Mark Martin Reid v The Commissioners for HMRC & Ors [2025] EWCR 4

[2025] EWCR 4Case No U20241700
IN THE CROWN COURT AT SOUTHWARK
Venue SITTING IN THE ROLLS BUILDING
In the matter of an application pursuant to section 59(2) and (3) of the Criminal Justice and Police Act 2001
And in the matter of an application pursuant to Part 47.38 of the Criminal Procedure Rules
Venue Royal Courts of Justice, Rolls Building, Fetter Lane, London, EC4A 1NLDate 26/06/2025
Before
MR JUSTICE FOXTON
Between
MARK MARTIN REIDApplicant
Neil Hawes KC and Francis Fitzpatrick KC for ApplicantFelicity Cullen KC, Brendan Morris, Howard Watkinson and Gary Pons for Respondent
Hearing Hearing dates: 20, 21, 22 and 23 May 2025Draft judgment to parties: 18 June 2025
APPROVED JUDGMENT(Rev 1)This judgment was handed down remotely at 14:00 on 26 June 2024 by circulation to the parties or their representatives by e-mail and by release to the National Archives.

A INTRODUCTION

[1]This is an application by Mr Mark Martin Reid (“the Applicant”) under s.59(2) of the Criminal Justice and Police Act 2001 (“CJPA 2001”). The issue before the court is, in summary terms, as follows: i) To determine whether material seized by the First Defendant (“HMRC”) in the execution of search warrants on 17 February 2020 is material which HMRC is obliged to return on the basis that it is legally privileged. ii) In that context, to determine whether the requirements for the so-called “Crime Fraud Exception” (“CFE”) are made out, which would have the effect that material engaging the CFE would not be legally privileged. This is a shorthand for the legal principle summarised by Charles Hollander KC in Documentary Evidence (15th), [25-11] as follows: “Legal privilege does not exist in respect of documents which are in themselves a part of a criminal or fraudulent proceeding or communications made in order to get advice for the purpose of carrying out fraud.” iii) That last question falls to be considered in a context in which the criminal conduct alleged has as an element of non-payment of tax due to HMRC. As a result, the issue of whether the CFE is engaged has involved legal argument as to the effect of various provisions of tax legislation, and factual issues as to the conduct and state of mind of individuals who are said to have had the relevant criminal purpose.[2]It had originally been envisaged that I would also be required at this hearing to resolve disputes as to the privileged status of individual documents, in the light of my ruling. In the event, the parties agreed that it would be appropriate to give them a further opportunity to reach agreement on the status of particular documents with the benefit of this judgment, with liberty to seek directions from me in the event of any remaining disputes.[3]In these circumstances, the following structure is adopted in this judgment: i) Section B gives a brief overview of the relevant background. ii) Section C explains the procedural context for the application before me. iii) Section D sets out the legal principles relevant to the determination of whether the CFE is made out and the required link between a document and the CFE for the exception to apply in relation to that document. iv) Section E outlines the elements of the criminal offences relied upon by HMRC for the CFE purposes. v) Section F addresses the issues of construction of the relevant tax legislation in dispute between the parties. vi) Section G addresses the factual issues. vii) Section H contains my conclusions.

B THE BACKGROUND IN OVERVIEW

[4]This application arises from a mechanism adopted by a number of enterprises employing staff or retaining individuals as contractors (who I will refer to compendiously as “contractors”) with a view to reducing the amount of income tax and national insurance which would have to be paid on the contractors’ remuneration.[5]The mechanism involved the use of so-called Employee Benefit Trusts (“EBTs”). These involved monies being paid by an employer to a trust associated with the relevant contractor, with a recommendation that the trustee settle those sums on a sub-trust which would benefit the contractor and their family including on the contractor’s death. The contractor would then obtain a loan of the amounts settled on sub-trust repayable on the contractor’s death. I will refer to loans of this kind as “Disguised Remuneration Loans” or “DR Loans” and schemes broadly of this nature as “DR Schemes” and “DR Loan schemes”.[6]For a substantial period, there was a dispute as to whether the amounts paid to EBTs and/or the DR Loans advanced to contractors as part of DR Loan schemes were taxable as emoluments or earnings under the relevant fiscal legislation, and thus subject to deduction of tax and National Insurance at source (I shall use the word “taxable” to cover both of these liabilities). In addition to disputes as to the effect of existing legislation which made their way through the tribunal system and the courts, legislation was introduced to address DR Schemes, most notably in the Finance Act (“FA”) 2011. The regime introduced by the FA 2011 applied with effect to “relevant steps” taken after 6April 2019, and inserted a new Part 7A (“Employment income provided through third parties”) at ss.554A-554Z21 of the Income Tax (Earnings and Pensions) Act 2003 (“ITEPA2003”).[7]In the March 2016 budget, the Government stated that new loan schemes had emerged which attempted to sidestep the 2011 legislation and that it would introduce new provisions to counter their use. This would include a new charge on loans paid through DR Loan schemes which had not been taxed and were still outstanding on 5 April 2019 – the “Loan Charge”.[8]Before the Loan Charge was implemented, important guidance was provided as to the fiscal effect of DR Schemes by the Supreme Court in RFC 2012 plc v Advocate General for Scotland [2017] UKSC 45. In a judgment handed down on 5 July 2017, the Supreme Court upheld HMRC’s contention that the DR payments in that case were taxable.[9]The legislation implementing the Loan Charge was the Finance (No 2) Act 2017 (“FA (2) 2017”), which received the Royal Assent on 16 November 2017. This imposed a tax liability on all loans made pursuant to DR Schemes after a certain date which remained outstanding on 5 April 2019.[10]In Adams & Ors v FS Capital Ltd [2023] EWHC 1649 (Ch), [10]-[11], Edwin Johnson J explained the nature of the Loan Charge as follows:
“The Loan Charge created a new, retrospective charge to income tax of 45% on all relevant loan payments made since 1999, to be payable in one tax year (2018-2019). The Loan Charge applied where loans were outstanding as at 5 April 2019. As the relevant legislation was initially enacted, the Loan Charge applied to loans made on or after 6 April 1999. Those facing the Loan Charge were given a choice of settling with the Revenue, paying off the loan balance, or paying the charge. Not surprisingly, the Loan Charge was controversial, by reason of its effect on individuals who had signed up to loan schemes. The Government commissioned a review by Sir Amyas Morse in September 2019, which reported in December 2019 (‘the Morse Review’). As a result of the Morse Review, there was some mitigation of the Loan Charge. For present purposes however the relevant point is that the introduction of the Loan Charge rendered ineffective, or confirmed the ineffectiveness of the loan schemes, including the loan schemes with which the present case is concerned. This in turn left large numbers of individuals, (i) as participants in loan schemes which no longer achieved what they had been marketed as achieving, and (ii) facing substantial liabilities to the Revenue. These individuals included those beneficiaries who neither reached settlement with the Revenue on their outstanding tax liabilities nor repaid their loans.”
The change in the commencement date which Edwin Johnson J referred to was 9 December 2010. This took place with effect from 22 July 2020, as a result of s.15(1) Finance Act 2020.[11]Schedule 11 of FA (2) 2017 operates in conjunction with Part 7A of ITEPA 2003. Together, those enactments determine whether or not those who had received DR Loans were to be taxed and in what amount. A key element of that analysis was whether the DR Loan was outstanding or deemed to be outstanding immediately before the end of 5 April 2019. There were statutory provisions, which I will need to consider in more detail below, addressing this issue and identifying what measures would, and would not, reduce or extinguish a balance such that a DR Loan was to be treated as no longer outstanding at that date.[12]At this point, it is convenient to introduce the Applicant. He is a solicitor admitted to the Roll in 1993, who at the time relevant to these events was in practice with a firm called Reid & Co which provided services and legal advice in relation to tax planning and associated work. He is a person of good character, as are all the tax professionals and finance intermediaries whose conduct is in issue in this application.[13]The Loan Charge, and the obvious financial incentive for those who had received DR Loans to avoid being taxed by reference to the outstanding value of those loans just before the end of 5 April 2019, was identified as a commercial opportunity by Mr Reid. He and Reid & Co promoted a scheme which involved establishing a company called Pyrrhus Capital Limited (“PCL”) which made loans to individuals with outstanding DR Loan balances, which were to be used for the purpose of extinguishing the DR Loan balances before the relevant point in time. I will refer to this as the “PCL scheme” and to the loans to be advanced by PCL as “PLs”. Some 58 people took out PLs.

