Currys Retail Limited v The Commissioners for HMRC [2025] UKFTT 762 (TC)

[2025] UKFTT 00762 (TC)Case No TC09562
FIRST-TIER TRIBUNAL
TAX CHAMBER
Hearing Heard on: 21, 22 and 23 May 2025Date Judgment date: 23 June 2025
Taylor House
Appeal reference: TC/2022/13067
CORPORATION TAX – whether a company leaving a group was subject to a degrouping charge under Section 179 of the Taxation of Chargeable Gains Act 1992 in respect of the goodwill in four businesses that it had acquired intra–group within the six years before it left the group – prior to leaving the group, the company had entered into agreements with an unconnected company (with which it became connected a few days later) (the “purchaser”) under which it agreed to dispose of the goodwill and the right to carry on the businesses to the purchaser but to continue to manage the businesses as the purchaser’s agent – determination that whether or not the company continued to own the goodwill at the point when it left the group depended on whether, on a realistic view of the facts, those agreements had given rise to a disposal of the goodwill in law or in equity – concluding that, viewed realistically, the agreements did not have that effect and that the company therefore owned the goodwill when it left the group and was subject to the charge – appeal dismissed
Before
TRIBUNAL JUDGE TONY BEARE
Between
CURRYS RETAIL LIMITEDAppellantTHE COMMISSIONERS FOR HIS MAJESTY’S REVENUE AND CUSTOMSRespondentMr Malcolm Gammie KC, Mr Michael Ripley, Mr Charles Brabin and Mr Edward Hellier, of counsel, instructed by Reynolds Porter Chamberlain LLP for AppellantMr John Brinsmead–Stockham KC, Ms Sarah Black and Mr Jonathan Moss, of counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs for RespondentsDECISION
[1]This decision relates to the potential application of Section 179(3) of the Taxation of Chargeable Gains Act 1992 (the “TCGA 1992”) (“Section 179(3)”) to the goodwill relating to four businesses which had been transferred to the Appellant, formerly called The Carphone Warehouse Limited (“CPW”), between 2004 and 2007, in consequence of CPW’s leaving the UK chargeable gains group headed by The Carphone Warehouse Group plc (“CPWG plc”) (the “CPW Chargeable Gains Group”) of which CPW had been a member (the “Degrouping”) in 2008.[2]The Degrouping arose out of an arrangement entered into between the corporate group headed by CPWG plc (the “CPW Group”) and the corporate group headed by Best Buy Co. Inc. (USA) (“BBCo”) (the “BB Group”).[3]Section 179(3), together with Section 179(1) of the TCGA 1992 which brings it into operation, provides that, where a company leaves a UK chargeable gains group owning an asset (other than a trading asset) which it has acquired from another member of the same UK chargeable gains group within the previous six years, then the company is deemed to dispose of, and immediately re–acquire, that asset at the market value of the asset at the time of the intra–group acquisition.[4]The potential relevance of the provision in the present context is that CPW left the CPW Chargeable Gains Group within six years of acquiring the goodwill described above from the Vendor Companies (as defined in paragraph 8 below), which were all members of the CPW Chargeable Gains Group at the time of CPW’s acquisition. Accordingly, if, at the time of the Degrouping, CPW continued to own the goodwill and the goodwill was not a trading asset, then a charge under Section 179(3) will have arisen.

the agreed facts

[5]Prior to the hearing, the parties agreed the following facts for the purposes of this appeal.

Key parties

[6]Prior to the Degrouping:(1) CPW was a wholly–owned subsidiary of CPWG plc;(2) Best Buy UK CP Limited (“BBUK”) was a wholly–owned subsidiary of BBCo.[7]Both before and after the Degrouping, CPW was, at all relevant times, resident in the UK for UK tax purposes.

Acquisition of the Businesses

[8]Over a three–year period from 2004 to 2007, CPW acquired the business and assets of four businesses (the “Businesses”) owned by the following four companies (the “Vendor Companies”):(1) E2Save.com Limited;(2) Carphone Warehouse Services Limited (“CWSL”);(3) Carphone Warehouse UK Limited (“CPWUK”); and(4) One Stop Phone Shop Limited.[9]The acquisitions were effected by sale and purchase agreements entered into between CPW and each of the Vendor Companies on 25 March 2004, 2 May 2004, 26 November 2004, and 18 June 2007 respectively (the “Prior SPAs”). Each acquisition included the goodwill of the Businesses.[10]At the time of the above acquisitions by CPW:(1) the Vendor Companies and CPW were members of the CPW Group (and the Vendor Companies, like CPW, were members of the CPW Chargeable Gains Group);(2) the combined value of the acquired goodwill of the Businesses (the “Goodwill”) was £107,658,000; and(3) as a result of Section 171(1) of the TCGA 1992, the transfer of the Goodwill did not give rise to a charge to tax.

The SPA and the MSA

[11]On 25 June 2008, CPW and BBUK, which, at the time, were unrelated parties, entered into a sale and purchase agreement (the “SPA”) and a management services agreement (the “MSA” and, together with the SPA, the “Agreements”).[12]The terms of the SPA provided for CPW to sell to BBUK “the Goodwill and the right to carry on the Businesses” for a consideration of £50,800,000, with £50,799,000 apportioned to the Goodwill.[13]The SPA specifically envisaged that CPW and BBUK would enter into the MSA.[14]The MSA provided for CPW to operate and manage the Businesses on BBUK’s behalf in return for a management charge equal to 95% of the revenues of the Businesses. The management charge was subsequently reduced by agreement to 91.19%.

The Degrouping

[15]On 30 June 2008, CPW ceased to be a member of the CPW Chargeable Gains Group. The Degrouping involved the following two steps:(1) on 20 June 2008, CPWG plc transferred 100% of the share capital in CPW to a newly–incorporated company, originally called CPW Distribution Holdings Limited but later renamed Best Buy Europe Distributions Limited (“BBED”). At this stage, BBED was a wholly–owned subsidiary of CPWG plc. Despite the date of the transaction’s being agreed between the parties, neither party has been able to locate a copy of the contract for this transaction; and(2) on 30 June 2008, the CPW Group sold 50% of the issued share capital of BBED to Best Buy Distributions Limited. Best Buy Distributions Limited was a member of the BB Group and a wholly–owned subsidiary of BBCo. This sale was achieved by the parties’ entering into a conditional sale and purchase agreement on 7 May 2008 which took effect on 30 June 2008.[16]By an agreement dated 10 January 2009 (with a stated effective date of 1 July 2008), BBED purchased the entire issued share capital of BBUK from BBCo.

