Simon Smart v The Commissioners for HMRC [2025] UKFTT 701 (TC)

[2025] UKFTT 00701 (TC)Case No TC09549
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 13 to16 August 2024Date Judgment date: 12 June 2025
Appeal reference: TC/2022/13172
INCOME TAX – whether the appellant was liable to income tax on sums payable by overseas entities that are taxable under s 402 and ss 268 to 271 of the Income Tax (Trading and Other Income) Act 2005 on the basis he “received” and/or was “entitled to” the relevant sums – yes – appeal dismissed
Before
TRIBUNAL JUDGE HARRIET MORGANTRIBUNAL MEMBER GILL HUNTER
Between
MR SIMON SMARTAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentThe appellant representing himself for AppellantDr Timothy Heal and Mr Mark Fell, of HMRC instructed by the General Counsel and Solicitor to HM Revenue and Customs for RespondentsDECISION

Part A - Introduction

[1]The appellant appealed against assessments made in respect of the tax years 2015/16 and 2016/17 under s 29 of the Taxes Management Act 1970 (“TMA”) for £7,772,25 and £9,710.41 and a closure notice respect of the tax year 2017/18 under s 28A TMA for £9,992.32 29. In the assessments and the closure notice, HMRC have sought to impose tax on a form of distribution made in respect of interests the appellant held in certain entities owned by “BTG”, a Brazilian financial group, which HMRC contend are taxable under s 402 and ss 268 to 271 of the Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). The dispute is whether the appellant “received” and/or was “entitled to” the relevant sums for the purposes of s 385 ITTOIA such that they are taxable under these provisions.[2]At all relevant times:(1) BTG carried out financial activities including, investment banking, wealth management, advisory services, and asset management,(2) it was majority-owned by what the appellant described as a “partnership”, which was controlled by Mr Andre Esteves and certain individuals who the appellant described as Mr Esteves’ closest confidants (“the controlling persons”), and(3) the largest company in the group was Banco BTG Pactual SA (“Banco”), which is listed on the Sao Paulo stock exchange. The majority shareholder of Banco was BTG Pactual Holding SA (“Holding”), the holding company for operations in Brazil.[3]In 2010, the appellant became employed by BTG as a trader in the UK. He was told by his manager that if he wished his career to progress and to receive increasing bonuses, then he would need to become a “partner” in the business. In January 2013, he became a member of BTG Pactual Europe LLP (“LLP”), an English limited liability partnership. He resigned from his position on 9 April 2018, he said, after having become increasingly concerned at the behaviour of the senior management of BTG.[4]The appellant said that he was not permitted to be a member of LLP without becoming a “partner” or shareholder in other entities/structures within BTG. Hence, he held shares/interests in a number of entities including(1) Holding,(2) Banco BTG Pactual SA, BTG FII Pateo Bandeirantes (“Pateo”) which is a Brazilian “fundo de Investimento Imobiliário” (“FII”), a form of “real estate fund”, and(3) BTG FIP BPAC 3 (“BPAC3”) which is a Brazilian “fundo de investimentos em participações”, a form of “share investment fund”. For ease of reference we refer to these investments as “shares” whether held in a form of company or partnership or other entity or structure. As set out in further detail below, the appellant’s acquisition of these shares was funded by loans provided by entities related to BTG.[5]It was common ground that:(1) Some of the entities in which the appellant invested paid “distribuição de juros sobre capital próprio” or “interest on net equity” (“JCP”) in respect of the shares held by the appellant.(2) JCP is a form of distribution various Brazilian entities can make, calculated by the application of a long-term interest rate published annually by Brazil’s central bank to the net equity position of the paying entity, limited to the greater of 50% of current year profits or 50% of accumulated profits.(3) For the paying entity, JCP distributed to shareholders is, subject to certain restrictions, an allowable deduction in computing the Brazilian tax due from the entity on its profits.(4) Brazilian law requires that withholding tax of 15% is deducted from payments of JCP.(5) BPAC3 and Pateo were “transparent” entities for tax purposes, such that, in principle, shareholders were liable to income tax on their share of the income of these entities as it arose, (a) in the case of Pateo, as property income, and (b) in the case of BPAC3, as JCP as the underlying income of BPAC3 consisted wholly of JCP. For ease, all references to JCP include sums allocated to the appellant by BPAC3 and Pateo.(6) JCP arising from an entity which is not transparent for tax purposes constitutes a dividend from a non-UK resident company, which is taxable under s 402 ITTOIA and JCP/relevant sums paid by an entity which is transparent for tax purposes are taxable under ss 268 to 271 ITTOIA. Under these provisions the appellant is liable to tax on the relevant sums only if he is the “the person receiving or entitled to the profits” under s 385 ITTOIA.[6]Following his resignation from BTG, on 30 April 2018 the appellant entered into a binding agreement to sell his shares in the various entities.[7]The current dispute relates to JCP which was reinvested into new shares of BTG entities in the tax years 2015/16 to 2017/18. This reinvested JCP, was initially treated by the agent of the appellant and the LPP, known at the relevant time as Cordium, as the payment of stock dividends which were not within the charge to income tax. Following discussions between Cordium and HMRC, Cordium agreed that the reinvested JCP was within the charge to income tax. BTG provided supporting documents, including the minutes (registered with the Commercial Registry of the State of São Paulo) of a general meeting of Holding held on 31 January 2017, a translation of these minutes, and company ledgers showing accounting entries relating to the payment of JCP on 31 January 2017. The minutes included resolutions for the payment of JCP and the increase of the company’s share capital to pay JCP in the form of shares. The appellant disputes that he is taxable on the relevant sums on the basis that he was not the person “receiving or entitled” to the JCP as those terms are to be interpreted according to the relevant caselaw He argued in the alternative that, on the basis of the decisions in Joost Lobler v HMRC [2015] UKUT 214 (TCC) (“Lobler”) and Gary Hymanson v HMRC [2018] UKFTT 677 (TC) (“Hymanson”), the tribunal must determine his tax position as if the equitable remedy of rescission had been applied to “his participation in the partnership”, on the basis that(1) he was induced to join based on false representations and omissions of material facts; he was falsely represented to by the controlling persons and the Partnership Office throughout and after his membership of the “partnership”, and(2) the result of these fraudulent misrepresentations was a small loss on his cash investment combined with a large loss on tax paid on JCP that he never received. The appellant did not dispute that otherwise the assessments and closure notices were validly issued by HMRC and we find that, on the evidence presented, they were so issued. HMRC disputed that the appellant’s interpretation of the legislation is correct, that the tribunal has jurisdiction to determine his tax position on the alternative basis he argued for and/or that the appellant’s allegations as regards fraudulent misrepresentation are made out as a matter of fact.[8]We have decided that the appellant is subject to income tax on the relevant amounts of JCP for the reasons set out in full below.

Part B - Evidence and facts

[9]We have found the facts on the basis of the documents in the bundles and the evidence of the appellant, who was cross-examined at the hearing. We found the appellant to be an honest and credible witness. We have accepted much of his evidence as his honest recollection of events and his genuine belief. However, the evidence does not support factual findings that persons involved in BTG deliberately misled the appellant, as he alleges, in particular, as(1) his comments in this regard were largely assertion, unsupported by other material evidence and based on his own speculation, and(2) to some extent he relied on the operation of laws in jurisdictions outside the UK but provided no supporting expert evidence which would enable us to make factual findings of how the relevant laws apply in the circumstances of this case.

