England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE HIGH COURT OF JUSTICE
ADMINISTRATIVE COURT

		Royal Courts of Justice Strand, London, WC2A 2LL
		24 July 2002

Mr Justice Hart :

1. There are before me 14 preliminary issues ordered to be determined by Burton J by an order dated 11 January 2002. I am told that Burton J indicated that the court hearing those issues might conclude that one or more of them was inappropriate to be determined as preliminary issues. As appears below, that has happened.
2. The preliminary issues arise in relation to two sets of proceedings; first, a claim brought by the claimant against the defendants for recovery of the full amount of the sums paid by the claimant in respect of the defendants’ demand for income tax and statutory interest for the years 1987/1988 to 1992/1993 inclusive (“the Earlier Years”). This claim (“the Claim for Restitution”) was issued in the Chancery Division on 28 March 2001; and, secondly, a claim brought by the claimant for judicial review of the defendants’ decision not to refund the whole or any part of the sums paid by the claimant against the defendants’ demands for income tax and statutory interest for the Earlier Years. This claim (the Claim for Judicial Review) was commenced in the Administrative Court on 20 August 2001.
3. The background against which both claims are made consists of assessments to income tax made on the claimant in respect of the Earlier Years under Section 739 of the Income and Corporation Taxes Act 1988 (and in respect of the first of those years its predecessor Section 478 of the Income and Corporation Taxes Act 1970). The claimant appealed against those assessments (“the First Appeal”) and that appeal came before a Special Commissioner, Mr T K H Everett, in November 1994.
4. By a decision dated 8 December 1994 (“the First Decision”) the Special Commissioner held that the appeals failed, and determined the assessment in figures which had been agreed between the parties, namely

1987/88       £785,142

1988/89       £517,512

1989/90       £854,964

1990/91       £591,998

1991/92       £445,617

1992/93       £559,770

5. The claimant required a case to be stated pursuant to Section 56 of the Taxes Management Act 1970, but subsequently (after a substantially unsuccessful attempt to require Special Commissioner Everett to restate the Case - see [1995] 70 TC 126) withdrew his appeal to the High Court. He paid the tax in April 1995 and the statutory interest in June 1996. He now wants his money back. The Claim in Restitution and the Claim for Judicial Review have been designed as alternative routes to that end.
6. The defendants issued further assessments under Section 739 for the years 1993/4 to 1995/6 (“the Later Years”), and the claimant appealed these assessments (“the Second Appeal”). These appeals were heard by a Special Commissioner, Dr Avery Jones CBE. in November 1999 and February 2000. By a decision dated 20 March 2000 (“the Second Decision”) he allowed the appeals. The defendants have not sought to appeal the Second Decision. They have also indicated that they do not propose to issue Section 739 assessments on the claimant in respect of the years of assessment from 1996/7 and onwards.
7. The central issue for determination on each occasion was whether Section 739 applied. The relevant statutory provisions are, so far as material, as follows:

“CHAPTER III

TRANSFER OF ASSETS ABROAD

739. Prevention of avoidance of income tax

(1) Subject to section 747(4)(b), the following provisions of this section shall have effect for the purpose of preventing the avoiding by individuals ordinarily resident in the United Kingdom of liability to income tax by means of transfer of assets by virtue or in consequence of which, either alone or in conjunction with associated operations, income becomes payable to persons resident or domiciled outside the United Kingdom.

(2) Where by virtue or in consequence of any such transfer, either alone or in conjunction with associated operations, such an individual has, within the meaning of this section, power to enjoy, whether forthwith or in the future, any income of a person resident or domiciled outside the United Kingdom which, if it were income of that individual received by him in the United Kingdom, would be chargeable to income tax by deduction or otherwise, that income shall, whether it would or would not have been chargeable to income tax apart from the provisions of this section, be deemed to be income of that individual for all purposes of the Income Tax Acts.”

...........

“741. Exemption from sections 739 and 740

Sections 739 and 740 shall not apply if the individual shows in writing or otherwise to the satisfaction of the Board either -

(a) that the purpose of avoiding liability to taxation was not the purpose or one of the purposes for which the transfer or associated operations or any of them were effected; or

(b) that the transfer and any associated operations were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation.

The jurisdiction of the Special Commissioners on any appeal shall include jurisdiction to review any relevant decision taken by the Board in exercise of their functions under this section.

.........

742. Interpretation of sections 739 to 741

(1) For the purposes of sections 739 to 741 “an associated operation” means, in relation to any transfer, an operation of any kind effected by any person in relation to any of the assets transferred or any assets representing, whether directly or indirectly, any of the assets transferred, or to the income arising from any such assets, or to any assets representing, whether directly or indirectly, the accumulations of income arising from any such assets.

