Revenue and Customs, R (on the application of) v The General Commissioners of Income Tax for the Division of Berkshire [2007] EWHC 871 (Admin)

Citation Number: [2007] EWHC 871 (Admin)Case No CO/7091/2005IN THE HIGH COURT OF JUSTICEQUEEN’S BENCH DIVISIONADMINISTRATIVEVenue Royal Courts of Justice, Strand, London, WC2A 2LLDate 27/04/2007
Before
THE HONOURABLE MR JUSTICE WYN WILLIAMS
Between
R (on the application of The Commissioners for Her Majesty’s Revenue and Customs)Claimant
(Transcript of the Handed Down Judgment ofWordWave International LtdA Merrill Communications Company190 Fleet Street, London EC4A 2AGTel No: 020 7421 4040 Fax No: 020 7831 8838Official Shorthand Writers to the Court)
Mr James Maurici for ClaimantNo Counsel appeared for DefendantThe First and Second Interested Parties appeared in Person for in personHearing Hearing dates: 19 th March 2007
Judgment
[1]By a Claim Form issued the 9th September 2005 the Claimant seeks quashing orders and other relief in respect of:
“All of the various decisions purported to have been made by the General Commissioners in respect of the three Interested Parties following the hearing on 20 June 2005 and recorded in three decision letters dated 21 June 2005.”
The Relevant Facts[2]My recital of the relevant facts is taken, in the main, from the Claimant’s Statement of Facts and Grounds.[3]On the 1st May 1998 Mr Stuart James Thomas (hereinafter referred to as “IP1”) and Mr Roderick Christopher Thomas (“IP2”) commenced trading together in partnership under the title S & R Thomas Partnership (“IP3”). The trade of the partnership was described as “consultants and seafood dealers” in the first tax return sent to the Claimant on behalf of IP3.[4]On 26th July 2002 IP3 ceased to trade. In its tax return for the period ended 5th April 2003 it described the trade in which it had engaged as “seafood”.[5]The Claimant formed the view that between 1st May 1998 and 25th July 2002 IP3 traded almost exclusively with “related parties”. The vast majority of purchases were from a company known as Thomas Lindh Ltd (previously known as Spring Salmon Ltd) which, at the material time, was a company owned by the members of the Thomas family. Similarly, a very significant proportion of sales were to a company known as Spring Salmon and Seafood Limited. The Claimant takes the view this company was owned by the Maclennan Trust which it also alleges was an offshore settlement made by IP1 and IP2 to benefit the Thomas family.[6]The Claimant’s view was and still is that the trading activities of IP3 lacked any obvious commercial purpose and that its true purpose was to allow IP1 and IP2 and the companies controlled by them to gain a series of tax advantages.[7]On the 26th July 2002 the business of IP3 was sold to Spring Salmon and Seafood Ltd as a going concern along with the assets of the partnership. Those assets included trading stock valued at £35,000 and goodwill valued at £2,800,000 giving a total of £2,835,000. According to the sale agreement the payment by the company was to be by means of a loan account entry. The result of this transaction was the potential for a significant tax advantages for both the purchaser and the vendor. The Claimant alleges that the transaction was an attempt at a tax avoidance scheme.[8]At a point in time which is unimportant, the Claimant began an investigation into the tax affairs of IP1, IP2, IP3 and the two companies to which I have referred. The details of the actual investigation are unimportant. The result of the investigation was an agreement concluded on the 24th May 2004. The agreement was made between the Claimant on the one hand and Spring Salmon and Seafood Limited (“the Scottish Company”), Thomas Lindh Limited (“the English Company”), IP1, IP2 and IP3. I will return to this agreement, in detail in due course but it suffices at this stage that I explain that it recorded the following:
“ …… inn consideration of proceedings not being taken against any or all of the named parties in respect of the said tax and interest and penalties [the five named parties] hereby jointly and severally offer to pay the [Claimant] the sum of £525,000 (five hundred and twenty five thousands pounds sterling) (“the Sum”) in respect of the said tax, interest and penalties, of which £400,000 (four hundred thousand pounds sterling) was paid on 20th April 2004 and the balance of £125,000 (One hundred and twenty five thousand pounds sterling) is payable with this offer letter.”
