“4. It is the Claimant’s contention that the Tax Scheme failed in the Defendant’s objective of avoiding NNDR (remaining properly the liability of the Defendant) in that: 4.1. the Tax Scheme was no more than an artifice, or a set of contrived arrangements or transactions, of tax avoidance, effected by inter alia the establishment or use of a limited liability company (“the Limited Company”) combined with an uncommercial lease, not being an arrangement at arm’s length, although apparently so. It is a feature of the Tax Scheme that the leases in question were not registrable and so were not known about by the Claimant prior to reliance being placed upon them as means of defeating the Defendant’s liability in respect of NNDR. 4.2. [deleted] 4.3. alternatively, the Limited Company so established was a nullity and ineffective as a matter of English law in terms of the Tax Scheme. 4.4. alternatively, the Tax Scheme was predicated upon and involved the establishment and/or use of the Limited Company (being procured directly or indirectly by the Defendant) and the Limited Company was at all material times established for the purposes of, or (as the case may be) interposed in, the Tax Scheme for the purpose and only for the purpose of avoiding an existing or imminent charge to NNDR. The establishment and/or use of the Limited Company was thus an act of impropriety with a view to avoiding a potential or immediate legal obligation or liability, evading the law or frustrating the enforcement of the relevant legal obligation.”17.Paragraph 12 states: “12. The Tax Scheme that the Defendant relies upon in support of its claim that it is able to improperly avoid the incidence of NNDR relating to the Premises is as follows. 12.1 The Defendant determined, on dates unknown to the Claimant, either itself, wholly or in part, to set up and procure arrangements to effect the Tax Scheme or the Defendant retained, for valuable consideration, the services of a provider of such schemes to avoid (or evade, as the case may be) a liability to NNDR (“the Scheme Provider”). The claimant is not presently able to identify the Scheme Provider (if any) or the precise date upon which the services of the Scheme Provider were retained, such information being within the knowledge of the Defendant, but reserves the right to provide further and better particulars on this issue once disclosure has been provided. 12.2 At all material times the Scheme Provider (if any) held itself out as offering for reward the Tax Scheme, which had as its sole aim and purpose providing contrived arrangements, for those in the position of the Defendant, to try and avoid the incidence of NNDR. 12.3 Pursuant to the Tax Scheme, the Defendants, alternatively the Scheme Provider acting on behalf of and at the behest of the Defendants, acquired a limited company solely for the purposes of the arrangements effected pursuant to the Tax Scheme, being newly incorporated companies the details of which are set out in the below table (and which are collectively referred to as “NewCo”): [Table] 12.4 Once acquired or procured for the purposes of the Tax Scheme, the Defendant arranged (directly or indirectly) that Newco be granted short leases, not being liable for statutory registration, upon the terms recited below. 12.5 Thus it was arranged that each Newco company held a short lease, undertook no activity whatsoever, as particularised below, with a view to its dissolution either compulsorily or otherwise so providing a statutory exemption (purportedly pursuant to the provisions set out at paragraphs 10 and 11 above) or for some other reason unexplained to the Claimant (but possibly that the NNDR liability was not that of the Defendants but was that of each Newco company which had no means to discharge it).” “12. The Tax Scheme that the Defendant relies upon in support of its claim that it is able to improperly avoid the incidence of NNDR relating to the Premises is as follows. 12.1 The Defendant determined, on dates unknown to the Claimant, either itself, wholly or in part, to set up and procure arrangements to effect the Tax Scheme or the Defendant retained, for valuable consideration, the services of a provider of such schemes to avoid (or evade, as the case may be) a liability to NNDR (“the Scheme Provider”). The claimant is not presently able to identify the Scheme Provider (if any) or the precise date upon which the services of the Scheme Provider were retained, such information being within the knowledge of the Defendant, but reserves the right to provide further and better particulars on this issue once disclosure has been provided. 12.2 At all material times the Scheme Provider (if any) held itself out as offering for reward the Tax Scheme, which had as its sole aim and purpose providing contrived arrangements, for those in the position of the Defendant, to try and avoid the incidence of NNDR. 12.3 Pursuant to the Tax Scheme, the Defendants, alternatively the Scheme Provider acting on behalf of and at the behest of the Defendants, acquired a limited company solely for the purposes of the arrangements effected pursuant to the Tax Scheme, being newly incorporated companies the details of which are set out in the below table (and which are collectively referred to as “NewCo”): [Table] 12.4 Once acquired or procured for the purposes of the Tax Scheme, the Defendant arranged (directly or indirectly) that Newco be granted short leases, not being liable for statutory registration, upon the terms recited below. 12.5 Thus it was arranged that each Newco company held a short lease, undertook no activity whatsoever, as particularised below, with a view to its dissolution either compulsorily or otherwise so providing a statutory exemption (purportedly pursuant to the provisions set out at paragraphs 10 and 11 above) or for some other reason unexplained to the Claimant (but possibly that the NNDR liability was not that of the Defendants but was that of each Newco company which had no means to discharge it).”