Overview

[10]The appellant said that:(1) Until his final year at BTG, he believed that he was a “partner” in a bona fide “partnership” operated by “partners” acting in good faith toward each other and in which he had the prospect of eventually making a profit on his investments.(2) It became apparent to him after his resignation that the “partnership” structure had been designed as a “rigged game” and since November 2015 had been operated as one in which he had no prospect of ever making a profit. As set out below, we make no finding to this effect.(3) He was informed repeatedly during his time at BTG that the Brazilian central bank had banned BTG from transacting between two Bermudian partnerships related to BTG and Banco as a result of a settlement with the central bank relating to tax evasion using offshore entities that had occurred years earlier.(4) BTG referred to its management-ownership structure as a “partnership” and its owner managers as “partners”, “managing partners” and “associate partners” in all internal communications, on its website and in its press releases. The appellant produced two pages from BTG’s intranet titled “Our Core Values” and ‘Our Partnership” and a Harvard Business School case study, commissioned by Mr Esteves who was a large donor to the school, entitled “BTG Pactual: Preserving a Partnership Culture” each of which refer to a “partnership” and “partners” in it many times. The case study stated:
“Although the firm had only 163 partners and associate partners, all 1,311 employees were expected to behave as partners and aspire to become partners.” (5) He considered that there can be no doubt that BTG and the controlling persons considered its management-ownership structure to be a “partnership”
. However, there was no formal overall partnership agreement governing it. Instead, it was structured so that all “partners” held shares in BTG entities with shareholders and/or partnership agreements (“SHAs”) governing each one, in addition to a number of other governing agreements. Only “partners” working in the London office were members of LLP. (6) The agreements governing the structure/relations between the various entities were numerous and highly complex and grew increasingly complex over time. He now believes this was as a result of the controlling persons looking to plug any loopholes in the agreements that might have weakened their total control over (a) the voting rights in the “partnership” and (b) the returns that any individual “partner” would make from BTG. (7) BTG nearly collapsed in 2015 after the arrest of Mr Esteves on corruption charges in Brazil (see further below). The appellant did not know of the Brazilian investigation or Mr Esteves’ true level of control over BTG in 2013. He now considered that Mr Esteves had a unique level of control over BTG compared to any other major investment bank globally. We accept that this is the appellant’s belief but we make no finding of fact to that effect as his views in this regard were not supported by other material evidence. (8) The full facts of this control only became available to him after he had resigned from BTG in 2018 and managed to obtain copies of relevant documents. These documents showed that, prior to his arrest in 2015, Mr Esteves was able to exert majority control. After his arrest, this structure was changed so that the seven largest “partners” (all close confidants of Mr Esteves) controlled BTG via a company called BTG Pactual G7 Holding SA (“BTGG7”). After the corruption charges against Mr Esteves were dropped, he became the largest shareholder of BTGG7 and had direct voting control along with the other six shareholders. (9) In the appellant’s experience, BTG misrepresented the level of control by Mr Esteves to regulators by disclosing to them his ownership percentages in the different entities, which showed him as the largest shareholder by far, but still in a minority. The appellant was personally responsible for reporting to two regulators on behalf of BTG (the Bermuda Monetary Authority and the Lloyds’ market in London) and took direct instructions from BTG’s legal department on how to represent Mr Esteves’ ownership and control to them. He believes that the reason that BTG withheld Mr Esteves’ true level of control from regulators (even before he was arrested in 2015) was his previously serious regulatory infractions in Brazil and Italy as well as the general concerns about a bank being controlled to such a degree by one individual. We consider that the appellant’s assertions, unsupported by any other evidence, are not sufficient for us to make a finding that BTG made misrepresentations to the authorities the appellant referred to. (10) BTG was structured as distinct individual companies run by boards of directors that delegate certain responsibilities to management teams, but in practice during his employment there, BTG was operated as a single enterprise with a permanent establishment in the UK but this was not disclosed to HMRC. From 2010 to 2015, he witnessed BTG being run first by a “Management Committee” of approximately twenty “partners” based in Brazil, London and New York. In late 2015 this was replaced by a four-person “Executive Committee”, one of whom was based in London, and then in late 2016 this was replaced by an “Operating Committee” of approximately 20 “partners” based in Brazil, London and New York. He witnessed all three versions of the governing committee meeting weekly and making all key decisions on behalf of BTG, with boards of directors of the various subsidiary companies in the group “rubber-stamping” the decisions of these committees. The members of these two committees are referred to herein as “senior partners” and all the other partners as “junior partners”. We note that whether BTG had a permanent establishment or not is not directly relevant to the issues under consideration in this appeal and, in any event, there is insufficient evidence for us to make any finding in that regard. (11) A “partner’s” shares in BTG entities could only be bought and sold directly to and from BTG entities. Each “partner” had the right to “put” his shares to BTG by selling them back to BTG upon his resignation from BTG and BTG had the right to buy back a “partner’s” shares from them at any time.[11]The appellant’s “partnership statements” which he usually received quarterly show the following total assets and total liabilities for him personally: Date Total assets (R$) Total liabilities (R$) Total units/shares (in all entities) April 2013 2,826,530 2,781,721 724,006 December 2014 3,093,193 2,419,667 727,456 January 2015 7,172,873 6,357,549 1,456,759 April 2015 15,007,172 14,060,803 2,913,513 July 2015 16,321,884 14,415,382 2,921,044 October 2015 16,950,510 14,899,682 2,926,739 January 2016 15,093,689 15,392,446 2,927,416 March 2017 20,293,847 23,724,582 unknown June 2017 17,647,275 24,374,657 unknown September 2017 20,133,112 24,564,759 unknown December 2017 20,679,994 25,141,654 unknown[12]The official exchange rate for December 2017 is R4.3121 per pound sterling, so the appellant’s total assets at that date were £4,795,805.76 and total liabilities were £5,830,489.55. Events when the appellant became a member of the LLP[13]When he became an employee in the London office in 2010 the appellant started a new business unit investing the group’s own “proprietary capital” in reinsurance transactions via a number of entities created for the purpose in Bermuda. He reported directly to Mr Huw Jenkins, the vice-chairman of Banco and one of Mr Esteves’ closest confidants. While Mr Jenkins was not a shareholder of BTGG7, he was close to Mr Esteves, he was a member of the governing committee and had influence over decision-making across the entire group.[14]Upon becoming a member of the LLP, the appellant signed a members’ deed governing the LLP, which(1) under a heading “Expulsion”, stated, in effect, that if a member withdrew from BTG or transferred or cancelled any of his shares that was a default event and “unless and to the extent that the Majority determines otherwise, he shall forthwith immediately upon notice to such effect from the Executive Committee on behalf of the LLP cease to be a Member…” and(2) included a term that the annual allocation of profits to individual members was reserved as a “Super-Majority Matter” in the shareholders’ agreement governing Holding.[15]The appellant’s evidence is that when he became a member of LLP:(1) The “partnership structure” was viewed as being critical to the operation of BTG. Publicly, BTG made a big deal of its “partnership culture”, which it was said was modelled on Goldman Sachs. BTG advertised the fact that it was majority-owned and controlled by “partners” who managed the day-to-day operations and trading of the business as a major competitive advantage. As its website stated, it expected its rising stars to join the “partnership” and it was made clear that if an individual wanted to progress his career and earn larger bonuses, he would be required to join the “partnership” when asked. In his view, this was particularly critical for any employee like him who worked in a “proprietary trading” or “principal investing” business unit, where one is allocated a certain amount of “trading capital” which determines how much profit (and therefore how much bonus) one can expect to make. Refusing to join the “partnership” when asked would result in being denied any increased management responsibilities and not being given any more “trading capital”, even if results were exceptional. Effectively, refusing to join the “partnership” was not an option if one wanted to stay at BTG.(2) Internally, the “partnership” was heavily marketed to employees as something to aspire to, not only in terms of increased career prospects and earnings opportunities, but also the high returns that it was said it had delivered for “partners” historically. BTG’s intranet had a page entitled “Our Core Values on which it was stated:
“We promote a partnership and meritocratic management structure. The talent, dedication and performance of our employees are the foundations of our growth. The best employees become partners of the Bank. All the main executives are partners of the Bank and are dedicated to it on a full-time basis.” (3) The London office had numerous “partners” who had joined the “partnership” between 2009 and 2011 who believed they were sitting on large unrealised profits on their participation in the “partnership”, according to the information which they were given by BTG. The partnership was marketed to him as a very attractive investment offering high returns in a very well risk-managed structure. These profits would later turn out to be largely on paper only (see below). (4) He did not receive a complete set of documents to review but had a meeting with two individuals, Luciane Ribeiro and Gustavo Vaz, from BTG’s “Partnership Office” (a dedicated investment office whose sole purpose was to manage the “partnership” investments on behalf of the “partners”
. They gave him a verbal description of how the “partnership” worked and what he would be signing up to: (a) A new “partner” purchased his shares for cash which was loaned by the “partnership” on a “non-recourse” basis (“the loans”). “Partners” were required to use any amounts of their after-tax bonuses in excess of $500,000 per year to pay down their loans. We note this did not appear to be reflected in the documents but we accept the appellant’s evidence that this is what he was told. If any dividends were paid, the after-tax proceeds might be required to be used to pay down the loans. “Partners” could not be required to contribute money to the “partnership” outside of these contributions. (b) “Partners” in the UK became members of LLP, in addition to becoming a “partner” of the rest of the group. It was not possible to be a partner of LLP but not of the rest of the group or vice versa. (c) All transactions in shares in BTG entities were done at “net book value” - also called “net asset value” or “NAV”. (d) The terms of the “partnership” allowed any “partner” to sell their shares back to the “partnership” at any time, at NAV. However, in practice this would be frowned upon by Mr Esteves and it was likely that the “partner” would be terminated as a result. (e) The “partnership” also had the right to repurchase any “partner’s” shares from them at NAV. This was only considered once a year during the annual review process (when bonuses were also set). This mechanism allowed for the reallocation of shares amongst “partners” to allow new “partners” in and to reward good performance (the shares being sold to new “partners” had to come from somewhere). This reallocation mechanism was similar to that used by the Goldman Sachs partnership. (f) Each “partner” signed a power of attorney (“POA”) in order to allow the “Partnership Office”, acting as agents for the controlling persons to whom the POAs were granted, to manage the “partnership”, represent “partners” at shareholder meetings and carry out the various operations that were required. (5) The Harvard Business School case study referred to above describes the structure of the “partnership” in these terms. The call right of the partnership to repurchase any partner’s shares was accepted by junior partners on the basis that this was to allow efficient management of the “partnership” as was described in the case study as: “To avoid dilution, any shares issued to new partners and to increase partner stakes were required to be matched by decreases for retiring or under-performing partners. This required partners’ equity positions to be reviewed each year and adjusted based on performance/ merit. Partners who had under-performed were bought out as the firm had a “call option” on their shares at book value (i.e. it could buy out all or any part of any partner’s equity at current book value).” (6) He was surprised to find that he did not receive copies of the SHAs for each entity but rather received short agreements that joined him to the SHAs (“joinder agreements”). When he asked Mr Jenkins, about the SHAs and why he was not being provided with them, he told him that the original senior partners in London had taken extensive legal advice about the SHAs and decided that they were “ok to sign”, but he would not be given copies as the Partnership Office would not give these to new “partners”. (7) He signed the agreements given to him on the basis that (a) he wanted to progress his career at BTG and increase his earnings, so not joining the “partnership” was not an option; (b) the senior partners in London who had reviewed the SHAs according to Mr Jenkins were professional traders and financially astute people; it seemed reasonable to rely on their judgment; (c) the use of the POA that he would be required to sign would be protected by the legal obligation for the persons to whom the POA had been granted to owe him a “fiduciary duty of care” to consider his best interests whenever the POA was used, and; (d) the “partnership” appeared to offer the potential for good returns based on the information available to him at the time. At the time he accepted that he was not to receive the SHAs on the basis that it was a “take it or leave it” deal and he trusted his fellow “partners”. (8) At the hearing the appellant confirmed that (a) he did not ask for the SHAs until after his resignation from BTG in 2018, (b) he did not consider that the “non-recourse” nature of the loans and arrangements for the buy-back of shares was odd. He thought it was like a financial institution seeking to incentivise with share options and the put and call arrangement was modelled on what Goldman Sachs did. He had worked there, the arrangements seemed sensible with no downside and he considered his interests were aligned with the other “partners”, and he thought the London “partners” were smart, trustworthy and had done their homework. So he went along with not seeking the full documents, (c) he did not take legal advice and he trusted people when he should not have done; with hindsight he thought that was foolish and he made a mistake, (d) the desire to create trading capital was an important factor in his decision to become a “partner” and to invest in BTG initially and when his later investments were made. He thought that in effect he was obtaining shares as remuneration in lieu of cash. (9) The documents that he signed in 2013 comprised (a) purchase agreements in which he purchased shares in the relevant BTG entities, (b) joinder agreements, (c) a POA, (d) a number of loan agreements that provided him with loans to acquire the shares (“loan agreements”), (e) the partnership agreement of LLP, (f) a “Master Set-off/Loan Repayment Agreement” (a “master agreement”) and a “Pledge and Security Agreement” (a “security agreement”). He confirmed that, for example, he signed a document joining him to a SHA in respect of BTG Investments LP, a Bermuda exempted limited partnership, dated as of December 29, 2010 but said he did not receive a copy of that agreement.[16]In relation to this original investment, he signed a further 3 loans in late 2014 and early 2015 that were supposed to cover the additional taxes he had to pay on partnership profits attributed to him in LLP (which he reported to HMRC and paid tax on) and the actual sums paid to him by LLP.[17]The investments made by the appellant in 2013 include the following:(1) On 31 January 2013, the appellant entered into a purchase agreement for 229,016 Class B shares in Holding for a purchase price of R$1,824,936.90 and 255.63 “quotas” in BPAC 3 for R$241.94 (the units into which the capital in an entity such as BPAC3 is divided).(2) On 1 March 2013, the appellant entered into the following loan agreements: (a) R$1,841,453.81 for purchase of BTG Pactual equity interests (b) R$734,569.44 for purchase of common units in BTG Investments LP, a Bermudian limited partnership (c) R$175,057.58 for purchase of common units in BTG MB Investments , a Bermudian limited partnership.(3) The official rate of exchange for customs purposes on 1 March 2013 was R$2.998 per pound sterling. The total borrowed on that date of R$2,751,080.83 was therefore equivalent to £917,638.70.(4) Loans denominated in Brazilian Reais (R$) attracted interest at the publicly available CDI rate, which during the time the appellant was a member of the LLP varied between 7% and 14% per annum.[18]The loans the appellant entered into with BTG entities denominated in sterling, for the purpose of paying tax obligations arising from ownership of investments in BTG entities include:(1) £176,448.93 on 22 January 2014.(2) £58,816.31 on 22 July 2014.(3) £86,507.00 on 6 February 2015.

Terms of the loans provided to purchase shares

[19]In outline, BTG could only seek repayment of the loans from the sales of, or distributions from, a “partner’s” shares. The loan agreements included these or similar provisions:(1) “Except as the Debtor and the Lender may otherwise agree in writing, in the event the Debtor and the other members of its Debtor Group cease at any time to own any [shares], the remaining obligations of the Debtor under this Loan shall automatically be limited to the satisfaction of Debtor’s obligations under Section 4(b) or 5 of this Loan.”(2) Section 4(b) headed “Mandatory Prepayments” required that any distributions from shares be used to repay the loan.(3) Section 5 stated:
“the Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by applicable law, to set-off and apply any and all deposits at any time held and other obligations (in whatever currency) at any time owing by the Lender or any of its affiliates to or for the credit or the account of [the Debtor] against any and all of the obligations of [the Debtor] now or hereafter existing under this Note..”
[20]The loans were governed by New York law. The bundles contained a number of examples of loan agreements many of which were signed by the appellant.[21]The loans were amended around 2015 when BTG restructured a lot of the loans by moving them from one of its offshore entities to the onshore banking entities, which the appellant understands to have been prohibited from making non-recourse loans to the owners of the bank. “Partners” were told verbally that the “non-recourse” clauses of the loans were replaced with a “side letter” granted to each partner, under which Holding agreed to pay to the departing partner any amounts required to pay off their outstanding loans in excess of the proceeds received from selling their shares. This “side letter” was not contained in any of the new documents the appellant received in 2015 or 2017, so he formally requested one in March 2018 prior to resigning and received a signed side letter dated 15 March 2018, which states:
“[BTGI, BTGMB and Holding] will grant [the borrowing partner] the amounts required to allow the [the borrowing partner] to pay all amounts due by [the borrowing partner] under the Loan Agreements, including the gross-up of taxes, which exceed the amounts received by [the borrowing partner] in case of a [sale of Shares as a result of the borrowing partner’s exit from the Partnership] or termination of the Loan Agreement.”
[22]He considered that the fact that this side letter was delivered to him quickly and without fuss within days of requesting it shows that the guarantee that was given to all partners verbally in the prior years was accepted as part of the loan structure by the controlling persons and Partnership Office.

Shareholders agreement and power of attorney

[23]The appellant did not receive copies of the SHAs during his membership of the LLP. He thought the other junior partners did not receive them either. As set out above, he signed joinder agreements for some of the SHAs and single signature pages for others, as he said was the norm at BTG. It was only after he had resigned in 2018 that he obtained copies of most of the SHAs. He emailed personnel at BTG on 1 May 2018 asking for copies of the SHAs. On 23 May 2018 he received an email with copies of the SHAs that were in force up to 2017. On 30 May 2018 he received an email with copies of the SHAs for Holding, BTGI and BPAC3 that were enacted in 2017. As noted above, he confirmed that he did not ask for copies of the SHAs until 2018.[24]The appellant said that it was only on obtaining copies of the SHAs in 2018 that he discovered that there were a number of clauses, the existence of which had not been disclosed to him or, to the best of his knowledge, to any other junior partner, which gave the controlling persons control over BTG and each partner’s shares, including whether they eventually left the “partnership” with a profit or loss from their shares.[25]The appellant said that signing the POA was “compulsory”, on the basis of the SHA for Holding in the form applicable before 2017:
“Each of the Partner Shareholders (including Principal Shareholders) hereby agrees and acknowledges that the granting of each irrevocable power of attorney provided for in this Agreement…was an essential condition and inducement for [Mr Esteves] to enter into this Agreement and to consummate the transactions contemplated hereby and no Non-Principal Shareholder would have been permitted to become a party to this Agreement without granting all irrevocable powers of attorney provided for in this Agreement. Each of the Partner Shareholders also agrees and acknowledges that it has made its own assessment of the provisions set forth in such Sections and is sufficiently knowledgeable and experienced to make an informed judgment with respect thereto.”
[26]The appellant said that, as the SHA was drafted by the controlling persons and junior partners were not given access to it, the highlighted sentence cannot be true and he regards this as a knowingly false statement made by the controlling persons as drafters of the document. We have commented on this below.[27]In the SHA relating to Holding, Holding had the right to “offset” any JCP it made (and which BPAC3 made as it was a pass-through vehicle whose sole investment was in rights to receive distributions from Holding) against any amounts owed by the borrowing “partner” including under the loans. The governing law and procedure for dispute resolution differed in the SHAs in the bundles.[28]In 2017 BTG produced new SHAs and POAs in which BTG had changed the price payable in the event of a call or put notice for the sale/purchase of a “partner’s shares”. The appellant contends that this allowed shares to be acquired and disposed of for arbitrary consideration and gave the grantees of the POA the ability to buy shares from the appellant for a consideration which was calculated to provide sufficient proceeds to repay his loans. We have commented on this below.[29]A document headed “Summary – New Rules” reflects the reasons given to the appellant and other junior partners of the rationale for the POA:
“Power of Attorney: The PoA should be executed in order for you to give powers to the controlling shareholders or their designees to represent you and your related entities in the Partnership; all partners have and always must execute this PoA to become partners in the BTG Pactual Partnership.”
[30]The POA included in the bundles was drafted in broad terms as the grant by the appellant of comprehensive rights for Mr Esteves and other named individuals to act in place of the appellant in relation to all rights conferred on him by the shares including to represent him at shareholder meetings and deal with sales of the shares. The POAs were expressed to be made under Brazilian law.[31]The appellant said that:(1) His understanding of the law is that POAs create a fiduciary relationship that protects the grantor from bad faith use of the POA by the grantee to act against the best interests of the grantor. He understands that: (a) This falls under the doctrine of equity in common law in the UK. The grantor of a POA is owed a fiduciary duty of care by the grantees, to consider the best interests of the grantor when using the POA. (b) The position under New York law, which is the governing law of the loans is set out in “New York Consolidated Laws, General Obligations Law - GOB § 5-1505” which states that “In dealing with property of the principal, an agent shall observe the standard of care that would be observed by a prudent person dealing with property of another……An agent acting under a power of attorney has a fiduciary relationship with the principal. The fiduciary duties include but are not limited to each of the following obligations: (1) To act according to any instructions from the principal or, where there are no instructions, in the best interest of the principal, and to avoid conflicts of interest.” (c) Brazilian law is based on civil law and under civil law a “duty of loyalty” is owed by the grantee to the grantor of a POA, which includes acting in the best interests of the grantor, avoiding conflicts-of-interest and not using the POA for personal gain.(2) He relied on the inherent protections of his best interests provided under law when signing the POAs, even though their terms were very broad. He believed that the overriding principles of fiduciary duty/duty of loyalty protected him and that the purpose of the POAs was for efficient management of the BTG entities rather than for “nefarious purposes”.(3) The POAs were used (a) to subscribe for new shares using the proceeds of JCP, which, the appellant considers was a detriment to him and against his interests, (b) to move monies without informing the appellant, to repay the loans by transferring monies via a “secret bank account” held in his name. While he was contractually obligated to use JCP to pay down the loans, in his view, that should have required his active authorisation for the payments, which would have alerted him to the existence of the JCP and allowed him to act by resigning from the “partnership” at a much earlier date.[32]It was put to the appellant that he knew from the outset that loans would be repaid from JCP and that he had not been misled about the effect of the arrangements. He said he did not know the extent of Mr Esteves’ control of BTG but he knew in theory he/the controlling partners could change the overall policy from what he understood it to be and things could go badly wrong but he considered he was misled.[33]We make no finding of fact that the POAs created a fiduciary relationship as a matter of law given that(1) the POAs were expressed to be governed by Brazilian law and were used as regards shares held by the appellant in entities based in various locations outside the UK, and(2) we received no expert evidence on the operation of Brazilian law any other non-UK law as regards such a POA and/or its use as regards relevant shares. We also make no finding of fact that the appellant was misled in relation to the operation of the contractual arrangements he entered into for the reasons set out below.