C THE PROCEDURAL CONTEXT

[14]HMRC began an investigation into whether the PCL Scheme involved a fraud on the revenue (“Operation Ginseng”). A warrant to obtain evidence in this connection was obtained from His Honour Judge Michael Grieve KC on 17 February 2020, which was executed at various premises, including those of Reid & Co. Documents were seized by virtue of the warrants issued including material which Reid & Co contend is subject to legal advice privilege, either on the part of Reid & Co itself or clients for whom it was acting.[15]Against this background, the Applicant brought this application under s.59(2) of the CJPA 2001. That section applies “where anything has been seized in exercise, or purported exercise, of a relevant power of seizure”. It permits any person “with a relevant interest in the seized property” to apply to the appropriate judicial authority for the return of that property on the basis that “the seized property is or contains an item subject to legal privilege that is not comprised in property falling within section 54(2))” (s.59(3)(b)). Section 54 deals with cases where part of property is subject to legal privilege, and it is not reasonably practicable to separate that part from the rest of the property seized.[16]Section 59(4) provides that if the appropriate judicial authority is satisfied that the relevant ground under s.59(3) is made out, it shall “order the return of so much of the seized property as is property in relation to which the authority is so satisfied.”[17]Section 65 of CJPA 2001 adopts the definition of “legal privilege” which appears in s.10 of the Police and Criminal Evidence Act 1984 (“PACE”). This provides: “(1) Subject to subsection (2) below, in this Act ‘items subject to legal privilege’ means —(a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client;(b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and(c) items enclosed with or referred to in such communications and made — (i) in connection with the giving of legal advice; or (ii) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when they are in the possession of a person who is entitled to possession of them. (2) Items held with the intention of furthering a criminal purpose are not items subject to legal privilege.” (a) communications between a professional legal adviser and his client or any person representing his client made in connection with the giving of legal advice to the client; (b) communications between a professional legal adviser and his client or any person representing his client or between such an adviser or his client or any such representative and any other person made in connection with or in contemplation of legal proceedings and for the purposes of such proceedings; and (c) items enclosed with or referred to in such communications and made — (i) in connection with the giving of legal advice; or (ii) in connection with or in contemplation of legal proceedings and for the purposes of such proceedings, when they are in the possession of a person who is entitled to possession of them.[18]It has been held that the exception in s.65(2) enacts the common law CFE doctrine (R v Central Criminal Court ex parte Francis & Francis [1989] AC 346), and the argument before me proceeded on that basis.[19]There is no dispute that the Applicant has a relevant interest for s.59(2) purposes. However, there is a dispute as to whether material which it is accepted would ordinarily benefit from legal professional privilege does so here, it being argued by HMRC that it does not because the CFE applies.[20]Under s.54(1)(a) of CJPA 2001, if “at any time after a seizure of anything has been made in exercise of a power of seizure to which this section applies … it appears to the person for the time being having possession of the seized property in consequence of the seizure that the property … is an item subject to legal privilege… it shall be the duty of that person to secure that the item is returned as soon as reasonably practicable after the seizure.” Adopting a course approved in R v Middlesex Guildhall ex parte Tamosius & Partners [2000] 1 WLR 453, 464, HMRC appointed independent counsel to consider the issue of whether legal privilege applied to any of the material they had seized, and the application of the CFE. Advice was taken from Christopher Stimpson in an opinion dated 27 February 2023, and on 31 August from Felicity Cullen KC. However, the status of the material seized is ultimately a matter for the court.[21]The material which HMRC believes it is entitled to retain has not yet been released to investigating officers. HMRC informed the Applicant that the material would be so released unless an application under s.59(2) was issued by 26 February 2024, resulting in the present application issued on 25 February 2024. The Resident Judge at Southwark Crown Court requested that the application be allocated to a High Court judge.[22]On 20 May 2024, the Applicant and four other persons were charged by the Crown Prosecution Service (“CPS”) with conspiracy to cheat HMRC of public revenue. The particulars of the offence which appear on the indictment are as follows:
“1. Promoting and facilitating an arrangement known as Pyrrhus (operated through Pyrrhus Capital Ltd. 2. Making false representations to users of the Pyrrhus arrangement that Pyrrhus Capital Ltd: a. was a bona fide ‘niche’ lender of finance with sufficient capital funds; b. was able to provide loans from its own capital funds for the purpose of paying off former disguised remuneration loans; c. would provide loans to users on commercial terms; d. would provide loans to the users that were unconnected either directly or indirectly to a tax avoidance arrangement (as defined in Schedules 11, and 12 of the Finance (No 2) Act 2017); thereby causing users of the Pyrrhus arrangement to make incorrect declarations on self-assessment returns to HMRC, regarding disguised remuneration loans previously taken out by the said users of Pyrhhus, so as to reduce their tax liability.” a. was a bona fide ‘niche’ lender of finance with sufficient capital funds; b. was able to provide loans from its own capital funds for the purpose of paying off former disguised remuneration loans; c. would provide loans to users on commercial terms; d. would provide loans to the users that were unconnected either directly or indirectly to a tax avoidance arrangement (as defined in Schedules 11, and 12 of the Finance (No 2) Act 2017); thereby causing users of the Pyrrhus arrangement to make incorrect declarations on self-assessment returns to HMRC, regarding disguised remuneration loans previously taken out by the said users of Pyrhhus, so as to reduce their tax liability.”
[23]A pre-trial hearing took place at Southwark Crown Court on 30 July 2024 at which a trial date was fixed for 1 March 2027.[24]The s.59 CJPA 2001 application came before me for directions on 15 October 2024. At that hearing a series of orders were made for the case management of the s.59 application: i) The Applicant was to write to the CPS asking whether the CPS intended to be an interested party at the hearing of the application, and to inform the CPS that it would only be open to them to challenge the court’s determination by participating in the hearing. ii) The Applicant was to write to clients of the PCL scheme, inviting them to make any representations that they wished to make as to the status of the material in dispute, and asking whether they wished to be made an interested party. Once again, the clients were to be told that it would only be open to them to challenge the court’s determination by participating in the hearing. iii) HMRC was to serve a witness statement identifying the material reviewed by the independent counsel and identifying(a) which material was believed to be subject to legal privilege, relevant to HMRC’s investigation and subject to the CFE;(b) which material was considered to be privileged but not relevant; and(c) which material was not considered to be privileged. iv) The Applicant was to respond by way of a Scott Schedule responding to HMRC’s classification, with a further opportunity to respond from anyone who had become an interested party, and HMRC was then to reply. v) A meeting between the Applicant’s, any Interested Parties’ and HMRC’s legal representatives was to be held, to seek to narrow the issues. Following that meeting, the Applicant was to write to any other clients affected by the dispute setting out the matters in dispute and drawing their attention to the court order, with provision for clients so contacted to become interested parties. vi) The involved parties were to file a joint position paper setting out the issues which the court was to determine and the parties’ positions on certain issues of law.[25]In the event, no one has applied to become an interested party. Subject to some time extensions, the various steps in the directions order have been completed.[26]The parties’ joint position paper reveals broad agreement on the requirements for establishing the CFE. It is common ground that the burden of proof lies on HMRC, and that the test to be applied is that set out in Al Sadeq v Dechert LLP [2024] EWCA Civ 28, with HMRC required on the material before me to satisfy that test on the balance of probabilities. In addition the parties identified three areas of dispute as to the proper interpretation of the relevant tax legislation, although the issues had narrowed somewhat by the time of the hearing.[27]The parties’ efforts have narrowed the specific documents whose privileged status is in dispute to 35 documents comprising 218 pages. The court is grateful for their efforts.

D CFE: THE LEGAL PRINCIPLES

[28]The scope of the CFE had helpfully been the subject of recent guidance from the Court of Appeal, which has significantly reduced the scope for disputes as to the applicable principles at this hearing.[29]The judgment of Popplewell LJ in Al Sadeq v Dechert LLP [2024] EWCA Civ 28 establishes the following propositions, all of which are accepted by the parties: i) Legal professional privilege does not exist in a document which comes into existence in relation to a fraud, crime or other iniquity ([53]). The principle applies in both civil and criminal proceedings, and to both forms of legal professional privilege ([54]). ii) The principle is not confined to cases where the legal advisor is party to or aware of the iniquity, the relevant iniquitous purpose being that of the client or, if the client is being used as a tool for the iniquity by a third party, that of the third party ([56]). iii) The merits threshold for the CFE is the balance of probabilities: the existence of the iniquity must be more likely than not on the material available to the decision-maker, whether that be the party or a party’s legal adviser when determining whether to give or withhold disclosure, or the court on any application in which the issue arises. In an interlocutory context there is no distinction to be drawn between cases in which the iniquity is one of the issues in the proceedings and those where it is not ([63], [98], [107]). When I refer in this judgment to the position as it “prima facie” appears or the “prima facie” position, that reflects my conclusion to this standard. iv) It will rarely be feasible or appropriate to conduct a mini trial on the issue for the purposes of disclosure. Usually the court will be in the same position as where it is an issue in the proceedings, namely having to assess such evidence as the parties put before the court for that purpose, without oral evidence on disputed issues ([70]). v) When the existence of a relevant iniquity is established, it is necessary to undertake an assessment as to whether there are any documents which satisfy the relationship test, so as to fall within the iniquity exception and be disclosable ([154]). vi) The relationship test involves asking whether the document was “brought into existence as part of or in furtherance of the iniquity.” That includes documents brought into existence in preparation for the iniquity and documents revealing the iniquity which come into existence after it is complete ([166]). However, it is not enough that the document would not exist but for the iniquity. vii) The purpose for which a document has been provided to a legal adviser is a relevant consideration when determining if the CFE is engaged. If a document recording information about an iniquity is in a lawyer’s possession simply as an incidental consequence of the lawyer’s general retainer, the CFE might be engaged. If the document was provided to the lawyer for the specific purpose of seeking the lawyer’s advice on whether or not the conduct recorded was unlawful, it would not be disclosable ([168]).[30]It is accepted that the burden of establishing the CFE lies on HMRC, and the application was conducted on that basis.

E THE CRIMINAL CONDUCT RELIED UPON

[31]I accept, and so far as necessary determine, that the iniquity which has to be considered for the purposes of determining whether the CFE is made out is not limited to the particular offence(s) for which an alleged party to that iniquity, has been indicted. The CFE issue might arise and fall to be determined before any indictment had been preferred (and indeed for the purpose of obtaining documents to determine whether and in what terms it should be preferred), or an indictment might later be amended. The CFE reflects the fact that the character of confidence which is necessary for legal professional privilege to apply is absent when those communications do not take place in the usual course of engagement of a lawyer, because the iniquity puts the conduct outside the normal scope of such professional engagement or is an abuse of the relationship which falls within the ordinary course of such engagement (Sadeq, [58]). That issue is not determined by the fact or content of any prosecutorial charging decision, any more than the scope of the CFE in civil litigation is determined by the particular claims advanced in the proceedings (although the relevance of such documents for disclosure purposes will be): see for example Dubai Aluminium Co Ltd v Al Alawi [1999] 1 WLR 1864 cited without criticism in Al Sadeq v Dechert LLP [2024] EWCA Civ 28.[32]Nonetheless, I accept that the argument at this hearing was conducted by reference to the offence charged in the indictment, and the substance of any iniquity relied upon for CFE purposes must accordingly be determined on that basis. The indictment prefers the common law offence of cheating the Revenue. Archbold Criminal Pleading Evidence and Practice (25th) at [30-134] states of this offence:
“Cheating includes any form of fraudulent conduct which results in diverting money from the revenue and in depriving the revenue of money to which it is entitled; it requires deliberate conduct by the defendant to prejudice, or take the risk of prejudicing, the revenue’s right to the tax in question knowing that he has no right to do so; it is a conduct offence, and no actual loss need be proved … it is frequently used in respect of those who sell dishonest tax avoidance schemes, whether or not their clients know that they are not entitled to the tax relief which the schemes are designed to obtain: … Tax avoidance moves from lawful conduct to criminal conduct when it involves the deliberate and dishonest submission of false documents to HMRC with the intent of gain by the taxpayer in question and loss to the public revenue ….”
[33]HMRC’s case is that the PCL scheme involved making false representations to users of the scheme as to PCL’s provision of niche lending finance on commercial terms which had no connection to a tax avoidance arrangement, with the aim of causing the users to make incorrect self-assessment declarations to the effect that they were not liable to the Loan Charge, and thereby understate their tax liability. There was some debate as to whether or not the offending conduct embraced within this indictment depended on showing that those who filed incorrect self-assessment declarations were misled into doing so by the defendants, or whether it would suffice that they were knowing participants in the dishonest scheme.[34]The indictment does not plead that the misleading statements caused tax payers to misapprehend the position, and, in civil law, at least, it is clear that the tort of deceit can be committed without the person to whom the dishonest statement is made being deceived (Hayward v Zurich Insurance Co Plc [2016] UKSC 48). If HMRC is able to make out its case as to the dishonest misdescriptions of the scheme, it is possible for those actions to cause loss to HMRC (clearly the alleged “victim” of the crime in the indictment, rather than the tax payers): i) by misleading tax payers into submitting false self-assessment declarations wrongly declaring that their Outstanding DR Loans had been discharged for Loan Charge purposes, when the defendants knew that this was not the case; and ii) by promoting a scheme intended to enable tax payers to submit false self-assessment declarations wrongly declaring that their Outstanding DR Loans had been discharged for Loan Charge purposes, when the defendants and the tax payers knew that this was not the case; or indeed some combination of the two.[35]While this will ultimately be a matter for a judge asked to rule on this matter in the criminal trial, my current view is that the indictment embraces both mechanisms. More substantively, I am satisfied that this hearing can be conducted and concluded without any unfairness to the Applicant and interested parties on the basis that the issue of whether the CFE is made out falls to be determined by reference to an alleged iniquity which embraces both mechanisms. It is not appropriate to adopt an overly technical reading of the indictment for this purpose, which would involve the risk of this exercise having to be conducted again if there was any supplementing of the particulars of the offence hereafter. F THE APPLICABLE LEGISLATION The applicable principles of construction