Procedural background

[17]CPW filed its company tax return for the accounting period ended 31 March 2009 on the basis that no degrouping charge arose under Section 179(3) as a result of the transactions described in paragraphs 15 and 16 above.[18]On 23 February 2011, the Respondents opened an enquiry into CPW’s company tax return for that accounting period.[19]On 26 August 2020, the Respondents issued a partial closure notice (the “PCN”) which concluded that a degrouping charge under Section 179(3) arose on £107,658,000 of goodwill attached to the Businesses upon the formation of the joint venture between the CPW Group and the BB Group. On that basis, the Respondents determined that additional corporation tax of £30,144,240 was due.[20]On 11 September 2020, CPW notified its appeal to the Respondents by letter.[21]On 24 May 2022, CPW requested that the Respondents review the conclusion set out in the PCN.[22]On 15 September 2022, the Respondents’ review upheld the conclusion set out in the PCN.[23]On 14 October 2022, CPW lodged an appeal with the First–tier Tribunal (the “FTT”) against the conclusion and amendment set out in the PCN.

the agreed issues

[24]Prior to the hearing, in addition to agreeing the above facts, the parties further agreed that:(1) this appeal gives rise to the following issues: (a) whether there was a deemed disposal and reacquisition of the Goodwill under Section 179(3); and (b) if there was, the quantum of the corporation tax due; and(2) in determining the above issues, the FTT needs to decide: (a) at the point of the Degrouping, and for the purposes of Section 179(3), did CPW own the Goodwill that it had acquired from the Vendor Companies? (b) what is the effect of the SPA and the MSA on the Goodwill, if any? How does this affect the quantum of the corporation tax due? and (c) if CPW did own the Goodwill at the point of the Degrouping, did CPW own the Goodwill as “trading stock” for the purposes of Section 179(3)? the agreements

Introduction

[25]Over the period between CPW’s acquisition of the Businesses from the Vendor Companies between 2004 and 2007 and the decision of the CPW Group to enter into the joint venture which led to the Degrouping in 2008, changing market conditions and falling profits had led the value of the Goodwill to decline considerably. At the point of its acquisition, the Goodwill had had a value of £107,658,000, as noted in paragraph 10(2) above. By the time that CPW was going to leave the CPW Chargeable Gains Group, the Goodwill was valued at approximately £50,800,000. This meant that, if CPW were to leave the CPW Chargeable Gains Group holding the Goodwill, CPW would become liable to a charge to corporation tax under Section 179(3) on value which no longer existed.[26]It is common ground that:(1) the transaction which was effected by the Agreements was designed to avoid that liability. It was intended that: (a) by disposing of the Goodwill under the Agreements, CPW would incur a liability to corporation tax on chargeable gains on the amount by which the consideration received by CPW for the Goodwill (£50,799,000) exceeded CPW’s base cost in the Goodwill (nil); and (b) no charge to corporation tax on chargeable gains would arise in the hands of CPW in respect of the Goodwill when the Degrouping occurred because CPW no longer held the Goodwill at that point; and(2) the Agreements were executed as part of a single transaction and designed as a “package”. They: (a) were executed on the same date – 25 June 2008; (b) were intended to take effect at the same time; (c) were interdependent; and (d) should consequently be construed together.

The SPA

[27]The key terms of the SPA were as follows:(1) the parties were CPW (as vendor) and BBUK (as purchaser);(2) the recitals provided that CPW carried on the Businesses and had agreed to transfer the Goodwill to BBUK and to permit BBUK to carry on the Businesses on the terms of the agreement;(3) clause 1.1 defined the Goodwill as “the goodwill and custom of [CPW] in relation to the Businesses, including the exclusive right for [BBUK] and its successors and assigns to carry on the Businesses (and to represent themselves as carrying on the Businesses) in continuation of and in succession to [CPW]”;(4) clause2.1 provided that CPW agreed to sell, and BBUK agreed to purchase, “the Goodwill and the right to carry on the Businesses all legal and beneficial right, title and interest in and to the Goodwill and the right to carry on the Businesses free from all encumbrances”;(5) clauses2.2 and2.3 provided that: (a) BBUK would “assume no liability in respect of the Businesses and Goodwill and/or any other business of the Vendor Group except as expressly set out in this Agreement”; and (b) BBUK would “acquire no right or title of any nature in any asset of the Vendor Group except as expressly set out in this Agreement”;(6) clause 3.1 provided that: (a) the aggregate consideration payable by BBUK was £50,800,000, apportioned as to £50,799,000 to the Goodwill and £1,000 to the right to carry on the Businesses; and (b) the consideration was to be left outstanding as a loan at an interest rate of 1% over Sterling LIBOR accruing from the completion date – defined in clause 1.1 as the date of the agreement (which is to say 25 June 2008) – to the date of repayment and to be repayable in cash in full, together with all accrued interest, on or before the third anniversary of the completion date;(7) clause4.1 provided that completion of the agreement was to take place on the completion date;(8) clause4.2 provided that, at completion: (a) CPW would, insofar as it was able to do so, permit BBUK to assume the conduct of the Businesses and BBUK would carry on the Businesses with effect from the completion date; (b) CPW would deliver to BBUK such items and documents to enable BBUK to carry on the Businesses with effect from the completion date and/or as might be required by the agreement; (c) CPW would procure that BBUK had access to the properties listed in a schedule to the agreement which were owned, leased or licensed by CPWUK and used by the Businesses (the “Properties”); and (d) CPW would enter into the MSA;(9) clause4.3 provided that, at completion, BBUK would enter into the MSA;(10) clause 5 was headed “Accounting Records” and provided that: (a) from completion, CPW would retain for the benefit of BBUK “all turnover, debtors creditors and accounting records in relation to the Businesses (the “Accounting Records”) – clause 5.1.1; (b) from completion, CPW would “assume the liabilities arising from the Businesses only on behalf of [BBUK]” – clause 5.1.2; and (c) BBUK would be entitled to access and/or to request the transfer of the Accounting Records for its benefit at any time after the completion date;(11) clause 6 provided that: (a) no legal or beneficial title in any of the Properties would transfer to BBUK pursuant to the agreement; and (b) CPW would, during the term of the agreement and in accordance with the MSA, procure that CPWUK continued to carry out various services in respect of each of the Properties as listed in a schedule to the agreement, under the terms of a management services agreement dated 26 November 2004 (the “Property Management Services”). As defined in schedule 2 to the SPA, the Property Management Services comprised: (i) the payment of rent, council tax and all property–related expenses; (ii) the maintenance and insurance of the Properties; (iii) providing access to the Properties in the condition required by CPW; (iv) all other matters reasonably required to operate and manage the Properties; (v) tax services; and (vi) “retail services” comprising “the operation and management of the Carphone Warehouse Stores … [and] all necessary support that may be required including, without limitation, the provision of professional staff, legal, taxation, accountancy and IT advice each as a cost of the Businesses”;(12) clause 7 dealt with the use by BBUK of specified logos, trademarks and names relating to the Businesses (the “Carphone Warehouse Brands”). It provided that, “[in] addition to the transfer of the Businesses and Goodwill, [CPW] hereby grants [BBUK] the non–exclusive right to use the Carphone Warehouse Brands solely in respect of carrying on the Businesses, in a similar way to how they were being used by the Business [sic] immediately prior to the Completion Date” and required BBUK to comply with any brand guidelines of CPW applicable from time to time in respect of any such brands;(13) clause 8 provided that: (a) neither party intended that the agreement or the termination of the agreement would operate to transfer the employment contracts of any employee from any member of the CPW Group to BBUK; and (b) however, if the Transfer of Undertakings (Protection of Employment) Regulations 2006 or any equivalent non–UK legislation applied in those circumstances such that the employment contracts or any liability arising in respect of any transferring employee were transferred from any member of the CPW Group to BBUK, then CPW would indemnify BBUK on demand in respect of any costs, expenses, damages or losses thereby arising;(14) clause 10 contained warranties on the part of CPW to the effect, inter alia, that: (a) it was the legal and beneficial owner of the Businesses and the Goodwill; and (b) the Carphone Warehouse Brands did not “comprise or infringe any rights owned or controlled by third parties”; and(15) clause 11 provided, inter alia, that: (a) the agreement and the MSA were the entire agreement between the parties in connection with the subject matter of the agreement and the MSA; (b) at BBUK’s request and cost, CPW would take all such steps as were reasonably necessary or desirable to secure the vesting in BBUK of the Goodwill free from any liens, encumbrances or adverse interests; and (c) nothing in the agreement would constitute a partnership or employment relationship between the parties.