Master agreements and security agreements

[34]The master agreements were expressed to take precedence over the other agreements. In the appellant’s view they were designed by the controlling persons to ensure that there were no loopholes that might have allowed a junior partner to receive a payment of JCP when they had loans outstanding or to receive a cash payment for the sale of their shares upon exiting the partnership, if the controlling partners did not wish them to do so:(1) It was stated that it was acknowledged that without this agreement, the relevant entities would not be willing to “let the Partner Group continue to hold [the shares] and the relevant entities would exercise their respective rights relating to Puts/Calls “to acquire such [shares] and apply the proceeds in respect thereof to satisfy all outstanding Debt….”.(2) Clause 7 states that in the event of any conflict between the terms of this agreement and the SHAs and loan agreements, the terms of this agreement prevails over the others: “The parties acknowledge that the provisions of this Agreement may be in conflict with certain provisions of the [loans] and the applicable [SHAs]. In the event of any such conflict, or if any other ambiguity or question of intent or interpretation arises between this Agreement and the [loans] and the applicable [SHAs], this Agreement shall control and prevail in all respects, and the parties agree that this Agreement shall serve as an effective amendment to the [loans and the applicable [SHAs] to the extent required to reconcile any such conflict, ambiguity or question of intent, or if any provisions set forth in the [loans] or the applicable [SHAs] would otherwise frustrate the intent of this Agreement.”(3) The recitals state: “the Partner Group [and the borrowing partner] acknowledges such agreement, that it is not entitled to receive any payments or proceeds in respect of Realization Events [defined as sales of Shares and the declaration of “a dividend of distribution of any kind or nature regardless of the form (including through interest of shareholders’ equity)”] unless and until all Debt [the loans and any other type of loan from BTG to the partner] has been repaid in accordance with the terms and conditions of this Agreement”.(4) The signature page of this agreement shows that Holding, BTGI and BTGMB were parties to this agreement.(5) The agreements were stated to be governed by the laws of New York.[35]The security agreements provided that:(1) In order to secure the timely and full payment and performance, when due (either in the original maturity date, in case of acceleration or in any other date) of all “Secured Obligations”, being obligations under the loans, the appellant pledged all of his shares in the relevant entities then held and any issued to him in the future pursuant to specified provisions in Brazilian law.(2) The security interest in the pledged shares was “granted as security only and shall not subject the Lender to, or in any way alter or modify, any obligation or liability of the Debtor with respect to or arising out of the [pledged shares] or any contract, agreement or instrument entered into by a Debtor with respect thereto”.(3) If there was an event of default, namely if the debtor failed to comply with any condition or covenant under this agreement including if the debtor failed to pay the “Secured Obligations” when due and payable (subject to the debtor curing the default and certain other exceptions) each of the debtor, and relevant BTG entities agreed and undertook, for the benefit of the lender, as applicable, (a) to make the payment to the lender of all rights related to the pledged shares (including dividends, interest on equity or payments resulting from redemption, capital reductions or made on any other account); (b) upon written request by the lender and at the exclusive expense of the debtor, perform any and all actions that the lender may reasonably request, as well as execute and deliver to the lender, as promptly as reasonably practicable, all additional instruments and documents required to obtain and preserve the benefits, rights and powers resulting from this agreement; (c) perform any and all actions reasonably requested by the lender, as well as execute and deliver to the lender all instruments and documents required to the creation of the pledge over additional shares, at the exclusive expense of the debtor; (d) not to create, incur or permit the creation of any liens or options in favor or upon request of any person other than the lender, regarding the pledged shares or any rights thereon, except for the pledge created in this agreement. Investments in 2015[36]The appellant’s reinsurance business unit was highly successful from 2011 to 2014, which resulted in him receiving increasing bonuses and being given more “trading capital” for the reinsurance business unit and more management responsibility. As a result of this, in 2015 his “partnership stake” was increased from 0.00025% to 0.001% (of the total “partnership”). At the time of agreeing to increase his stake, BTG’s business was doing well and was expanding internationally. As a result of this increase, he signed two new sets of documents(1) in March 2015: (a) a purchase and sale agreement, (b) joinder agreements, (c) a POA, (d) loan agreements, (e) a security agreement, and (f) a master agreement and(2) in July 2015: (a) a purchase agreement, (b) loan agreements, and (c) a security agreement.[37]It appears these acquisitions were funded by loans totalling R$ 7,661,168.26 entered into on 28 July 2015 when the official exchange rate was R$4.8731 per pound sterling amount, such that the amount borrowed in sterling is £1,572,134.42.[38]At the time of these new investments the appellant’s partnership statements showed the appellant’s “Net Partnership Equity” being worth $327,747 and $509,972 in March and July respectively, so he believed at this time that his investment in the “partnership” was as described to him in the verbal agreement and had been a profitable investment up to this point. With hindsight, he believes that these two profit figures do not represent actual sums he would have been paid had he decided to resign from the “partnership” at those dates. We note that this is speculation on the appellant’s part and we make no finding as to what the appellant would have received had he sold his shares back to BTG at that time.[39]He considered that under the verbal agreement, he was required, and agreed to, use part of his bonus for 2014 to pay down his loans. On 23 February 2015, he transferred £203,202 from his bank account in the UK to BTG to pay down his loan balance. This transfer of cash was the only cash investment into the “partnership” that he ever made.[40]The appellant explained that:(1) In November 2015, Mr Esteves was arrested and imprisoned as part of a large anti-corruption investigation in Brazil. Since he was the CEO of BTG as well as the main face of the group, this led to a run on the deposit base of Banco as well as a collapse in its share price.(2) The remaining controlling persons took a number of actions to try to prevent Banco becoming insolvent such as (a) the sale of “noncore” businesses”, which included his reinsurance business unit, (b) the transfer of Mr Esteves’ controlling rights in the SHAs to BTGG7 (which did not include Mr Esteves in 2016-17, while he was under arrest and barred from holding a management position in Banco), and (c) the day-to-day running of BTG was taken over by the four-person Executive Committee that included Mr Jenkins, based in London as well as the chairman, CFO and COO prior to Mr Esteves’ arrest, who were all based in Brazil. From December 2015 to November 2016 he witnessed the Executive Committee running the overall BTG group as a single enterprise, with one of its four members based in the UK.(3) As a result of the uncertainty surrounding Banco as well as the reputational questions regarding Mr Esteves, investors redeemed their capital en-masse from BTG’s hedge fund unit. This forced the fund to close permanently in January 2016 and led to the controlling persons terminating all the “partners” that worked in the hedge fund business, which included most of the “partners” in the London office.(4) On 9 January 2016, Reuters published an investigative news story based on a Brazil central bank document relating to an investigation into Mr Esteves in 2010. The news story stated that central bank investigators recommended in October 2010 that Mr Esteves should have been barred from managing financial institutions for six years due to “serious infractions” of banking rules between 2002 and 2004. The document showed that the central bank director, Sidnei Corrêa Marques, who ruled against the proposed ban, told Reuters in an interview he considered the crucial role of the bank and its CEO in the financial system when making his decision.(5) The appellant and, to the best of his knowledge, the other “partners” in London, were not aware of this matter until this news story. It was not disclosed in BTG’s IPO prospectus in 2013, which he thought it should have been as a highly material legal matter. The appellant views this as an example of Mr Esteves and the controlling persons withholding material information in order to further their own interests. While Mr Esteves was not banned by the central bank, it appears the investigation found serious wrongdoing by him.(6) On 16th April 2012, the Financial Times published a story entitled “BTG chief fined for insider trading”, which stated: “The chief executive of BTG Pactual has been fined for insider trading by Italian regulators in a move that has forced the rapidly growing Brazilian investment bank to amend the prospectus for its high-profile listing next week. Consob, the Italian financial watchdog, imposed a €350,000 fine and a six-month ban from senior positions at Italian companies on André Esteves for a purchase of shares worth €3.4m in beef producer Cremonini five years ago.”(7) Internally at BTG at the time, “partners” were told that Mr Esteves was not guilty and would be appealing the decision, which was described as a “personal vendetta” against him by someone in the Italian regulator. At the time the appellant believed this story, but in hindsight it appears that Mr Esteves either did not appeal or lost his appeal and the conviction still stands today.(8) The 2015 Brazilian corruption charges against Mr Esteves were eventually dropped and the overall anti-corruption investigation halted by the Bolsonaro government.[41]The appellant made a number of comments on this:(1) In hindsight he views these previous two investigations as showing Mr Esteves’ reckless disregard for the law.(2) Prior to Mr Esteves’ arrest, BTG was a growing business, which meant that it was looking to expand its businesses internationally and to hire new junior partners. In order to attract new talent, it was in the controlling persons’ interests to keep the existing junior partners happy and to maintain their trust in the “partnership” structure. With hindsight, he considers that the “partnership” was a “confidence trick”, in which junior partners were sold the “partnership” and “meritocratic” culture of BTG and enticed to agree to reinvest most of their bonuses back into the “partnership”; if business went well the controlling persons might have allowed them eventually to take out some profits, albeit less than they were owed, but if business went poorly the controlling persons could use the terms of the SHAs to avoid having to pay departing junior partners anything for their stakes in the “partnership”.(3) This “confidence trick” worked spectacularly from 2009 to November 2015 as BTG was able to hire many new junior partners in London and New York and convince “partners” to take stakes in the “partnership” rather than large cash bonuses. The paper profits that they saw in their partnership statements made them think that everything was in order.(4) Effectively everything changed with the arrest of Mr Esteves in November 2015. After this point, BTG became a shrinking business looking to get rid of junior partners and claw back their shares at heavily discounted values. In London alone 11 “partners” were terminated in 2016 and their shares were “forcibly” repurchased from them at large discounts to the values to which they were contractually entitled under the SHAs that were in force when they signed the documentation.[42]We accept the appellant’s evidence as regards events in 2015, that he was not aware of the allegations against Mr Esteves’ until this time and these events lead to a downturn in the business as he described. However, the evidence set out above does not suffice for us to make any finding that the “partners” in BTG were subject to a “confidence trick” in the sense that the appellant alleges, namely, that those controlling BTG(1) deliberately misled the “partners” from the outset (or at a later point ) as to what they would receive from BTG in respect of their shares, and/or(2) intended from the outset or from the period following Mr Esteves’ arrest that prices would be manipulated to ensure that “partners” did not make a profit. On the basis of the above evidence, this is the appellant’s assertion and conjecture; we cannot simply assume these assertions to be correct from the fact that Mr Esteves had been investigated by regulators in the past and/or due to the change in price for the purchase and sale of shares which took place in 2017 (as set out in further detail below). We have commented further below on whether the appellant was misled as he claims and on the price at which shares were bought from “partners” in light of the further evidence.