[9]I should also record that it is agreed before me that on the 24th May 2004 an agreement was constituted in the terms of a written document. The passage set out immediately above, is a quotation from that document. I mention this point only because the terms of the document are couched in terms of an offer to the Claimant by the five other parties named in the document. There is no doubt, however, but that on the 24th May 2004 the Claimant wrote to the Interested Parties and the two companies accepting the offer contained in the written document and the balance of £125,000 was paid to and accepted by the Claimant on that date.[10]By letter dated 26th October 2004 Mr Simon Read, an Inspector of Taxes employed by the Claimant, wrote to IP2 to inform him that he intended to open an enquiry into the tax return for the year ended 5 April 2003 in respect of IP3. The letter specified six items upon which the Inspector wanted information and the letter asked that the information be provided within 30 days. The letter was sent in accordance with section 12AC Taxes Management Act 1970. In a separate letter Mr Read pointed out to IP2 that since his personal tax return for the year ending 5 April 2003 might be affected by any enquiry into the partnership return that was also to be treated as under enquiry. Mr Read wrote in similar terms to IP1.[11]By the 17th December 2004 Mr Read had received no response. Accordingly, on or about that date, he sent to IP2 a Notice pursuing to Section 19A Taxes Management Act 1970. That Notice required IP2 to produce the documents specified in it. The documents specified were identical to those which had been itemised in the letter of 26th October 2004.[12]In fact, IP2 had replied to the letter of 26th October by a letter dated 16th December 2004. That letter was written on his own behalf and on behalf of IP1 and IP3. Put shortly, the letter asserted that the enquiries raised should be deemed to be closed since the tax return period 6th April 2002 to 5th April 2003 in respect of IP1, IP2 and IP3 was a period included within and covered by the terms of the Agreement of 24th May 2004.[13]By letter dated the 22nd December 2004 IP2 indicated to the Claimant that he wished to appeal against the Notice which had been issued on the 17th December 2004 under Section 19A of the 1970 Act.[14]On the 18th March 2005 Mr Read, on behalf of the Claimant, served Notices under section 19A of the Act upon IP1 and IP2 in respect of their personal returns for the year ended 5th April 2003. In due course, IP1 and IP2 appealed against those Notices.[15]It was those appeals which the Defendant heard on the 20th June 2005. The decision reached by the Defendant was recorded in three letters sent to IP1, IP2 and IP3. The letter written to IP1 was as follows:- “Dear Sir, I write to confirm that, at their meeting on 20th June, 2005, the Commissioners considered your application for a closure notice to be issued terminating a Revenue enquiry into your self-assessment return for the period ended 5th April 2001 and 5th April 2003. The Commissioners considered a document presented to them which was an agreement between the Revenue and Spring Salmon & Seafood Limited, Thomas Lindh Limited, S &R Partnership, Mr RC Thomas and Mr SJ Thomas, dated 24th May, 2004 which, together, which an email from the Group Leader, Tony Maggs, dated 21st May 2004 closed all enquiries into the period covered by the agreement. The Commissioners considered that you were reasonable in considering that Mr Magg’s email 21st May, 2004 led you believe that you have met all your liabilities and that the period covered by the contract – i.e. 6th April 2002 to 5th April 2003 would be treated as closed. Therefore it was not possible for the Revenue to open a further enquiry into that period.” The letter written to IP2 was in identical terms. The letter written to IP3 provided:- “Dear Sirs I write to confirm that, at their meeting of 20th June 2005, the Commissioners considered your application for a closure notice to be issued terminating a Revenue enquiry in your Partnership return for the period ended 5th April 2002. The Commissioners had previously heard an appeal by the individual partners against their personal self-assessment tax returns when it was found that an agreement which had been reached between the Revenue and your partners obviated any option to open an enquiry into returns that cover the period from 6th April 1998 to 5th April 2002 but because of this decision the Revenue decided not to defend the application of a Closure Notice in this case. The Revenue have accepted the amendments submitted by yourselves to this return dated 30th April 2003.” The Relevant Legislation[16]Section 