The MSA

[28]The key terms of the MSA were as follows:(1) the recitals provided that: (a) BBUK had “acquired the right to carry on the Businesses” pursuant to the SPA; (b) CPW operated a retail and distribution business under various brands; and (c) BBUK wished to appoint CPW to operate and manage the Businesses on its behalf on the terms of the agreement and CPW had agreed to do so;(2) clause 2 provided that the agreement would commence on the effective date – defined in clause 1.1 as the date of its execution (which is to say 25 June 2008) – continue for an initial term of fifteen years and then be automatically extended indefinitely unless terminated by either party pursuant to clause 7;(3) clause 3 provided that CPW: (a) would perform the management services described in a schedule to the agreement (the “Management Services”) in respect of each of the Businesses with reasonable care and skill to the extent reasonably necessary for the Businesses to be operated at no lesser standard than that at which they were operated immediately prior to the date of the agreement. The Management Services were defined as: (i) the operation and management of each of the Businesses; (ii) the collection of all revenue of the Businesses; (iii) the payment of all creditors of the Businesses as a cost of the Businesses; (iv) all necessary support that might be required including the provision of professional staff, legal, tax, accountancy and IT advice, each as a cost of the Businesses; (v) tax services; and (vi) “all other matters reasonably required to operate and manage the Businesses”; (b) would take out (or procure the taking out of) adequate employers’ liability insurance and public liability insurance for similar amounts as applied to the Businesses prior to the date of the agreement; and (c) would procure that CPWUK performed the “Property Management Services” (defined in the same way as in the SPA but with the exclusion of the services described in paragraphs 27(11)(b)(v) and 27(11)(b)(vi) above) and that BBUK would not do anything to prevent CPW from carrying out the Management Services or CPWUK from carrying out the Property Management Services;(4) clause 5 provided that: (a) in consideration of CPW’s carrying out its obligations under the agreement, BBUK would pay to CPW a management charge equal to 95% of the aggregate revenue excluding VAT of the Businesses, calculated monthly; (b) such amount would be paid monthly in arrear together with VAT “from all revenue of the Businesses received by or on behalf of CPW as part of carrying out the Management Services for [BBUK]”; and (c) the parties reserved the right to change the management charge by mutual agreement in writing. (As noted in paragraph 14 above, the management charge was subsequently reduced by mutual agreement to 91.19%. This was effected by the execution of a letter agreement between the parties on 29 January 2010 (the “Side Letter”) the terms of which are summarised below);(5) clause 6 related to employment contracts and was in identical terms to those set out in paragraph 27(13) above;(6) clause 7 provided that: (a) either party could terminate the agreement on six months’ written notice (provided that the earliest date on which such notice could be effective was the final day of the initial term); and (b) in any event, either party could terminate the agreement at any time, including during the initial term, in the event of: (i) a material breach by the other party of its obligations under the agreement which, if capable of remedy, was not remedied within thirty days of notice of the breach; and (ii) the dissolution, liquidation or administration of the other party; and(7) clause 8 provided, inter alia, that: (a) the agreement and the SPA were the entire agreement between the parties in connection with the subject matter of the agreement and the SPA; (b) at CPW’s request and cost, BBUK would take all such steps as were reasonably necessary or desirable to enable CPW to carry on the Management Services; and (c) nothing in the agreement would constitute a partnership or employment relationship between the parties. The Side Letter[29]The Side Letter was executed on 29 January 2010, approximately eighteen months after the execution of the Agreements.[30]By the execution of the Side Letter, CPW and BBUK agreed that:(1) the purpose of the letter agreement was to clarify the intentions of the parties to the MSA;(2) paragraph 1 specified that that intention was that BBUK should be entitled to the majority of the benefits arising from the operations of the Businesses and that this was reflected in the management charge. At the same time, CPW should not incur an accounting loss for any financial year as a result of fulfilling its obligations under the MSA – except where actions or agreements regarding other operations of CPW had resulted in such a loss arising in the Businesses or material one–off items during the period had significantly reduced the profitability of the Businesses – and that, should CPW incur such a loss, the parties reserved the right to renegotiate the management charge accordingly;(3) paragraph 2 provided that, in the event that CPW became insolvent, BBUK would assume the management of the Businesses and fulfil all of the Businesses’ obligations “including but not limited to payroll and rental costs”;(4) paragraph 3 provided that CPW would request BBUK’s prior approval regarding any major strategic decisions in relation to the Businesses, including, but not limited to, cessation of the Businesses and significant changes in the operations of the Businesses; and(5) paragraph 4 provided that, in accordance with the clause in the MSA which provided for the management charge to be adjusted by mutual agreement and paragraph 1 of the letter agreement, the parties agreed to vary the management charge with effect from 1 July 2008 to 91.19% of all revenue generated by the Business. For this purpose “revenue” was defined as “the difference between all profits generated by the Businesses less all costs incurred by CPW in running the Businesses”. Initial observations on the Agreements and

The Side Letter

[31]It is something of an under–statement to say that the Agreements and the Side Letter would not win any prizes for drafting. Mr Gammie, on behalf of CPW, candidly accepted that they contained a number of errors and infelicities.[32]As far as they relate to the issues to which this case gives rise, some notable features of the relevant documents are as follows:(1) the SPA contained a number of provisions which indicated that what CPW was doing by entering into the agreement in addition to selling the Goodwill was not agreeing to sell to BBUK the Businesses, as such, but rather agreeing to sell to BBUK the right to carry on the Businesses – see in this regard, recital (B) and clauses 2 (particularly 2.1) and 3.1.2. On the other hand, it also contained a number of provisions which suggested that what CPW was doing by entering into the agreement was selling both the Goodwill and the Businesses – see, in this regard, clauses 4.1 and 7.1. Clause 9 was something of an amalgam as it referred in clause9.1 to the transfer of the right to carry on the Businesses and in clause9.2 to the transfer of the Businesses;(2) clause 5.1.2 of the SPA, which appeared under the heading “Accounting Records”, stipulated that, from completion, CPW would “assume the liabilities arising from the Businesses only on behalf of [BBUK]”. It therefore had nothing whatsoever to do with accounting records but instead suggested by implication (but without saying so expressly and in somewhat obscure terms) that BBUK would be responsible for the liabilities of the Businesses with effect from completion. I will discuss further below my interpretation of this clause in the context of the arrangement as a whole;(3) clause 5 of the MSA provided that the management charge payable by BBUK to CPW would be equal to 95% of “the aggregate revenue excluding VAT of the Businesses” but it contained no definition of the phrase “aggregate revenue”;(4) the MSA contained very few restrictions on CPW’s activities in carrying on the Management Services. The only restrictions placed on CPW in doing so were those contained in clauses 3.1.2 and 3.1.3 – namely, the need to carry out the Management Services with reasonable skill and care to the extent reasonably necessary for the Businesses to continue to be operated at no lesser standard than that at which they were operated immediately prior to the agreement and the need to take out employers’ liability insurance and public liability insurance. In addition, clause 3.2 prevented BBUK from doing anything to restrict CPW from carrying out the Management Services. The Management Services were broadly defined in schedule 1 to the agreement, as noted in paragraph 28(3)(a) above. Accordingly, the effect of that schedule, along with the terms of clause 3, was to leave CPW with wide–ranging legal rights and obligations in relation to the conduct of the Businesses without the need to consult BBUK;(5) the MSA contained no provisions dealing with the consequences of its termination – for example, on the quantum of the fee payable to CPW in the period in which termination occurred or, more significantly, the means by which BBUK would operate the Businesses following termination;(6) the Side Letter, which was executed some eighteen months after the Agreements, appeared to be a belated attempt to cover some of the deficiencies in the MSA noted above in that, in addition to adjusting the management fee, it contained a definition of the term “the revenue”, it required CPW to obtain the prior approval of BBUK before making any major strategic decision in relation to the Businesses and it specified that, on the insolvency of CPW, BBUK would assume the management of the Businesses and fulfil all of the Businesses’ obligations. However, these changes largely served to highlight the deficiencies in the MSA. Moreover: (a) the definition of the term “the revenue” in the Side Letter was clearly contrary to the parties’ intentions in entering into the arrangement (and how the parties had been operating the arrangement in practice), which was to calculate the revenue as the gross revenues of the Businesses (excluding VAT) before taking into account the expenses of the Businesses; (b) although the Side Letter provided examples of major strategic decisions (in the form of the cessation of the Businesses and “significant changes in the operations of the Businesses”), the precise parameters of the phrase were not set out; (c) the provision in relation to the insolvency of CPW was not linked to the termination of the MSA. Clause 7.2 of the MSA provided that BBUK would have the right to terminate the MSA in the event of CPW’s administration, dissolution or liquidation but that was merely a right and did not occur automatically. It is therefore by no means clear what the arrangement would have been if CPW were to have become insolvent and the MSA were to have remained operating; and (d) with the exception of the retrospective change to the management fee referred to in paragraph 4, the Side Letter did not purport to amend the terms of the MSA as such but instead merely to record retrospectively the intentions of the parties at the time when the MSA was executed. This means that analysing it from the contractual perspective is not straightforward. I will discuss this later on in this decision but, for present purposes, I will observe that there is no evidence in the terms of the Agreements themselves of the intentions recorded in the Side Letter and that no consideration was specified in the Side Letter for CPW’s agreement to the reduction in the management fee. other documents Introduction

