with the opening of the account with Quilter and Mr Turbervill suggested an investment objective of capital growth with medium risk. Even on the date of the decision to sell Mr Bazzone had to remind PMIL how many FirstGroup shares were to be sold. Mr James Baxter of Merchant took the initiative in obtaining a set of account opening forms for Merchant.
142. We accept the evidence of Mr Jingree that the sale of the shares was motivated by United Kingdom tax planning reasons. The purpose of selling all the shares was to ensure that the tax planning which had been put in place worked to the best advantage of the Trust and it was vital that all of the shares were sold prior to the end of March in order to achieve this. The decision to sell all the shares was made in the hope that all the shares could be sold before the end of March. However, if it had not been in the interests of the beneficiaries and the Trust, the trustees would not have sold the shares; "if the funds which had been realised had to go away in taxes then it would not have been in the best interests of the beneficiaries". Also, if the share price dropped dramatically, and if the fund manager had advised against a sale, then the trustees would not have decided to sell. We also accept the evidence of Ms Taher that the decision to sell all the shares was based upon tax planning and the need for the shares to be sold by a particular date. The fact that the share price had gone up was not the "driver" for the sale of the shares.
143. We fully accept that the decision to sell the shares that day was taken by the directors of PMIL at the telephone meeting on 10 January 2001. We also accept that if, for example, the price of the shares had fallen to a level that meant that no gain would be realised on their disposal, the shares would not have been sold but would have been retained and perhaps sold later. Nevertheless, in our view this was a lower level management decision as there was no doubt that the shares would be sold; the real top level management decisions, or the realistic, positive management decisions of the Trust, to dispose of all the shares in a tax efficient way, had already been, and continued to be, taken in the United Kingdom. The "key" decisions were made in the United Kingdom.
144. Finally the events after the sale of the shares confirm our view. The tax planning exercise was completed by the appointment of United Kingdom trustees. We remark that PMIL's fee note was approved by Mr Turbervill.
145. We conclude that the state in which the real top level management, or the realistic, positive management of the Trust, or the place where key management and commercial decisions that were necessary for the conduct of the Trust's business were in substance made, and the place where the actions to be taken by the entity as a whole were, in fact, determined between 19 December 2000 and 2 March 2001 was the United Kingdom."
"42 On 4 January 2001 Mr Bazzone telephoned Mr Gadd and said that he had received the share certificates for the FirstGroup shares from Lutea but had not received any notification from the new trustees. The shares were showing a price of £2.60 but instructions were needed from the trustees. Mr Bazzone thought it would be difficult to sell all the shares in one go but they could possibly be disposed of in tranches and he would await instructions from the offshore trustees. Mr Gadd told Mr Turbervill that he had spoken to Mr Bazzone who was recommending that the shares be sold and asked Mr Turbervill to find out what was going on in Mauritius.
43. Mr Turbervill then telephoned Mauritius to find out what was happening and to prompt them to get on with anything that they should be doing or that he thought they should be doing. He spoke to Mr Shah of PMIL and "asked for an update". Mr Turbervill mentioned that Mr Bazzone (of Quilter) thought that the FirstGroup share price was very favourable at £2.56 and that he advised that they should all be sold. Mr Shah said that Mr Jingree was out but if an email were sent outlining the advice it would be dealt with more quickly. Mr Turbervill made a note for himself that it was advisable for Quilter to have an engagement letter with PMIL.
44. We accept the evidence of Mr Bazzone that at no time did he recommend that all the shares should be sold. Mr Turbervill told us that he interpreted what Mr Bazzone had said as that all the shares should be sold which fitted in with the original tax planning scheme."