F THE APPLICABLE LEGISLATION

[36]I was referred to the applicable principles for the construction of finance legislation set out in Hurstwood Properties (A) Ltd v Rossendale Borough Council [2021] UKSC 16, [9]-[17]: i) A purposive approach to construction must be adopted, which involves identifying the purpose of the legislation in issue, it being the court's task, within the permissible bounds of interpretation, to give effect to Parliament's purpose. ii) The application of a purposive approach to fiscal legislation will often require disregarding transactions or elements of transactions which have no business purpose and have as their sole aim the avoidance of tax. That is because it is not generally to be expected that Parliament intends to exempt from tax a transaction which has no purpose other than tax avoidance. iii) Where a scheme aimed at avoiding tax involves a series of steps planned in advance, it is both permissible and necessary not just to consider the particular steps individually but to consider the scheme as a whole. In this regard, it is not necessary in order to justify taking account of later events to show that they were bound to happen—only that they were planned to happen at the time when the first transaction in the sequence took place and that they did in fact happen. iv) The required interpretative approach is “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.” v) In ascertaining whether a particular statutory provision imposes a charge, or grants an exemption from a charge, it is generally helpful to approach the issue in two stages. First, it is necessary to ascertain the class of facts (which may or may not be transactions) intended to be affected by the charge or exemption, by interpreting the statutory provision in the light of its purpose. Second, it is necessary to discover whether the relevant facts fall within that class, in the sense that they “answer to the statutory description”. Both elements need to be undertaken avoiding “tunnel vision”.

The issues in outline

[37]Schedule 11 paragraph 1(1) states that a person (“P”) takes a relevant step if they have made a loan or quasi loan to a relevant person on or after 6 April 1999 and an amount of the loan or quasi-loan is outstanding immediately before the end of 5 April 2019. Taking a “relevant step” is one of the requirements for the application of Chapter 2 of Part 7A of ITEPA 2003.[38]Paragraph 1(7) of Schedule 11 provides that “whether an amount of a loan or quasi-loan is outstanding at a particular time … does not depend on the loan or quasi-loan subsisting at that time”. The reason (or at least one of the reasons) for this is paragraph 4(1), which provides:
“A payment is to be disregarded for the purposes of paragraph 3(3)(b) [i.e. as a repayment of a DR Loan] if: (a) there is any connection (direct or indirect) between the payment and a tax avoidance arrangement (other than the arrangement under which the loan was made) …”
[39]The first question which arises is whether the loans originally made by EBTs to individuals subscribing to PLs (“the Original DR Loans”) are to be treated as subsisting notwithstanding the use of the PLs to discharge them because of a connection between the payment made using the PL proceeds and a tax avoidance arrangement: Question 1. If Question 1 is answered in HMRC’s favour, it is not necessary to consider the remaining questions.[40]If the Original DR Loans have been discharged, HMRC contends that there is nonetheless “a relevant step” for the purposes of paragraph 1, namely the making of the PLs. Whether that is so turns in the first instance on: i) the effect of paragraph 2(4), and whether the PLs replaced, directly or indirectly, the Original DR Loans and the related question of whether the conditions of s.554A are capable of being satisfied where the “relevant step” involves a loan other than as part of an arrangement with a past, present or prospective employer: Question 2(a); ii) whether it is “reasonable to suppose that, in essence … (ii) there is some other connection (direct or indirect) between the relevant step and the relevant arrangement”: Question 2(b).[41]If both Question 2(a) and 2(b) are answered in HMRC’s favour, such that Chapter 2 of Part 7A is presumptively applicable, there is an “exclusion” in Schedule 11 paragraph 25. This provides that Chapter 2 of Part 7 A will not apply if the relevant step “which is treated as being taken” by a person (P) is by way of a loan, and the loan meets certain conditions. There are two conditions which are in dispute, and to avoid the application of Chapter 2 Part 7 the Applicant must succeed on both: i) First, that the PLs, at the time they were made, were “on ordinary commercial terms within the meaning of s.176 of ITEPA 2003, ignoring Conditions B and C” in s.176. I am going to refer to this as Question 2(c). ii) Second, that “there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement”, which in turn requires reference (through paragraph 44 of Schedule 11) to s.554Z(13) to (16) of ITEPA 2003. I am going to refer to this as Question 2(d).[42]This numbering involves some differences from that adopted by the parties, so as to more clearly separate out distinct sub-issues.[43]I should record that the parties’ Joint Position Paper originally included a Question 3:
“If the Original Loan had been repaid and if the [PL] did not replace the Original Loan, was the making of the [PL] itself a relevant step which gave rise to a charge under the disguised remuneration legislation having regard to the conditions at s.554A ITEPA 2003?”
[44]It has not been necessary to consider this question, because HMRC has confirmed that: “if repayments of the Original [DR] Loans were not to be disregarded for the purposes of determining the amount of an Original Loan that was outstanding on 5 April 2019 with the effect that the Original [DR] Loans were repaid, and if the [PLs] were not replacement loans, s.554 ITEPA 2003 is not separately engaged”.[45]Finally, I should deal with the Applicant’s submission that it is sufficient that his interpretation of the law “might be correct”: i) If no Loan Charge was due as a matter of law, then there can be no CFE because the relevant iniquity of cheating the revenue cannot be made out. In these circumstances, I have reached final determinations of the issues of law. ii) However, when considering the state of mind of the Applicant and others, I accept that it might well be said that their conduct reflected an honest but mistaken view of the law. In assessing that evidence, together with all the other evidence, the fact that an alternative interpretation of relevant legislation might be adopted is clearly a relevant factor. Question 1: Were the Original DR Loans discharged by the PLs? The relevant legislation

Question 1: Were the Original DR Loans discharged by the PLs?