9A of the Taxes Management Act 1970 provides:- “(1) An officer of the Board may enquire into a return under Section 8 or 8A of this Act if he gives notice of his intention to do so (“notice of enquiry”) – a) to the person whose return it is (“the taxpayer”), b) within the time allowed. (2) The time allowed is –(a) if the return was delivered on or before the filing date, up to the end of the period of twelve months after the filing date;(b) if the return was delivered after the filing date, up to and including the quarter day next following the first anniversary of the day on which the return was delivered;(c) if the return is amended under Section 9ZA of this Act, up to and including the quarter day next following the first anniversary of the day on which the amendment was made.” a) to the person whose return it is (“the taxpayer”), b) within the time allowed. (a) if the return was delivered on or before the filing date, up to the end of the period of twelve months after the filing date; (b) if the return was delivered after the filing date, up to and including the quarter day next following the first anniversary of the day on which the return was delivered; (c) if the return is amended under Section 9ZA of this Act, up to and including the quarter day next following the first anniversary of the day on which the amendment was made.”[17]Section 12AC empowers an Officer of the Board to enquire into a partnership return and contains identical provisions to Section 9A as to the opening of an enquiry.[18]Section 19A of the Act provides:- “(1) This Section applies where an Officer of the Board gives notice of enquiry under Section 9A(1) or 12AC(1) of this Act to a person (“the taxpayer”). (2) For the purposes of the enquiry, the Officer may at the same or any subsequent time by notice in writing require the taxpayer, within such time (which shall not be less than 30 days) as may be specified in the notice –(a) to produce to the Officer such documents as are in the taxpayer’s possession or power and as the Officer may reasonably require for the purpose of determining whether and, if so, the extent to which (i) the return is incorrect or incomplete, or (ii) in the case of an enquiry which is limited under Section 9A(5) or 12AC(5) of this Act, the amendment to which the enquiry relate is incorrect, and(b) to furnish the Officer with such accounts or particulars as he may reasonably require for that purpose.” Section 19A(6) provides that an appeal may be brought against any requirement imposed by a notice under sub-section 2 above to produce any document or to furnish accounts or particulars. The appeal must be brought within the period of 30 days beginning with the date on which the notice is given (see sub-section 7). Sub-section 9 is in the following terms:- “On an appeal under sub-section 6 above Section 50(6) to (8) of this Act shall not apply but the Commissioners may –(c) if it appears to them that the production of the document or the furnishing of the accounts or particulars was reasonably required by the Officer of the Board for the purpose mentioned in sub-section 2 or 2A above, confirm the notice under that Section so far as relating to the requirement; or(d) if it does not so appear to them, set aside that notice so far as so relating.” Sub-section (10) and (11) provide:
“(10).where, on an appeal under sub-section 6 above, the Commissioners confirm the notice under sub-section 2 or 2A above so far as relating to any requirement, the notice shall have effect in relation to that requirement as if it had specified 30 days beginning with the determination of the appeal. (11) the determination of the Commissioners of an appeal under sub-section 6 above shall be final and conclusive (notwithstanding any provision having effect by virtue of section 56 (d) of this Ac)t.” (a) to produce to the Officer such documents as are in the taxpayer’s possession or power and as the Officer may reasonably require for the purpose of determining whether and, if so, the extent to which (i) the return is incorrect or incomplete, or (ii) in the case of an enquiry which is limited under Section 9A(5) or 12AC(5) of this Act, the amendment to which the enquiry relate is incorrect, and (b) to furnish the Officer with such accounts or particulars as he may reasonably require for that purpose.” (c) if it appears to them that the production of the document or the furnishing of the accounts or particulars was reasonably required by the Officer of the Board for the purpose mentioned in sub-section 2 or 2A above, confirm the notice under that Section so far as relating to the requirement; or (d) if it does not so appear to them, set aside that notice so far as so relating.”
