QUEENS BENCH DIVISION
London, WC2A 2LL
B e f o r e :
| RORY KERR CARVILL
|- and -
|COMMISSIONERS of INLAND REVENUE
Smith Bernal Wordwave Limited, 190 Fleet Street
London EC4A 2AG
Tel No: 020 7421 4040, Fax No: 020 7831 8838
Official Shorthand Writers to the Court)
Mr R Singh QC & Mr H McKay (instructed by the Solicitor of Inland Revenue) for the defendant
Crown Copyright ©
Mr Justice McCOMBE :
"(1) Mr. Carvill pursues his claim for repayment of 100% of the tax and interest for the earlier Years on the basis of the disparity of treatment accorded to Mr. Carvill as compared with the Revenue's practice of repaying tax paid under assessments which have become final and conclusive when a subsequent decision reveals that those assessments may have been erroneous.
(2) Mr. Carvill pursues a claim, in the alternative of 41% of that same tax and interest on the basis of certain assumptions made in respect of the preliminary issues and, in particular, that the assessments were contrary to the Revenue's then unpublished practice and/or understanding of the law to the extent that the assessments sought charge Mr. Carvill on income which was attributable to the "Old Minority Shares", unless it can be established that Mr. Carvill processed the transfer of those shares by the relevant shareholders. In this respect, it is said that the Revenue's officers having conduct of the first appeals knew or ought to have known
a) the practice;
b) that there was no allegation that Mr. Carvill had procured the transfer of those shares;
c) that Mr. Carvill and his advisers were or were unlikely to be aware of the practice.
(3) Further, Mr. Carvill contends that the Revenue's failure at the time of the first appeals to inform Mr. Carvill of the practice mentioned in (2) above or to apply it before agreeing the income assessable at that time has resulted in inconsistent treatment of Mr. Carvill compared with other taxpayers".
" …. I believe that the subject is nowhere better discussed than by Sir William Wade in chapter 12, "Abuse of Discretion," of his authoritative textbook, Administrative Law, 6th ed. (1988), pp. 388-462. The author, with the aid of examples covering more than a century, clearly demonstrates that what we are accustomed to call Wednesbury unreasonableness is a branch of the abuse, or misuse, of power: the court's duty is not to interfere with a discretion which parliament has entrusted to a statutory body or an individual but to maintain a check on excesses in the exercise of discretion. That is why it is not enough if a judge feels able to say, like a juror or like a dissenting member of the Cabinet or fellow-councillor, "I think that is unreasonable; that is not what I would have done." It also explains the emphatic language which judges have used in order to drive home the message and the necessity as judges have seen it, for the act to be so unreasonable that no reasonable minister etc. would have done it. In that strong, and necessary emphasis lies the danger. The seductive voice of counsel will suggest ( I am not thinking specifically of the present case) that, for example, ministers, who are far from irrational and indeed are reasonable people , may occasionally be guilty of an abuse of power by going too far. And then the court is in danger of turning its back not only on the vigorous language but on the principles which it was intended to support. A less emotive but, subject to one qualification, reliable test is to ask, "Could a decision-maker acting reasonably have reached this decision?" The qualification is that the supervising court must bear in mind that it is not sitting on appeal, but satisfying itself as to whether the decision-maker has acted within the bounds of his discretion. …"
"… a taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties including their duties under section 460 to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness but the commissioners themselves must bear in mind that their primary duty is to collect, not to forgive taxes. And if the commissioners decide to proceed the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. The commissioners possess unique knowledge of fiscal practices and policy. The commissioners are inhibited from presenting full reasons to the court for their decisions because of the duty of confidentiality owed by the commissioners to each and every taxpayer.
The court can only intervene by judicial review to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that "the unfairness" of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers an abuse of power by the commissioners. … "
 1 AC at p. 864
"… In principle I see no reason why the appellant should not be entitled to judicial review of a decision taken by the commissioners if the decision is unfair to the appellant because the conduct of the commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuse of power for which in the present case judicial review is the sole remedy and an appropriate remedy. …"
 1 AC at p. 866H-867A
Mr. Singh further relied on the following passage in the judgment of Judge J (as he then was) in R v CIR ex p. MFK Underwriting Agencies Ltd (1989) 62 T.C. 607 at p. 647 E-G.