[46]This issue arises because of a combination of paragraphs 1(7)(b) and 4(1)(a) of Schedule 11: i) Paragraph 1(7)(b) provides that whether an amount of a loan is outstanding at a particular time does not depend on the loan subsisting at that time. ii) Paragraph 4(1)(a) provides that a payment is to be disregarded for the purposes of determining whether a loan is outstanding where there is “any connection (direct or indirect) between the payment and a tax avoidance arrangement (other than the arrangement under which the loan was made)”.[47]A “tax avoidance arrangement” is defined at s.554Z(13)-(16) of ITEPA 2003 as follows:
“(13) “Tax avoidance arrangement” means an arrangement which has a tax avoidance purpose. (14) For the purposes of subsection (13) an arrangement has a tax avoidance purpose if subsection (15) applies to a person who is a party to the arrangement. (15) This subsection applies to a person if the main purpose, or one of the main purposes, of the person in entering into the arrangement is the avoidance of tax or national insurance contributions. (16) The following paragraphs apply for the purpose of determining whether any relevant step or any other step is connected with a tax avoidance arrangement— (a) the step is connected with a tax avoidance arrangement if (for example) the step is taken (wholly or partly) in pursuance of— (i) the tax avoidance arrangement, or (ii) an arrangement at one end of a series of arrangements with the tax avoidance arrangement being at the other end, and (b) it does not matter if the person taking the step is unaware of the tax avoidance arrangement.” (a) the step is connected with a tax avoidance arrangement if (for example) the step is taken (wholly or partly) in pursuance of— (i) the tax avoidance arrangement, or (ii) an arrangement at one end of a series of arrangements with the tax avoidance arrangement being at the other end, and (b) it does not matter if the person taking the step is unaware of the tax avoidance arrangement.”
[48]Section 554Z(3) defines an “arrangement” non-exhaustively as including “any agreement, scheme, settlement, transaction, trust or understanding (whether or not it is legally enforceable).” As to this provision: i) The Applicant submits that the act of avoiding the Loan Charge by repaying an Outstanding DR Loan cannot constitute tax avoidance, because it involves no more than the acceptance of an “offer” made by the legislation which gave a period of grace before the Loan Charge would be levied to allow Outstanding DR Loans to be repaid. ii) The short answer to that point is that what the Applicant characterises as the “offer” is one in which payments will not discharge an Outstanding DR Loan if there is “any connection (direct or indirect) between the payment and a tax avoidance arrangement (other than the arrangement under which the loan was made)”. The mere fact that Schedule 11 contemplates that no Loan Charge will be due in respect of an Outstanding DR Loan which is paid off in compliance with Schedule 11 prior to 5 April 2019 cannot itself have the effect that any payment discharging an Outstanding DR Loan as a matter of contract cannot constitute tax avoidance. iii) The Applicant submits that the relevant connection between the repayment and the tax avoidance arrangement must exist when the repayment is made, and that paragraph 4(1)(a) could not have the effect that “a payment which is a ‘valid’ payment when made” would “be retrospectively ignored” if “subsequent events meant that there was a connection with a tax avoidance arrangement”. I see force in this submission, at least in its core field of application, and will proceed on the basis that it is correct. If, however, the relevant “scheme” or “understanding” exists when the repayment is made, albeit the scheme or understanding involves steps to be taken at some point after the repayment is made, I am satisfied that paragraph 4(1)(a) is engaged. There is nothing in the wording of paragraph 4(1)(a) to suggest that the relevant tax avoidance scheme or understanding must be implemented or achieve its purpose on the date the repayment is made, and that would be a wholly impractical construction which would leave paragraph 4(1)(a) limited, if any, scope to operate. In Rossendale Borough v Hurstwood [2021] UKSC 16, the Supreme Court emphasised at [12] that “where a scheme aimed at avoiding tax involves a series of steps planned in advance, it is both permissible and necessary not just to consider the particular steps individually but to consider the scheme as a whole”, continuing:
“Although a statute must be applied to a state of affairs which exists, or to a transaction which occurs, at a particular point in time, the question whether the state of affairs or the transaction was part of a preconceived plan which included further steps may well be relevant to whether the state of affairs or transaction falls within the statutory description, construed in the light of its purpose … As a matter of principle … it is not necessary in order to justify taking account of later events to show that they were bound to happen—only that they were planned to happen at the time when the first transaction in the sequence took place and that they did in fact happen: see Inland Revenue Comrs v Scottish Provident Institution [2004] 1 WLR 3172, para 23, where the House of Lords held that a risk that a scheme might not work as planned did not prevent it from being viewed as a whole, as it was intended to operate.”
In fairness, I did not understand Mr Fitzpatrick KC to contend otherwise. iv) That conclusion is reinforced by s.554Z(16)(a)(ii) which provides that a step is connected with a tax avoidance arrangement if the step is taken (wholly or partly) in pursuance of “an arrangement at one end of a series of arrangements with the tax avoidance arrangement being at the other end.”[49]I was referred to a number of authorities dealing with the concept of “main purpose”, many concerned with the unallowable purpose test in s.442 of the Corporation Tax Act 2009 which I accept should be applied with a degree of caution in this different context, but are nonetheless of some assistance: i) The ascertainment of purpose involves a subjective enquiry (Travel Document Service v HMRC [2018] STC 723, [41] and Kwik-Fit Group Limited v HMRC [2024] STC 897, [52]). ii) Where a genuine commercial transaction is being carried out for a genuine commercial purpose, and there are two ways of carrying it out which will attract differential tax treatments, a decision to carry the transaction out in a manner which will involve a lower tax liability does not of itself mean that one of the main objects of the transaction is avoiding tax (IRC v Brebner [1967] 2 AC 18, 30). iii) A “main” purpose has “a connotation of importance”: Travel Document Service v HMRC, [48]). iv) I was also referred to the summary given by Newey LJ in JTI Acquisition Company (2011) Ltd v Revenue and Customs Commissioners [2024] EWCA Civ 652, [24], drawing on Falk LJ in BlackRock HoldCo 5 LLC v Revenue and Customers Commissioners [2024] EWCA Civ 330: “a) Save in 'obvious' cases, ascertaining the object or purpose of something involves an inquiry into the subjective intentions of the relevant actor. b) Object or purpose must be distinguished from effect. Effects or consequences, even if inevitable, are not necessarily the same as objects or purposes. c) Subjective intentions are not limited to conscious motives. d) Further, motives are not necessarily the same as objects or purposes. e) ‘Some’ results or consequences are ‘so inevitably and inextricably involved’ in an activity that, unless they are merely incidental, they must be a purpose for it.” v) Finally, I have proceeded on the basis that the purpose of a corporate entity will fall to be determined on conventional principles of attribution (Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500).[50]Mr Fitzpatrick KC submitted that where legislation accords a particular consequence to an event which forms part of a “tax avoidance arrangement”, ascertaining whether a particular arrangement has this effect is principally a matter of statutory interpretation, and in particular requires the court to consider the arrangement in the light of the purpose of the statute. This seems to me to be broadly correct. I was referred to other passages in the authorities on the concept of what constitutes tax avoidance.[51]In IRC v Willoughby [1997] 1 WLR 1071, 1079, Lord Nolan (when dealing with tax avoidance in the context of s.741 of the Income and Corporation Taxes Act 1988) approved the following passage in Mr Henderson QC’s submissions:
“The hallmark of tax avoidance is that the taxpayer reduces his liability to tax without incurring the economic consequences that Parliament intended to be suffered by any taxpayer qualifying for such reduction in his tax liability. The hallmark of tax mitigation, on the other hand, is that the taxpayer takes advantage of a fiscally attractive option afforded to him by the tax legislation, and genuinely suffers the economic consequences that Parliament intended to be suffered by those taking advantage of the option. Where the taxpayer's chosen course is seen upon examination to involve tax avoidance (as opposed to tax mitigation), it follows that tax avoidance must be at least one of the taxpayer's purposes in adopting that course, whether or not the taxpayer has formed the subjective motive of avoiding tax.”

Lord Nolan continued:

“One of the traditional functions of the tax system is to promote socially desirable objectives by providing a favourable tax regime for those who pursue them. Individuals who make provision for their retirement or for greater financial security are a familiar example of those who have received such fiscal encouragement in various forms over the years. This, no doubt, is why the holders of qualifying policies, even those issued by non-resident companies, were granted exemption from tax on the benefits received. In a broad colloquial sense tax avoidance might be said to have been one of the main purposes of those who took out such policies, because plainly freedom from tax was one of the main attractions. But it would be absurd in the context of section 741 to describe as tax avoidance the acceptance of an offer of freedom from tax which Parliament has deliberately made. Tax avoidance within the meaning of section 741 is a course of action designed to conflict with or defeat the evident intention of Parliament.”
[53]In R v IRC ex parte Matrix Securities [1994] 1 WLR 334, 356-7, Lord Templeman stated:
“The courtshavelongsince insisted that fiscal consequences correspond to real consequences. Every tax avoidance scheme involves a trick and a pretence. It is the task of the revenue to unravel the trick and the duty of the court to ignore the pretence. In the present case the principal trick employed consisted of circular, self-cancelling payments of £64,125,000. The pretence was that the investors were expending £64,125,000. The trick of circular, self-cancelling payments with matching receipts and payments was rejected … The authorities disclose that unacceptable tax avoidance schemes exhibit several similar or identical characteristics. A scheme may of course include embellishments designed to avoid the mistakes of earlier schemes. It is a common characteristic of a scheme that, considered as a whole, the results claimed are too good to be true … It is a common characteristic that some steps in the scheme are preordained though not necessarily contractual. According to Mr. Goldberg the Matrix scheme avoids the mistake made in the Ensign Tankers case where there was no recourse by a lender to a borrower; Hill Samuel are expressly accorded a right of recourse against the investors and therefore, he argues, the steps are not preordained. But in reality recourse to the investors will never be made. Title to the money circulated will be produced by Hill Samuel only for the purpose of steps which ensure that in practice the money will come back to Hill Samuel immediately.”
[54]In Inland Revenue v Challenge Corporation [1987] AC 155, 167-68, Lord Templeman stated that “income tax is avoided and a tax advantage is derived from an arrangement when the taxpayer reduces his liability to tax without involving him in the loss or expenditure which entitles him to that reduction. The taxpayer engaged in tax avoidance does not reduce his income or suffer a loss or incur expenditure but nevertheless obtains a reduction in his liability to tax as if he had.” That approach (with reference to a New Zealand anti-avoidance provision) was approved in relation to domestic tax legislation in Ensign Tankers (Leasing) Ltd v Stokes [1992] 1 AC 655, 675 where Lord Templeman observed that “….the particular form of tax avoidance scheme with which …this case is concerned, consists of a scheme which seeks to obtain for a taxpayer a reduction in his taxable income without suffering any financial loss or expenditure.”[55]Reverting to the statutory provisions in issue in this application: i) The FA (No 2) 2017 involved taxing Outstanding DR Loans as income, on the basis that they had been used by employers as a means of remunerating contractors for their service. ii) The taxable value was the outstanding amount of the DR Loan on 5April 2019 (paragraph 1(4) of Schedule 11). This gave contractors the opportunity to return that remuneration, and they would not be taxed to the extent to which they did so. The intended “economic consequence” of Schedule 11 was to tax such loans as income to the extent that the benefits were not returned, but not otherwise. iii) The tax which paragraph 4(1) of Schedule 11 must have had most clearly in contemplation was the Loan Charge itself, because the effect of the repayment being connected to a tax avoidance arrangement was to preserve a liability to that particular tax. iv) The most obvious context in which paragraph 4(1) would operate is where the repayment did not have the equivalent economic effect of the contractor returning the remuneration received. Question 2(a): are the PLs “replacement loans” for the purposes of paragraph 2(4)? The issue

Question 2(a): are the PLs “replacement loans” for the purposes of paragraph 2(4)?