Investment in 2017

[43]The appellant said that in 2016 and early 2017 he continued to believe that the controlling partners were operating the “partnership” in good faith and that, as a “partnership”, his interests were fundamentally aligned with theirs. He agreed to increase his stake again in 2016/2017, when BTG was run day-to-day by the four-person Executive Committee and he believed they were honest people looking to steady the ship. This increase in his stake was to occur alongside an increase in most of the remaining “partners” stakes and should have been an attractive proposition as the shares were sold at a discounted price. There were substantial delays with the documentation not being produced by the Partnership Office until May 2017.[44]These new acquisitions were funded by(1) three loans totalling R$2,451,832.51 on 10 May 2017 when the official exchange rate was R$4.0181 per pound sterling so the amount borrowed in sterling was £610,196.99, and(2) three loans totalling US$149,729.59 on 10 May 2017 when the official exchange rate was US$1.2810 per pound sterling, so the amount borrowed in sterling was £116,884.93.[45]The appellant said that(1) in 2017, the controlling persons agreed with the junior partners a change to the price at which “partners” bought and sold shares(2) his understanding was that this would take place at the previous definition of NAV (the audited net book value according to international financial reporting standards) adjusted by the percentage amount that Banco shares were trading on the stock exchange at a discount to Banco’s NAV (“the mark to market discount”),(3) in agreeing to this, he and other junior partners relied on the representations of the controlling persons that (a) this could be done only at the audited NAV as discounted only by an objective amount to account for the traded share-price discount of Banco, and (b) this would only be done based on meritocratic and objective annual performance reviews,(4) the key terms of this “new partnership structure” were described verbally on a number of video conferences and meetings with the controlling persons and in a document titled “Summary – New Rules” as follows:
“Power of Attorney: The PoA should be executed in order for you to give powers to the controlling shareholders or their designees to represent you and your related entities in the Partnership; all partners have and always must execute this PoA to become partners in the BTG Pactual Partnership….. The Partnership Office will be reaching out to each of you to obtain the necessary signatures to formalize your adherence to the new partnership agreement as well as the reallocation of partnership stakes, as announced in September and December, 2016. All documents must be signed no later than March 29th – including those from any trustees or similar persons. Failure to obtain such signatures will require the partnership to take action to protect itself and the entities in the BTG Pactual Group.”
[46]The appellant said that he found out in 2018 when he received copies of the SHAs that the SHAs contained provisions giving the controlling persons greater control than he had been told of and the new SHAs entered into in 2017 allowed the controlling persons to apply additional “arbitrary discounts” to the price at which a departing “partner” sold his shares, which in practice allowed them to prevent a departing “partner” exiting BTG at a profit, or to substantially reduce the profit he should have received. The appellant referred to the following clauses in the SHAs: (1) In SHAs entered into before and after 2017 a “standard of care” clause which states that “subject to applicable Laws (including the Brazilian Civil Code and Brazilian Corporate Law)” whenever any “partner” was permitted or required to make a decision under the provisions dealing with restrictions on ownership or transfer of shares or those dealing with the put and call rights, withdrawal of shareholders or cancellation of shares, in its “discretion”, “sole discretion”, or “sole and absolute discretion” (or under similar wording), such “partner”:
“shall be entitled to consider such interests and factors as it desires, including its own interests (and those of its Affiliates), and shall have no duty or obligation to give any consideration to any interest of or factors affecting any other partner”. (2) In SHAs entered into before and after 2017, in the definitions, the following clause: “The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.” (3) In SHAs entered into before and after 2017 a provision which stated that, to the extent permitted by applicable law, the relevant BTG entities: “may offset against, or condition the payment of, any amounts to be distributed or paid to any Partner Shareholder…any amounts owed by such Partner Shareholder or any of its Affiliates [to relevant BTG entities] or [any lender under a loan]”. (4) The following terms in the SHAs signed in 2017 that relate to the price at which a departing partner would sell their shares: “"Net Book Value" means, with respect to the Bank or Brazil Controlco, as applicable, the excess, if any, of the total assets of the Bank or Brazil Controlco, as applicable, over its total liabilities that would be reflected in a balance sheet of the Bank or Brazil Controlco, as applicable, as of the applicable measurement time in accordance with Brazilian generally accepted accounting principles, including the accounting rules for financial institutions issued by the Banco Central do Brasil and/or the Conselho Monetario Nacional, the National Monetary Council of Brazil ("Brazilian GAAP") (subject to normal yearend adjustments and subject to such other reasonable adjustments made in the sole discretion of the Supermajority Shareholders to conform Net Book Value to the book value reflected in the internal management accounts of the Bank or Brazil Controlco, as applicable, so long as such adjustments are applied on a consistent basis with respect to all determinations of Net Book Value under Section 6 and Schedule E hereof), all as determined by Brazil Controlco in good faith; “...The Partner Shareholders expressly acknowledge and understand that the price paid hereunder for the Acquired Shares will likely be substantially below the applicable Adjusted Trading Controlco Price (which is the price (as may be discounted in accordance with the definition thereof) that corresponds to the public valuation placed on Brazil Controlco Shares (which is the price at which Bank Shares are trading in the market, as adjusted for liabilities or assets of Brazil Controlco (other than Bank Shares)) and by entering into this Agreement in accordance with the terms and conditions hereof (including, without limitation, this Section 6 and the transfer restrictions contained herein and the provisions of Schedule E) the Partner Shareholders have accepted that the price that they will receive for their Brazil Controlco Shares will likely be substantially below the applicable Adjusted Trading Controlco Price of such Brazil Controlco Shares and such Partner Shareholders have entered into this Agreement knowingly and with full acceptance of the terms hereof.” (Emphasis added.)
[47]The appellant commented as follows on the effect of the above provisions:(1) While the “standard of care” clause purports to give the controlling persons the right to act in their own best interests, under UK, New York and Brazilian law (see above), it would be illegal for a POA to be used against the best interests of a junior partner. Subsequent to resigning from BTG, he has heard that Bermuda law permits partners in a limited partnership to waive their conflict-of-interest rights amongst each other in such a clause. This would explain where these clauses arose from in the SHAs and why the controlling persons chose Bermuda to domicile BTGI and BTGMB, when BTG had no business dealings or connection to Bermuda when they were set up. However, this does not mean that the standard of care clauses would be enforceable in Brazil, the UK and New York. We make no finding to the effect of these statements by the appellant as we have no viable means of assessing them. We were not presented with any expert evidence on the operation of the relevant New York and Brazilian law and the SHAs were not governed by English law.(2) The effect of the additional adjustment allowing NAV to be changed to the “book value reflected in the internal management accounts of [Banco] or [Holding]” is “huge”, since internal management accounts do not need to (and in the appellant’s experience did not) conform to any accounting standards or pass an audit. In his experience, the internal management accounts of Banco contained numerous additional reserves and after Mr Esteves’ arrest in 2016, Holding suddenly took a large reserve against potential tax liabilities that had previously been undisclosed to junior partners and auditors despite the fact that they were supposed to have been incurred over many years (and should have appeared in the accounts previously). He had direct experience of these internal “non-GAAP” reserves as in his own reinsurance business unit they used to take a large reserve for potential future losses during the peak months of hurricane activity in the North Atlantic and only reversed these reserves in December once the hurricane season was over; this type of reserve is not permitted under GAAP/IFRS accounting rules so did not appear in the audited accounts of BTG, but could be used internally to create a less volatile measure of book value. This allowed the controlling persons to apply discounts to the price at which departing partners sold their shares to reduce the price at to any level they chose, since the “internal management accounts” could include any amount of arbitrary reserves (discounts) they chose. Given that a large number of junior partners departed from 2016 to 2019, the controlling persons could enrich themselves at the junior partners’ expense by using this mechanism to buy back their shares at large discounts to what the verbal agreement dictated. Overall the effect is to (1) allow the controlling persons to repurchase a departing junior partner’s shares “substantially below” the NAV discounted by the mark to mark discount, and (2) claim that the departing junior partner “expressly acknowledged and understood” this fact, despite the fact that they were not shown the actual SHA.[48]The appellant said that the failure to sign the documents agreeing to the new partnership structure would have resulted in the controlling persons exercising the call option to repurchase a partner’s shares and remove him from the partnership. The appellant and, to the best of his knowledge, all other junior partners, were given the signature pages of the new SHAs to sign, rather than the entire agreements. These were sent via an email from the Partnership Office. He relied on the 2017 verbal agreement when making his decision to sign these documents and his belief that the controlling persons were acting in good faith. The following documents were signed:(1) purchase agreement,(2) signature pages for several SHAs, (6) loan agreements, and (7) a security agreement.[49]The appellant also stated this as regards what happened on a sale of a “partner’s” shares:(1) On the sale of his shares in 2018 (a) if the exact contractual terms of the post-2015 loans had been followed by BTG, BTG would have sought full repayment of these loans from him and provided him with the funds to do so from one of the companies that are parties to the Side Letter. The statements of the “secret” bank account show that they did not do that; they simply extinguished the excess loan liabilities (over the amount repaid from the sale proceeds of his shares), as would have occurred under the terms which were originally in the loans, (3) the “non-recourse feature” of the loans was fundamental to the structure of the “partnership as advertised to existing and prospective “partners,” and (4) this can also be seen from a document sent by the Partnership Office to Mr Nick Godfrey, one of the junior partners who left the “partnership” in 2016. It refers to a loan write off which would have been the difference between the value of his shares and the value of his loans. The fact that this was written-off shows that BTG was treating the loans as though they were non-recourse under a verbal agreement amongst the partners.(2) When a partner exited the partnership, BTG sought to have them sign a “repurchase letter”, such as the one he refused to sign (or the modified one signed by Mr Nick Godfrey). These letters specify a different method of repaying the loans than is required in the SHAs and loan agreements, and also materially change the sale prices of the shares from what had been agreed previously. In his case, this letter would have altered the prices on his sales of shares in BTGI and BTGMB from the official document he had been given previously for his sale of his shares under the put notice he signed on 30 April 2018. It would also have increased the price paid for his shares in Holding from $5.05 million (the value shown in the hidden bank statements) to $5.8 million. The advantage of this to the controlling persons would have been that the $750,000 difference would have been paid onshore in Brazil by Holding and then used to repay the Cayman branch offshore as the lender of the loans, effectively transferring an additional $750,000 offshore without BTG having to incur Brazilian foreign exchange tax.(3) He estimates that the controlling persons were able to manipulate a sale price for shares by up to 15% in the exit of Mr Godfrey and the other partners who left in 2016 and considers that shows that (a) they regarded the 2017 SHAs as giving them the ability to manipulate sale prices on an individual basis to suit their objectives, and (b) they had the willingness to do so. He regards this as further evidence that, after the arrest of Mr Esteves in 2015 and the implementation of the 2017 SHAs and their undisclosed terms, he never actually had any prospect of receiving any consideration for his “partnership stake”. The controlling persons gave themselves so much discretion over the adjusted book values that they appear to have been adjusted on an individual basis so that the departing partners received no consideration for their “partnership stake” and the overall purchase price paid for their shares was set as close as possible to the outstanding value of their loans. Since the loans were made from offshore entities and then Cayman branch, there was a large advantage to BTG in preserving as much of this tax-free offshore capital as possible, at the expense of its taxable onshore capital in Brazil.(4) According to his partnership statement, at 31 December 2017, his shares were valued at $4,361,868 and loans were valued at $5,710,617, resulting in negative net equity of -$1,348,748. When he resigned 4 months later and his stake was eventually settled by BTG, he paid no money to BTG as BTG could, and did, only use the proceeds of the sales of his shares to repay the loans. If his net loan liability had been $100 or $10,000,000, the net result to him would have been the same.(5) One might think that the reduction in his loans still had a benefit to him by virtue of reducing the percentage increase that his shares would have had to increase by in order to become worth more than the balance of his loans. However, this is not the case due to the specific terms of the SHAs that governed the price at which his shares could be sold. Using the above figures, the value of his shares would have to increase by $1,348,749 (a 30.9% increase) in order for his net equity to become positive. When a company pays a dividend, this is paid out of the assets of the company and its NAV is reduced 1:1 for each dollar that is paid out in dividend. Payment of JCP in Brazil allows a bank to claim a 34% tax credit, so if a bank declared a $100 JCP distribution, it would pay $100 to its shareholders, but receive a tax credit of $34 and thereby reduce its NAV value by only $66 instead of $100.(6) Using the following as an example: Holding made a distribution of JCP attributable to his shares of $81,322 when the total value (NAV) of his shares was $4,361,868. Taking into account that Holding received a 34% tax credit from the JCP and he was charged 15% Brazilian withholding tax, the value of his shares after the distribution fell to $4,308,196. If 100% of the net proceeds (after the withholding tax) of $69,123 had been used to pay his loans, his loans outstanding would have dropped from $5,710,617 to $5,641,494. Before the distribution it would have taken a 30.92% ($5,710,617/ $4,361,868) increase in the value of his shares for their value to exceed his loans. After the distribution (a) it would have taken a 30.94% ($5,641,494/ $4,308,196) increase to do so, and (b) he would have been left with a $18,784 tax liability to HMRC. After taking this UK tax into account, the percentage increase in the value of his shares required to exceed his loans would have been 31.4%. The effect is to reduce his equity at a faster rate than his loans were reduced, so that with each JCP payment, the percentage increase in his shares required to obtain any value from them diminishes.(7) In the case of distributions used to purchase new shares, the effect can be shown by using the case where Holding declared JCP of $51,998 gross when his shares were valued at $4,563,980 and his loans were valued at -$5,646,777, resulting in negative net equity of -$1,082,797. After 15% Brazilian withholding tax, this left $44,199 to purchase the new shares of Holding and gave a 34% tax credit uplift ($17,679) to the NAV of his shares of Holding. The net effect was to increase the overall value of his shares to $4,573,860, an increase of $9,880. However, this resulted in a UK tax liability of $12,012, so the net effect was a loss of -$2,132. If he had wanted to increase his investment in Holding by $9,880, he could have paid that sum to BTG to buy new shares rather than spend the larger sum of $12,012 incurred in this transaction. Since all partners were subject to this same transaction (receiving JCP and then reinvesting the net proceeds of the JCP back into shares of Holding), his ownership percentage in Holding did not increase as a result of buying new shares.