"There is a detailed procedure for resolving disputes between the Inland Revenue and the taxpayer and if necessary for bringing such disputes to the courts for decision. In addition, however, as the Inland Revenue is an "administrative body with statutory duties" (per Lord Wilberforce in Regina v Commissioners of Inland Revenue ex parte National Federation of Self Employed at page 632) it is not immune from an order for judicial review. Since the decision in the House of Lords in Regina v Commissioners of Inland Revenue ex parte Preston  AC 835 the principle has been established that acts which are an abuse of the Inland Revenue's powers or acts done outside those powers may be subject to judicial review.
Abuse of power may take the form of unfairness. This is not mere "unfairness" in the general sense. Even if "unfair", efficient performance of the statutory obligations imposed on the Inland Revenue will not, of itself, amount to an abuse of power"
Miss Gloster points out that this was said in a "legitimate expectation" case and not one dealing with the review of a decision upon grounds such as those alleged here. However, the statement is, in my view, of assistance in considering questions of unfairness and abuse in a case where the "detailed procedure" has been involved and applied on two occasions as here.
"… (i) The Revenue's public duty is to collect taxes imposed by Parliament in accordance with the will of Parliament. A taxpayer's entitlement to deduct trading losses from same-year profits is not absolute: it is subject to the making of a claim within the statutory time-limit. It is not for the Revenue, or the taxpayer, or the courts to override a clear statutory time limit on the ground that it is unnecessary or merely regulatory.
(ii) There was no clear, unambiguous and unqualified representation by the Revenue, oral or written, such as was held to be necessary in R v IRC, ex p MFK Underwriting Agencies Ltd  STC 873,  1 WLR 1545 before it could be held unfair for the Revenue to do its duty. The Revenue's conduct, on 30 occasions over 20 years, could not be relied on as making such a representation. In any event, the conduct relied on was silence and inaction, in failing to point out and disallow late claims, and in private law such conduct would not found an estoppel unless there was a duty to speak, which here there was not.
(iii) If the Revenue were to be held to have acquiesced in or waived any failure by Unilever to comply with the time limit for making loss-relief claims, it had to be shown that it had done so knowingly. It could not acquiesce in or waive any non-compliance of which it was unaware. Here the evidence was that on 30 critical occasions the Revenue had simply failed to notice that the claim was late. It was clear on the evidence that the Revenue had followed no settled policy or practice of accepting late claims.
(iv) 'Unfairness' in public law is not used in a loose general sense (see MFK Underwriting  STC 873 at 895,  1 WLR 1545 at 1573 per Judge J). Where substantive unfairness is alleged, it is necessary to show a recognised form of unfairness, such as departure from a ruling on which the taxpayer has relied or inconsistency prejudicial to the taxpayer (cf HTV Ltd v Price Commission  ICR 170). The 'court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair' (see Preston v IRC  STC 282 at 293,  AC 835 at 864 per Lord Templeman)".
(It perhaps should be explained that the Master of the Rolls did not identify which of the "almost all" he did not accept!)
"(10) On an objective but untechnical view, it would be hard to regard Unilever as owing £17m additional tax to the Revenue. If this tax is due it can fairly be regarded as an adventitious windfall, accruing to the Revenue through the understandable error of an honest and compliant taxpayer, cleared over many years by the Revenue."
Sir Thomas opined that the ten factors, cumulatively persuaded him that on the unique facts of that case the application for judicial review should succeed. His judgment also included the much cited sentences, "The threshold of public law irrationally is notoriously high" and "… in all save the most exceptional circumstances the Revenue are the best judges of what is fair". I was also grateful for the following distinction drawn by Simon Brown LJ in the Unilever case (at p.695) which he described as "… determining the border between on the one hand mere unfairness – conduct which may be characterised as "a bit rich" but nevertheless understandable – and on the other hand a decision so outrageously unfair that it should not be allowed to stand".
"My clients have now given careful consideration to your letter of 5 July. They are not persuaded that Mr Carvill is entitled to the repayment claimed.
The Inland Revenue does not share your interpretation of the decision of Dr Avery Jones. Dr. Avery Jones had no jurisdiction to find that the conclusion reached by Mr Everett in the early appeals was wrong, and he did not purport to make such a finding. He made different findings of fact (and having done so referred to several advantages he had over Mr Everett, including access to many of Mr Tuson's documents, the benefit of hearing more witnesses, and the benefit of an extremely detailed cross-examination) but Dr Avery Jones did not suggest that Mr Everett was not entitled to make the findings he did on the evidence adduced before him.