[56]Paragraph 2 of Schedule 11 is headed “meaning of ‘loan’, ‘quasi-loan’ and ‘approved repayment date’”: i) Paragraph 2(1) contains a non-exhaustive definition of “loan” (“‘loan’ includes ...”). ii) Paragraph 2(2) sets out when a “quasi-loan” is made. In simplified terms, P makes a quasi-loan to a relevant person if P acquires a right to a payment or transfer of assets and there is a connection between the acquisition of the right and a payment by way of loan or otherwise or a transfer of assets to the relevant person. iii) Paragraphs 2(4) and (5) then address the replacement of “loans” and “quasi-loans” as follows: “(4) Where a quasi-loan or a loan made by P to a relevant person is replaced, directly or indirectly, by a loan or another loan (the ‘replacement loan’), references in paragraph 1 to the loan are references to the replacement loan. (5) Where a loan or a quasi-loan made by P to a relevant person is replaced, directly or indirectly, by a quasi-loan or another quasi-loan (the ‘replacement quasi-loan’), references in paragraph 1 to the quasi-loan are references to the replacement quasi-loan.” iv) Similar language is used in paragraphs 5(4) and 13(4). Paragraph 5 addresses the position where a loan has been made to a relevant person and, before the end of 5 April 2019, either the employee (“A”) or the employer (“B”) acquires a right to repayment of all or part of the loan. Paragraph 13(4) provides: “Where a quasi-loan or a loan made by P to a relevant person is replaced, directly or indirectly, by a loan or another loan (‘the replacement loan’), references to the loan are references to the replacement loan”. v) Paragraph 13 addresses a similar state of affairs, where a quasi-loan has been made and A or B acquire the right to payment or transfer of the relevant assets, with paragraph 13(4) being in essentially the same terms as paragraph 5(4). vi) There is no definition of what it means for a loan or quasi-loan to be “replaced” by another loan or quasi-loan. vii) Finally, Part 3 of Schedule contains various exclusions, one of which is paragraph 25: “Chapter 2 of Part 7A of ITEPA 2003 does not apply by reason of a relevant step within paragraph 1 which is treated as being taken by a person (“P”) if—(a) P is treated as taking a relevant step by that paragraph by reason of the payment of a sum of money by way of a loan,(b) the loan is (at the time it is made) a loan on ordinary commercial terms within the meaning of section 176 of ITEPA 2003, ignoring conditions B and C in that section, and(c) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.” conditions B and C in that section, and[57]The issue of interpretation which arises between the parties is whether the PLs which were used by contractors to repay Outstanding DR Loans from their EBTs “replaced” the Outstanding DR Loans for the purpose of paragraph 2(4): i) HMRC argues that any form of refinancing of an original loan by taking out a second loan, the proceeds of which are used to pay off the original loan, involves the second loan replacing the first, regardless of whether the identity of the lender remains the same, or whether the essential terms of the loan change. ii) The Applicant says that a loan will only “replace” a DR Loan if it “similar to the one it replaced … in its essential terms and fulfilling the same function as the one it replaces”. It is said that this requires the replacement loan to be made by the same lender as the Original DR Loan, or perhaps arranged by the original lender “where, in its essentials, the Original [DR] Loan subsists” (one example given was where the Original DR Lender renegotiates the Original DR Loan or assigns its benefit).

The arguments

[58]It is clear from Schedule 11 itself that a replacement loan does not have to be on the same or similar terms as the loan replaced. That much is clear from paragraphs 2(4) and 2(5), which contemplate quasi-loans replacing loans or loans replacing quasi-loans but still constituting replacement loans. However, Mr Fitzpatrick KC’s contention that the source of the loan must be the same is distinctly more arguable: i) Paragraph 1(1) states that a relevant step occurs when “P has made a loan”. The effect of paragraph 2(4) is that where a replacement loan is made, “references in paragraph 1 to the loan are to the replacement loan”. ii) On HMRC’s construction, the effect of this provision is not only to extend the meaning of the word “loan” in paragraph 1(1)(a) to include the replacement loan, but to change the identity of P. HMRC acknowledges (at paragraph 153 of its submissions of 29 April 2025) that on its construction “Schedule 11 will initially refer to the original lender as regards the original loan” but can then “be applied by reference to a different person, P2, as regards P2’s loan”. It also involves the “relevant step” for the purpose of s.554A(1) ITEA 2003 being the fact that the replacement loan is outstanding, when the “relevant arrangement” for the purpose of s.554A(1)(b) is the original loan made by a different lender. iii) I accept that s.554A ITEPA 2003 and Schedule 11 are capable of operating on this basis (as explained in paragraph 108 of HMRC’s submissions of 29 April 2025), but it is not an outcome which paragraph 2(4) would naturally cause the reader to anticipate. iv) Further, it is difficult to see how the outstanding amount of a replacement loan from someone other than the employer could be said to be taken “(wholly or partly) in pursuance of” the original arrangement with the employer such that, on HMRC’s construction of the concept of a replacement loan, s.554A(1)(e)(i) would be incapable of being engaged (albeit s.554A(1)(e)(ii) could apply).[59]Finally, on HMRC’s construction, any loan taken out by the recipient of a DR Loan to replace that loan would itself give rise to a “relevant step” for paragraph 1 purposes, unless it fell within the paragraph 25 exclusion. Having regard to s.176 of ITEPA 2003, that requires the loan: i) to be made by a person “in the ordinary course of a business carried on by the lender which includes(i) the lending of money or(ii) the supply of goods or services on credit”; and ii) at the time the loan was made, comparable loans were “available to all those who might be expected to avail themselves of the services provided by the lender in the course of the lender’s business”; and iii) “a substantial proportion of the loans (consisting of the loan in question and the comparable loans) made by the lender at or about the time the loan in question was made to the members of the public”; and iv) the loan in question is held on the same terms as comparable loans generally made by the lender to members of the public at or about the time the loan in question was made”; and v) when those terms differ from the terms applicable immediately after the loan in question was first made, they were “imposed in the ordinary course of the lender’s business”.[60]The effect, therefore, of HMRC’s construction is that if the recipient of a DR Loan borrowed from friends or family, or accessed funds through “peer to peer” lending, then regardless of the terms on which such borrowing was made available, repayment from these sources would not discharge an Outstanding DR Loan for Loan Charge purposes. I agree with Mr Fitzpatrick KC that that is a somewhat surprising construction. While HMRC suggests that this reflects an expansive approach to “anti-avoidance” measures within the statute, paragraph 4 of Schedule 11 already addresses this issue in broad terms.[61]However, HMRC was able to point to paragraph 25 which appears to contemplate that, but for that exclusion, loans on ordinary commercial terms by lenders acting in the ordinary course of business and who make loans available to members of the public would be caught by Chapter 2 of Part 7A of ITEPA 2003. Ms Cullen KC argues that this provision would have no real effect unless “replacement loans” has the meaning for which HMRC contends. It was not clear to me what role the Applicant contended that paragraph 25 has on his construction.