other documents

[33]In addition to the Agreements and the Side Letter, I was provided with a number of other documents for the purposes of this appeal. These were:(1) the Prior SPAs;(2) a property services agreement between CPWUK and CPW dated 26 November 2004 (the “Property Services Agreement”);(3) a trade mark licence between CPW Brands Limited (“CPW Brands”) and CPW dated 30 March 2007 (the “Brand Licence”);(4) valuation reports for the Businesses (“Valuation Reports”) prepared in March 2008, shortly before the Agreements were executed;(5) the following sets of reports and accounts: (a) the audited reports and financial statements of CPW for the 52 weeks ending 29 March 2008 (the “CPW 2008 Accounts”); (b) the audited reports and financial statements of CPW for the 53 weeks ending 4 April 2009 (the “CPW 2009 Accounts” and, together with the CPW 2008 Accounts, the “CPW Accounts”); (c) the audited reports and financial statements of BBUK for the 10 months ending 28 February 2009 (the “BBUK 2009 Accounts”); (d) the audited reports and financial statements of BBUK for the 13 months ending 31 March 2010 (the “BBUK 2010 Accounts”); and (e) the audited reports and financial statements of BBUK for each of the year ending 31 March 2011 (the “BBUK 2011 Accounts”), the year ending 31 March 2012 and the year ending 31 March 2013 (the “BBUK Remaining Accounts”, together with the BBUK 2009 Accounts and the BBUK 2010 Accounts, the “BBUK Accounts” and, together with the BBUK 2009 Accounts, the BBUK 2010 Accounts and the CPW Accounts, the “Accounts”);(6) the following letters: (a) a letter of 15 February 2012 from Mr Milan Bojkovic, group director of tax at CPWG plc, in response to questions raised of CPWG plc by Officer Brendan Dewar of the Respondents in relation to the transaction (the “CPWG plc Letter”); and (b) a letter of 24 December 2015 from Mr Bojkovic, in his capacity as the director of direct taxation at Dixons Carphone plc (“Dixons”), in response to questions raised of Dixons by Officer Rory McGrath of the Respondents in relation to the transaction (the “Dixons Letter” and, together with the CPWG plc Letter, the “Correspondence”));(7) an invoice issued by BBUK to CPW on 28 September 2009 (the “Invoice”); and(8) the PCN and correspondence passing between the Appellant and the Respondents immediately before the issue of the PCN (the “PCN Correspondence”).[34]I set out below the features of those documents which I consider to be relevant to this decision.

The Prior SPAs

[35]Each of the Prior SPAs was in a conventional form for a business sale agreement in that it provided, inter alia, for:(1) a sale to CPW of the relevant Business as a going concern;(2) the transfer to CPW of the assets of the relevant Business (subject, in two cases, to certain specified exceptions);(3) the assumption by CPW of the liabilities of the relevant Business (subject, in one case, to certain specified exceptions); and(4) with one exception, the transfer to CPW of the employees responsible for carrying on the relevant Business.

The Property Services Agreement

[36]In the Property Services Agreement, CPWUK agreed, inter alia, that it would discharge all the costs associated with all of the properties from which CPW carried on its retail business including rent, council taxes, property–related expenses, maintenance and insurance and CPW agreed, inter alia, that it would perform the “retail services” (namely, the operation and management of the stores) in each of the properties, reimburse CPWUK for the costs of managing and administering the properties as described above and pay to CPWUK an administration fee based on a fixed percentage of those costs.

The Brand Licence

[37]In the Brand Licence, CPW Brands granted CPW a non–exclusive licence to use various intellectual property rights relating to the Businesses in the UK in return for royalties based on a fixed percentage of projected turnover from CPW’s use of the rights. The Brand Licence contained detailed provisions requiring CPW:(1) to comply with: (a) the directions given by CPW Brands in relation to the use of the rights; (b) regulations and practices in force or in use in the UK in order to safeguard CPW Brands’ ownership of the rights;(2) to ensure that its use of the rights did not reduce the value of the rights;(3) to ensure that it met a minimum turnover requirement;(4) to notify CPW Brands promptly of potential attacks on, or the unauthorised use of, the rights; and(5) to meet regularly with CPW Brands on request, and to give CPW Brands access to its premises on reasonable notice, in order to ensure that it was complying with its obligations under the Brand Licence, and it was expressed to have a five–year term unless terminated by CPW Brands on three months’ notice or immediately in the case of a breach by CPW. The Valuation Reports[38]The Valuation Reports for each Business apart from the Business which CPW had acquired from CWSL noted that the Businesses to which they related “[had] been fully integrated into the CPW business … and [shared] all support functions. Separating the two businesses is not practical, and as such management services will continue to be provided by CPW to [BBUK]”.