[19]In these proceedings it is accepted that the Notices of Enquiry were served in accordance with sections 9 and sections 12AC of the 1970 Act. It is also accepted, as a matter of procedure, that the notices under section 19A were correctly served.[20]There is one other section of the 1970 Act to which I must refer. Section 28A provides:
“(1) an enquiry under Section 9A(1) of this Act is completed when an Officer of the Board by notice (“a closure notice”) informs the taxpayer that he has completed his enquiries and states his conclusions. (2) ……. (3) …….. (4) the taxpayer may apply to the Commissioners for a direction requiring the Officer of the Board to issue a closure notice within the specified period. (5) any such application shall be heard and determined in the same way as an appeal. (6) the Commissioners hearing the application shall give the direction applied for unless they are satisfied that there are reasonable grounds for not issuing a closure notice within the specified period.”
The Hearing before the Commissioners[21]Mr Read has produced a note of the proceedings. It has not been suggested that the note is inaccurate in any important way. I do not propose to summarise the document in this judgment. It suffices that I say that it is clear that the hearing concentrated upon whether or not the agreement of the 24th May 2004 precluded the Claimant from making enquiries into the tax period April 6 2002 to April 5 2003 in respect of the Interested Parties. It is also clear, however, that the Interested Parties, in particular, referred to aspects of the background leading to the making of the agreement and they stressed the importance to the interpretation of the agreement of an email dated 21 May 2004 which had been sent by one of the Claimant’s employees, Mr Maggs, to IP2.[22]At the conclusion of the hearing Mr Read, on behalf of the Claimant, was far from clear as to what decision had been reached by the Defendants. He records the Chairperson as follows:
“Dr Hill said that the Commissioners had considered the matter and had decided that the agreement included the return period ended the 5th April 2003. That meant there could be no enquiry under self-assessment and section 19A notices are not valid.”
In answer to questions by Mr Read, the clerk to the Defendants apparently said that the notices “were not reasonably required” and that this conclusion applied to all three notices.[23]On the day following the hearing the three letters containing the decision of the Defendants were sent to the Interested Parties. It was a requirement of the relevant Regulations that the Defendants give their decision in writing. Discussion[24]There can be no doubt that the Defendants were seized of appeals under Section 19A(6) of the Taxes Management Act 1970. Their powers upon such an appeal are those which are set out in sub-section (9). They had to consider whether or not the production of the relevant document, accounts or particulars were reasonably required for the purpose of determining whether the returns of IP1, IP2 and IP3 for the tax year 2002-2003 were incorrect or incomplete.[25]At the conclusion of such enquiry they were empowered to confirm the notices in question if they were of the view that the documentation, accounts or particulars sought were reasonably required for that purpose. Alternatively, if they were not satisfied that the documents accounts or particulars were reasonably required for that purpose their duty was to set aside the notices.[26]As is apparent from the Decision Letters the Defendants did not set aside the notices in question. Rather they purported to close the enquiries.[27]I do not propose to dwell upon this issue since, as it seems to me, it is unimportant compared with the main point of dispute in this case. The main point of dispute is whether or not, upon its correct interpretation, the agreement of May 24 2004 precludes the Claimant from raising enquiries and serving notices in relation to the tax year 6 April 2002 to 5 April 2003. If the agreement does have that effect then, no doubt, an avenue is open one way or another to the Interested Parties to bring the enquiries to an end. If, on the other hand, the agreement does not have that effect then, on any view, the Defendants have made an error of law and their decisions should be quashed.[28]I turn, therefore, to the interpretation of the agreement. In doing so I recognise that the principles upon which I should act have been authoritatively determined by the House of Lords in Investors Compensation Scheme Limited v West Bromwich Building Society 1998] 1 WLR 896. During the course of his speech in that case Lord Hoffman made what he described as “general remarks about the principles by which contractual document are nowadays construed”. He said that such principles could be summarised in the following way. “(1) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which will reasonably have been available to the parties in the situation in which they were at the time of the contract. (2) The background was famously referred to by Lord Wilberforce as “the matrix of facts”, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man. (3) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (4) The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background will reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must for whatever reason, have used the wrong words or syntax: see Mannai Investment Co. Ltd v The Eagle Star Life Assurance Co Ltd [1997] AC 749. (5) The “rule” that words should be given their “natural and ordinary meaning” reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Compania Naviera SA v Salen Rederierna AB [1995] AC 1991, 201:
“if detailed semantic and syntactical analysis of words in a commercial contact is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense”” “if detailed semantic and syntactical analysis of words in a commercial contact is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense””
[29]The Defendants have played no active role in these proceedings. They did however file an Acknowledgement of Service. In the Acknowledgement of Service they set out summary grounds for contesting the claim. At paragraph 8 of their summary grounds they said:
“The General Commissioners found the following facts proved or admitted a) The appellants were participators in companies known as Spring Salmon Seafood Limited, Thomas Lindh Limited and in the S & R Thomas Partnership; b) An agreement was entered into to settle long running inquiries into business affairs of the appellants and their associated companies; and c) In order to clarify the draft agreement, an email was sent on 21st May 2004 by the Respondent to the Appellants. 9. Having considered the facts which were not in dispute and the arguments before the General Commissioners, it was held that: a) the Appellants were reasonable in considering that the Respondent’s email of 21st May 2004 led them to believe that they had met all their liabilities for the period covered by the contract, that is 6th April 2002 to 5th April 2003 which would be treated as closed; b) the Revenue should not have opened a further enquiry into the affairs of the appellants during the year 2002/2003 following the agreement; and c) the Respondent did not offer a defence with regards to the agreement.” a) The appellants were participators in companies known as Spring Salmon Seafood Limited, Thomas Lindh Limited and in the S & R Thomas Partnership; b) An agreement was entered into to settle long running inquiries into business affairs of the appellants and their associated companies; and c) In order to clarify the draft agreement, an email was sent on 21st May 2004 by the Respondent to the Appellants. a) the Appellants were reasonable in considering that the Respondent’s email of 21st May 2004 led them to believe that they had met all their liabilities for the period covered by the contract, that is 6th April 2002 to 5th April 2003 which would be treated as closed; b) the Revenue should not have opened a further enquiry into the affairs of the appellants during the year 2002/2003 following the agreement; and c) the Respondent did not offer a defence with regards to the agreement.”
[30]Although this language, in itself, is not easy to interpret I take it to mean that the Defendants found that upon the true interpretation of the agreement of 24th May 2004 the Claimant and Interested Partieshad reached an agreement about the total amount payable by the Interested Parties in respect of their personal liability and that of the partnership of which they were the partners for all tax years beginning April 1998 and ending April 2003. It is clear from the Acknowledgement of Service that the email of 21st May 2004 was an important factor in reaching that interpretation.[31]That stance is the stance which the Interested Parties have advanced before me. The Interested Parties, however, have maintained that the interpretation of the agreement to which I have just referred was its proper interpretation without taking into account, at all, the email of 21st May 2004. Their primary stance before me was that the document of 24th May 2004 was clear in its terms. They adopted the secondary stance, however, that if it was not, it was admissible to look at the email of 21 May 2004 (and only that email) as an aid to the proper interpretation of the document.[32]I have reached the clear conclusion that the interpretation of the agreement reached by the Defendants and urged upon me by the Interested Parties is not correct. I now explain why.[33]It is not entirely straightforward to identify what are the relevant background facts which are to be taken into consideration when this agreement is interpreted. It is however likely to be uncontroversial that the following facts are relevant. During the tax years April 1998 until April 2003 the Interested Parties had a close connection with the two limited companies to which I have referred. The Claimant began an investigation of the Interested Parties and the limited companies. It became clear that the Interested Parties and the companies had a potential liability to the Claimant which liability included unpaid tax, interest and penalties. A person’s liability to tax arises in respect of specific tax years.