For its part, the Inland Revenue may not agree with Dr Avery Jones's findings, but that is beside the point. It is Parliament that has laid down the procedures for ascertaining the facts in disputed cases and the correct amount of tax payable by taxpayers. Those procedures include a right of appeal which Mr Carvill exercised in respect of two different sets of assessments. The Inland Revenue is bound by the result of both sets of appeals, because Parliament provided that an appeal was the only route by which the question whether an assessment was correct or in correct might be answered.
It follows that your statement that the earlier decision "retains no vestige of credibility whatsoever" is misconceived, and it is not accepted that you have shown by reference to subsequent events or otherwise that the tax assessed on Mr Carvill under section 739 for the 1987/8 to 1992/3 years has never been due.
You have referred to the treatment accorded to certain closed cases following the House of Lords decision in the Willoughby case. The Press release of 18 December 1997 which followed that case made clear that the Inland Revenue would meet claims to repayment in respect of personal portfolio bond cases affected by the House of Lords' decision, where those cases had become final on or after 16 December 1994 (the date of the Court of Appeal decision in the Willoughby case), where repayment would be in accordance with published Inland Revenue practice (see the Inspectors Manual at paragraph 5044). The Inland Revenue also announced that, in the exceptional circumstances of that matter, including the particular handling in the past of individual cases, it would consider any repayment application for any other personal portfolio bond case affected by the House of Lords' decision which has become final before 16 December 1994. The Press Release of 18 December 1997 related solely to the judgment of the House of Lords in the Willoughby case, and my clients consider that there are significant distinctions between Mr Carvill's case and those cases falling within the scope of the treatment outlined in the Press Release.
You referred also to the practice known as "equitable liability" but I do not understand you to say that the practice applies to your client. Clearly it does not, nor does the Inland Revenue accept that the practice should extend to him.
The Inland Revenue does of course want taxpayers to pay the right amount of tax. However, The Special Commissioners have determined the right amount of tax due from Mr Carvill and my clients do not accept that the circumstances of his case justify them in making a repayment to Mr Carvill of tax paid in accordance with the determination of Mr Everett".
"where circumstances of the case and in the light of all the evidence, it is clearly demonstrated that:
- the liability assessed is greater than the amount which would have been charged had the returns, and necessary supporting documentation, been submitted at the proper time, and
- acceptable evidence is provided of what the correct liability should have been.
In such cases the Inland Revenue may be prepared to accept a reduced sum based on the evidence provided, and not to pursue its right of recovery for the full amount". (See Tax Bulletin – TB18N.)
"45. It seems to us that the effect of these authorities is plain. One of the primary tasks of the Commissioners is to recover those taxes which Parliament has decreed shall be paid. Section 1 of the 1970 Act permits the Commissioners to set about this task pragmatically and to have regard to principles of good management. Concessions can be made where those will facilitate the overall task of tax collection. We draw attention, however, to Lord Diplock's statement that the Commissioners' managerial discretion is as to the best manner of obtaining for the national exchequer the highest net return that is practicable.
46. No doubt, when interpreting tax legislation, it is open to the Commissioners to be as purposive as the most pro-active judge in attempting to ensure that effect is given to the intention of Parliament and that anomalies and injustices are avoided. But in the light of the authorities that we have cited above and of fundamental constitutional principle we do not see how section 1 of the TMA can authorise the Commissioners to announce that they will deliberately refrain from collecting taxes that Parliament has unequivocally decreed shall be paid, not because this will facilitate the overall task of collecting taxes, but because the Commissioners take the view that it is objectionable that the taxpayer should have to pay the taxes in question."
" 6. Can the Defendant rely upon the terms of the First Decision as a complete defence to the Claim for judicial Review seeking recovery of the full amount of the sums paid by the Claimant in respect of the Defendant's claim for income tax and statutory interest for the Earlier Years.
That question was answered "Yes" in the learned judge's order on the preliminary issues, paragraph 3 and the Schedule. That issue was, however, based upon certain assumptions of facts which were those made upon Issue 2 (the Restitution Claim), (paragraph 11 of the learned judge's judgment) and the additional two assumptions identified for Issue 6 itself. Of particular importance in the present matter are Assumptions 2.5 and 6.1. They are in the following terms:
" 2.5 No appeal has been entered against the Second Decision and the chargeability of the Claimant to income tax for years of assessment falling after the Later Years had been determined upon the basis that Section 741 applies to the same transfer of assets and associated operations relied upon by the Defendants in support of their claim to tax and interest for the Earlier Years".