The Accounts

[39]The CPW 2008 Accounts related to the financial year of CPW immediately prior to the financial year in which the Agreements took effect. They:(1) referred in the directors’ report to the fact that “all employees are kept informed of issues affecting the company through formal and informal meetings and through the company’s internal magazine”; and(2) described CPWs turnover as comprising “revenue generated from the sale of mobile communication products and services, commission receivable on sales less provision for promotional offers and network operator performance penalties, ongoing revenue (share of customer airtime spend, and customer revenue and retention bonuses) and insurance premiums”.[40]The CPW 2009 Accounts related to the financial year of CPW in which the Agreements took effect. They:(1) recorded (at note 13) that CPW had made a loss of £31,594,000 on the disposal to BBUK of the “former trade and assets” of the Vendor Companies on 25 June 2008;(2) made no mention in the directors’ report of any change to the business carried on by CPW;(3) made the same reference to CPW’s relationship with its employee as that set out in paragraph 39(1) above;(4) showed CPW as receiving 95% of the gross revenues of the Businesses and as continuing to incur 100% of the expenses of the Businesses; and(5) did not describe any of CPW’s turnover as being attributable to the provision of management services but instead described CPW’s turnover in exactly the same terms as those set out in paragraph 39(2) above.[41]The BBUK 2009 Accounts related to the financial year of BBUK in which the Agreements took effect. They recorded that:(1) on 25 June 2008, BBUK had “acquired the right to carry on four businesses from [CPW], together with the associated goodwill thereon”;(2) BBUK had received turnover of £11,000,000 – described as “intercompany managed services income” – which was equal to the payments that the company was entitled to receive from CPW under clause 5 of the MSA over the relevant period – amounts equal to the part of the gross revenues of the Businesses that exceeded CPW’s management fee;(3) BBUK’s only expenses were interest payable to group undertakings of £1,954,000 and goodwill amortisation of £7,533,000; and(4) over the period, BBUK had had no employees and none of its directors had received any remuneration;[42]The BBUK 2010 Accounts recorded that:(1) BBUK had received turnover of £12,389,000 – described in exactly the same manner as that set out in paragraph 41(2) above;(2) BBUK’s only expenses were interest payable to group undertakings of £1,196,000 and goodwill amortisation of £10,700,000;(3) over the period, BBUK had had no employees and none of its directors had received any remuneration; and(4) the outstanding loan from CPW carried interest at LIBOR plus 3.75%.[43]Each of the BBUK Remaining Accounts adopted the same format as the BBUK 2009 Accounts and the BBUK 2010 Accounts:(1) in showing as turnover the payments which the company was entitled to receive from CPW under clause 5 of the MSA over the relevant period – amounts equal to the part of the gross revenues of the Businesses that exceeded CPW’s management fee; and(2) in showing interest payable to group undertakings and goodwill amortisation as the company’s only expenses and, with the exception of the BBUK 2011 Accounts – where the relevant page had been accidentally omitted from the bundle but which can safely be assumed to have taken the form of each of the other BBUK Accounts – each of the BBUK Remaining Accounts adopted precisely the same description of the company’s turnover as had the BBUK 2009 Accounts and the BBUK 2010 Accounts. The Correspondence[44]In the CPWG plc Letter, CPWG plc acknowledged that the reference in note 13 to the CPW 2009 Accounts to the fact that CPW had disposed of the “former trade and assets” of the Vendor Companies to BBUK was incorrect and should instead have referred solely to the “trade” or the “trade and goodwill” of the Vendor Companies in order to be consistent with the Agreements and the BBUK 2009 Accounts.[45]In the Dixons Letter, Dixons said, inter alia, as follows:(1) none of working capital in the Businesses, including debtors, creditors, stock, fixed assets, brands and customer contracts and none of the liabilities of the Businesses had been transferred by CPW to BBUK pursuant to the SPA;(2) the reason why none of the assets of the Businesses had been transferred to BBUK was that the Businesses “had been fully integrated into CPW’s business, including the sharing of all support functions and due to the separate [MSA], CPW continued to operate these businesses on behalf of [BBUK] and therefore still required working capital”;(3) the schedule of Properties which was attached as schedule 1 to the SPA and as schedule 3 to the MSA referred to only 37 properties whereas, in fact, the Businesses were being carried on from 101 properties prior to the execution of the Agreements. However, the omission from the schedules of 64 properties from which the Businesses were being carried on was simply an error and had had no effect on the valuation of the Businesses at the time of the Agreements;(4) the loan arising from the outstanding purchase price payable by BBUK had originally carried interest at LIBOR plus 1% – a rate consistent with CPW’s funding cost and therefore considered to be an appropriate market rate. The loan had been refinanced in 2009 when BBUK acceded to the joint venture’s cash pool arrangements, which meant that BBUK benefited from the lower rate of financing that the group was able to enjoy by virtue of pooling its surplus cash and its borrowings but, as a result of the 2008 financial crash, interest rates had by then risen so that BBUK was obliged to pay LIBOR plus 3% instead of the LIBOR plus 1% which was payable under the original loan. (Although nothing turns on it, I note that the revised rate given in the Dixons Letter is not quite the same as the revised rate shown in the BBUK 2010 Accounts – see paragraph 42 above);(5) none of the networks and none of CPW’s employees had been advised that the Businesses had been transferred by CPW to BBUK; and(6) the percentage of gross revenues which BBUK was obliged to pay to CPW under the terms of the MSA had been set at 95% in order to ensure that BBUK made a pre–tax profit. However, when it became apparent in due course that BBUK had made a pre–tax loss, the percentage was revised retrospectively to 91.19% with effect from 1 July 2008 under the terms of the Side Letter.

The Invoice

[46]The Invoice – which was issued to CPWUK and not CPW for reasons which were not explained – provided for the payment to BBUK of “Royalties” in the amount of £11,000,000 in respect of the period ending 28 February 2009 and in the amount of £4,833,670 in respect of the period ending 30 September 2009, in each case exclusive of VAT. No subsequent invoices from BBUK in connection with the arrangement were provided to me.