“As NewCo and/or any of NewCo’s constituent companies was established without any genuine business or other commercial purpose or rationale and was instead intended only as a means of improperly avoiding charges to NNDR, NewCo and/or any of NewCo’s constituent companies was from its incorporation and the outset a nullity and/or of no legal effect in that (i) the veil of incorporation may be pierced by the Court to ascertain the true and just position (ii) all or any of the Leases are to be treated at all material times as the beneficial property of the Defendant.”
“In my judgment, the Claimant does have an arguable case on this particular ground. The doctrine of piercing the corporate veil is a developing area of jurisprudence. I am not satisfied that Lord Sumption's judgment was intended as an exhaustive statement of the circumstances in which the court might disregard the corporate veil. In my judgment, there is a crucial distinction between the situation envisaged by Lord Sumption at paragraph 34 and emphasised by Mr. Trompeter and the situation in the present case. Here, prior to the grant of the scheme lease to the SPV the Defendant was under an ongoing liability for business rates. True it is that that liability arose day by day by virtue of the Defendant's continuing entitlement to possession of the relevant hereditament; but nevertheless there was a continuing obligation to pay business rates which was avoided by the grant of the lease to the SPV. Had that been an ordinary commercial transaction, then clearly it would have operated to divest the Defendant of its ongoing liability for business rates. But these were not ordinary commercial transactions, as the various features identified in the particulars of claim show. In my judgment, it is at least arguable that Lord Sumption's principle is capable of application, or principled development, so as to apply to a situation in which an actor divests himself of an ongoing existing liability for business rates by the interposition of an artificial SPV. The question of the extent to which he Defendant could be said to have control of the SPV is, it seems to me, a matter for disclosure and for trial.”
“These considerations reflect the broader principle that the corporate veil may be pierced only to prevent the abuse of corporate legal personality. It may be an abuse of the separate legal personality of a company to use it to evade the law or to frustrate its enforcement. It is not an abuse to cause a legal liability to be incurred by the company in the first place. It is not an abuse to rely upon the fact (if it is a fact) that a liability is not the controller's because it is the company's. On the contrary, that is what incorporation is all about. Thus in a case like VTB Capital, where the argument was that the corporate veil should be pierced so as to make the controllers of a company jointly and severally liable on the company's contract, the fundamental objection to the argument was that the principle was being invoked so as to create a new liability that would not otherwise exist. The objection to that argument is obvious in the case of a consensual liability under a contract, where the ostensible contracting parties never intended that any one else should be party to it. But the objection would have been just as strong if the liability in question had not been consensual.”
“I conclude that there is a limited principle of English law which applies when a person is under an existing legal obligation or liability or subject to an existing legal restriction which he deliberately evades or whose enforcement he deliberately frustrates by interposing a company under his control. The court may then pierce the corporate veil for the purpose, and only for the purpose, of depriving the company or its controller of the advantage that they would otherwise have obtained by the company's separate legal personality. The principle is properly described as a limited one, because in almost every case where the test is satisfied, the facts will in practice disclose a legal relationship between the company and its controller which will make it unnecessary to pierce the corporate veil. Like Munby J in Ben Hashem, I consider that if it is not necessary to pierce the corporate veil, it is not appropriate to do so, because on that footing there is no public policy imperative which justifies that course. I therefore disagree with the Court of Appeal in VTB Capital who suggested otherwise at para 79. For all of these reasons, the principle has been recognised far more often than it has been applied. But the recognition of a small residual category of cases where the abuse of the corporate veil to evade or frustrate the law can be addressed only by disregarding the legal personality of the company is, I believe, consistent with authority and with long-standing principles of legal policy.”