(2) An individual shall, for the purposes of section 739, be deemed to have power to enjoy income of a person resident or domiciled outside the United Kingdom if -

(a) the income is in fact so dealt with by any person as to be calculated, at some point of time, and whether in the form of income or not, to enure for the benefit of the individual; or

(b) the receipt or accrual of the income operates to increase the value to the individual of any assets held by him or for his benefit; or

(c) the individual receives or is entitled to receive, at any time, any benefit provided or to be provided out of that income or out of moneys which are or will be available for the purpose by reason of the effect or successive effects of the associated operations on that income and on any assets which directly or indirectly represent that income; or

(d) the individual may, in the event of the exercise or successive exercise of one or more powers, by whomsoever exercisable and whether with or without the consent of any other person, become entitled to the beneficial enjoyment of the income; or

(e) the individual is able in any manner whatsoever, and whether directly or indirectly, to control the application of the income.

(3) In determining whether an individual has power to enjoy income within the meaning of subsection (2) above -

(a) regard shall be had to the substantial result and effect of the transfer and any associated operations, and

(b) all benefits which may at any time accrue to the individual (whether or not he has rights at law or in equity in or to those benefits) as a result of the transfer and any associated operations shall be taken into account irrespective of the nature or form of the benefits.

.........

(9) For the purposes of sections 739 to 741 -

(a) a reference to an individual shall be deemed to include the wife or husband of the individual;

(b) “assets” includes property or rights of any kind and “transfer”, in relation to rights includes the creation of those rights.

............”

8. On both the First Appeal and the Second Appeal the claimant had sought to satisfy the Commissioner of the facts set out in paragraphs (a) and (b) of section 741. He failed to do so on the First Appeal but succeeded in doing so on the Second Appeal.
9. For the purposes of the issues which I have to decide it is only necessary to set out the transactions at which the assessments were directed in skeletal form, as follows:

(1) In 1976 the claimant incorporated R K Carvill & Co Ltd (“Carvill UK”), and Carvill UK commenced trading as a reinsurance broker placing US reinsurance business in the London market.

(2) In 1977 the claimant established a second UK company, R K Carvill (Holdings) Ltd (“Holdings”) which acquired 100% of the share capital of Carvill UK.

(3) In 1980 the claimant established another company, R K Carvill (International) Ltd (“International”). The share capital in International, which was incorporated in Bermuda, was acquired by Holdings. The share capital of Holdings was owned as to 59% by the claimant and 41% by other parties (“the minority shareholders”);

(4) In December 1980 the claimant acquired from Holdings 51% of its shareholdings in International.

(5) Under a scheme which came into effect on 1 January 1983 the claimant’s 59% holding in Holdings was exchanged for an equivalent shareholding in a new Bermudan company R K Carvill (International Holdings) Ltd (“International Holdings”). The same applied to the minority shareholders’ 41% holding.

(6) In 1985 the claimant purchased a further 10% of the shares in International Holdings from one of the minority shareholders.

(7) In December 1986, International Holdings purchased from the remaining minority shareholders their shares in itself, with the result that the claimant became entitled to 100% of the issued share capital of International Holdings.

(8) In October 1987 Holdings paid a dividend of £2.38m to International Holdings, which itself shortly afterwards paid a dividend of approximately the same amount to Mr Carvill. None of the group companies had previously paid a dividend, but dividends have been paid by Holdings to International Holdings and by the latter to the claimant in a similar manner in all subsequent years. The claimant is domiciled in the Republic of Ireland.

10. The preliminary issues (and the assumptions which I am asked to make in determining them) are set out in the Schedule to Burton J’s Order. I shall deal with them in turn, adopting the numbering there set out.
11. Issue 2

“2. Whether the Defendants can rely upon the First Decision in respect of the appeals against the section 739 assessments for the Earlier Years as a complete defence to the Claim for Restitution to recover the full amount paid against the Defendants' claim to the income tax and statutory interest for those years? ”

Assumptions

This issue should be decided upon the assumption that the following facts and issues are either admitted or established at trial:

2.1.1. In the First Decision the Special Commissioner, Mr Everett, found that the Claimant had not discharged the onus of proof of showing that the transfer of assets (together with any relevant associated operations) made by him were bona fide commercial transactions and were not designed for the purpose of avoiding liability to taxation;

2.2. the Claimant appealed by way of Case Stated against the First Decision but subsequently abandoned his appeal;

2.3. in the Second Decision the Special Commissioner, Dr Avery-Jones C.B.E., disagreed with the conclusion reached in the First Decision and made positive findings of fact that the transfer of assets and associated operations relied upon by the Defendants in relation to both the Earlier Years and the Later Years were bona fide commercial transactions, were not designed for the purpose of avoiding liability to taxation and did not have as even one of their purposes the avoidance of liability to taxation; in the premises, Dr Avery-Jones decided that Section 741 applied to such transfer of assets and associated operations;

2.4. the Second Decision was based on additional and different information and analysis from the First Decision as appears from the said decisions, and in particular:

2.4.1. the Second Decision was reached after a longer and more thorough investigation into the facts during which Dr Avery-Jones had the benefit of hearing more witnesses and having access to documentary evidence not before Mr Everett;