Analysis

[62]In arguing that paragraph 2(4) should be given the narrower interpretation for which the Applicant contends, Mr Fitzpatrick KC argues that paragraph 2(4) “should be confined to its proper function as a definition and should be interpreted restrictively” and “not … so as to operate as a substantive or operative provision”. Mr Fitzpatrick KC relied on a passage at [18.1] in Bailey and Norbury, Bennion on Statutory Interpretation (8th) which provides:
“As a general rule substantive provision will not be incorporated in a definition. This is for the simple reason that the reader approaching a definition would not normally expect it to be more than a definition. Where there is doubt in relation to a provision framed as a definition the courts will tend to construe it restrictively and confine it to the proper function of a definition.”
The footnote to that passage cites various authorities from other common law jurisdictions, including Munn v Agus (1997) 6 NTLR 84 (Court of Appeal of the Northern Territory of Australia) referring to a passage in an earlier edition of Bennion that “it is a drafting error (less frequent now than formerly) to incorporate a substantive enactment in a definition. A definition is not expected to have operative effect as an independent enactment. If it is worded in that way, the courts will tend to construe it restrictively and confine it to the proper function of a definition.” The court in that case rejected an interpretation of a definition which “results in a substantive change to an existing legal position”.[63]I was also referred to the principles applicable to the construction of “deeming” provisions summarised by Lord Hodge in Fowler v Revenue and Customs Commissioners [2020] UKSC 22, [27]:
“There are useful but not conclusive dicta in reported authorities about the way in which, in general, statutory deeming provisions ought to be interpreted and applied. They are not conclusive because they may fairly be said to point in different directions, even if not actually contradictory. The relevant dicta are mainly collected in a summary by Lord Walker of Gestingthorpe JSC in DCC Holdings (UK) Ltd v Revenue and Customs Comrs [2011] 1 WLR 44, paras 37–39, collected from Inland Revenue Comrs v Metrolands (Property Finance) Ltd [1981] 1 WLR 637, Marshall v Kerr [1995] 1 AC 148 and Jenks v Dickinson [1997] STC 853. They include the following guidance, which has remained consistent over many years: (1) The extent of the fiction created by a deeming provision is primarily a matter of construction of the statute in which it appears. (2) For that purpose the court should ascertain, if it can, the purposes for which and the persons between whom the statutory fiction is to be resorted to, and then apply the deeming provision that far, but not where it would produce effects clearly outside those purposes. (3) But those purposes may be difficult to ascertain, and Parliament may not find it easy to prescribe with precision the intended limits of the artificial assumption which the deeming provision requires to be made. (4) A deeming provision should not be applied so far as to produce unjust, absurd or anomalous results, unless the court is compelled to do so by clear language. (5) But the court should not shrink from applying the fiction created by the deeming provision to the consequences which would inevitably flow from the fiction being real.”
[64]I did not find the distinction between definitions and operative or substantive provisions particularly informative in this case: i) One of the legitimate purposes of a definition acknowledged in Bennion can be to “enlarge … the natural meaning of a term” which in turn manifests a legislative intent to expand the scope of the substantive provisions using that term. The line between an “enlarging” definition and a deeming provision can be difficult to discern. ii) That is what paragraphs 2(4) and 2(5) do here, making the references in paragraph 1 to loans or quasi-loans extend to the arrangements described in those sub-paragraphs. On both HMRC’s and the Applicant’s case, paragraph 2(4) has substantive effect in this way. The issue between them is the extent of that substantive effect. iii) I accept that paragraph 2 is headed “meaning of loan” etc, and that the headings of a statute are an admissible aid to interpretation (Stephens v Cuckfield Rural DC [1960] 2 QB 374). However, a characteristic of Schedule 11 is that many of its paragraphs are introduced in this way, but they clearly have substantive effect. For example paragraph 4 appears with paragraph 3 under a heading “meaning of ‘outstanding’: loans” but clearly contains provisions with substantive effect. Paragraphs 6 and 7, appearing under the heading “Meaning of ‘outstanding’: loans in currencies other than sterling”, contain substantive provisions on currency conversion. The paragraphs which appear under the heading “Meaning of ‘outstanding’: quasi-loans” also contains provisions of substantive content (not least paragraph 12). iv) However, I accept that, in its location, terms and heading, paragraph 2(4) is not the most obvious place to find a provision intended to control the means by which the debtor of a DR Loan might raise funds to pay it off, and thereby avoid the Loan Charge. v) I also accept that the purpose of paragraph 2(4), and of the legislation in which it appears, is of the greatest relevance to its interpretation, in accordance with what has been termed the “modern” approach to statutory interpretation. As Mr Fitzpatrick KC submitted, the primary means of establishing the purpose of the legislation is the language used (see Williams v Central Bank of Nigeria [2014] AC 1189, [72] but there are other materials which are legitimate aids to the court in that task.[65]In particular, in ascertaining the purpose of paragraph 2(4) for the purposes of construing it, it is legitimate to have regard to any consultation papers which preceded the relevant enactment. I was referred to R (Maughan) v Her Majesty's Senior Coroner for Oxfordshire [2020] UKSC 46, [27]. In that case, the Supreme Court referred to a public consultation on draft rules, and a published analysis of the responses, for the purpose of determining whether delegated legislation had effected a change in one aspect of the law, placing particular reliance on the fact that the consultation document and the response were available to Parliament. The court also had regard to a consultation paper in Triplerose Ltd v Ninety Broomfield Road RTM Co Ltd [2015] EWCA Civ 282, [55]–[56].[66]In this case, Mr Fitzpatrick KC relied upon a 10 August 2016 consultation paper published by HMRC entitled “Tackling Disguised Remuneration” (“the Consultation Paper”), whose purpose was to consult on “the changes introduced in Finance Bill 2017 to tackle disguised remuneration avoidance schemes”. The Paper annexed draft legislation. Chapter 4 dealt with the Loan Charge and stated:
“5. As mentioned in the technical note, the government has considered whether to exclude extremely old loans from the scope of the loan charge, and as a result the loan charge will only apply to loans made on, or after, 6 April 1999. Example 4.1: An employee ‘A’ received a £10,000 loan from a DR scheme on 1 January 1999. The loan is still outstanding on 5 April 2019 and has not been taxed as income or replaced. Because the loan was made before 6 April 1999 the loan charge will not apply to it. 6. Where a loan has been replaced with a new loan only the replacement loan is considered. This means that any loans originally made prior to 6 April 1999 but subsequently replaced will be within the scope of the loan charge. Example 4.2: An employee ‘A’ received a £10,000 loan from a DR scheme on 1 January 1999. In 2003 the loan was replaced with a new loan also of £10,000. The loan is still outstanding on 5 April 2019 and has not been taxed as income or replaced. Because the replacement loan was made after 6 April 1999 the loan charge will apply to it and it will be taxable under Part 7A on 5 April 2019.”
Example 4.1: An employee ‘A’ received a £10,000 loan from a DR scheme on 1 January 1999. The loan is still outstanding on 5 April 2019 and has not been taxed as income or replaced. Because the loan was made before 6 April 1999 the loan charge will not apply to it. Example 4.2: An employee ‘A’ received a £10,000 loan from a DR scheme on 1 January 1999. In 2003 the loan was replaced with a new loan also of £10,000. The loan is still outstanding on 5 April 2019 and has not been taxed as income or replaced. Because the replacement loan was made after 6 April 1999 the loan charge will apply to it and it will be taxable under Part 7A on 5 April 2019.”[67]Mr Fitzpatrick KC submitted that the Consultation Paper shows that the purpose of paragraph 2(4) was to address a potential argument that the legislation would not apply to a DR Loan which had been issued to replace an earlier DR Loan which fell outside the period of temporal application of the legislation (an argument that it was, in effect, simply a continuation of that earlier DR Loan, and not caught by Schedule 11). I agree that the Consultation Paper discusses the concept of “replacement loan” only in these circumstances, and lends no support to the suggestion that paragraph 2(4) was intended, as an anti-avoidance measure, to limit the repayment of DR Loans to the debtor’s own funds or borrowing meeting the s.176 test.[68]The accompanying draft of the proposed legislation included at Part 2 a section dealing with “loans and quasi-loans outstanding on 5 April 2019” which has many similarities with Schedule 11 as enacted, including in the terms of paragraph 2(4) and 2(5) (which appears as paragraph 14(3) and (3)), but with the following differences: i) There is no equivalent of paragraph 1(7) providing that whether an amount of loan or quasi-loan is outstanding “does not depend on the loan or quasi-loan subsisting at that time”. ii) There are no equivalents to paragraphs 5(3) and 13(4) which use similar “replacement loan” or “quasi-loan” language to paragraph 2(4). iii) There is no paragraph 25.[69]So far as exclusions are concerned, paragraph 10 of the Consultation Paper states that “the existing exclusions from section 554E to section 554Y will also apply to the loan charge in 2019”. The example given was of an employee who received a loan from a third party which met the conditions for commercial transactions, such that a Part 7A charge did not arise. Paragraph 10 stated that “the exclusions for the loan charge have not been provided for in the draft legislation”.[70]Section 554F provided (and provides) as follows:
“Exclusions: commercial transactions (1) Chapter 2 does not apply by reason of a relevant step which is the payment of a sum of money by way of a loan if— (a) the loan is a loan on ordinary commercial terms within the meaning of section 176, ignoring conditions B and C in that section, and (b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.” (a) the loan is a loan on ordinary commercial terms within the meaning of section 176, ignoring conditions B and C in that section, and (b) there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement.”
[71]Section 554F was introduced by Schedule 2 paragraph 1 of the Finance Act 2011. When it was introduced, the “payment of a sum of money” by way of loan contemplated a DR Loan paid as a means of remunerating a contractor (in that the Loan Charge had yet to be imposed and no issue of requiring DR Loans to be repaid by a certain date had as yet arisen). That seems clear from s.554F itself, although the pre-legislative history of s.554 was not in evidence. It is clear that non-commercial lending by banks to their employees is something which is subject to tax as disguised remuneration (see for example PD Curtis v Commissioners for HMRC [2014] UKFTT 165 (TC)).[72]An HMRC paper responding to the consultation exercise, “Tackling disguised remuneration: Technical note and summary of responses” of 5 December 2016 was put in evidence. This discussed the proposed exclusions for the legislation and stated at Chapter 6, [9]-[10]:
“The consultation made clear that the existing exclusions in Chapter 1 of Part 7A would apply to the loan charge. Two exclusions that involve a loan have been modified so that they include the loan charge legislation: • Commercial transactions …”
. It noted “the exclusions for the loan charge are provided for by paragraphs 22 to 27 of Schedule 10 of the draft Finance Bill 2017”. This involved amendments to the draft schedule circulated in the Consultation Paper.[73]At [18] onwards, HMRC addressed cases where interest had not been paid under DR Loans and the outstanding interest is capitalised. It noted that, following the response to the consultation process, the government had decided to remove any capitalised interest from the scope of the Loan Charge. At [21], HMRC stated:
“However, where unpaid or accrued interest is included in the principal of a replacement loan this will form part of the outstanding loan balance”
. The accompanying example is of a 10-year £10,000 Original DR Loan with 5% interest made to a contractor by an EBT (P) which, at the end of the 10-year term is replaced by P with a new loan of £15,000. The paper says “the outstanding loan balance of £15,000 is the principal amount.” Once again, the only reference to a “replacement loan” is in the context of a replacement by the original lender.[74]Finally, the amendments which introduced Schedule 11 of FA (No 2) Act 2017 also amended s.554F by adding a new sub-section (6) as follows:
“See paragraph 25 of Schedule 11 to FA (No 2) 2017 for provision about exclusions where a loan is made on ordinary commercial terms and the relevant step is within paragraph 1 of that Schedule.”
[75]Against this background, the purpose of paragraph 25 of Schedule 11 would appear to be the same as that of s.554F, i.e. to create an exception such that loans made by or at the behest of an employer to a contractor are not subject to Part 7 of Chapter 2 where they are on commercial terms as defined. There is nothing to suggest that paragraph 25 was intended, in conjunction with paragraph 2(4), to limit the means by which Outstanding DR Loans could be repaid for the purpose of avoiding the Loan Charge. That would give it a fundamentally different purpose to s.554F, and yet the Consultation Paper, and the amendment to s.554F to introduce s.554(6), would suggest that these provisions have the same purpose.[76]It follows that I accept Mr Fitzpatrick KC’s submission that the PLs are not “replacement loans” for Schedule 11 purposes, and the answer to Question 2(a) is “no”. Question 2(b): whether it is “reasonable to suppose that, in essence … (ii) there is some other connection (direct or indirect) between the relevant step and the relevant arrangement”[77]This issue arises because the taking of a “relevant step” within paragraph 1 of Schedule 11 is only one of the thresholds – or gateways – for the application of Part 7 of Chapter 2 in s.554A (s.554A(1)(d)).

(e) :