" 6.1 The Defendants have not appealed against the Second Decision and are acting for future years upon the basis that the Second Decision was correct in relation to the application of Section 741 to the transfers of assets and associated operations relied upon by the Defendants in support of the income tax charge for the Earlier Years" (underlining added by me).
" … On those assumptions the only matters which the Claimant can pray in aid as supporting the heavy charge of irrationality are in essence the fact that Special Commissioner Avery-Jones CBE came to the decision on the evidence before him (which was additional and different to that which had been before Special Commissioner Everett) that the relevant transactions on which the assessments for all the years had been based were bona fide commercial transactions not designed for any tax avoidance purpose, and the fact that in the light of that decision and that evidence the Defendants have decided not to make assessments in respect of the future years. While I can see that on those facts it may be open to the Defendants to consider whether or not to forgive the liability to tax established by the First Decision, and that a refusal by them to give that question any consideration might be reviewable, I cannot see how it can be said that it is necessarily irrational for the Defendants, by reference to those facts alone, to have decided after consideration not to forgive the liability. In that sense the First Decision can be relied upon as a complete defence to the Claim for Judicial Review". (Underlining added by me.)
" 12. Whether the Human Rights Act 1998 has any application to the Claimant's tax liabilities in respect of final appeals covering years of assessment ending prior to 2 October 2000 where those appeals were themselves final before 2 October 2000?"
Thus, the 1998 Act had no bearing on the Restitution Claim and, for that reason and the other reasons given, that claim was struck out. However, it was accepted by the parties and by the learned judge that that issue and three other issues should not be decided on that occasion. Therefore, while it is now clear that the 1998 Act has no bearing upon Mr. Carvill's private law rights, it may be relevant to his public law rights.
"Protection of property
Every natural or legal person is entitled to the peaceful enjoyment of his possessions except in the public interest and subject to the conditions provided for by law and by the general principle of international law.
The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it determines necessary to control the use of property in accordance with the general interest or to secure the payment of taxes or other constrictions or penalties".
"A wide range of economic interests are protected under art 1 of the first protocol. These include … a legitimate expectation that a certain state of affairs will apply …".
The author cites Pine Valley Developments Ltd v Ireland (1991) 14 EHRR 319.
" … 8.1 In the appeal against the assessments for the Earlier Years the Defendants did not contend nor was it found by the Special Commissioner that the Claimant had procured the transfer of the Old Minority Shares to International Holdings;
8.2 the amount of income tax chargeable in the event that section 741 did not apply was agreed by the parties and was not determined by the Special Commissioner;
8.3 such assessments were contrary to the Defendants' then unpublished practice and/or understanding of the law to the extent that the assessments sought to charge the Claimant to income tax on income which was attributable to the Old Minority Shares unless it could be established that the Claimant had procured the transfer of the Old Minority Shares by the Old Minority Shareholders.
8.4 the Officers of the Inland Revenue having conduct of the appeal on behalf of the Defendants either knew or, with the exercise of reasonable care, should have known:
8.4.1 the facts at 8.3 above; and/or
8.4.2 the Defendants were not alleging that the Claimant had procured the transfer of the Old Minority Shares;
8.4.3. the Claimant and his advisers were or were unlikely to be aware of such internal practice and, in the absence of a finding by the Special Commissioner that the Claimant had procured the transfer of the Old Minority Shares, would be acting under a mistake in agreeing that an amount of income tax calculated by reference to dividends paid in respect of the Old Minority Shares would be chargeable in the event that Section 741 did not apply;
8.5. In the Second Decision the Deputy Special Commissioner, Dr Avery-Jones C.B.E, (a) expressly found that the Claimant had not procured the transfer of the Old Minority Shares, and (b) was correct to do so."
At the end of his Judgment on this preliminary issue, Mr Justice Hart noted that the Revenue accepted that, if all the assumptions recited by him at 8.1 to 8.5. were established, Mr Carvill would have grounds for complaining that there had been an abuse of power which could found a claim for Judicial Review (paragraph 45). Mr Singh points out that the word used is "could" not "would".