Provision of information

[50]The appellant set out the following as regards the information he received from BTG about JCP and his tax position:(1) He received quarterly “partnership statements” from the Partnership Office, which showed the (a) value of his shares in each entity, (b) the accrued amount outstanding on his loans, and (c) the difference between the two under the heading “net equity”. According to what he considered to have been verbally agreed, the “net equity” was the amount of money that a partner should be paid by BTG in consideration for selling his shares back to the “partnership” and paying off his outstanding loans out of the proceeds. If the current value of “net equity” was negative, in that the accrued amount outstanding on the loans was greater than the total net book value of the partner’s shares then the overall position was described as being “underwater”. Every January, the Partnership Office provided a manual spreadsheet to Cordium detailing any transactions which the appellant was supposed to declare for UK tax.(2) No portfolio statements or account statements were provided to him, or to his knowledge any other junior partner, during the period that he was a member of LLP, although in January 2020 the Partnership Office claimed to have been operating bank accounts on his behalf (see below).(3) (a) the Partnership Office did not produce these quarterly statements in Q1 and Q2 of 2014 or Q2, Q3 and Q4 of 2016, and (b) in January 2017 he did not receive a spreadsheet from Cordium for the 2015/16 tax year, but received a detailed tax summary from Cordium which only showed minimal taxable distributions for that tax year. He was not aware, therefore, that in the second half of 2016, Holding and BPAC3 had made 3 distributions of JCP and the share that was attributable to him was £112,000. When the Partnership Office started producing Partnership Statements again in Q1 2017, these distributions did not appear on his Partnership Statements. The spreadsheet provided by Cordium in January 2018 for the 2016/17 tax year described these distributions as “stock dividends” and the advice given from Cordium at that time was that these were not taxable.(4) When he resigned in April 2018, as far as he was aware, the only significant distribution that had been made was from March 2018. In January 2019 (a) he was informed via Cordium that there had been two other significant distributions in the 2017/18 tax year and that the distributions made in 2016/17 were not in fact tax-free stock distributions but rather were taxable dividends, and (b) BTG agreed to reimburse him the sum of £56,665.35 to cover some of the additional tax HMRC was charging for the 2016/17 tax year. He does not know how BTG decided on this figure. At that time, BTG did not inform him of two other distributions in August 2018 that BTG intended to attribute to him, despite the fact that he and BTG had signed the put notice in April 2018 that stated that he could not receive any further distributions after that date. Both Mr Nick Godfrey and Ms Judith Wheelan (other UK-resident members of LLP) were accredited with JCP after the date on which they had signed binding put/call notices.(5) In January 2020, he was informed of these purported distributions when these entries appeared on his draft tax return produced by Cordium, as based on information provided by the Partnership Office. He immediately complained to BTG and Cordium. In response, Mr Gustavo Vaz informed him of the existence of a previously undisclosed bank account at Cayman Branch that the Partnership Office had operated in his name without informing him and told him that this account had the sum of £62,514 remaining in it which could be paid to him. From the statements that were subsequently provided to him he believes that this sum is from the proceeds of the sales of his shares and that it ultimately derives from the £203,202 that he paid into the partnership in 2015.[51]The appellant said that:(1) He was suspicious that the Partnership Office had not legally validly executed all the purported transactions as in his experience, the culture at BTG was to cut corners.(2) On 23 March 2023, he was provided by HMRC with details of one payment and reinvestment of JCP from Holding on 31st January 2017. He requested supporting tax information from BTG but was not provided with this information directly from BTG. He accepts that for this distribution of JCP, the provided documentation shows a valid declaration of JCP and reinvestment in shares.(3) He considers that the fact that the purported 22 August 2018 receipts of JCP cannot have been properly legally valid transactions means that the Partnership Office fabricated at least some of the transactions that they have attributed to him and that were shown on the spreadsheets Cordium provided and statements from the bank account he did not previously know of. If some transactions shown in the spreadsheets were fabricated, then the information regarding others may be questionable as well. He regards these two transactions as further evidence of the bad faith intent of the controlling partners and their operation of the “partnership” as a fraudulent investment scheme.(4) He believes that, after Esteves’ arrest in 2015, the controlling partners viewed departing junior partners as having no further value to them and accordingly sought to (1) minimise any exit payments to them, and (2) treat their shares and secret accounts as belonging to the “partnership” (of which the controlling persons were the majority economic owners), using them to reduce the taxes paid by BTG both in Brazil and in the UK. Both Mr Nick Godfrey and Ms Judith Wheelan (another UK-resident member of LLP) were accredited with JCP after the date on which they had signed binding put/call notices. Conclusions on the evidence[52]We accept that(1) the arrest of Mr Esteves in November 2015 and related events led to the value of all the shares being marked down substantially and, as shown in the table set out above, from around that point, the value of the appellant’s shares was always substantially less than that of his outstanding loans,(2) viewed in isolation on the basis the appellant set out in [49], economically the relevant transactions operated as the appellant set out,(3) the appellant did not see the terms in the SHAs set out in [46] above until he obtained copies of the SHAs in 2018, and(4) in 2017 his belief was that the “NAV” and any mark to market discount, by reference to which the price paid by a “partner” for shares or to departing partners for his shares was to be calculated, was to be based on values shown in audited accounts, and(5) (a) the bank account he referred to at [50] above was operated without his knowledge as he never received any account statements from it during his time at BTG, (b) he did not have control of this account as it was operated by the Partnership Office, presumably under a POA from the controlling partners who invoked his POA to open and operate this account, (c) the only monies that are likely to have been in the account were JCP or from sales of shares and (d) given the contractual arrangements in place, for as long as he had loans outstanding, the lending entity could take any cash in the account (as Cayman Branch was an affiliate of the lender) to use to pay down the loans.[53]However, the evidence presented is insufficient for us to make any finding that, as the appellant alleges,(a) the controlling persons (i) knowingly made false statements in the SHAs or otherwise made false statements to the appellant as regards the operation of the contractual arrangements, and/or (ii) deliberately withheld the precise terms of the SHAs from the appellant and other “partners” and/or (iii) denied the appellant and other “partners” access to the SHAs,(b) at any relevant time, the controlling persons arbitrarily manipulated the price at which shares were bought back from departing “partners”, including the appellant, and/or in setting the price intended to and/or did enrich themselves at such “partners’” expense,(c) during the relevant period, there was no prospect of the appellant profiting from his investments in shares. We note, in particular, the following: (1) As the appellant did not ask for copies of the SHAs until 2018, it is a matter of speculation whether he would have received them had he asked initially in 2013 or at the later times when new contracts were entered into. Whilst Mr Jenkins told the appellant in 2013 that SHAs were not provided to new partners, the appellant did not challenge this or approach anyone else at BTG to ask for copies initially in 2013 or later when he made further investments. As set out below, when he did ask for copies in 2018, following his departure from BTG, he was provided with them. If anything, this suggests that the appellant could have obtained copies of the SHAs before he did so. Certainly there is no evidential basis for us to conclude that copies were not provided to any of the other “partners” and/or, to the extent they were not provided, that is because the controlling persons wished to conceal the terms from the appellant and other “partners”. (2) (a) Subject to the comments in (4) below, according to their terms, the contractual arrangements operated essentially in the way the appellant says he was told verbally in 2013 that they would operate, and (b) it is clear that the appellant was aware from the outset in 2013 that the POAs gave control of his rights as shareholder in the relevant entities in which he invested to other persons within BTG and that JCP was to be used to repay his loans. (3) The appellant (a) states that, in agreeing to these contractual terms, he relied on his belief that he was protected by a legal requirement for the POAs to be exercised by those designated to act under them in good faith and asserts that the “standard of care” clause in the SHAs which appears to cut through any such requirement is invalid, and (b) alleges that the POAs were not exercised in good faith because the relevant persons appear to have used their powers under them to use JCP to repay his loans and to reinvest in new shares without consulting with him. However, on the face of it, the terms of the documents permit the relevant persons to take such actions and, given that we were not presented with any expert evidence on how the relevant laws operate in the relevant jurisdiction, we are not able to make any further factual findings in this regard. (4) As regards the position once changes were made to the SHAs in 2017 (a) it is not clear on what basis the appellant considered that the revised price for purchases and sales of his shares would be determined wholly by reference to the position shown in audited accounts. It does not appear that he was told that specifically but rather that he assumed it and, as noted, did not see the precise terms of the revised SHA, (b) the evidence presented does not enable us to determine (i) what the price would have been for the sale of shares by departing partners, including the appellant, if the figures shown in the audited accounts were used as compared with the figures in internal management accounts, and/or (ii) what factors the relevant persons in fact took into account in determining the price and hence whether they acted in accordance with their contractual obligations to determine the price in good faith. We accept the appellant’s evidence that his experience is that management accounts may be prepared differently to audited accounts and different policies may apply as regards reserves, but he did not produce any evidence on how this impacted specifically on the calculation of the price he received on the sale of his shares or that received by other “partners”. The fact that the controlling persons may have sought to agree with particular departing “partners’” terms different to those provided for under the contractual arrangements in place on their departure tells us nothing specific about how the price for his or other “partners’” shares was actually calculated. (5) The appellant’s calculations show that, as is to be expected, JCP attributable to his shares, whether used to repay his loans or reinvested in further shares, would not necessarily produce an overall financial benefit for him as a shareholder, taking account of (a) the requirement for his loans to be paid off from JCP/sales proceeds from his shares, (b) the impact of the payment of JCP on the reduction of NAV of the paying entity, and (c) the impact of UK income tax due on the JCP. However, we cannot see it follows from this that the appellant was, as he put it, subject to a “rigged game” from which it would never have been possible for him to benefit financially. In signing up to investing in BTG entities, he plainly took a risk on whether those entities would be successful enough for him ultimately to receive a financial benefit. On his own evidence, the BTG group was less successful following Mr Esteves’ arrest and, as noted, the evidence does not establish that the pricing for sales and purchases of shares was deliberately manipulated. (6) We do not accept that BTG entities did not follow proper processes as regards payments of JCP, repayment of loans and issue of new shares simply because BTG may have wrongly allocated JCP to the appellant after he had served notice for the sale/purchase of his shares. Nor do we consider that evidences that BTG acted generally in bad faith. It is a matter of speculation but plainly there could be a number of explanations for this including that it could simply have been an administrative error. Part C –Was the appellant entitled to and/or in receipt of the relevant sums Argument on the basis of the correct interpretation