The PCN and the PCN Correspondence

[47]The PCN, which contains the decision of the Respondents to which this appeal relates, provided as follows:
“About the matter we have finished checking Details of the matter we have now finished checking are shown below. Description of the matter The application of section 179 Taxation of Chargeable Gains Act 1992 (degrouping charge provisions) to goodwill attached to four businesses, transferred intra-group to The Carphone Warehouse Limited between 2004 and 2007, upon the formation of a joint venture on 30 June 2008 between Carphone Warehouse Group and Best Buy Group. Our conclusion about the matter A degrouping charge under section 179 Taxation of Chargeable Gains Act 1992 arises on £107,658,000 of goodwill attached to the four businesses and should be included in arriving at The Carphone Warehouse Limited’s profits chargeable to corporation tax. Reason for our conclusion The four businesses, and hence the goodwill, were still held by The Carphone Warehouse Limited when it left its capital gains group on formation of the joint venture. Our conclusion about this matter does not affect anything else that we’re still checking in the Company Tax Return for the period shown above.”
[48]There had been protracted correspondence and discussions between the parties in relation to the application of Section 179(3) in respect of the Goodwill for a considerable period of time before the PCN was issued. The fact that the Correspondence set out in paragraphs 44 and 45 above includes letters from 2012 and 2015 shows as much.[49]In the course of that correspondence and those discussions, following a meeting of 10 May 2018 and a subsequent letter of 4 June 2018, Officer Andrew Lake of the Respondents wrote to Ms Anjali Sankla, the head of tax at Dixons, on 28 August 2018. Toward the end of that letter, immediately before the final section setting out the next steps in the process, Officer Lake said the following:
“Partial closure notice (PCN) HMRC's position in relation to the degrouping issue has remained unchanged since July 2016. Further, as indicated above, on 6 February 2018 the Tax Assurance Commissioner instructed the case team to issue a PCN in respect of a degrouping charge. We delayed issuing a PCN in case we were persuaded by your further arguments or in the event that the proposal put forward in your letter dated 4 June 2018 was acceptable. This has not been the case and so we now intend to proceed by way of a PCN. As part of the process of issuing a PCN, it is necessary to determine if it is to be issued with or without the agreement of the recipient of the Notice. To this end could you please let me know by 28 September 2018 whether or not you agree with HMRC's intention to issue a PCN. Please note that agreement to the process of issuing a PCN does not mean that you are unable to appeal against the decision within the PCN but only that you agree that we have now reached an impasse on this specific matter and the next step, should you disagree with the decision itself, will be to proceed towards litigation. For the avoidance of doubt the sole matter on which HMRC would seek to issue a PCN is the application of s179 TCGA 1992 to the goodwill of the Businesses as a result of the 30 June 2008 merger. Other matters relating to CPW and BBUKCP We stress that we are keen to continue our engagement on the related other matter still ongoing in CPW and [BBUK], in particular, in the event of a degrouping charge applying, what the accounting and subsequent tax treatment of the £50.8m `consideration' received by CPW from [BBUK] should be treated as in both CPW and [BBUK]. However we maintain that this can be separated from the degrouping charge itself which we now seek to bring to a resolution. In terms of the `other matter' though we seek your confirmation that you wish to continue to engage with us.”
[50]In the “Next steps” section which then followed, Officer Lake summarised the Respondents’ position by specifying that:(1) “issue c)” was whether or not Dixons agreed to the issue of the PCN; and(2) “issue d)” was “confirmation or otherwise that you wish to continue to collaboratively engage on the issue described in “Other matters relating to CPW and [BBUK]”.[51]Ms Sankla replied to Officer Lake on 10 September 2018. In that letter, Ms Sankla raised a further question in relation to c) which she wanted answered before agreeing to the issue of the PCN and then, in relation to d), said as follows: “We confirm that we wish to collaboratively engage with HMRC regarding the 'other matter.' We understand that there has already been much information provided to HMRC, therefore please let us know what further evidence you require. It would also be useful to understand HMRC's current technical position —i.e. in the event a degrouping charge did apply, HMRC's view of the accounting and tax treatment of the £50.8m consideration received by CPW from [BBUK]. (For the avoidance of doubt, Dixons Carphone maintains that a degrouping charge did not apply).” discussion Common ground[52]It became apparent at the hearing that the parties were agreed on a number of points in addition to the agreed facts and the agreed issues set out in paragraphs 6 to 24 above and the two points mentioned in paragraph 26 above. These were as follows:(1) the reason why the disposals of the Goodwill by the Vendor Companies to CPW did not give rise to a charge to tax in the Vendor Companies was that the disposals were deemed to take place on a no gain – no loss basis pursuant to Section 171 of the TCGA 1992;(2) consequently, pursuant to those disposals, CPW assumed the aggregate base cost of the Vendor Companies in the Goodwill, which was nil;(3) in order for Section 179(3) to have applied to CPW in this case, it must, at the time of leaving the CPW Chargeable Gains Group, have been holding, otherwise than as trading stock, the Goodwill which it had acquired from the Vendor Companies;(4) notwithstanding the agreement of the parties prior to the hearing that the FTT would need to determine this question – see paragraph 24(2)(c) above – CPW did not hold that Goodwill at any time as “trading stock”;(5) therefore, the application of Section 179(3) turned entirely on whether, at the time of leaving the CPW Chargeable Gains Group, CPW continued to hold the Goodwill;(6) under the terms of the SPA, which was executed and completed before CPW left the CPW Chargeable Gains Group, CPW had agreed to sell the Goodwill to BBUK;(7) however, as regards the question of ownership of the Goodwill, the authorities showed that: (a) goodwill was an asset which could not exist independently of the business to which it related. In a well–known passage in Commissioners of Inland Revenue v Muller & Co’s Margarine Limited [1901] AC 217 (“Muller”), Lord Macnaghten had noted that “goodwill has no independent existence. It cannot subsist by itself. It must be attached to a business. Destroy the business, and the goodwill perishes with it”; and (b) as a related matter, as a matter of common law, it was not possible for goodwill to be assigned “in gross” – in other words, without any relevant interest in the business to which the goodwill related – see Professor Wadlow in The Law of Passing Off (Fifth Edition, 2016) (“Wadlow”) at paragraph 3–197, referring to Barnsley Brewery Co Limited v RBNB [1997] F.S.R 462. The basis for this rule was that a purported assignment of goodwill which was not accompanied by the transfer of any relevant interest in the business to which the goodwill related was inherently deceptive and therefore public policy dictated that it should not be recognised. Although the existence of the rule precluding an assignment “in gross” was common ground, the precise nature of the interest in the business which needed to be acquired by the assignee of the goodwill in order for the assignment to be valid (and, hence, the precise extent of the rule and its application in the present case) was a matter of some dispute between the parties, as I discuss in paragraphs 54(2) and 65 to 90 below.[53]The parties were also agreed that, if CPW continued to hold the Goodwill at the time when it left the CPW Chargeable Gains Group so that Section 179(3) applied:(1) the disposal and re–acquisition which were deemed to occur would be deemed to have been made immediately after the acquisition of the Goodwill from the Vendor Companies;(2) the chargeable gain arising in respect of the deemed disposal would be deemed to have accrued to CPW immediately after the beginning of the accounting period in which CPW left the CPW Chargeable Gains Group – see Section 179(4) of the TCGA 1992; and(3) it followed from this that: (a) the quantum of that chargeable gain would not have been affected by any part disposal of the Goodwill which might have occurred later in that accounting period; and (b) instead, any such part disposal would be treated as having taken place after the chargeable gain had arisen and the tax consequences of that part disposal would need to be determined in the light of the earlier deemed disposal and re–acquisition – see Section 179(13) of the TCGA 1992.