2.4.2. Mr Everett had drawn adverse inferences from the absence of certain documents which were not available to the Claimant at the time of the First Appeal but which when analysed during the course of the Second Appeal were concluded by Dr Avery-Jones not to found such adverse inferences and in fact to contradict the case put forward by the Defendants;

2.4.3. Mr Everett drew adverse inferences about the Claimant’s credibility from a document, which was not put to him in evidence and was not relied upon by the Defendants, the contents of which document the Defendants subsequently conceded probably represented a typographical error;

2.4.4. By contrast with the First Decision, for the purposes of the Second Appeal, the Defendants were required to state in advance the grounds on which it was contended that the relevant transfer of assets and associated operations were not bona fide commercial transactions and/or had as their purpose or one of their purposes the avoidance of liability to taxation;

2.5. No appeal has been entered against the Second Decision and the chargeability of the Claimant to income tax for years of assessments falling after the Later Years has 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 claims to tax and interest for the Earlier Years;

2.6. Dr Avery-Jones concluded that in relation to the same transactions as had been considered by Mr Everett Section 741 had always applied to the transfer of assets and associated operations relied upon by in respect of the Earlier Years and so Section 739 did not apply to deem the dividend income paid to International Holdings in respect of its shares in Holdings to be the income of the Claimant.”

12. The claimant’s allegations in the Claim for Restitution are that, in respect of the full amount claimed, there was a total failure of consideration, alternatively the defendants received the tax and interest as volunteers, alternatively that it was paid under a mistake of fact and/or law and the defendants have been unjustly enriched by the payment, alternatively that they were paid under duress and/or without lawful authority. The broad point made is that it can now be seen that section 739 did not apply because the section 741 exception was available. There is a narrower, subsidiary and alternative, case made that, even if section 739 was applicable to the transfer constituted by the claimant’s share exchange at step (5) in paragraph 9 above, the assessments which were determined by the First Decision were determined in the wrong sums as a result of a mistake made by the claimant’s advisers in the course of the hearing of the First Appeal. That narrower issue is dealt with under Issue 8. Under Issue 2 I am concerned with whether the First Decision affords a complete defence to the Claim for Restitution to recover the full amount of tax and interest paid in respect of the Earlier Years.
13. The defendants’ answer to the Claim for Restitution is, simply, that the payments made by the claimant to them were made pursuant to lawful demand under valid assessments to tax. Section 29(6) of the Taxes Management Act 1970 (“TMA”), which applied for the purposes of the assessments in respect of the Earlier Years, provided:

“(6) After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts”

Section 46(2) TMA provided:

“Save as otherwise provided in the Taxes Acts, the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive.”