Part C –Was the appellant entitled to and/or in receipt of the relevant sums

[54]The person liable for income tax charged on dividends and the profits of an overseas property business, is in both cases the person receiving or entitled to the income. It was common ground that the interpretation of “receiving or entitled to” given by the Court of Appeal in Boston Khan v HMRC [2021] EWCA Civ 624 (“Boston Khan”) is applicable to those terms.[55]In that case:(1) Mr Khan, was held liable to pay income tax of almost £600,000 on £1.95 million that was paid into his bank account and then paid out again almost immediately: Mr Khan bought the entire issued share capital of 99 shares of a company from the shareholders for £1.95 million in cash, plus an amount equal to the net book value (£18,771); then, less than 40 minutes later, the company bought back from Mr Khan 98 of those shares for cash consideration of £1.95 million, leaving him with one share. It was common ground that the payment made by the company to Mr Khan on the purchase of its own shares was a “distribution” chargeable to income tax under s 385 ITTOIA. The issue was whether Mr Khan was the person “receiving or entitled to” the distribution such that he was liable to income tax on it under s 383 ITTOIA. Andrews LJ, who gave the leading judgement with which the other members of the panel agree, stated at [11] that HMRC rightly accepted that the phrase “the person(s) receiving or entitled to” must be given a consistent meaning whenever it appears in ITTOIA.”(2) Most of the cash that was needed to effect the transactions was provided by the company drawing down an invoice discounting facility made available to it by NatWest. Mr Khan indemnified the vendor shareholders against any liability under that facility and provided NatWest with a personal guarantee. The company’s bank statement showed the receipt of £1.216 million from NatWest and the payment of £1.95 million from the company’s account into Mr Khan’s bank account, also with NatWest; NatWest then automatically transferred the £1.95 million on Mr Khan’s behalf to his solicitor’s account, and the solicitor then paid it to the vendor shareholders’ solicitor. It appeared that his accounting firm was asked by NatWest to provide it with some kind of undertaking to transfer the money he received to the vendors’ solicitor. The £18,771 balance of the purchase price under the SPA was paid by Mr Khan to the vendors on a later date. The overall result was that Mr Khan acquired the Company and became its sole shareholder at a personal cost to him of £18,771 though the price he paid was £1.95 million more than that), and the vendor shareholders between them received a sum equal to the value of the company’s distributable reserves. (See [21] and [22]).(3) At [23] and [24] Andrews LJ recorded that the UT found (1) at [87] that the two transactions (the share sale and buyback) were agreed and implemented as one, having regard to their interdependency and the short time period over which they took place. There was no practical likelihood that the transactions would not have happened together, (2) “as a matter of practical fact” Mr Khan had no control over the buyback proceeds, though this was only because of the terms of the agreement he had entered into, and (3) at [92] that the payment of the £1.95 million by the company to Mr Khan was a loan to enable him to acquire the shares from the vendor shareholders under the SPA…….His obligation to repay that loan was then set off against the company’s obligation to pay Mr Khan £1.95 million as the price of the 98 shares it was purchasing… 56. Andrews LJ set out, at [39 to [41], that counsel for Mr Khan submitted that: (1) The UT erred in law in refusing to consider the sale and buyback of the shares as a single composite transaction and consider its overall effect rather than concentrating on the machinery by which it was effected (i.e. the legal steps in the chain). In substance and in truth, Mr Khan was no more than a conduit for the selling shareholders to effect the buyback of the 98 shares themselves and his intermediate role in that aspect of the transaction should be ignored. As a matter of practical reality, the 98 shares were never Mr Khan’s to do with as he pleased, nor were the buyback proceeds. He never had the benefit of nor control over the £1.95 million and it was “absurd” to tax him on that sum, all the more so if the selling shareholders were liable to pay CGT on that sum (less their cost of acquiring the shares). Moreover, if the FTT and UT’s approach were correct, it would be all too easy to avoid payment of the tax on the distribution by interposing a person who was not liable to taxation in the UK in the role of Mr Khan. (2) This analysis was unaffected by the fact that this was not a pre-planned artificial tax avoidance scheme, but rather a transaction comprising stages that had been structured in a manner designed to mitigate the vendor shareholders’ tax exposure (in that it ensured that they paid CGT on the gain they made by disposing of their shares to Mr Khan, which is chargeable at a lower rate than income tax). The practical and economic reality did not depend on whether the transaction or its various elements were the subject of arms’ length negotiations. (3) Nor did it matter that Mr Khan acquired and kept the 99th share for himself and thereby obtained ownership of and control over the company. It was important not to confuse the question whether he benefited from the transaction as a whole, with the question whether he benefited from the buyback proceeds; s.385(1)(b) was only concerned with the latter. The distribution of company assets did not cease to be a distribution to the vendor shareholders simply because Mr Khan got something extra out of the transaction. 57. At [43] Andrew LJ noted that: (1) At the heart of the appeal was the submission that the concept of “entitlement” was to be given a “wide practical meaning” which not only allowed but required the court to have regard to all transactions which were intended to have a commercial unity relying on the well-known principle adumbrated by Lord Wilberforce in WT Ramsay v Inland Revenue Commissioners [1982] AC 300 at pp 323G-324D (as well as the approach taken to the interpretation of “entitlement”, albeit in a different statutory context, in Inland Revenue Commissioners v Scottish Provident Institution [2004] 1 WLR 3172 at [19], and how that approach was described by Lord Reed JSC in UBS and others v Commissioners for HMRC [2016] 1 WLR 1005 at [71]. (2) The appellant’s counsel submitted that on the true construction of s 385(1)(b) it is insufficient to establish that a person is entitled to the distribution in the sense that he is the legal and equitable owner of the money once it falls due (though a bare legal entitlement would never be enough); nor that the money was credited to their bank account or comprised a book entry in their favour. In order to meet the requirement of “receipt” for the purposes of s 385(1)(b), that person must also have an element of control over the money, and in order to meet the requirement of “entitlement” that person must benefit from their ownership. The UT fell into error in failing to recognise this and in the light of its findings of fact, Mr Khan did not satisfy those requirements.[58]At [57] Andrews LJ said that the UT had taken the correct approach to the construction of s 385:
“the UT correctly identified the purpose of s.385 and correctly interpreted it. S.385(1)(b) is concerned with the person who actually received the distribution from the Company, and (if different) the person to whom that distribution belongs. In this case, they were one and the same.”
[59]At [58] and [59] Andrews LJ noted that in support of the proposition that an element of control is required to demonstrate receipt, counsel referred to Macpherson v Bond [1985] 1 WLR 1157 (“Macpherson v Bond”), but considered that did not demonstrate anything material: “58. That was a case in which interest was credited to a deposit account in the name of the taxpayer which was subject to a pre-existing charge in favour of the bank for the indebtedness of a company. The terms of the charge entitled the bank to transfer money out of the account at any time in satisfaction of the debt owed by the company to the bank. It was held on the facts that the taxpayer had no immediate right to the money in the account or to the interest credited to it, at a time when it was obvious that the bank would take all the money out in satisfaction of the charge. The taxpayer would only be entitled to the interest to the extent that the liability of the company to the bank turned out to be less than £10,000. In the event, though it took a long time to establish the company’s indebtedness, it transpired that the bank had the right to all the money in the account, including the interest. Vinelott J held that the taxpayer was never entitled to the interest. 59. All that demonstrates is that on the facts of that case, someone other than the taxpayer (i.e. the bank) was entitled to the interest, by reason of the operation of a pre-existing charge over any sums credited to the deposit account. Because of this, the mere fact that interest was credited to the account in the bank’s books did not mean that the taxpayer had “received” it. The bank was never obliged to pay that interest to anyone other than itself.[60]Andrews LJ continued that in support of his submissions on the meaning of “entitlement” the appellant’s counsel placed considerable weight on a decision of the UT, BUPA Insurance v HMRC [2014] UKUT 262 (TCC) [2014] STC 2615. That was one of a line of cases, beginning with Wood Preservation v Prior [1969] 1 WLR 1077, concerning what is meant by “beneficial ownership” for the purpose of establishing the requisite degree of connection between different companies that will allow one company to treat another company’s losses as its own for the purposes of group tax relief (or similar). At [68], it was noted that(1) the UT considered that the BUPA case was generally unhelpful to Mr Khan, in that it illustrated that a person does not escape a tax charge (on a distribution or dividend) merely because of commitments made to pay the money elsewhere or to use it for other purposes, and(2) that is also well illustrated by an earlier decision of the Court of Appeal in Sainsbury Plc v O’Connor [1991] 1 WLR 963, and(3) at [69], that case establishes that even in a statutory context in which equitable ownership may not be enough to amount to “beneficial ownership” or “beneficial entitlement”, the focus is on “identifying the person who in reality has the right to the money”: “Any legal obligation they may have to treat that money in a particular way after that right accrues or after payment is made is irrelevant.(Emphasis added.)[61]The conclusion, at [70], was that none of the cases cited come anywhere near establishing that:
“in circumstances where the only person who is (or could be) legally and beneficially entitled to the distribution at the time when it is made, is contractually obliged to pay an equivalent amount to someone else and uses the distribution to discharge that obligation, (a) he is not “entitled to” the distribution, (b) he does not “receive” the distribution, or (c) his entitlement to or receipt of the distribution is to be disregarded, and the person who receives the payment from him is to be treated as chargeable under s.385(1)(b). That factual scenario is not even the same as in the present case, because the payment to the vendor shareholders was made before the taxable distribution took place, and the distribution was set off against Mr Khan’s obligation to repay the loan.”
[62]Andrews LJ continued that, in some cases, the identification of the person to whom the distribution “truly belongs” could involve having to stand back and look at the matter realistically, ignoring any technical or artificial legal arrangements that might have been put in place to obscure their identity. However: “the fact that the question is one of actual receipt or entitlement at the time of the distribution, means that the statute requires the focus to be upon the situation at that time, not on anything that happens to the money afterwards, still less on how the person from whom the Company is buying the shares came to be in the position to sell them in the first place.[63]Andrews LJ said this at [73] and [74]: “73. On the face of it, therefore s 385(1) is not a statutory provision that is concerned with the overall economic outcome of a series of commercially interlinked transactions, but only with the question of who was entitled to the distribution or who actually received it. In this case, the distribution was the money that was payable by the Company in respect of the 98 shares under the buyback agreement…Mr Khan did not have a “bare legal entitlement” to the distribution. He had a contractual entitlement to the price for the shares he had sold to the Company under an agreement that was last in time to be executed. That price was to be paid by means of a taxable distribution. He had not created a charge or trust over the price in favour of someone else, or assigned it to someone else. No-one had a better right to that money than he did. 74 The fact that, at the end of the day, Mr Khan ended up as the owner of the sole remaining share at a modest personal outlay whilst the shareholders ended up with a sum equivalent to the Company’s previously distributable reserves tells one nothing about who received or was entitled to the distribution when it was made.[64]The appellant placed reliance in his submission that he was not entitled to and did not receive JCP on the comment at [73] of this decision that no-one had a better right to the relevant funds than the taxpayer did. The appellant argued, in effect, that a number of BTG entities had a better right to the JCP funds than he did. However, as HMRC submitted, that comment must be read in the context of the rest of Andrews LJ’s comments as to how the statutory test is to be applied; viewing the comment in context, Andrews LJ plainly did not set this out as free-standing test to be applied in isolation. We have commented further on the appellant’s submissions in this regard below.[65]Andrews LJ added at [76] to [82] that:(1) Even in a case in which there are a series of preordained steps designed for no reason other than to save tax, and the application of the principle in Ramsay requires consideration of the transaction taken as a whole, the characterisation of the composite transaction must be consistent with the result of the component transactions.(2) It is not possible to ignore Mr Khan’s position, at the time of implementation of the buy-back, as the sole shareholder in the company, nor the effect of the individual legal transactions, negotiated at arms’ length, by which he purchased all the shares and sold all but one of them to the company. There were two sales, not one.(3) Even viewed as a composite whole, these transactions cannot be characterised as one in which the company made a distribution out of its profits to the vendor1shareholders via Mr Khan. Indeed the deal was structured deliberately so as to avoid a direct buyback of the shares by the Company from the vendor shareholders. It was not legally possible for the Company to make such a distribution to the former shareholders. Only Mr Khan was a party to the relevant agreement and he was not acting as their agent or trustee but selling the shares to the company in his own right. Indeed at the time of the buyback, the vendors had not only sold their shares to Mr Khan but had been paid £1.95 million of the purchase price for them.(4) Even if matters had been different, and there had been no prior loan by the Company, and Mr Khan had paid the purchase price to the vendor shareholders out of the proceeds of the buyback after they were distributed: “81…..it would still have made no difference to the fact that he both received and was entitled to the money from the Company at the time of the distribution. The fact that payment of the distribution was made by way of set-off against the liability to repay the loan, does not mean that there was no receipt. Mr Khan derived a real benefit from the payment because it extinguished his corresponding liability to repay the loan. This was not a case in which Mr Khan’s interest in the money could be described as a “mere legal shell” with the vendor shareholders having all the rights of beneficial owners over that money. 