The issues – a summary

[54]Despite the considerable common ground, the parties disagreed on a number of issues which may be summarised as follows:(1) Issue One – applicability of the authorities in relation to statutory construction Mr Gammie said that determining whether CPW had effected a disposal of the Goodwill in this case was merely a matter of contractual construction – determining the legal rights and obligations to which the Agreements gave rise. Mr Brinsmead–Stockham, on behalf of the Respondents, said that determining whether CPW had effected a disposal of the Goodwill in this case was ultimately a matter of statutory construction – determining whether, construing Section 179(3) purposively, the facts, viewed realistically, meant that CPW continued to hold the Goodwill at the time of the Degrouping. Although the legal rights and obligations to which the Agreements gave rise were of some significance in this process, they were not determinative;(2) Issue Two – the scope of the rule prohibiting assignment “in gross” Mr Gammie said that, as long as an assignee of goodwill was able to turn the goodwill to account – for example, because it had the right to carry on the business to which the goodwill related – and there was no likelihood of deception, the assignment would not be an assignment “in gross” and would be valid in law. The validity of the assignment did not depend on its being accompanied by a transfer of the business to which the goodwill related. Mr Brinsmead–Stockham said that, on the contrary, in order for an assignment of goodwill not to be invalid in law as an assignment “in gross”, it needed to be accompanied by a sale of the business to which the goodwill related;(3) Issue Three – ownership of the Businesses following the execution of the Agreements Mr Gammie said that the effect of the Agreements was that BBUK became entitled to carry on the Businesses so that, thereafter, the Businesses were no longer being carried on by CPW as principal for its own account but were instead being carried on by CPW as agent for BBUK and for BBUK’s account. That equated to a transfer of the Businesses by CPW to BBUK. Mr Brinsmead–Stockham said that, when the facts were viewed realistically: (a) the arrangements to which the Agreements gave rise did not result in BBUK’s either acquiring the Businesses or carrying on the Businesses after the Agreements became effective. Instead, the Businesses continued to be carried on by CPW as principal for its own account and not as agent for BBUK’s account; and (b) BBUK had paid CPW £50,800,000 in consideration for a right to receive amounts equal to a fixed percentage of the future gross revenues of the Businesses;(4) Issue Four – assignment in equity Mr Gammie said that, even if CPW’s agreement to sell the Goodwill was invalid in law because it was an assignment “in gross”, the sale nevertheless took effect in equity so that, after the Agreements became effective, CPW held the Goodwill on bare trust for BBUK and was no longer the beneficial owner of the Goodwill. Mr Brinsmead- Stockham said that, since, viewed realistically, the effect of the Agreements was to leave the Goodwill and the Businesses with CPW, there was no basis for concluding that the parties had intended the Goodwill to be assigned to BBUK and therefore there was no reason for equity to intervene to fulfil the parties’ purpose. In addition, if the sale of the Goodwill had failed in law because it was an assignment “in gross”, the same principle – to the effect that an assignment of goodwill “in gross” was invalid because it was inherently deceptive and offended against public policy – applied in equity;(5) Issue Five – not the same asset Mr Gammie said that, even if CPW continued to own the Goodwill after the Agreements became effective, the Goodwill which it owned was not the same asset as that which it had acquired from the Vendor Companies because it was precluded by the terms of the Agreements from either carrying on the Businesses itself or turning the Goodwill to account in any way. Thus, no charge under Section 179(3) could arise. Mr Brinsmead–Stockham said that, viewed realistically, the effect of the Agreements was to leave the Goodwill and the Businesses with CPW and therefore, after the Agreements became effective, CPW was perfectly capable of carrying on the Businesses and turning the Goodwill to account. It followed that a charge under Section 179(3) could arise in respect of the Goodwill;(6) Issue Six – the relevance of the transaction effected by Agreements in the event that Section 179(3) applied Mr Gammie said that, even if a charge under Section 179(3) did arise, before the present appeal could be finally determined, it was necessary to take into account, pursuant to Section 179(13) of the TCGA 1992, the effect on the tax consequences of the transaction which had been effected by the Agreements of the deemed disposal and re–acquisition under Section 179(3). Mr. Brinsmead–Stockham said that, if I were to conclude that a charge under Section 179(3) arose, that was sufficient to determine this appeal, because this appeal was against the PCN, which related solely to that charge. Any impact of that charge on the tax consequences of the transaction which had been effected by the Agreements was something to be determined in due course; and(7) Issue Seven – the tax consequences of the transaction effected by Agreements in the event that Section 179(3) applied Mr Gammie said that, if I were to conclude that a charge under Section 179(3) arose, then the transaction which had been effected by the Agreements was properly to be regarded as amounting to a part disposal of the Goodwill under Sections 21 and 22 of the TCGA 1992 and that part disposal would have given rise to an allowable loss in the same accounting period as that in which the chargeable gain under Section 179(3) had arisen of an amount equal to the difference between the value of the Goodwill at the time when it had been acquired by CPW from the Vendor Companies and the value of the Goodwill at the time of the part disposal. Accordingly, the net chargeable gain that had arisen in the accounting period in which CPW left the CPW Chargeable Gains Group was equal to the amount which had been paid to CPW under the SPA. Mr Brinsmead–Stockham said that the transaction effected by the Agreements had not given rise to a part disposal of the Goodwill because, viewed realistically, the payment made by BBUK under the SPA was simply consideration for the right to receive payments equal to a fixed percentage of the future gross revenues of the Businesses. Furthermore, even if the transaction had given rise to a part disposal of the Goodwill, the Appellant had not adduced any evidence to show that the result of applying the chargeable gains rules was that the part disposal would have given rise to an allowable loss in the amount claimed by Mr Gammie.[55]I will address each of the issues described above, in turn, in the rest of this decision. Issue One – applicability of the authorities in relation to statutory construction The parties’ submissions

Issue One – applicability of the authorities in relation to statutory construction

[56]The logical starting point is to note that the question in issue in the present proceedings is whether, for the purposes of Section 179(3), at the time when CPW left the CPW Chargeable Gains Group, it continued to hold the Goodwill, which was the asset that it had acquired from the Vendor Companies when it acquired the Businesses.[57]Mr Gammie submitted that this question was not a matter of statutory construction because the meaning of Section 179(3) was clear. It was common ground that the only thing that needed to be determined was whether CPW continued to own the Goodwill at the point when it left the CPW Chargeable Gains Group. The answer to that question depended solely on the legal rights and obligations to which the Agreements gave rise. That was solely a matter of contractual construction and not a matter of statutory construction.[58]It followed from this that the line of cases relating to statutory construction commencing with WT Ramsay Limited v Inland Revenue Commissioners [1982] AC 300 and recently embodied in the Supreme Court decision in Rossendale Borough Council v Hurstwood Properties (A) Limited and others, Wigan Council v Property Alliance Group Limited [2022] AC 690 (“Rossendale”) was irrelevant. This was not a case where it was necessary to consider whether the facts, viewed realistically, fell within the ambit of the relevant statutory provision, viewed purposively.[59]Mr Brinsmead–Stockham said that, on the contrary, the correct approach to construing and applying legislation was that set out in Rossendale and the earlier cases to which it referred. This required considering whether the relevant statutory provision (Section 179(3)), construed purposively, was intended to apply to the transaction, viewed realistically – see Collector of Stamp Revenue v Arrowtown Assets Limited [2003] 6 ITLR 454 at paragraph [35]. In this case, there was no dispute between the parties as to the correct purposive construction of Section 179(3). However, there was a dispute between them as to the relevant facts, viewed realistically. Those facts needed to be determined before it could be determined whether CPW should be treated as having continued to hold the Goodwill at the time when it left the CPW Chargeable Gains Group.