[34]As was to be expected there was considerable written and oral communication between the Claimant on the one hand and the Interested Parties on the other about the potential liability of the Interested Parties. During the course of such communications/discussion the possibility of an agreement was mooted and, over a considerable period of time, the terms of such an agreement were considered and discussed. Normally, as is pointed out by Lord Hoffman, those communications and discussions are not considered relevant when interpreting a written agreement. For reasons which will become apparent I do not regard those communications and discussions as relevant in the instant case.[35]That being so, the relevant factual background is comparatively limited and, to repeat, it seems to me to be confined to those points made in paragraph 33 above.[36]What does the written agreement say? Section A identifies the Interested Parties and the two limited companies and concludes “each acknowledged that tax is unpaid by reason wholly or in part of their default.” Paragraph B provides:
“It is acknowledged and agreed by each and all the named parties that liability to interest and penalties under the provisions of the Taxes Act had been incurred by the named parties.”
There then follows the extract which I set out in paragraph 8 above. There then follows an important provision. It reads:
“if this offer is accepted by the Commissioners so that a binding agreement (“the Agreement”) is constituted with the Scottish company, the English company, the Partnership and we the said Mr Roderick Christopher Thomas and the said Mr Stuart James Thomas all agree that it should be subject to the following terms:”
In my judgment there can be no doubt but that the agreement which was concluded between the parties was upon the terms which then followed.[37]The terms that follow are in two clauses. Clause 2 consists of four sub-clauses. The two clauses read:
“1. The sum shall be paid in addition to any duties, interest, search charges or penalties due and payable as per the returns already submitted by any of the named parties for the years or return periods specified in Schedule 1A-1E below. 2. Subject to the following provisions of this Clause, in respect of each of the Named Parties the Agreement shall be final and conclusive in respect of the liabilities for the periods as set out in Schedule 1A-1E. a. the Scottish company, the English company, the partnership, the said Mr Roderick Christopher Thomas and the said Mr Stuart James Thomas shall not be entitled to claim any relief, allowance, refund or credit in respect of, or depending upon, any liability in Schedule 1A-1E for the payment thereof without the written consent of the Commissioners. b. The Commissioners shall not be prevented by the Agreement from claiming any additional or other liability arising for any period covered by the agreement as a result of anything occurring outside that period and for that purpose, or for the purpose of establishing any liability outside the period covered by the agreement, they shall be entitled to make assessments and/or determine any such additional or other liability and seek final determination of such assessment and/or determinations, the tax chargeable hereunder shall become due and payable in accordance with the Taxes Act. c. The Commissioners shall not be prevented by the Agreement from making “discovery” assessments for any period covered by the Agreement if the conditions in Section 29 Taxes Management Act 1970 are satisfied. d. For the avoidance of doubt, it is acknowledged by the Partnership and by the said Mr Stuart James Thomas and the said Mr Roderick Christopher Thomas that there may be further enquiries in connection with the acquisition of the Partnership’s business by the Scottish Company in the return period of 31st July 2002 and that the Agreement is without prejudice to and does not limit any such enquiries.” a. the Scottish company, the English company, the partnership, the said Mr Roderick Christopher Thomas and the said Mr Stuart James Thomas shall not be entitled to claim any relief, allowance, refund or credit in respect of, or depending upon, any liability in Schedule 1A-1E for the payment thereof without the written consent of the Commissioners. b. The Commissioners shall not be prevented by the Agreement from claiming any additional or other liability arising for any period covered by the agreement as a result of anything occurring outside that period and for that purpose, or for the purpose of establishing any liability outside the period covered by the agreement, they shall be entitled to make assessments and/or determine any such additional or other liability and seek final determination of such assessment and/or determinations, the tax chargeable hereunder shall become due and payable in accordance with the Taxes Act. c. The Commissioners shall not be prevented by the Agreement from making “discovery” assessments for any period covered by the Agreement if the conditions in Section 29 Taxes Management Act 1970 are satisfied. d. For the avoidance of doubt, it is acknowledged by the Partnership and by the said Mr Stuart James Thomas and the said Mr Roderick Christopher Thomas that there may be further enquiries in connection with the acquisition of the Partnership’s business by the Scottish Company in the return period of 31st July 2002 and that the Agreement is without prejudice to and does not limit any such enquiries.”