14. The defendants further submit that the fact that a Case was stated did not alter the fact that tax was due in accordance with the First Decision. Section 59(6) TMA expressly states that tax shall be paid in accordance with the determination of the Commissioners. The tax demanded was recoverable as a debt due to the Crown: see section 68(1) TMA.
15. Miss Gloster QC, on behalf of the claimant, submitted that the claimant was entitled to pursue the Claim for Restitution notwithstanding these provisions on the ground that there was no lawful authority to demand tax in respect of the income paid to International Holdings in respect of the Earlier Years. The argument, stripped to its essentials, ran as follows: (1) section 739 is a penal anti-avoidance provision the express purpose and justification of which is the prevention of tax avoidance by transfers of assets by UK resident individuals which cause income to become payable to non-UK resident persons; (2) the existence of a tax avoidance purpose, which is not excepted by s. 741, is a necessary condition (in substance “a jurisdictional fact”) to the Revenue having the authority to impose tax on the individual transferor. By casting the onus on the taxpayer, section 741 provides the defendants with a procedural protection but no more. Unless the tax avoidance purpose in fact exists, there is no lawful authority to invoke section 739; (3) the necessary tax avoidance purpose did not exist in the present case. That is demonstrated by the fact that the Second Decision so found, that the Second Decision was, for a variety of reasons, a more reliable one than the First Decision, and that the defendants have decided not to invoke section 739 in relation to years subsequent to the Later Years; (4) sums paid by a citizen to a public authority pursuant to an ultra vires demand are prima facie recoverable by the citizen as of right: see Woolwich Equitable Building Society v. IRC [1993] 2 AC 70; (5) the limited statutory regime for the repayment of overpaid taxes provided by section 33 TMA (which provides no remedy for the claimant) does not exclude the claimant’s prima facie right to recover under the principle illustrated by Woolwich.
16. The foregoing argument appears to me to break down at stage (2). On the plain wording of the relevant sections, it is not the case that the presence of a tax avoidance purpose is a condition precedent to the raising of an assessment under section 739. On the contrary it is proof by the taxpayer of the absence of such a purpose which will prevent section 739 from applying. Absent such proof, the section authorises the assessment to be made. Before Special Commissioner Everett, the claimant was found to have failed to supply such proof. In the light of that finding the First Decision was correct, and the demand for tax was lawful. Cadit quaestio.
17. The analysis given in the preceding paragraph lay, as I understood it, at the heart of the defendants’ submissions from the outset. Miss Gloster and Mr Goodfellow, however, chose to see it as having been invented by the court in the course of argument and, a week after the argument had concluded, submitted further written submissions based on a careful research into all the statutory predecessors of section 739. That research showed, it was submitted, that section 739 and its statutory predecessors would not apply if one of two alternative conditions was present: namely (1) that the person charged with the decision whether to make the assessment is satisfied that the alternative defences now set out in paragraphs (a) and (b) of section 741 are satisfied in relation to the relevant transfer of assets and associated operations; or (2) on an appeal against an assessment, it is established that the alternative statutory defences apply. I do not myself see how this alters the position. In relation to the Earlier Years neither of those conditions was satisfied.
18. I recognise that there is something very odd about the fact that, although directed at different years of assessment, the two Decisions were concerned with the identical issue in relation to the same transaction. However, the oddity is no more than a reflection of the well established rule that the doctrine of res judicata does not apply to the decision of Commissioners in relation to the amount of tax due in respect of one year of assessment so as to preclude either the taxpayer or the revenue from contesting the self-same issue of fact or law on an appeal in relation to a different year of assessment: see the review of the authorities by Jacob J in King v. Walden (HMIT) [2001] STC 822 at [14] to [27], in particular the decision of Lightman J. in Barnett v. Brabyn (HMIT) [1996] STC 716, and the decision of the Privy Council in Caffoor (Trustees of the Abdul Caffoor Trust) v. Commissioner of Income Tax, Colombo [1961] AC 584 at 598 (approved by Lord of Hope of Craighead (with whom Lord Hoffmann agreed) in MacNiven (HMIT) v. Westmoreland Investments Ltd [2001] UKHL 6, [2001] 2 WLR 377 at [89].
19. On these short grounds it appears to me that the First Decision does provide a complete Defence to the Claim for Restitution to recover the full amount. It does not, therefore seem to me to be necessary to explore further Miss Gloster’s submissions as to the effect of the statutory provisions as to finality of assessments in the light of the decisions in Whitney v. IRC [1926] AC 37 and St Lucia Usines v. St Lucia Controller of Taxes [1924] AC 508 (to which I was taken). Nor, it seems to me, could Miss Gloster’s arguments derive any support in relation to the Claim for Restitution from the (plainly obiter) observations of Brooke LJ in Eagerpath Ltd v. Edwards [2001] STC 26.
20. I should add that Miss Gloster and Mr Goodfellow in their skeleton argument had sought to mount an argument that, in relation to the effect of the First Decision, the provisions of the TMA had to be construed in a manner consistent with the Claimant’s Convention rights by virtue of sections 3 and 6 of the Human Rights Act 1998. It was conceded, however, in the course of oral argument that this line of attack was not open in the light of R v. Lambert [2001] UKHL 37, [2001] 3 WLR 206 (HL), R v. Kansal (No 2) [2001] UKHL 62 [2001] 3 WLR 1562 (HL) and Home Office v. Wainwright [2001] EWCA Civ 2081 (CA).
21. Issue 3

“3. If the First Decision would not provide a complete defence to the Claim for Restitution if all the assumptions set out in sub-paragraphs 2.1 and 2.3-2.6 above were not established at trial, would the First Decision provide a complete Defence if some of such assumptions were not established at trial and if so which are those assumptions?”

This question does not arise in the light of my decision on Issue 2.

22. Issue 4

“4. In making his claim for restitution can the Claimant seek to go behind the First Decision?”

23. The answer is “no” for the reasons given under Issue 2. I would add that, if the decision were otherwise, there would appear to be no logical reason why the Claimant should not have commenced a Claim for Restitution immediately after his abandonment of his appeal against the First Decision.
24. Issue 5

“5. Can the Second Decision, in respect of the same taxpayer but for different years of assessment, and based on different evidence, overturn or otherwise affect the First Decision?”

The answer is inevitably “no” in the light of my decision on Issue 2.

25. Issue 6

Issues Relevant to the Claim for Judicial Review

“6. Can the Defendants 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 Defendants' claim for income tax and statutory interest for the Earlier Years?

Additional Assumptions

This issue should be determined upon the assumption that, in addition to the [assumptions] described at 2.1-2.6 above, the following facts and matters were admitted or established at trial:

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.

6.2 No public law wrong is alleged by the Claimant other than the unfairness said to arise from the Defendants’ continued reliance on the First Decision and/or an alleged error of law by the Defendants as to whether the Claimant was properly chargeable in respect of the income attributable to the Old Minority Shares.”