" At para  of his judgment the judge had examined four cases in which (as he said) the courts had recognised the considerations to which he had just alluded. Those cases were Re Little Olympian Each Ways Ltd  1 WLR 560, Esquire Nominees Ltd v Comr of Taxation (1971) 129 CLR 177, New Zealand Forest Products Finance NV v Comr of Inland Revenue  2 NZLR 357 and Untelrab Ltd v McGregor (Inspector of Taxes)  STC (SCD) 1. He accepted, of course, that each of those cases was decided on its own facts; but 'they do have some common features which … are relevant to the present case'. He identified those features at para :
' … They all involved persons based in one jurisdiction (commonly a high tax jurisdiction) causing companies to be established in other jurisdictions (commonly low or no tax jurisdictions). In all the cases the companies so established were intended to fulfil particular purposes which were ancillary to the activities of the persons who caused them to be established. In all the cases the local managements did not take initiatives, but responded to proposals (described in some passages in the judgments as instructions) which were presented to them. In all the cases they did implement the proposals, and it is obvious that, when the foreign companies had been established, the confident expectation was that they would implement the proposals. In general, although large amounts of money may have been involved, the functions which the companies were established to fulfil did not involve much regular activity, so there was no great need for frequent exercises of central management and control.
And he observed that:
… except for Unit Construction v Bullock, Mr Brennan did not refer me to any case which might give a different impression of the law from the four cases which I have described. Further, in all four of them Unit Construction v Bullock was expressly distinguished. The essential ground of distinction was that, whereas in Unit Construction v Bullock the parent company itself exercised central control and management of the African subsidiaries, effectively by-passing the local boards altogether, in the four cases the parent companies or their equivalents, while telling the local boards what they wished them to do, left it to the local boards to do it.'
 In my view the judge was correct in his analysis of the law. In seeking to determine where 'central management and control' of a company incorporated outside the United Kingdom lies, it is essential to recognise the distinction between cases where management and control of the company is exercised through its own constitutional organs (the board of directors or the general meeting) and cases where the functions of those constitutional organs are 'usurped'—in the sense that management and control is exercised independently of, or without regard to, those constitutional organs. And, in cases which fall within the former class, it is essential to recognise the distinction (in concept, at least) between the role of an 'outsider' in proposing, advising and influencing the decisions which the constitutional organs take in fulfilling their functions and the role of an outsider who dictates the decisions which are to be taken. In that context an 'outsider' is a person who is not, himself, a participant in the formal process (a board meeting or a general meeting) through which the relevant constitutional organ fulfils its function."
"POEM, on the other hand, must be concerned with what happens in both states since its purpose is to resolve residence under domestic law in both states, caused for whatever reason, which could include incorporation in one state and management in the other, or different meanings of management applied in each state, or different interpretations of the same meaning of management applied in each state, or divided management. One must necessarily weigh up what happens in both states and according to the ordinary meaning to be given to the terms of the treaty in their context (to quote article 31 of the Vienna Convention on the Law of Treaties) decide in which state the place of effective management is found. Effective is used elsewhere in the OECD model and the Treaty in "effectively connected" in articles 10, 11 and 12 which is an odd use of English. We believe "effective" should be understood in the sense of the French effective (siège de direction effective) which connotes real, French being the other official version of the Model, though not of the Treaty. In our hypothetical example of de Beers being a dual resident, it then becomes material to what level of management the effective management refers, and only then is it relevant to discuss whether the level of effective management is similar to the level of CMC. Fortunately matters of that sort do not arise in this appeal. Accordingly, having regard to the ordinary meaning of the words in their context and in the light of their object and purpose we approach the issue of POEM as considering in which state the real management of the trustee qua trustee is found."
Lord Justice Hughes :
"In relation to settled property the trustees of the settlement shall for the purpose of this Act be treated as being a single and continuing body of persons (distinct from the person who may from time to time be the trustees) and that body shall be treated as being resident and ordinarily resident in the United Kingdom unless the general administration of the trusts is ordinarily carried on outside the United Kingdom and the trustees or a majority of them for the time being are not resident or not ordinarily resident in the United Kingdom."
The POEM with which this case is concerned is, as it seems to me, the POEM of the trust, i.e. of the trustees as a continuing body. That is the question which the Special Commissioners addressed: see their paragraphs 140 and 145.
Lord Justice Ward :