“it is reasonable to suppose that, in essence – (i) the relevant step is entered into (wholly or partly) in pursuance of the relevant arrangement, or (ii) there is some other connection (direct or indirect) between the relevant step and the relevant arrangement.”
[78]On the premise (which I have rejected) that an outstanding PL on 5 April 2019 constitutes a relevant step for s.554A purposes, HMRC argues that condition (e)(ii) is satisfied because there is some connection between the PL and the DR arrangement to reward the contractor in connection with their employment.[79]It was common ground that the words “reason to suppose” required an objective analysis of the existence of the requisite connection (Commissioners v Marlborough DP Ltd [2024] UKUT 00098 (TCC), [143]).[80]At first sight, the answer to the question “is the outstanding replacement loan directly or indirectly connected with the relevant arrangement (which involved the remuneration of the contractor by payments to an EBT from which the loan was made)?” would appear to be “yes”. The replacement loan comes into existence to discharge the Original DR Loan, which came into existence as part of the relevant arrangements. However, I accept that it is necessary to have regard to the purpose of the statutory provision in which the connecting factor appears when determining the nature of the connection required. On that issue, I was referred to a number of cases.[81]In Barclays Bank plc v HMRC [2007] STC 747, [38], David Richards J stated: “The words 'in connection with' are probably as broad a formulation as will be found in statutory provisions for linking A with B. It is a question of fact whether a connection exists within the meaning of the statutory provision in question. In s 612(1) nothing more is required than the payment should be given in connection with past service. The relevant facts are not here in dispute. Where, as here, the free tax service was provided to retired employees and their spouses, because they had been employees or were married to retired employees, it is to my mind clear that the service was provided in connection with past service."[82]That decision was affirmed on appeal. Arden LJ stating at [18]-[20]:
"The primary question in this case is the proper meaning of the words "in connection with past service" in section 612(1) of ICTA. The expression "in connection with" could describe a range of links. In Coventry Waste Ltd v Russell [1999] 1 WLR 2093, 2103, Lord Hope held that in this situation the court must look closely at the surrounding words and the context of the legislative scheme: ‘The majority in the Court of Appeal held that it was a sufficient answer to the appellant's argument to construe the words "in connection with" as meaning "having to do with"
. This explanation of the meaning of the phrase was given by McFarlane J in Re Nanaimo Community Hotel Limited [1944] 4 D.L.R. 638. It was adopted by Somervell L.J. in Johnson v. Johnson [1952] P. 47, 50-51. It may be that in some contexts the substitution of the words "having to do with" will solve the entire problem which is created by the use of the words "in connection with." But I am not, with respect, satisfied that it does so in this case, and Mr. Holgate did not rely on this solution to the difficulty. As he said, the phrase is a protean one which tends to draw its meaning from the words which surround it. In this case it is the surrounding words, when taken together with the words used in the 1991 Amending Order and its wider context, which provide the best guide to a sensible solution of the problem which has been created by the ambiguity.’ Accordingly, the other parts of the definition of "relevant benefits" and the surrounding provisions of the legislative scheme, will inform the court as to the extent of the link required by any particular provision. Thus the court must examine the function or purpose of the definition of "relevant benefits". Here, the purpose of the definition is to identify the chargeable payments under a retirement benefits scheme. At the very least, Parliament is unlikely to have intended to limit connections to direct connections. That would have left the possibility that taxpayers could easily circumvent the charging provisions. Furthermore, it must have been foreseen that, over the life of the scheme, changes might be made to benefits. The changes would not simply involve a straight exchange or substitution of one benefit for another, but, on occasion, the loss of a benefit and the rendering of some monetary recompense. The charging provisions could only fairly apply if they applied to the giving of the new benefits, or recompense, as much as to the giving of the benefit originally provided by the scheme. It is also significant that Parliament did not limit itself to payments in consideration for services.” Thus I conclude that a connection may be indirect for the purpose of the definition of relevant benefits. Accordingly, it is possible that the making of a payment will have a relevant connection with more than one thing. In that situation, it is in my judgment necessary to see whether the connections can co-exist, or whether one will actually exclude the other. If, on proper analysis the further connection displaces a prior connection, the prior connection ceases to be a relevant connection for the purpose of s.612(1).”[83]In London Luton Hotel BPRA Property Fund LLP v HMRC [2023] EWCA Civ 362, Whipple and Falk LJJ reviewed the authorities, and at [69] stated: “These cases show that the meaning of ‘on, or in connection with’ is heavily dependent both on context and policy. The phrase might require what Robert Walker LJ in Coventry Waste referred to as ‘a strong and close nexus’ or it might require ‘a weak and loose one’. Ben-Odeco v Powlson introduces the concept of remoteness, which is another way of considering the same question."[84]In Commissioners v Marlborough DP Ltd [2024] UKUT 00098 (TCC), [131], the Upper Tribunal (TCC) summarised the law as follows:
“(1) The phrase "in connection with" must be construed by looking closely at the surrounding words and the context of the legislative scheme … and at the context and policy of the provision … (2) A connection can be both direct or indirect, and this is likely to be the case whenever the phrase "in connection with" is used … (3) There can be a connection with more than one other thing, in which case it is necessary to see if the connections can co-exist or whether one will actually exclude the other … (4) A connection once established is unlikely to be displaced by other factors or connections … (5) A payment made to every member of a class of people is likely to be made in connection with that class ….”
[85]At [146], the Upper Tribunal concluded “that the words ‘connected with’ cannot be given a limitless meaning in the present context” and that, as the purpose of the provision in issue before them was to tax employment income provided through third parties, “there has to be a relatively strong or direct nexus between the employment/directorship relationship and the contribution/loans” and not a connection which “was merely incidental or peripheral” or “merely part of the background.” The Upper Tribunal also accepted “that the statutory emphasis on the ‘essence’ of the arrangements ... reinforces this conclusion.”[86]With the benefit of that guidance, I now turn to s.554A. The purpose of this provision, as noted in the Marlborough case, was to tax employment income provided through third parties The “relevant steps” are generally financial acts such as earmarking assets (s.554B), paying money, acquiring a right to money or an asset, releasing a loan or making money (s.554C) and assets (s.554D) available. In the case of paragraph 1(1), it is the continuing existence of a state of affairs – having an outstanding DR Loan or (on the current hypothesis) an outstanding replacement loan as at 5 April 1999 (Schedule 11 para. 1) – which generates the liability to tax. In my view, the statutory purpose of s.554A also requires a “relatively strong nexus” between the relevant step and the relevant arrangement, although I accept that the words “directly or indirectly” may well allow for there to be some intermediate stages between the relevant step and the relevant arrangement. That conclusion receives some support from the very strong and immediate connection contemplated by s.554(e)(i), and while sub-paragraph (e)(ii) undoubtedly contemplates a less strong and immediate connection, it is a sub-paragraph which will have the same broad statutory purpose as the immediately preceding sub-paragraph. The requirement for a relatively strong connection is also supported by the fact that both sub-paragraphs are to be approached for the purpose of ascertaining the position “in essence”.[87]The issue here is whether the fact that a replacement loan had been taken out for the purpose of discharging an Outstanding DR Loan arising from a relevant arrangement is sufficient to meet that causal requirement between the loan and the arrangement. I see some force in the argument that (for example) the relevant arrangement would simply form part of the background to a commercial or family loan, whereas if the replacement loan had been provided by the employer or EBT as a means of keeping the relevant arrangement in being, the test would be amply satisfied, even if the relevant arrangement had not initially provided for such a loan. However, the challenge of this analysis is that it is difficult to see how a replacement loan could ever, on this hypothesis, satisfy s.554A(e)(ii), whereas the premise on which Question 2(b) falls to be approached is that it must be capable of doing so. The choice would seem to be between replacement loans either always or never meeting the requisite causal connection. That rather unlikely outcome reinforces my view of the answer to Question 2(a), but if my answer to that Question is wrong, it seems to me to follow that, in the context of the statute as a whole, the answer to Question 2(b) would be “yes”. Question 2(c): were the PLs, at the time they were made, “on ordinary commercial terms within the meaning of s.176 of ITEPA 2003?[88]In relevant respects, section 176 ITEPA 2003 provides: “(2) In this section a ‘loan on ordinary commercial terms’ means a loan—(a) made by a person (“the lender”) in the ordinary course of a business carried on by the lender which includes— (i) the lending of money, or (ii) the supplying of goods or services on credit, and(b) in relation to which condition A … is met. (3) Condition A is met if— (a) at the time the loan was made comparable loans were available to all those who might be expected to avail themselves of the services provided by the lender in the course of the lender's business, (b) a substantial proportion of the loans (consisting of the loan in question and the comparable loans) made by the lender at or about the time the loan in question was made were made to members of the public,(c) the loan in question is held on the same terms as comparable loans generally made by the lender to members of the public at or about the time the loan in question was made, and(d) where those terms differ from the terms applicable immediately after the loan in question was first made, they were imposed in the ordinary course of the lender's business. (4) For the purposes of condition A, a loan is comparable to another loan if it is made for the same or similar purposes and on the same terms and conditions.” (a) made by a person (“the lender”) in the ordinary course of a business carried on by the lender which includes— (i) the lending of money, or (ii) the supplying of goods or services on credit, and (b) in relation to which condition A … is met. (a) at the time the loan was made comparable loans were available to all those who might be expected to avail themselves of the services provided by the lender in the course of the lender's business, (b) a substantial proportion of the loans (consisting of the loan in question and the comparable loans) made by the lender at or about the time the loan in question was made were made to members of the public, (c) the loan in question is held on the same terms as comparable loans generally made by the lender to members of the public at or about the time the loan in question was made, and (d) where those terms differ from the terms applicable immediately after the loan in question was first made, they were imposed in the ordinary course of the lender's business.[89]Section 176(10) states, “for the purposes of this section ‘a member of the public’ means a member of the public at large with whom the lender deals at arm’s length”.[90]I shall assume that the making of loans formed part of PCL’s ordinary course of business (i.e. that s.176(2) is satisfied) and that “at the time comparable loans were available to all those who might be expected to avail themselves of the services provided by” PCL (s.173(3)(a)).[91]However, in my view it is clear that neither a substantial proportion of PCL’s loans, nor any individual PL, were “made to members of the public”. The only loans made by PCL were made to individuals: i) who had an Outstanding DR Loan; ii) who intended to use the PL for the purpose of discharging the Outstanding DR Loan; iii) who as a condition of entering into the PL became shareholders in PCL (the latter being perceived as essential by the promoters of the PCL scheme); and iv) (necessarily for the viability of the PCL scheme) in circumstances in which sums repaid would be used to acquire shares in PCL, to allow for the continued circulation of a very limited set of funds.[92]The obvious purpose of s.176 is that the lender advancing the loan in question should be a generally accessible lender (subject to the criteria which any lender would apply when considering to advance a loan such as creditworthiness) and not some bespoke lending arrangement designed for the purpose of addressing DR schemes and their consequences. In many contexts (e.g. the duty of care in tort) the expression “members of the public at large” is used in contradistinction to persons who have some form of pre-existing relationship with or proximity to the counterparty. In this case, the PCL scheme involves loans specifically designed to address the consequences of DR Loans, and only available for that purpose, and the loans are only available to persons who have a close relationship to the lender, as shareholders.[93]That leaves the issue of whether PCL dealt with the borrowers at “arm’s length”. I was referred to Mansworth v Jelley [2002] STC 1013 (a capital gains case) in which Lightman J stated that a bargain “at arms length” connotes “a transaction between two parties with separate and distinct interests who have each agreed terms (actually or inferentially) with a mind solely to their own respective interests”. Prima facie, PCL did not deal with the borrowers at arms-length. Question 2(d) Was there a “connection (direct or indirect) between the relevant step and a tax avoidance arrangement”?[94]This question arises because the paragraph 25 exclusion for commercial transactions only applies where “there is no connection (direct or indirect) between the relevant step and a tax avoidance arrangement”. While that wording is slightly different from the wording in paragraph 4 addressed in Question 1, I am not persuaded that this question involves any additional issues and I say no more about it. G THE FACTUAL POSITION The nature of the exercise