[38]The Schedules that follow – A to E – are headed “Particulars of the Sources and Periods covered by the Agreement for each Named Party”. There follow Schedules comprising two columns. The left hand column is headed “Liability” and the right hand column “Return Period”. So, for example, Schedule 1A, which relates to Spring Salmon & Seafood Limited has under the heading “Liability” the phrase “Corporation Tax Profits, Section 419 ICTA 1988, PAYE and Employers’ NIC” for four periods beginning 1st May 1998 and ending 31st July 2001. Schedule 1B – Thomas Lindh Limited – has under the heading “Liability” the identical phrase to that which appears for Spring Salmon & Seafood Limited. The return period for Thomas Lindh Limited begins on 1st May 1996 and ends 31st July 2002. Schedule 1C – IP3 – has under their heading “Liability” the phrase “Profits and Gains.” Under the heading “Tax Year/Return Period” there appears four such years/periods beginning 6th April 1998 and ending 5th April 2002. Schedule 1D – which relates to IP2 - has under the heading “Liability” the following:
“PROFITS including Section 660A and 739 ICTA 1998 and GAINS including Section 86 TCGA 1992.”
That phrase is used to describe the liability for the tax years beginning 6th April 1997 and ending 5th April 2002. There then appears a liability for the tax year 6th April 2002 to 5th April 2003 and for the period from 6th April 2003 to 31st December 2003. In respect of those two periods the liabilities are described as follows:
“Tax arising in respect of Bala Limited or the Maclennan Trust under Section 660A and 739 ICTA 1988 and Section 86 TCGA 1992.”
[39]Finally, under Schedule 1D there is a liability described “Inheritance Tax on transfers to the Maclennan Trust” and under the heading “Date of Transfer” there appears “£150,000 in October 1997 and £250,000 in April 1998.”[40]Schedule 1E which relates to IP1 is identical to Schedule 1D.[41]I focus my attention on the agreement in so far as it relates to the Interested Parties. Clause 1 makes it clear that the sum which is the subject of the agreement (£525,000) is payable in addition to any duties, interest, surcharges or penalties due and payable in respect of the returns already submitted by any of the Interested Parties for the years or return periods specified in Schedule 1C to 1E. Clause 2 makes it clear that the sum of £525,000 is payable in respect of the liabilities and periods which are set out in the Schedules. In my judgment, this clause is capable of no other meaning. Clearly, however, it is said to be subject to the following provisions of clause 2. In my judgment, however, none of the provisions which follow have the effect of changing the meaning naturally to be given to the opening sentence of Clause 2.[42]The scheme of this agreement is quite clear. The sum of £525,000 is to be jointly and severally payable by the companies and the Interested Parties to the Claimant in respect of those liabilities or potential liabilities which are itemised under the heading “Liability” in each of the Schedules and in respect of the periods which are identified in the second column of the Schedule. That sum is to be payable in addition to any duties, interest, surcharges or penalties due and payable in respect of returns submitted by the 24th May 2004 in respect of any of the years or periods specified in the Schedules. Further Clause 2(d) makes it clear that in respect of the transaction whereby Spring Salmon Seafood Limited acquired the business of the IP3 the Claimant would be perfectly entitled to raise further enquiries.[43]In respect of the Tax Year/Return Period 2002-2003 the liability of IP1 and 1P2 is described as:
“Tax arising in respect of Bala Limited or Maclennan Trust under Section 660A and 739 ICTA 1988 and Section 86 TCGA 1992.”