“I am not sure whether it is possible to classify all of the cases in which the courts have been or should be prepared to disregard the separate legal personality of a company neatly into cases of either concealment or evasion. They may simply be examples of the principle that the individuals who operate limited companies should not be allowed to take unconscionable advantage of the people with whom they do business. But what the cases do have in common is that the separate legal personality is being disregarded in order to obtain a remedy against someone other than the company in respect of a liability which would otherwise be that of the company alone (if it existed at all). In the converse case, where it is sought to convert the personal liability of the owner or controller into a liability of the company, it is usually more appropriate to rely upon the concepts of agency and of the "directing mind.”
“The essence of the new approach was to give the statutory provision a purposive construction in order to determine the nature of the transaction to which it was intended to apply and then to decide whether the actual transaction (which might involve considering the overall effect of a number of elements intended to operate together) answered to the statutory description. Of course this does not mean that the courts have to put their reasoning into the straitjacket of first construing the statute in the abstract and then looking at the facts. It might be more convenient to analyse the facts and then ask whether they satisfy the requirements of the statute. But however one approaches the matter, the question is always whether the relevant provision of the statute, upon its true construction, applies to the facts as found. As Lord Nicholls of Birkenhead said in MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 , 320, para 8: “The paramount question always is one of interpretation of the particular statutory provision and its application to the facts of the case.””
“The simplicity of this question, however difficult it might be to answer on the facts of a particular case, shows that the Ramsay case did not introduce a new doctrine operating within the special field of revenue statutes. On the contrary, as Lord Steyn observed in McGuckian[1997] 1 WLR 991 , 999 it rescued tax law from being “some island of literal interpretation” and brought it within generally applicable principles.”
“37. The need to avoid sweeping generalisations about disregarding transactions undertaken for the purpose of tax avoidance was shown by MacNiven v Westmoreland Investments Ltd[2003] 1 AC 311 in which the question was whether a payment of interest by a debtor who had borrowed the money for that purpose from the creditor himself and which had been made solely to reduce liability to tax, was a “payment” of interest within the meaning of the statute which entitles him to a deduction or repayment of tax. The House decided that the purpose of requiring the interest to have been “paid” was to produce symmetry by giving a right of deduction in respect of any payment which gave rise to a liability to tax in the hands of the recipient (or would have given rise to such a liability if the recipient had been a taxable entity.) As the payment was accepted to have had this effect, it answered the statutory description notwithstanding the circular nature of the payment and its tax avoidance purpose. 38. MacNiven shows the need to focus carefully upon the particular statutory provision and to identify its requirements before one can decide whether circular payments or elements inserted for the purpose of tax avoidance should be disregarded or treated as irrelevant for the purposes of the statute. In the speech of Lord Hoffmann in MacNiven it was said that if a statute laid down requirements by reference to some commercial concept such as gain or loss, it would usually follow that elements inserted into a composite transaction without any commercial purpose could be disregarded, whereas if the requirements of the statute were purely by reference to its legal nature (in MacNiven, the discharge of a debt) then an act having that legal effect would suffice, whatever its commercial purpose may have been. This is not an unreasonable generalisation, indeed perhaps something of a truism, but we do not think that it was intended to provide a substitute for a close analysis of what the statute means. It certainly does not justify the assumption that an answer can be obtained by classifying all concepts a priori as either “commercial” or “legal”
“64. This approach has proved to be particularly important in relation to tax avoidance schemes as a result of two factors identified in Barclays Mercantile, para 34. First, “tax is generally imposed by reference to economic activities or transactions which exist, as Lord Wilberforce said, “in the real world””
“The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.” 67. References to “reality” should not, however, be misunderstood. In the first place, the approach described in Barclays Mercantile and the earlier cases in this line of authority has nothing to do with the concept of a sham, as explained in Snook[1967] 2 QB 786 . On the contrary, as Lord Steyn observed in McGuckian[1997] 1 WLR 991 , 1001, tax avoidance is the spur to executing genuine documents and entering into genuine arrangements. 68. Secondly, it might be said that transactions must always be viewed realistically, if the alternative is to view them unrealistically. The point is that the facts must be analysed in the light of the statutory provision being applied. If a fact is of no relevance to the application of the statute, then it can be disregarded for that purpose. If, as in Ramsay, the relevant fact is the overall economic outcome of a series of commercially linked transactions, then that is the fact upon which it is necessary to focus. If, on the other hand, the legislation requires the court to focus on a specific transaction, as in MacNiven and Barclays Mercantile, then other transactions, although related, are unlikely to have any bearing on its application.”