G THE FACTUAL POSITION

[95]It is important at the outset to note the rather unusual nature of the application before me. On the material deployed by the Applicant and HMRC, I have to determine whether the alleged iniquity is made out on the balance of probabilities, but in doing so, I do not make any findings of fact. While I have witness statements from the Applicant and some of other individuals involved, I have heard no oral evidence. That, of course, means that the evidence has not been “tested” in cross-examination, but it also means that those individuals have not had the opportunity to reinforce the quality of their evidence in cross-examination, e.g. by answering questions which might at first sight seem to call for answers.[96]So far as the witness evidence I do have is concerned, it does not come from every relevant individual, nor does it come close to dealing with all the documents which HMRC relies upon. However, the evidence has been filed (admittedly on the Applicant’s application) against a background in which the Applicant and other relevant individuals face criminal charges, in criminal proceedings in which any requirement that they offer a response, the point at which that would have to be done, and the level of detail required, are very different from those in ordinary civil proceedings. In these circumstances, I have concluded that I should not draw an adverse inference from the lack of evidence from a particular individual or the failure to address particular evidence. However, the absence of such evidence may mean that there is no material to rebut a prima facie case raised by unanswered materials.[97]In addition, while I have extensive documents, I have nothing like a full set of relevant materials. That is necessarily the case, both because of the nature of this application and the stage at which it is brought, and because it will rarely be feasible or appropriate in the determination of a disputed issue of whether the CFE is engaged to conduct a mini-trial (Al Sadeq, [70]).[98]There are two further matters with which I should deal.[99]First, just as when making findings at a trial, I accept that a relevant factor in considering the prima facie position is that HMRC is advancing allegations of dishonesty against professional people of good character, where it might be said that dishonesty is inherently less likely than some other explanation (although ultimately the question for the court is whether, having regard to all the evidence, the dishonesty is established: see Mumford et al, Civil Fraud: Law, Practice and Procedure [34-003]-[34-004]).[100]Second, HMRC relied upon some of the findings made by Edwin Johnson J in Adams & Ors v FS Capital Ltd [2023] EWHC 1649 (Ch), which concerned aspects of the PCL scheme history, on the basis that the rule in Hollington v Hewthorn did not apply in criminal proceedings. This issue raised a number of complex questions: i) the status of the rule in Hollington v Hewthorn in criminal proceedings; ii) whether these are criminal proceedings for that purpose; and iii) the status of the rule in proceedings in which (as here) the court is not being asked to reach a final determination.[101]As to the first, the ambit of the rule in Hollington in criminal cases is not clear. The rule was clearly applicable in criminal cases at some point: see for example paragraph 218 of the Criminal Law Revision Committee 11th Report (1972) (Cmnd. 4991) which states that “[t]here is no doubt that the principle of Hollington v Hewthorn applies to criminal cases, although there is very little authority.” Cases assuming the application of the rule in this context include R v D [1996] QB 283; R v L [2006] EWCA Crim 1902; R v Hogart [2007] EWCA Crim 338 and R v S(G) [2018] EWCA Crim 1824.[102]There have been statutory encroachments on the Hollington principle: i) In relation to the admissibility of a criminal conviction to prove the commission of the offence in civil proceedings (s.11 Civil Evidence Act 1968) (a context which involves the use of a conclusion reached applying the criminal standard of proof as evidence in a dispute in which the lesser civil standard applies). ii) In relation to the admissibility of a criminal conviction of one person before a court in the United Kingdom to prove the commission of a criminal offence by another person: s.74 PACE 1984. iii) In the context of bad character evidence, to prove the bad character (s.99(1) Criminal Justice Act 2003). When, in that context R v Kordasinski [2006] EWCA Crim 2984, [72], referred to that section having “abolished “the rule in Hollington v Hewthorn for criminal cases”, this was for the purpose of establishing the bad character evidence. iv) In R v Hogart, evidence of similar conduct was admitted in a criminal trial in relation to findings in civil proceedings concerning a different victim (Ms Maer) including in the form of a judgment finding that the applicant was not qualified to practice law, an issue in both sets of proceedings. The Court re-affirmed the general rule in Hollington ([16]) but held that the judgment was admissible under s.117(1) of the Criminal Justice Act 2003 (“business and other documents”) as an alternative to calling the judge to give evidence as to what he had decided. It appears that the particular purpose for which the civil judgment was to be admitted in that case was to establish the creation of false documents and false allegations in those proceedings and the giving of dishonest evidence to the court (which might be said to constitute bad character evidence).[103]In arguing for the complete abolition of the rule, HMRC relies on the decision of the Court of Appeal refusing permission to appeal in R v Javed Sheikh [2025] EWCA Crim 566. That involved a conviction for stalking and harassment through a blog. There had been civil proceedings for stalking, in which injunctions had been granted against the appellant, and a finding that there had been breaches of those injunctions in contempt of court. An issue arose as to the admissibility of that material at the criminal trial. I accept that at [10] the Court of Appeal in Sheikh held that the finding in the civil proceedings that the appellant had published the blog was admissible in the criminal proceedings, as well as admitting evidence as to what had happened in those proceedings on the basis that the appellant’s failure in the civil proceedings was a fact going to motive. However, the Court expressly approved the Judge’s direction to the jury to the effect that the findings in the civil case was not evidence that the appellant had, contrary to his denials, published the blog. The approved direction stated: “You have been told in the agreed facts about certain parts of the civil proceedings between Simon Oliver SO, and the Defendant. These have been put before you to help you with the chronology of events, to describe what the Defendant said in those proceedings, to describe the orders made by certain judges, and as part of the background to the case. I must emphasise to you, and you must accept as a legal direction, that what was decided by judges in those cases, including as to responsibility for the blog, is not relevant to your task, and do not speculate about what they decided. They were not applying all the same legal rules you must apply. They were not applying the high standard of being required to be sure about findings, and they did not have the same evidence presented in this case. You have to decide independently whether the Prosecution has made you sure made you sure of the Defendant's guilt, based only on the evidence you've been presented with in this case, applying the legal directions I give you in this document."[104]I am not persuaded that anything in Sheikh justifies the conclusion that the findings in Adams have an evidential status in this application which they would not have in civil proceedings for the purpose for which HMRC relies upon them, and it is not therefore necessary to consider the second question.[105]In relation to the third issue, there is authority which suggests (at least in some contexts) that the findings of other judges are admissible as evidence when the issue before the receiving court does not involve findings at a trial, but is interim in nature: for example Mex Group Worldwide v Ford [2024] EWCA Civ 959 (a foreign court decision was admissible when deciding whether a “good arguable” case had been shown in an application for a s.25(1) CJJA 1982 freezing order); Tulip Trading Ltd v Bitcoin Association for BSV [2023] EWHC 2437 (Ch) (prior findings were admitted for the purpose of deciding whether to order preliminary issues) and Afan Valley Ltd v Lupton Fawcett [2024] EWHC 909 (KB). In common with those cases, I am not required to make a final decision on the merits, but I am required to make findings on the available evidence on the balance of probabilities, the effect of which could be a final loss of legal privilege.[106]In these circumstances, I have decided that I should approach the Adams judgment in the same way as I would if I were being asked to make findings on the balance of probabilities, without finally deciding whether that is strictly necessary. I summarised that approach in Lakatamia v Tseng [2023] EWHC 3023 (Comm), [14]: “It was accepted before me that the findings of liability in the 2021 Judgment do not bind… (Hollington v Hewthorn[1943] KB 587). However, that does not mean that the contents of the judgment are without significance. The relevant principles were set out [by] Laurence Rabinowitz KC in JSC BTA Bank v Ablyazov [2016] EWHC 3071 (Comm), [24] …: ‘The application of the principle in Hollington has in recent years become substantially diluted. In particular: (l) Whilst a court cannot rely upon a bare finding of a prior court for example that a party has been negligent, it can rely upon the substance of the evidence which is referred to in the judgment of the prior court, including for example the contents of a document, the evidence given by a witness and the like: Rogers v Hotle [2015] QB 265, [40] , [55]; (2) Whilst….a subsequent court cannot rely upon [non-binding opinion in an earlier one as it] must make its own findings of fact, a reference in a judgment to the substance of evidence is itself evidence which the judge in a later case can take into account "in like manner as he would any other factual evidence, giving to it such weight as he thinks fit": Rogers (supra) . (3) Moreover, if the judge in a later case concludes that the matters of primary fact recorded in an earlier judgment justify the conclusions reached in that judgment, he is entitled to reach the same conclusion: Otkritie International v Gersamia [2015] EWHC 821 (Comm), [25] (Eder J) ". ‘The application of the principle in Hollington has in recent years become substantially diluted. In particular: (l) Whilst a court cannot rely upon a bare finding of a prior court for example that a party has been negligent, it can rely upon the substance of the evidence which is referred to in the judgment of the prior court, including for example the contents of a document, the evidence given by a witness and the like: Rogers v Hotle [2015] QB 265, [40] , [55]; (2) Whilst….a subsequent court cannot rely upon [non-binding opinion in an earlier one as it] must make its own findings of fact, a reference in a judgment to the substance of evidence is itself evidence which the judge in a later case can take into account "in like manner as he would any other factual evidence, giving to it such weight as he thinks fit": Rogers (supra) . (3) Moreover, if the judge in a later case concludes that the matters of primary fact recorded in an earlier judgment justify the conclusions reached in that judgment, he is entitled to reach the same conclusion: Otkritie International v Gersamia [2015] EWHC 821 (Comm), [25] (Eder J) ".

My summary of the evidence

[107]My summary of the facts as they prima facie appear to be on the evidence before me is set out in a confidential annex. As the matters in that annex relate to a live criminal investigation, I have ordered that the annex can only be published once that investigation, and any subsequent criminal proceedings, have run their course. Until that point, it should not be published and I direct that until further order the annex should be a private judgment. I will direct that the respondent must inform the court once the investigation, and any consequential criminal proceedings, have run their course.

H CONCLUSION

[108]It follows that I am satisfied that the CFE exception to legal professional privilege is engaged here in respect of any documents brought into existence as part or in furtherance of the matters set out in paragraphs 33 to 35 above.