26. In tackling this issue I begin by observing that both the question which I am asked to decide, and the assumptions which I am asked to make in deciding it, have been very carefully crafted. The Claim for Judicial Review is a claim that the defendants should repay the full amount claimed either because they have acted unlawfully and in excess of their powers or because they have failed to exercise their discretions properly. The claim that they have acted unlawfully and in excess of their powers is based, as I understand it, on the proposition (which I have rejected) that it can now be seen that they were not entitled to demand the tax due as a result of the First Decision and are not therefore now entitled to retain it. That way of putting the case fails for the same reason as the Claim for Restitution. The alternative way of putting the case accepts that, as a matter of strict law, the tax was due and payable and that there exists no statutory machinery enabling any other conclusion to be drawn. It proceeds on the basis that the defendants have a discretion as to whether or not to repay the tax, which they ought after consideration to have exercised in favour of repayment. For the purposes of the preliminary issue the only public law wrong alleged to have been committed by the defendants in not repaying the tax and interest is said to be their “continued reliance on the First Decision and/or an alleged error of law by the Defendants as to whether the claimant was properly chargeable in respect of the income attributable to the Old Minority Shares”. Miss Gloster stressed that this position was taken solely for the purposes of the preliminary issue, and that there were other grounds upon which it would be argued in the Claim for Judicial Review that the defendants’ decision was reviewable. These were, however, to be ignored by me.
27. Miss Gloster invited me to interpret the question being raised by this issue as if it said: are the defendants entitled to point to the First Decision and say “For that reason alone we are entitled to retain the money”. For the defendants, Mr Brennan QC submitted that the question was, rather, whether the Defendants were entitled to continue to rely on the First Decision as a factor in coming to a decision not to repay the tax. As a matter of construction of the assumption in paragraph 6.2 this submission seems to me to be correct. However, the question actually posed by the issue appears to assume that reliance on the First Decision, and on that alone, is what is being mooted as a possible complete defence to the Claim for Judicial Review. Since I am not being asked to determine whether the Claim for Judicial Review is arguable (that point having already been implicitly decided by Burton J when he gave permission to apply for judicial review) nor to decide whether to grant it, I am driven to the conclusion that what I am being asked to decide is something which, if decided affirmatively, would be determinative of it. On that basis, I adopt Miss Gloster’s construction of the question for the purposes of my answer.
28. There is a further difficulty about the way in which this issue has been formulated. This relates to the second limb of paragraph 6.2 which relies on the alleged error of law as to whether the claimant was properly chargeable in respect of the income attributable to the Old Minority Shares. The issue, however, is as to whether the First Decision provides a complete defence to the claim to recover the full amount of the sums paid by the claimant. In other words it is the judicial review counterpart of Issue 2. The assumption made in the second limb of paragraph 6.2 appears to me to be relevant only to the question posed by Issue 8 and to have got in here by accident. I proceed on that assumption, and ignore it in what follows.
29. For his part Mr Brennan accepted the starting point of the claimant’s argument, namely that the defendants’ “care and management” powers under section 1 TMA provided them with a discretion which would permit them to forgive a liability or to repay money paid to them under a liability. That is shown by the decision in R v. IRC, ex parte National Federation of Self-Employed and Small Businesses Ltd [1982] AC 617 (HL). Miss Gloster was able to point to the recent decision of Moses J. in R (Wilkinson) v IRC EWHC 182 Admin [2002], [2002] STC 347 as authority for the proposition that the discretion is wide enough to authorise payments to a taxpayer in circumstances where Parliament plainly did not intend such payments to be made. In that case Moses J had to consider a claim by a widower to a bereavement allowance under section 262 of the Income and Corporation Taxes Act 1988. Section 262 only gives bereavement allowances to widows, not to widowers. The taxpayer’s argument was that this amounted to a breach of Article 14 of, read together with art 1 of the First Protocol to, the European Convention on Human Rights. A counter-argument of the Revenue was that, as a result of the provisions of section 262, it could not have acted differently, and was therefore entitled to rely on section 6(2)(a) of the HRA 1998. In rejecting the counter-argument, the learned Judge held that the section 1 TMA power authorised a wide variety of extra-statutory concessions, and that it was not possible to identify any principled distinction between certain types of published extra-statutory concession and that contended for in the case before him.
30. Miss Gloster argued that the present case was analogous to that which came before the Court of Appeal in R v. IRC ex parte Unilever plc [1996] STC 682. There the taxpayer had over many years submitted schedules to the revenue of what it claimed to be its taxable profits. As completed the schedules did not make it clear that in computing its trading profits it had deducted expected trading losses. Section 393(11) of the ICTA 1988 required a claim for loss relief to be made within two years from the end of the accounting period in which the loss was incurred. No such claims were made within that time limit, and there came a time when the Revenue took the point and refused to allow any extension of the statutory time limit. It was accepted that the Revenue’s powers under section 1 TMA were wide enough to allow the Revenue to waive the time limit, and the taxpayer contended that it should exercise its discretion to do so. The Court of Appeal agreed.
31. It was submitted on behalf of the claimant that the instant case was similar. It was a case where the taxpayer was simply doing late that which took him outside the charge to tax, viz demonstrating that the relevant transfer and its associated operations were in fact done without any tax avoidance purpose. It was inequitable for the Revenue to retain tax which would not have been due had the claimant been in a position to demonstrate the relevant state of affairs to Special Commissioner Everett’s satisfaction.
32. As to the similarity of this case with the Unilever case, the latter was, as the Court of Appeal stressed, a wholly exceptional case on its facts. One short quotation from the judgment of Sir Thomas Bingham MR illustrates that where, at p. 693, he said:

“The threshold of public law irrationality is notoriously high. It is to be remembered that what may seem fair treatment of one taxpayer may be unfair if other taxpayers similarly placed have been treated differently. And in all save exceptional circumstances the Revenue are the best judge of what is fair. It has not, however, been suggested that the detailed history described above has any parallel. The circumstances are, literally, exceptional. I cannot conceive that any decision-maker fully and fairly applying his mind to this history, and in particular to factors (1) to (10) listed in section IV above, could have concluded that the legitimate interests of the public were advanced, or that the Revenue’s acknowledged duty to act fairly and in accordance with the highest public standards was vindicated, by a refusal to exercise discretion in favour of Unilever. I share the judge’s conclusion that this refusal, if fully informed, was so unreasonable as to be, in public law terms, irrational.”

33. Does the fact that the Revenue has not appealed the Second Decision and proceeds for future years on the basis that it was correct mean that reliance on the result of the First Decision in justifying a refusal to make an extra-statutory concession in favour of the claimant must be irrational? The defendants submit not. In exercise of their section 1 TMA power the defendants were, it was submitted, perfectly entitled to take the view that they would not succeed on an appeal against the Second Decision and that the claimant would have a good chance of succeeding on an appeal against any future assessments if made. It was submitted that it does not follow from their having taken that view, that the only rational conclusion is that the First Decision must have been wrong, and that they are bound to re-open the assessments in respect of the Earlier Years. In inviting me to answer this issue in the affirmative, Mr Brennan referred me to the test of rationality adumbrated by Lord Lowry in R v. Home Secretary ex parte Brind [1991] AC696 at 764-6. That test does not appear to me materially to differ from that applied by the Court of Appeal in the Unilever case, namely (in the words of Sir Thomas Bingham MR in the passage cited) could the defendants “fully and fairly applying [their] mind to [the relevant facts]… have concluded that the legitimate interests of the public were advanced, or that the Revenue’s acknowledged duty to act fairly and in accordance with the highest public standards was vindicated, by a refusal to exercise discretion in favour of [the claimant]”.
34. I return to the question which I believe I am being asked to address as a preliminary issue. Reformulating it so as to echo the test of irrationality applicable to a judicial review claim, it is this: does the fact of the First Decision (including the finality given to it by statute) by itself make it impossible for the claimant to advance a case that the defendants, in exercising their discretion to refuse to repay the tax, have failed fully and fairly to apply their minds to the considerations which they ought to have had in mind in exercising that discretion? To that question the answer seems to me to be “no”. All that the First Decision does is to establish that the tax paid was lawfully due. That is, however, a datum when one is reviewing the exercise by the defendants of a discretion in relation to repayment of the sums in question. If one then asks whether, given the assumptions I am asked to make and only those assumptions, the Claim for Judicial Review must necessarily fail the answer seems to me to be “yes”. 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 a 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 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 on as a complete defence to the Claim for Judicial Review.
35. Issue 7

“7. If the First Decision would not provide a complete defence to the Claim for Judicial Review if all the assumptions set out in sub-paragraphs 2.1-2.6 and 6.1-6.2 above were established at trial, would the First Decision provide a complete defence if some of such assumptions were not established at trial and if so which are those assumptions?”

36. Given the way in which I have answered question 6, this does not arise. I am bound to say, however, that even had I answered question 6 in the negative, I should have been extremely reluctant to embark on the hypothetical exercise contemplated by this issue.
37. Issue 8

“Issues Relevant to Both Claims

8. Whether the Defendants can rely on the First Decision in respect of the appeals against the assessments for the Earlier Years as a complete defence to the Claimant’s claims made in the Restitution Claim and the Claim for Judicial Review to recover the amounts paid by him in respect of the income tax and statutory interest charged on the dividend income attributable to the Old Minority Shares?

Assumptions

This issue should be determined upon the assumption that the following facts and issues are admitted or established at trial:

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.”

38. The Order does not, I think, anywhere define the expression “the Old Minority Shares”. A word or two is therefore necessary about what lies behind this point. The claimant’s argument is that the only relevant transfer by him was the transfer by him of his 59% shareholding in International Holdings, ie. the share exchange at step (5) in paragraph 9 above. True it was that by December 1986 he had power to enjoy 100% of the income of International Holdings. That, however, was as a result of, first, the transfer by the Minority Shareholders of their shares in Holdings (“the Old Minority Shares”) to International Holdings (step (5)) and, secondly, the two subsequent transactions set out at steps (6) and (7).
39. The question whether, in those circumstances, the claimant should be assessed by reference to his power to enjoy 100% of the income of International Holdings, or only by reference to that part of it which was attributable to his transfer to International Holdings of 59% of the shares in Holdings was never debated before Special Commissioner Everett. The claimant’s advisers apparently then took the view that, unless the claimant could establish one or other of the grounds in section 741, it would follow that the assessments should be determined on the basis of the claimant having power to enjoy 100% of the income of International Holdings. As it is put in paragraph 32 of the Amended Particulars of Claim in the Claim of Restitution:

“The claimant and the Inland Revenue agreed (without reference to the Special Commissioner) the amount of income tax which would be payable in the event that the section 741 Defence did not apply. The figures were agreed on the basis that the Appellant was chargeable in respect of the full amount of the dividend income paid by Holdings. The claimant agreed the figures put forward by the Inland Revenue in the belief that if section 739 did apply it entitled the Inland Revenue to charge on him [sic] 100% of the dividend income because at the time when such income arose he had “power to enjoy” 100% of the income of International Holdings”

40. I was told in the course of argument that the reason why the claimant had held that belief was that his advisers had proceeded on the basis that dicta of Lord Greene MR in Lord Howard de Walden v IRC 25 TC 122 at 132 suggested this to be the true construction of the relevant provisions, and that they had overlooked a (characteristically emphatic) indication to the contrary in the judgment at first instance of Walton J in Vestey v CIR 54 TC 504 at 562. Mr Brennan sought to suggest that this was not the case, and that the claimant’s acceptance of liability in the full amount had been the result of a deliberate forensic decision taken in order to enable reliance to be placed on Herdman v IRC 45 TC 394. The tactic was adopted, it was suggested, to concentrate the issue of the s. 741 defence on the original share exchange to the exclusion of the other transactions which the defendants were asserting to be associated operations. These are all matters quite obviously outside the scope of the preliminary issues which I am asked to decide.
41. The issue was debated before Special Commissioner Avery-Jones. He did not have to decide the point since he held that the Section 741 defence had been satisfied in relation to all relevant transfers and all relevant associated operations. He did, however, find that the claimant had not procured the transfer of the Old Minority Shares and was not a transferor of the Old Minority Shares. He had also held that the only “transfer” bringing the section into operation had been the claimant’s transfer at Step (5). On those findings he said that the only income caught by the section was the income which became payable to International Holdings as a result of that transfer.
42. So far as the Claim for Restitution is concerned, it appears to me that the First Decision is a complete defence to the claim under this head. The assessments were made on the basis (rightly or wrongly) that the section applied to the whole of the International Holdings’ income. It was open to the claimant to challenge the assessment on that ground. Had he done so, it would have been within the jurisdiction of the Special Commissioner to decide the point. If he had decided it adversely to the claimant it would plainly have been (or at least involved) a point of law which could have been the subject of an appeal. The appeal would have been decisive of the matter. It can make no difference in my judgment that the claimant conceded, or did not take, the point and abandoned his appeal. Whether he could have taken the point on appeal (having conceded it before the Special Commissioner) is a matter with which I need not concern myself. The important point is that the Special Commissioner had jurisdiction to determine the assessments, and did so. Unless and until the assessments are set aside, they are valid assessments under which a liability to the tax and interest which was demanded and paid arose. The claimant does not, either in the Claim for Restitution or the Claim for Judicial Review, assert that the First Decision ought to be, or can be, set aside. The claimant accordingly has no basis for claiming restitution on any of the grounds advanced.
43. It can make no difference to that analysis that, in conceding the point before Special Commissioner Everett, the claimant and his advisers were acting under a mistake, whether of law or fact. The question is not whether the First Decision (or any agreement underlying the First Decision) was made as a result of a mistake, but whether the demand for tax and interest made pursuant to the assessments which had been determined by the First Decision was a demand which was lawfully made. It plainly was.
44. On behalf of the defendants Mr Brennan placed some reliance, in relation to this issue, on the decision of the Court of Appeal in Khan v Golechaa International Limited [1980] 1 WLR 1482. In that case the issue was whether a concession made in the Court of Appeal, on the basis of which the court had dismissed the appeal by consent, bound the respondent in subsequent proceedings between the same parties even though the concession was wrong in point of law. It was held that it did. Apart from observing that the ratio in that case may require some qualification in the light of the subsequent decision of the House of Lords in Arnold v National Westminster Bank plc [1991] 2 AC 93, it does not appear to me that Khan is really in point here. The issue is the simpler one whether the assessments as determined by the First Decision were valid assessments. Since (right or wrong) they plainly were valid, the question of whether the claimant is estopped from asserting (as he does) that they were void, does not arise.
45. So far as concerns the claim for Judicial Review, the defendants accepted that, if all the assumptions at 8.1 to 8.5 were established at trial, the claimant would have grounds for complaining that there had been an abuse of power which could found a claim for judicial review.
46. Issue 9

“9. If the First Decision would not provide a complete defence if all the assumptions set out in paragraph 8 were established at trial, would the First Decision provide a complete defence if some but not all such assumptions were not established at trial and if so which are those assumptions?”