82. A contractual obligation to expend the money in a particular way after it has been received does not mean that the recipient ceases to be entitled to the distribution; here, the contractual arrangements did not confer on the vendor shareholders any rights to the distribution, let alone any greater rights than those of the legal and beneficial owner of the shares that were sold under the buyback agreement. 83…….I am not persuaded that the concept of “receipt” in s.385(1)(b) contains an implicit requirement that the person who receives the distribution must also have practical control over it. “Entitlement” means no more than having the right to the taxable income, in this case, the distribution, and there is no further implicit requirement of benefit in the sense used in the group or consortium tax relief cases. If one asks the only pertinent question: “to whom did the purchase price of the 98 shares belong?” there is only one answer, and that is Mr Khan. However, even if there had been a requirement of benefit, Mr Khan did benefit from the distribution. As the UT held at [97] it was the fact that he was entitled to and did receive the distribution that enabled Mr Khan to discharge his liability to repay £1.95 million to the Company.[66]The appellant also relied on cases dealing with when a person is entitled to or in receipt of interest for income tax purposes including the Macpherson v Bond case which was referred to in Boston Khan. In that case:(1) The taxpayer specialised in the finance of small businesses. In April 1972, in order to help M Ltd over what was thought to be a short-term financial crisis, the taxpayer executed a guarantee in favour of the bank, agreeing to pay the balance on the company’s overdraft account up to a limit of £5,000. The guarantee was to cease to have effect on the taxpayer depositing £10,000 with the bank.(2) The taxpayer then paid £3,500 into a deposit account with the bank and executed a charge under which he agreed that all moneys at any time standing to the credit of the deposit account should stand charged with the payment to the bank of all moneys owed by the company on any account with the bank and that the bank should be entitled at any time to transfer moneys from the deposit account in payment of moneys owed by the company to the bank.(3) In May 1972 the taxpayer paid a further £6,500 into the deposit account and the guarantee ceased to have effect. In June 1972 when a creditor had presented a winding-up petition, the bank appointed a receiver and manager under the debenture it held in respect of the company and froze the deposit account and the company’s overdraft account which then stood at approximately £5,500. Due to prolonged litigation between the creditor and the bank as to entitlement to sums paid to the company, the liquidation was not completed until 1979.(4) Between 1972 and 1979 interest was credited by the bank on the money held in the deposit account. On 9 October 1979 the sum standing to the credit of the deposit account was transferred by the bank towards payment of the company’s liability to the bank which amounted to £20,779.42. The taxpayer was assessed to income tax in respect of the interest credited to the account.(5) The question was whether the taxpayer received or was entitled to the interest credited to the deposit account in the relevant years.[67]Vinelott J noted that, after the second deposit was made, the position was simply that the Bank had a charge on the sum credited to the deposit account for the sum which, when the receivership account had been finally settled and when the claim by the creditor had been finally disposed of, should be found to be due by the company to the bank. In the meantime, the bank credited the moneys in the deposit account with interest. It is common ground that the interest so credited was properly added to the capital and was subject to the charge. Thus the taxpayer would be entitled to it if and only if the liability of the company to the bank was less than £10,000. He continued:
“The position can be more clearly seen if attention is directed to the sum of £5,500 owed on the company’s overdraft at 30 June 1972 when the overdraft was ‘frozen’. The Bank could have taken this sum out of the deposit account and have applied it in discharge of the company’s overdraft at any time after 30 June 1972…..If the Bank had taken this course no interest would have been credited and capitalised. Equally, interest would not then have been payable on the company’s overdraft. It is, to my mind, absurd to say that the taxpayer received or was entitled to interest on the sum of £5,500, which was, in effect, a mere entry in the Bank’s books. As regards the balance of £4,500, the position throughout was that the Bank would be entitled to apply that sum in discharge of the company’s increased indebtedness if the claim by [the creditor] succeeded. Of course, the sum ultimately transferred from the deposit account exceeded the aggregate of the sum due on the ‘frozen’ overdraft and the sums claimed by [by the creditor] as improperly credited to the company’s account…..So as regards the £4,500, the position throughout was that the taxpayer’s right to it and to the interest credited on it and capitalised was in suspense until the claim by [the creditor] had been determined.”
[68]Vinelott J then held that the position in the earlier case of Dunmore v McGowan, which the appellant also referred to, was wholly different:
“In that case the taxpayer agreed to pay on demand moneys advanced by a bank to B. Ltd. up to a limit of £50,000 with interest. At the request of the bank he agreed to transfer a sum of £29,000 to a deposit account with the bank and agreed also that the bank should have the right to retain it while his liability under the guarantee continued and to apply it in discharge of the liability. In the event, £28,190 was transferred to the deposit account from another account in the taxpayer’s name and of that sum £190 represented accrued interest. Interest was credited on the moneys in the deposit account until the bank’s loan to B. Ltd. was repaid, when the moneys in the deposit account were withdrawn by the taxpayer. The main argument for the taxpayer before Brightman J. (as he then was) was that the moneys in the deposit account were by the agreement subjected to a trust under which he had no more than a contingent interest, so that the principle in Stanley v. I.R. Commrs. [1943] K.B. 717 applied. That argument was rejected both by Brightman J. and by the Court of Appeal on the ground that the statement of account delivered by a banker to a customer does not indicate money held in trust for the customer but the balance due under the contract of loan. The taxpayer’s alternative argument before Brightman J. (and his main argument in the Court of Appeal) was that during the relevant years of assessment before the liability to B. Ltd. was discharged he was precluded from demanding repayment of the moneys in the deposit account and that he was not therefore a person ‘receiving or entitled to the income’. That argument was rejected on the ground that, although the money in the deposit account and the interest on it was locked up while the guarantee subsisted, every penny credited to the account in the way of interest reduced the taxpayer’s liability under the guarantee by the same amount and so inured to his benefit. The argument of the taxpayer was, in fact, an absurd one. The position was precisely the same as it would have been if the taxpayer had been free to withdraw the interest but on terms that he gave an equivalent security. In the instant case, by contrast, the crediting of interest on the deposit account did not reduce the taxpayer’s personal liability under any guarantee. At the material times there was no guarantee. As Mr. Walker expressed it, the taxpayer had lost his £10,000 by 8 June, though it was not until many years later that it was finally established that he had lost the whole of it. Of course, it is theoretically possible that in the meantime the company might have received a windfall from some other source which would have reduced the company’s indebtedness below £10,000. Mr. Moses, who appeared for the Crown, rightly declined to rely on that possibility, which would have been as fanciful as the suggestion advanced by the taxpayer in Dunmore v. McGowan that the bank in that case might have become insolvent before the interest was withdrawn.”
[69]The appellant submitted that on the dates at which the JCP was declared, the appellant was never entitled to receive and did not receive JCP on the basis that:(1) The entities that made the loans to him had “a better right” to the JCP such that they were entitled to it and/or in receipt of it as (a) at all times he had outstanding loans, from December 2015 onwards, of a sum greater than the value of his shares, (b) all his shares and JCP arising from them were pledged as security against his loans under the security agreements and the SHAs, loan agreements and master agreements contained rights for JCP to be set-off against his loan liabilities, (c) in some cases JCP was paid into the “secret” bank account which was not disclosed to him until nearly 2 years after he resigned and which was operated without his knowledge. He had no control over that account such that the lending entity could simply take any cash in it to use to pay down the loans, (d) any new shares created, when JCP was reinvested, were automatically pledged as security for his loans under the security agreements, (e) the sale of shares when he exited BTG did not result in any payments of profits to him or any reduction in the amount he would have owed BTG from his loans, since these loans either had non-recourse provisions in them or were rendered non-recourse by the Side Letter.(2) He did not receive a benefit from the JCP due to the specific features of the loans and shares and the terms of the agreements. There was no realistic prospect of his shares being worth more than his loans, in particular, once the SHAs were amended in 2017 so that the controlling partners could manipulate the share price. He relied on the examples of the overall economic outcome to him as set out above.(3) Since he had loans outstanding at all times, as in Macpherson v Bond, the entities were “never under any liability to pay” JCP to him. A payment of JCP that is pre-pledged and can be “offset” against his loans by both the paying company and affiliates (such as Cayman Branch) is akin to the “crediting and capitalising” of interest in Macpherson v Bond. The relevant entities were liable to pay so much JCP to him as might eventually transpire to be due on his shares, after his non-recourse loans had been discharged. The different result in Dunmore and Peracha v Miley (HM Inspector of Taxes) [1990] BTC 406 is because the taxpayers benefitted from the interest as it reduced their liabilities to repay debt which was full-recourse to them. In Macpherson the taxpayer had no further liability to the bank beyond the potential loss of the money he had paid into the charged account and the payment of interest into this account had no benefit to him, since the interest paid by the bank would always have been less than the interest charged on the company loan balance against which the charge was made. In this case, the appellant had no liability to the lenders from his loans beyond the requirement to give up the sale proceeds of his shares and any JCP paid would never ultimately fall into his hands since the effect of using JCP to pay down loans was to put his shares ever further away from returning a net profit (after paying back the loans). Furthermore, due to the terms in the SHAs from 2017 onwards, the controlling persons could have arbitrarily decided any figure for the book value based on “internal management accounts”. He estimated that they manipulated the NAV in this manner by approximately 10% for the date at which most of the junior partners in the London and New York offices sold their shares.[70]We do not accept the appellant’s submissions essentially for the same reasons as HMRC gave in their submissions. It is plain from the decision in Boston Khan that the tribunal must assess who actually received the relevant distribution and (if different) who the distribution belongs to, in a legal sense. The provision is not concerned with the overall economic outcome of a series of commercially interlinked transactions, but only with the question of who was entitled to the distribution or who actually received it. Hence, it is not relevant to the required assessment(1) whether a person has control of the relevant funds and/or receives an overall benefit from the distribution, and/or(2) if the person is legally and beneficially entitled to the distribution at the time when it is made, that he is contractually obliged to pay an equivalent amount to someone else and uses the distribution to discharge that obligation. Whilst the identification of the person to whom the distribution “truly belongs” could involve having to stand back and look at the matter realistically, ignoring any technical or artificial legal arrangements that might have been put in place to obscure their identity, “the fact that the question is one of actual receipt or entitlement at the time of the distribution, means that the statute requires the focus to be upon the situation at that time,not on anything that happens to the money afterwards”. That contrasts with the situation where a person has created “a charge or trust over the relevant funds price in favour of someone else, or assigned it to” such that someone else may have a better “right” to that money, which read in the overall context of the decision in that case means, legal entitlement at the time the distribution was made.[71]There is no dispute that(1) the appellant was the legal and beneficial owner of the relevant shares in Holding, BPAC3 and Pateo, as acquired utilising a finance facility provided by BTG entities,(2) JCP was payable by these entities to each shareholder, including the appellant, in respect of their shares, and was allocated to the appellant as set out in the Cordium spreadsheets and Partnership Statements provided to the appellant, and(3) there is evidence in that where JCP was reinvested in shares of Holding, (a) JCP was initially paid by resolution of the entity, voted on by its shareholders (represented by the shareholders’ grantees of attorney), (b) following deduction of withholding tax, the net JCP was credited to the shareholders, and (c) a subsequent resolution was then made to increase the entity’s share capital and the new shares were then subscribed for and paid up through capitalisation of the credit which arose to the shareholders through the earlier payment of JCP. The appellant said he was suspicious that the correct procedures were not followed in other instances but he produced no substantiation for that suspicion. Overall we consider it reasonable to assume that appropriate procedures were followed for JCP to become due and payable to the appellant.[72]On that basis,(1) the appellant was the person to whom JCP declared/arising belonged as beneficial and legal owner, and(2) on the face of it, the rights and obligations which the appellant points to in the documents simply contractually restrict the appellant as to how the JCP may be applied once it belonged to him. The appellant’s entitlement to the JCP, in the sense that it belonged to him, is not affected by the fact that (a) as provided for under the contractual terms, JCP was immediately used to pay sums due from him under the loans and/or to reinvest in issuing new shares to him. This is not analogous to the situation in McPherson where sums accruing as interest were subject to an immediately effective prior charge, and/or (b) the payment of JCP reduced the NAV of the paying entity; a payment of a dividend or other distribution would usually have that effect, and/or (c) having regard to the effect of the subsequent use of the JCP, the appellant received no overall economic/financial benefit. It is clear from the decision in Boston Khan that that is simply not relevant. As HMRC submitted, that the total amount of cash the appellant received on his leaving the investment structure was lower than what he invested (so he made an overall loss), does not mean that income that he was entitled to is not taxable. Income arising from investments is taxed in full, regardless of the impact this has on the capital value of the underlying assets. The taxation of the investment asset is separate from taxation of the income generated from the asset.