“(a) on the day none of the hereditament is occupied, (b) on the day the ratepayer is the owner of the whole of the hereditament, (c) the hereditament is shown for the day in a local non-domestic rating list enforced for the year, and (d) on the day the hereditament falls within a class prescribed by the Secretary of State by regulations.”
“The owner of a hereditament or land is the person entitled to possession of it.”
“(b) on the day the ratepayer is the person entitled to possession of the whole of the hereditament.”
“(ii) The definition of “owner” in section 65(1) of the Act of 1988 refers to “the person entitled to possession” of the hereditament and this requires one to identify the person who has the immediate legal right to actual physical possession, albeit that such person ex hypothesi will not be in actual physical occupation of the property. In contrast with the word “occupation”, the word “possession” conveys the notion of exclusive entitlement to occupy. Possession could not be vested in the receivers and the companies jointly: see Westminster City Council v Haymarket Publishing Ltd[1981] 1 WLR 677 , and see Refuge Assurance Co Ltd v Pearlberg[1938] Ch 687 where the Court of Appeal, at p. 692, described a possible conclusion that a mortgagee in possession and a receiver appointed by it were both in possession at the same time as “quite fantastic.” (iii) Thus in the present case (a) prior to21 November 1993 B.P. was the “owner”, because as tenant it had the immediate right to actual physical possession, notwithstanding that it was not in actual physical occupation; (b) from21 November 1993 , after B.P.’s surrender of its lease to its landlords, the freehold registered proprietors of the properties, viz. the companies, were the owners, because they had the immediate right to physical possession; (c) the receivers were not the owners because under the debentures they acted as agents of the owners, the companies.”
“It follows that where an occupied property is let to a tenant, the tenant is the party liable to business rates as being the person entitled to possession of it.”
“What then is the fundamental right which a tenant has that distinguishes his position from that of a licensee? It is an interest in land as distinct from a personal permission to enter the land and use it for some stipulated purpose or purposes. And how is it to be ascertained whether such an interest in land has been given? By seeing whether the grantee was given a legal right of exclusive possession of the land for a term or from year to year or for a life or lives. If he was, he is a tenant. And he cannot be other than a tenant, because a legal right of exclusive possession is a tenancy and the creation of such a right is a demise. To say that a man who has, by agreement with a landlord, a right of exclusive possession of land for a term is not a tenant is simply to contradict the first proposition by the second. A right of exclusive possession is secured by the right of a lessee to maintain ejectment and, after his entry, trespass. A reservation to the landlord, either by contract or statute, of a limited right of entry, as for example to view or repair, is, of course, not inconsistent with the grant of exclusive possession. Subject to such reservations, a tenant for a term or from year to year or for a life or lives can exclude his landlord as well as strangers from the demised premises…”
“One is therefore looking for words which have to be interpreted. One is not looking to a general sort of “Parliament cannot have intended to allow this sort of thing” approach. It is a tighter approach than that.”
“In my view this exposes the argument for what it is, which is not so much an attempt to construe words in the statute, but to divine a purpose behind a provision in the statute, extract that purpose and then apply a principle that a person should not be able to evade that purpose because it was Parliament’s purpose.”