47. It was submitted on behalf of the defendants that all the assumptions at 8.1 to 8.5 would have to be established before the court could properly conclude that there had been an abuse of power. In particular it was submitted that the mere fact that a public authority has failed to follow its own policy is not ipso facto an abuse of power. I agree with the latter submission. I have also come to the conclusion that the first submission is also correct, at least for all practical purposes. I add the latter qualification because removing some of the assumptions (e.g. 8.1 and/or 8.2) produces a question which is so hypothetical (in the sense of removed from the known facts) that it is pointless to seek to invent the alternative assumptions (not necessarily the negative of the stated ones) which are necessary to render any observations meaningful.
48. Issue 10

“10. On a proper construction of Section 739 was the Claimant chargeable on income attributable to the Old Minority Shares?

Assumptions

10.1 The Claimant did not procure the transfer of the Old Minority Shares to International Holdings;

10.2 Section 741 did not apply to such transfer of assets.”

49. I indicated in the course of argument that I was not disposed to answer this issue, and as a result I heard no sustained argument on it. Miss Gloster wanted me to determine what she described as the “plain vanilla” point as to whether, assuming that the steps by which the claimant had become entitled to the dividend income attributable to the Old Minority Shares were not associated operations, and on the assumptions in 10.1 and 10.2, the mere fact that the claimant happened to own 100% of the shares in International Holdings when it started to receive dividends in Holdings meant that he was properly chargeable in respect of 100% of the dividend income. The difficulty I felt in addressing the point is that it requires more assumptions to be made than have been agreed for the purposes of the issue. It requires, at the very least, the assumption that the relevant transfer for the purposes of the section was the claimant’s share exchange at step (5). But this was only one of a number of permutations potentially available for argument by the defendants in support of the assessments. Another contention might have been (and in fact was at least at one stage in the argument on the First Appeal) that the relevant transfer lay in the incorporation of International Holdings and the subscription for shares in that company in 1982.
50. On that approach the share exchange in Step (5) and the subsequent transactions were all contended to have been associated operations. Various other possible permutations were suggested by Mr Brennan in his skeleton argument. It did not appear likely to me that I could answer the question of law without knowing which permutation I was supposed to be addressing, and what factual assumptions I was being invited to make for its purposes. It seems to me profoundly unsatisfactory to seek to answer the question of law except on the basis of a firm factual foundation, and no a priori reason why I should take the facts for that purpose either as found by Special Commissioner Everett or as found by Special Commissioner Avery-Jones. Moreover, if I have answered Issue 8 correctly it does not matter how, in point of law, the plain vanilla question is answered.
51. Issue 11

“11. If, as a result of the answer to issue 10, Section 739 does not deem the relevant income from the Old Minority Shares to be the Claimant’s income and the Claimant is not liable to income tax on such income, are the Defendants justified in retaining the sums paid in respect of that income, by reference to the practice and the application of the practice as described in paragraphs 15-18 of the Witness Statement of Elaine Povey made on 14^th December 2001 and Exhibit EP1 and if so on what basis?”

52. The answer to this question is plainly no, as was accepted by the defendants. Insofar as the way in which the issue is framed contains an implicit assumption that the defendants have sought to justify their retention of the sums paid on the basis of a practice which for this purpose is assumed to be contrary to law, the defendants of course deny that they do so seek to justify that retention. The basis on which they claim to be entitled to retain the money is that it was lawfully due in consequence of the First Decision.
53. Issues 12, 13, 14 and 15

“12. Whether the Human Rights Act 1998 has any application to the Claimant's tax liabilities in respect of final appeals concerning years of assessment ending prior to 2 October 2000 where those appeals were themselves final before 2 October 2000?

13. Whether the Defendants in refusing to repay the whole or any part of the monies paid to them by the Claimant in respect of the Earlier Years are acting contrary to Article 1 of the First Protocol to the Convention for the Protection of Human Rights and Fundamental Freedoms?

14. Whether the Claimant is entitled to compensation by virtue of sections 6, 7 and 8 of the Human Rights Act 1998 for the Defendants' refusal to make such a refund?

Assumptions

Issues 13 and 14 should be decided upon the assumption that:

14.1 in respect of the Claimant’s claim to recover the amount paid by him, the facts and matters referred to in sub-paragraphs 2.1-2.6 and 6.1-6.2 above are established or admitted at trial;

14.2 in respect of the Claimant’s claim to recover the amount paid by him in respect of the Defendants’ claim for income tax and statutory interest in respect of the dividend income attributable to the Old Minority Shares, the facts and matters referred to in paragraph 8 above are admitted or established at trial.

15. If the answers to issues 13 and 14 above would be in the affirmative but would not be so if one or more of the assumptions referred to in sub-paragraphs 14.1-14.2 were not admitted or established at trial, which are those assumptions?”

54. In argument Miss Gloster conceded that so far as this court is concerned the duty to construe the provisions of the TMA in a manner consistent with the claimant’s Convention rights (s.3 HRA 1998) did not apply in relation to events occurring before 2 October 2000: see paragraph 20 above. That concession requires a negative answer to be given to Issue 12 in relation to the Claim for Restitution. Further in the light of that concession, and having taken instructions, Miss Gloster submitted that it would be inappropriate for me to decide Issues 12 to 15 in relation to the Claim for Judicial Review. Mr Brennan did not submit the contrary, and I accede to the submission.