Alternative argument on the basis of recission

[73]As noted in Part A, the appellant argued that, on the basis of the decisions in Lobler and Hymanson, the tribunal must determine his tax position as if the equitable remedy of rescission had been applied to “his participation in the partnership”, on the basis that(1) he was induced to join based on false representations and omissions of material facts; he was falsely represented to by the controlling partners and the Partnership Office throughout and after his membership of the partnership. In his view, the evidence establishes that the controlling persons never intended for him (or other junior partners) to gain possession of money “paid” to him, but instead used these payments as a means of transferring money between offshore entities and Brazil, to contravene Brazilian financial controls; the true nature of the transactions was that they were fundamentally part of a complex fraudulent investment scheme in which the operators of the scheme never intended the transfers to reach or benefit him and(2) the result of these fraudulent misrepresentations was a small loss on his cash investment combined with a large loss on tax paid on JCP that he never received.[74]In Lobler the UT considered whether, although the tribunal did not itself have power to order rectification of a contract relating to an insurance policy, it could determine that if rectification would be granted by a court who does have jurisdiction to grant it, Mr Lobler’s tax position would follow as if such rectification had been granted. Mr Lobler argued that relevant contract could be rectified on the basis he had mistakenly made a partial surrender of certain insurance contracts rather than a full surrender which materially affected the resulting tax position.[75]The UT set out at [45] that, as summarised by Peter Gibson LJ in Swainland Builders Limited v Freehold Properties Limited [2001] 2 EGLR 71 at [33]) a bilateral contract can be rectified where:
“(i) the parties had a common continuing intention, whether or not amounting in law to an agreement, in respect of the particular matter in the instrument to be rectified; (ii) there was an outward expression of accord; (iii) the intention continued at the time of execution of the instrument sought to be rectified; and (iv) by mistake, the instrument did not reflect that common intention.”
[76]It was noted at [48] that(1) it has never been suggested that before the effect of the availability of specific performance can be taken into account by the tribunal, the appellant must go to court and actually obtain the remedy of specific performance. On the contrary, the cases show that this is not the case: see Oughtred v. IRC [1960] AC 206, Jerome v. Kelly [2004] UKHL 25, BMBF (No 24) Limited v IRC [2002] STC 1450 and HSP Financial Planning Limited v. HMRC [2011] UKFTT 106 (TC),and(2) a tribunal must however take into account all the factors that the court would in deciding whether specific performance would be available, such as whether damages would be inadequate, whether specific performance would require constant supervision, whether the appellant is ready, willing and able to perform, hardship and so on.[77]The UT held that Mr Lobler would be entitled to rectification and that his tax position is to be determined as if that remedy had been granted and made the following main points:(1) The cases in this context are all specific performance cases and the issue was therefore whether the same principle applies to rectification as it does to specific performance. As specific performance is also a discretionary remedy there is no relevant distinction between specific performance and rectification for present purposes (see [49] and [50]).(2) The tribunal decided that rectification was not available because there was a lack of common intention (at [23]). There is indeed a requirement of common intention (see Chartbrook Limited v. Persimmon Homes Limited [2009] AC 1101) in relation to rectification of bilateral contracts where convincing proof, with the burden on the party seeking rectification, is required to contradict the inherent probability that the written instrument represents the parties’ intention” but where a transaction is unilateral, “unilateral mistake suffices for rectification. It is common sense that the test for unilateral mistake in a voluntary transaction should be if anything even more rigorous” (see [51] and [52]).(3) It was fundamental to the appellant’s analysis that the mistake made by Mr Lobler was a unilateral mistake, so that it was the intention of Mr Lobler alone that was in issue, and not, as found by the tribunal, a common mistake, involving the intention of the insurer as well as that of Mr Lobler (see [53]). That is correct but, at [63]: “not only is the burden on Mr Lobler to prove that intention but it must be proved that his mistake was a serious one. The unilateral mistake required for rectification of a voluntary disposition should be of similar seriousness to that required for rescission under the test in Ogilvie v. Littleboy (1897) 13 TLR 399. Thus the test will normally only be satisfied where there was a mistake as to some matter of fact or law fundamental to the transaction: see the judgment of Lloyd LJ in the Court of Appeal in Pitt v. Holt [2011] EWCA 197, approved by the Supreme Court at [2013] UKSC 26; [2013] 2 AC 108.”(4) It is clear from Pitt v Holt, at [129] to [132], that a mistake as to the tax consequences of a transaction may, in an appropriate case, be sufficiently serious to warrant rescission and thus rectification. There is no justification for a different approach to mistakes about tax and other types of mistake (see [68]). There is no doubt that Mr Lobler would not have instructed the insurer in terms of a partial withdrawal had he known about the devastating tax consequences of his choice of withdrawal method. It is common sense that nobody would willingly contract to pay an amount of tax that would effectively lead to his own bankruptcy if there were a choice not to do so and achieve the same goal. It is, therefore, clear that the mistake made by Mr Lobler is of a sufficiently serious nature within the Pitt v Holt test (see [69]).[78]In Hymanson the tribunal considered whether the appellant would be granted the remedy of rescission of certain voluntary payments made to a pensions scheme were he to take his case to the High Court and, if so, whether the tribunal should apply the equitable maxim to treat “that which ought to have been done as having been done” and proceed on the basis that the payments should be ignored for the relevant tax purposes:(1) At [60] the tribunal held that it is clear from Pitt v Holt that a voluntary disposition (such as contributions to pension schemes) may be set aside on the grounds of mistake. However it is necessary to examine the nature and seriousness of the mistake in order to establish if it is appropriate to set aside the transactions in question.(2) At [75], it was held that if Mr Hymanson were to take his case to the High Court then that court would issue an order for rescission of the contributions because of his mistaken belief as to the tax consequences of the payments.(3) At [79], the tribunal referred to the position in Lobler at [47] and [48] and, at [80], noted that the only effective remedy in this case would be rescission.(4) At [81], the tribunal set out that (a) HMRC believe that Lobler was wrongly decided and suggested that the tribunal did not need to follow it on the basis that the key distinguishing feature was that Lobler concerned rectification whereas this case related to rescission, and (b) however Proudman J is at pains to point out in her judgement in Lobler that her approach could be applied to any equitable remedy, and in fact implied that she was exploring the boundaries of what was permitted by applying rectification rather than one of the more conventional remedies such as specific performance or rescission. She referred to rescission specifically, at [68], when she said:
“the tax consequences of a transaction may, in an appropriate case, be sufficiently serious to warrant rescission and thus rectification.”
The tribunal commented at [83] that “ She was clearly referring there to the possibility of rescission as almost a necessary precursor to her decision to apply the, in that case more appropriate, remedy of rectification. I cannot therefore find that this difference between rescission and rectification is sufficient reason for me to depart from the decision of Proudman J.” (5) It was noted at [84] and [85] that HMRC also submitted that it would be inappropriate for a tribunal to use the equitable maxim in this way because it would give rise to very significant difficulties in relation to the administration by HMRC of the relevant rules; even if the tribunal were able to treat the payments as not having been made they could not make any orders as to any related and ancillary matters, which would be necessary in order to rescind all the related implications of rescinding the payments themselves, and it would mean that HMRC were effectively being given the task of deciding when they should apply the equitable maxim and when they should not. The tribunal concluded, at [86] to [88], that any practical difficulties were not insurmountable and held, at [92], that Mr Hymanson would be entitled to rescission if he were to take his case to the High Court and that his tax position should therefore be determined as if that remedy had been granted.[79]The appellant also referred to Eco3 Capital Ltd and others v Ludsin Overseas Ltd [2013] EWCA Civ 413, at [77], the Court of Appeal confirmed that “…the tort of deceit contains four ingredients”, namely:
“i The defendant makes a false representation to the claimant. ii The defendant knows that the representation is false, alternatively he is reckless as to whether it is true or false. iii The defendant intends that the claimant should act in reliance on it. iv The claimant does act in reliance on the representation and in consequence suffers loss. Ingredient (i) describes what the defendant does. Ingredients (ii) and (iii) describe the defendant's state of mind. Ingredient (iv) describes what the claimant does.”
[80]The appellant made the following main submissions:(1) BTG is legally a “partnership” as defined in s1(1), Partnership Act 1890, as “the relation which subsists between persons carrying on a business in common with a view to profit”. The partnership agreement was a verbal agreement rather than a written one as is confirmed by the fact his request to receive a written version of the side letter in 2018 was honoured almost immediately; this letter simply confirmed the agreed terms of the verbal agreement delivered verbally by the controlling partners. The fact that BTG did not seek payment from him for the difference between the value of his loans and the value of his shares at the time of his exit confirms that both the side letter was honoured and the verbal agreement that was made to all partners was considered a true legal agreement by the controlling partners. The “partners” carried on the business of trading BTG’s capital and/or managing the business, operating the group of companies and partnerships as a single enterprise run by a single global managing committee. With the exception of the LLP agreement, all “partners” were parties to the same set of governing documents and the administration of their partnership stakes were managed by a single partnership office in Sao Paulo. Individual partners contributed their skill and time to the partnership. The membership agreement for LLP does not contain a “no partnership” clause that states that it is not a legal partnership, which is common in such agreements. This is a clear indication that BTG’s own lawyers considered the members of LLP to be in a partnership with each other by virtue of being “partners” of BTG and hence the LLP agreement could not disclaim this fact.(2) Under general contract law, silence or the failure to disclose relevant information does not of itself usually amount to a misrepresentation but does not apply to contracts of utmost good faith or relationships where a fiduciary duty exists. This fiduciary duty exists between partners in a partnership: see Conlon v Simms. In that case it was found, at [193], that there is a “duty to display complete good faith towards…co-partners in all partnership dealings and transactions” and, at [195], that “when co-partners are negotiating between each other in relation to partnership assets, each partner must put the others in possession of all material facts with reference to the partnership assets, and not to conceal what he alone knows”. It was held that the duty to disclose material matters also exists when parties are negotiating to form a partnership (see[196] to [199]) and the non-disclosure of material facts can amount to fraudulent misrepresentation (see [202]). He was entitled to rely in good faith on the verbal statements made to him by the controlling persons, their designates, the Partnership Office and Mr Jenkins, being true and a complete description of the terms of the “partnership”. Instead, material facts about the “partnership’s” structure and operation were withheld from him, both at the time he was asked to join the “partnership” and during the time that he was a “partner”.(3) Applying the testset out above: (a) The withholding of material terms in the SHAs from the appellant amounts to a false representation by the controlling persons, as this was a partnership relationship in which a duty of disclosure existed. Additional non-disclosures include the withholding of the account statements from the “secret” bank account and the failure to show distributions of JCP on the partnership statements, which were the only vaguely timely information given to partners regarding their “partnership” stakes, despite the fact that the Partnership Office possessed real-time information. (b) The controlling persons were aware that they had failed to disclose the terms to the appellant, since they required him to sign joinder agreements or signature pages only and only provided him with copies of the SHAs after he had resigned. They were aware of (a) the terms, since they commissioned the drafting of the SHAs to their own requirements, (b) every distribution of JCP since their consent was required to make these distributions, yet they withheld this information from the appellant and other junior partners. (c) The controlling persons intended that he rely on the information he was given regarding the partnership (namely, the verbal partnership agreement, the documents/pages he signed and received copies of whilst a “partner”, and the partnership statements) but they acted based on the undisclosed terms. In particular, the “standard of care” clause purported to allow them to ignore the fiduciary duty of care required when using the POAs as grantee in matters in which there was a conflict-of-interest with the grantee even though this was not legally permitted in Brazil, England or New York. (d) The appellant acted on the false representations based on the agreements as disclosed to him as well as the false view of his losses (including tax liabilities) being incurred from his membership of the “partnership”, which formed the basis of his decisions to join the “partnership” in 2013 and to purchase more shares in 2015 and 2017. (e) The controlling persons profited from their deceit against him as they were the majority owners of the entities that kept the proceeds of the JCP, including those reinvested in new shares. All his shares were repurchased from him at values that were manipulated at the will of the controlling persons who could arbitrarily determine the NAV based on terms that were not disclosed to him. This deceit resulted in them paying no consideration for his shares while extinguishing his loans, resulting in a net loss of -£13,391 on the £203,202 that he invested in 2015 and -£208,746 of UK dividend tax and fines he has paid for the tax years 2013/14 to 2017/18 on distributions of JCP that he never received and were kept by BTG entities. (f) As the victim of deceit, he would be entitled to equitable remedy to correct this wrong. Lobler also suggests that in order to succeed in an application for rescission, he might only need to show that, in the light of the extreme complexity of the “partnership” and the concealment of information from him, he made a justifiable mistake that led to devasting tax consequences, and that this may be sufficient (see [68] and [69] of Lobler). He entered into a series of investments according to a set of rules that were so complex, with key facts withheld from him, so that he could not possibly have known of the devastating tax consequences of continuing to hold investment that had been worthless since 2015 and where more than 20 months after selling his investments (via the put notice signed on 30 April 2018) he was informed that he was liable for over £210,000 tax (later increased to over £240,000 due to fines and penalty interest) on dividends that he had never received and not been informed about or had been told by Cordium (relying on information provided by the Partnership Office) were non-taxable stock dividends. Prior to 2016/17 the JCP from the Partnership had never been more than £25,000 annually, so he had no reason to expect the tenfold jump in taxable distributions that occurred from 2016 onwards, but that he was only informed of in January 2020. (g) Following Lobler and Hymanson, in his case, rescission would likely be the remedy awarded by the High Court. Specifically, all agreements other than the LLP agreement would be rescinded, since these collectively caused his losses and contained the terms which were not disclosed to him. The LLP did not cause him any of the losses, while rescinding it would be inequitable, since this is the entity that paid his salary and bonuses for the profits he generated for BTG. As a result of this rescission, none of the JCP that he declared on his tax returns from 2013/14 to 2017/18 would have been attributed to him since he would not have owned the underlying shares. His only cash flows to and from the partnership (to/from accounts under him control in the UK) would then comprise a payment from him to into the partnership of £203,202 on 23 February 2015 to pay down some of his loans and then three payments totalling £189,811 from the “partnership” to him. Two of these were described by the Partnership Office as being contributions towards his tax bills, for the 2016/17 and 2017/18 tax years, while the third was described as being the money left in his secret bank account after his shares had been sold and his loans had been extinguished. However, with all the agreements being rescinded, these four cash flows would become payments to/from the partnership, with the partnership being required to return his net £13,390.92 loss from its deceit. After tax and interest on distributions of JCP, the total loss of the appellant on his investment was £286,280.[81]HMRC’s stance is that:(1) The tribunal does not have jurisdiction to grant the remedy of rescission and nor does the tribunal have jurisdiction to apply the tax legislation as if the High Court had ordered rescission. The tribunal’s jurisdiction is purely statutory; its jurisdiction is derived solely from the Tribunals, Courts and Enforcement Act 2007 (“TCEA 2007”) and its functions are conferred only by statute (TCEA 2007, s3(1)). In England and Wales, only a court with equitable jurisdiction (the High Court) could order rescission. The tribunal does not have such jurisdiction.(2) Lobler is not binding on this tribunal because (a) it concerned rectification, not rescission and, in holding to the contrary, the tribunal erred in law in Hymanson. Rectification (unlike rescission) is not concerned with the consequences that flow from the remedy being granted (see for example Pitt v Holt at [131]). Thus, if the Court rectifies the terms in a contract, the contract would (once rectification has been granted) operate by reference to the “new” words, without the Court needing to concern itself with the consequences. In granting rescission, the Court would be required not only to decide whether to grant rescission but, if it decided to grant rescission, on what terms it should be granted, and/or (b) Lobler (and Hymanson) involved mistake, specifically a unilateral mistake by the Mr Lobler as the reason for which an equitable remedy could be granted. In contrast, this case involves an allegation of fraudulent misrepresentation against a third party. When considering unilateral mistake, the relevant court only needs to consider the actions/state of mind of the person bringing the claim. In contrast, to determine there has been a fraudulent misrepresentation the court would be required to make findings of fact as to the conduct of an unrepresented third party. HMRC cannot see how a court of competent jurisdiction could grant rescission for fraudulent misrepresentation without the party against whom the fraud is alleged being party to the proceedings and having the opportunity to adduce relevant evidence in its defence. In such a case, the tribunal will be missing a key part of what a court of competent jurisdiction would need to consider. This presents an insurmountable difficulty for the tribunal to determine whether a court of competent jurisdiction would grant the required remedy, and, as this tribunal is not bound by Lobler, it should decline to follow it.(3) Even if the Lobler approach can be followed here, it only applies where the taxpayer clearly would obtain such a discretionary remedy, where there is no doubt that a court of competent jurisdiction would grant rescission. If the appellant (who bears the onus of proof) does not establish that a court of competent jurisdiction clearly would grant rescission, even if he establishes that a court of competent jurisdiction “may” grant rescission, this tribunal cannot apply the tax code “as if” rescission had been granted.(4) The appellant has failed to satisfy his burden of proof. HMRC draw attention to the comments of Newey J in Peter Arakiel Brookesv HMRC [2016] UKUT 214 (TCC) at [20] in particular:
“… a tribunal of fact will look closely into the facts grounding an allegation of fraud before accepting that it has been established” (see In re D (Secretary of State for Northern Ireland intervening) [2008] UKHL 33, [2008] 1 WLR 1499, at paragraph 28, per Lord Carswell). As Lord Nicholls explained in In Re H and Others (Minors) [1996] AC 563 (at 586), “[f]raud is usually less likely than negligence” and “the more serious the allegation the less likely it is that the event occurred and, hence, the stronger should be the evidence before the court concludes that the allegation is established on the balance of probability”
. The allegations made by the appellant against the third party are of the utmost severity and therefore to determine that a court of competent jurisdiction would make a finding of fraud against that third party requires very strong evidence, which this tribunal does not have. We have taken account of HMRC’s submissions on the evidence in our findings of fact set out in Part B. (5) Even if the tribunal determines that a court of competent jurisdiction would make a finding of fraud against that third party, it does not necessarily follow that such a court would grant rescission. There are a large number of interrelated transactions and contracts, the majority of which include specific jurisdiction clauses that set out the relevant jurisdiction is a foreign jurisdiction. The appellant has not established that rescission even could be granted by the relevant (foreign) court, let alone that rescission would be granted. The tribunal does not have evidence before it as to how a court of competent jurisdiction would determine an application to grant rescission or rectification (or another equivalent remedy) in respect of the majority of the individual contracts and transactions. Due to the interrelated nature of the contracts and transactions, the question is not as simple as whether one contract would be rescinded, but the relevant court would have to go on to consider how, or if, that remedy would impact another contract or transaction. Not only does this demonstrate the difficulty of determining the tax position “as if” rescission had been granted (as set out above), but also must be a significant barrier to any court of competent jurisdiction actually making an order for rescission. By way of example if the tribunal were to determine that a court of competent jurisdiction would rescind the POA, the tribunal does not have sufficient evidence before it to determine whether this would invalidate the reinvestment of JCP. Accordingly, this tribunal cannot conclude that rescission would be granted, and therefore should not determine the tax position “as if” rescission had been granted. The tax position therefore falls to be determined by reference to the relevant contracts, as set out above.[82]In overview, we consider that(1) it is highly doubtful that the tribunal has jurisdiction to determine if a court of competent jurisdiction would order recission of the relevant contracts and, if so, to determine the appellant’s tax position on that basis. The tribunal’s task is to determine appeals made where the taxpayer has a statutory right to appeal to it, on the basis of the relevant law as applied to the factual position, as determined on the basis of the presented evidence. It seems to us that, in the particular circumstances of this case, it is not for the tribunal to determine the appellant’s tax position, in effect, (a) on the basis of the hypothetical factual position which would apply if the taxpayer had taken action in a different court, and (b) as a necessary precursor to that, by making its own determination of what that court would decide as regards an allegation of fraudulent misrepresentation without the benefit of the full evidence and representations that may be made in that court, and(2) we do not take the decision in Lobler to dictate that the tribunal must take a different view. That decision does not establish that, in all cases, where a party argues that a contractual remedy is available to him in a different court, the tribunal must or should make its own judgement on whether that remedy would apply. Different considerations and difficulties arise in the tribunal doing so where the remedy in question is recission of a whole range of contracts.[83]However, we do not consider it necessary or useful for us to consider that issue in any detail given, for the reasons set out below, the appellant has failed to make any arguable case that a court of competent jurisdiction would order the recission of any relevant contract:(1) (a) The contracts are governed by and subject to the jurisdiction of a number of countries, such as Brazil and the US as regards the laws of the State of New York, and (b) the appellant did not establish which court or courts are the relevant ones or the laws pursuant to which the remedy of recission (or analogous remedy) would be granted or, if the court of competent jurisdiction is taken to be the High Court, on what basis that is and how that court would go about assessing the position without expert evidence on the laws governing the contracts. It seems to us that this is fatal to the appellant’s case.(2) As regards the alleged fraudulent misrepresentation, the appellant has not provided any evidence that comes close to establishing that the tests set out in the caselaw are met: (a) the appellant has not provided any sound basis for any conclusion that, notwithstanding their legal form, the totality of the arrangements can be regarded as constituting a partnership under English law, and (b) the appellant has not identified with any specificity what alleged misrepresentations were made in relation to most of the contracts and, in any event, for the reasons set out in Part B we do not accept that the evidence substantiates the specific alleged misrepresentations which he has identified.

CONCLUSION AND RIGHT TO APPLY FOR PERMISSION TO APPEAL

[84]For all the reasons set out above, the appeal is refused.[85]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. HARRIET MORGAN TRIBUNAL JUDGE Release date: 12th JUNE 2025