That is to be contrasted with the description of the liability for the preceding tax years/return periods. In those periods the expression used is “Profits and Gains” and the Claimant concedes that that phrase is apt to cover all potential sources. In contrast, of course, for the period 6th April 2002 to 5th April 2003 the sources are confined to Bala Limited and Maclennan Trust.[44]In my judgment, it is also important to have regard to Clause 2(d). That Clause, on any view, contemplates further enquiries may be raised in connection with the acquisition of the business of IP3 by Spring Salmon Seafood Limited. That, of course, means that the interpretation of the agreement urged upon the Defendant by the Interested Parties and accepted by the Defendant cannot be correct. There would be no purpose in raising enquiries if, depending upon the result of the enquiries, there was no prospect of the Claimant recovering additional sums because the agreement itself precluded it.[45]In my judgment, therefore, the true interpretation of the agreement is that the sum of £525,000 was payable in respect of the liabilities and potential liabilities arising under the column Liability in each Schedule and in respect of the Return Period/Tax Period specified in the second column of each Schedule. In respect of IP1 and IP2 the liability specified in the “Liability” column was all their actual or potential liabilities from the tax years between 1998 and 2002 whereas in the year 2002/2003 the liability was restricted to actual or potential liabilities arising from the affairs of Bala Limited or the Maclennan Trust. I deal with the position of IP3, shortly, below.[46]It follows that the Defendants’ interpretation of the agreement was erroneous as a matter of law and its Decisions fall to be quashed.[47]As I have made clear, I hope, I have reached a conclusion about the proper interpretation of the agreement without recourse to any extrinsic evidence. It follows that the Defendants were also in error in taking into account the email of 21st May 2004 in interpreting the agreement. That said, I simply do not see how the email of 21st May 2004 standing alone could have led the Defendants to the conclusion which it reached. The email is related, specifically, to Clause 2c of the agreement. I do not see how Clause 2c as “explained” by the email can possibly lead to the conclusion for which the Interested Parties contended and which the Defendant accepted. In short, I do not see how a reading of the agreement together with the email can possibly lead to the conclusion that all of the Interested Parties’ liabilities and potential liabilities for the period 2002/2003 were being compromised upon payment of £525,000.[48]I accept the submission of Mr Maurici that extrinsic evidence, if admissible at all, cannot be confined simply to the one email. To repeat, however, in my judgment, this agreement is clear in its term without recourse to extrinsic evidence.[49]I also reject the argument of the Interested Parties that the email is to be considered as an explanatory document in much the same way as the explanatory document which existed in theInvestors case. The two documents, in my judgment, are simply not comparable.[50]There is one further reason why the Defendant’s decision in respect of IP3 should be quashed. It is to be noted that Schedule 1C is restricted to the tax year beginning 6th April 1998 and the tax year ending 5th April 2002. Yet, the Defendant appears to have concluded that the Claimant was precluded from raising an enquiry in relation to the tax year April 2002 to April 2003 as against IP3 on the basis of the existence of this agreement.[51]In the light of the foregoing, to repeat, I consider it appropriate to make orders quashing the Decisions of the Defendant. It also seems to me, however, that it is desirable that I should make a declaration as to the true interpretation of the agreement.[52]I invite Counsel for the Claimant to submit a Draft Order for my approval. He should first send it to the Defendants and Interested Parties. In any event, I direct that it be filed with my Clerk within 7 days of receipt of this judgment by email. Upon receipt of Counsel’s draft and any observations by the Defendant or Interested Parties I will make an order. I propose to hand down this judgment on Friday 27th April at 10.00am. I propose to make no order as to costs as between the parties as I indicated would be the position at the end of the oral hearing. There need be no attendance at the handing down by anyone unless, of course, the Interested Parties wish to seek my permission to appeal.

Cited in 1 later judgment