Conclusion

[60]I agree with Mr Brinsmead–Stockham that Rossendale and the line of cases to which it referred requires me to determine the facts realistically before I can answer the question of whether CPW continued to hold the Goodwill when it left the CPW Chargeable Gains Group and that therefore, contrary to Mr Gammie’s submission, the legal rights and obligations to which the Agreements gave rise are not the only matters to be taken into account in this respect. Those legal rights and obligations are, of course, of great significance but they need to be considered in the round and in the light of all the surrounding facts.[61]In Rossendale, the Supreme Court was addressing the question of whether the owner of land – defined as the person entitled to possession of the land – for the purposes of legislation imposing rates on unoccupied land was the registered owner of the land or a special purpose vehicle established without any assets, liabilities or intended business to which a short lease of the land had been granted by the registered owner with the aim of conferring on the special purpose vehicle an entitlement to possession but on terms that enabled the registered owner to recover possession when it identified a potential tenant for the land and in anticipation that the special purpose vehicle would be dissolved or liquidated without discharging the liability to rates.[62]Lord Briggs and Lord Leggatt JJSC, setting out the judgment of the court, summarised the approach which should be adopted in answering that question as follows:
“15 In the task of ascertaining whether a particular statutory provision imposes a charge, or grants an exemption from a charge, the Ramsay approach is generally described – as it is in the statements quoted above – as involving two components or stages. The first is to ascertain the class of facts (which may or may not be transactions) intended to be affected by the charge or exemption. This is a process of interpretation of the statutory provision in the light of its purpose. The second is to discover whether the relevant facts fall within that class, in the sense that they “answer to the statutory description” (Barclays Mercantile at para 32). This may be described as a process of application of the statutory provision to the facts. It is useful to distinguish these processes, although there is no rigid demarcation between them and an iterative approach may be required. 16 Both interpretation and application share the need to avoid tunnel vision. The particular charging or exempting provision must be construed in the context of the whole statutory scheme within which it is contained. The identification of its purpose may require an even wider review, extending to the history of the statutory provision or scheme and its political or social objective, to the extent that this can reliably be ascertained from admissible material. 17 Likewise, the facts must be also be looked at in the round. In Inland Revenue Comrs v McGuckian [1997] 1 WLR 991, 999, Lord Steyn explained that it was the formalistic insistence on examining steps in a composite scheme separately that allowed tax avoidance schemes to flourish. Sometimes looking at a composite scheme as a wholeallows particular steps which have no commercial purpose to be ignored. But the requirement to look at the facts in the round is not limited to such cases. Thus, in Scottish Provident [2004] 1 WLR 3172 where the taxing statute granted an allowance which depended upon the taxpayer having an entitlement to a specified type of property (gilts), a view of the facts in the round enabled the House of Lords to conclude that a legal entitlement to gilts generated by one element in a larger scheme failed to qualify because the entitlement was intended and expected to be cancelled out by an equal and opposite transaction.”
[63]The Supreme Court concluded that, even though the leases were not shams and gave rise to genuine rights and obligations, a realistic view of the facts was that the registered owner remained the person entitled to possession of the land and that identifying the special purpose vehicle as the person so entitled would defeat the purpose of the legislation. They stressed that their conclusion was not founded on the fact that the only motive for the arrangement had been to avoid incurring rates. Instead, “[their] conclusion [was] based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed.”[64]In the present case, the question in issue is whether, when CPW left the CPW Chargeable Gains Group, CPW continued to hold the Goodwill. It is apparent that, in the light of Rossendale, the answer to that question does not depend solely on the legal rights and obligations to which the Agreements gave rise but instead on all the facts surrounding the transaction which occurred. Those facts include the legal rights and obligations to which the terms of the Agreements gave rise but those legal rights and obligations, whilst of great significance in the process, are just part of the overall picture and are not determinative in and of themselves. Issue Two – the scope of the rule prohibiting assignment “in gross” The parties’ submissions

Issue Two – the scope of the rule prohibiting assignment “in gross”

[65]Before I consider whether, on a realistic view of the facts, the effect of the Agreements in this case was that CPW disposed of the Goodwill to BBUK, it is necessary to consider the scope of the common law rule prohibiting the assignment of goodwill “in gross”.[66]Mr Gammie accepted the basic proposition that the goodwill attaching to a business could not be assigned “in gross” – which is to say without the assignee’s taking over some relevant interest in the business to which the goodwill related. However, he said that a “relevant interest” for this purpose did not require the assignee to have acquired the business to which the goodwill related or any of the assets of the business. It merely required that, following the assignment of the goodwill, the assignee was the person for whose benefit the business was carried on.[67]In making this submission, Mr Gammie relied on the decision of Geoffrey Hobbs QC as the appointed person in a trade mark dispute in Kurobuta Limited v Hallsworth [2021] R.P.C 13 (“Kurobuta”). In Kurobuta, the appointed person had concluded, at paragraphs [37] to [79] of his decision, that an assignment of goodwill in the form of unregistered trade marks could be valid even if it was not accompanied by a transfer of the business to which the trade marks related or the assets and resources of that business. In the view of the appointed person, all that was needed was that, following the assignment:(1) the assignee should be capable of turning the goodwill to account; and(2) there should be no likelihood of deception.[68]In reaching that conclusion, the appointed person had referred to the development of the authorities in this area, as demonstrated in two earlier judicial decisions, namely:(1) the Privy Council decision in Star Industrial Company Limited v Yap Kwee Kor trading as New Star Industrial Company [1976] F.S.R.256 (“Star Industrial”); and(2) the House of Lords decision in Scandecor Developments AB v Scandecor Marketing AB [2001] UKHL 21 (“Scandecor”).[69]In Mr Gammie’s view, these decisions showed that that an assignment of goodwill could still be valid without a transfer of the business to which the goodwill related or the assets of that business as long as the assignee was capable of turning the goodwill to account in the future and there was no deception involved.[70]A critical part of the decision in Kurobuta was paragraph [75], in which the appointed person noted that a business was not a thing but a course of conduct and went on as follows:
“Whether by choice or through force of circumstance, the resources and facilities deployed for the purposes of a business are liable to come and go. Meanwhile, the goodwill built up and acquired for the benefit of the business subsists as an intangible asset with a lifespan of its own. It is owned via the right to control exploitation of the “attractive force which brings in custom” to the business which has generated it. That right can normally be transferred with the transferee then becoming entitled to manage for itself the task of organising the resources and facilities it needs or wishes to deploy for the purpose of exploiting the goodwill of the business. The law does not appear to me to stand in the way of that being done by the transferee using pre-existing or yet to be procured or any combination of pre-existing and yet to be procured resources and facilities. It would otherwise not be possible to effect a transfer of the subsisting (which I take to include residually subsisting) goodwill of a business which has for any reason lost or run down or been prevented from utilising most or all of its tangible assets. So even if (which was a matter not addressed in the evidence) no physical assets were delivered to the applicant under the Assignments, that would not, in my view, render them incapable of being Assignments of the goodwill of the “Kurobuta business” (viewed as an activity) in relation to which the “KUROBUTA trade name” had previously been used.”
[71]In Star Industrial, a Hong Kong company which had previously abandoned its business in Singapore and then subsequently purported to transfer the unregistered trade marks which it had used in that business to a Singapore joint venture company in which it had an interest and which it had set up to carry on a similar business had failed in a passing–off action against a third party that was carrying on business under a name which was similar to the Hong Kong company. Referring to the decision in Muller, the Privy Council had held that, since the Hong Kong company had previously ceased to carry on business in Singapore and had no intention of itself resuming that business, it could not succeed in its passing–off action against the third party. Once the Hong Kong company had ceased to carry on business in Singapore, it ceased to have any proprietary right in Singapore which was entitled to protection by way of a passing–off action.[72]The Privy Council had then gone on to say as follows: “It is conceded on behalf of the Hong Kong Company that the right of user of the unregistered mark or get-up intended to be conferred upon the Singapore Company was exclusive; the Hong Kong Company could no longer use it itself in relation to goods to be sold, or otherwise traded in, in Singapore. At common law this right of user of the mark or get-up in Singapore was incapable of being assigned except with the goodwill of that part of the business of the Hong Kong Company in connection with which it had previously been used. So, if despite the temporary cesser of the Hong Kong Company’s business in Singapore after the import duty on toothbrushes had been imposed in 1965, it still retained – as well it might (cf Mouson & Co. v Boehm (1884) 26 Ch.D. 398) – a residue of goodwill capable of being revived in 1968, any right of property in that goodwill would have passed to the Singapore Company under the Agreement. The Singapore Company is not a party to these proceedings; and their Lordships express no view as to what rights, if any, it would have been entitled to enforce against the respondent if it had been the plaintiff in a passing-off action brought against him”.[73]In Kurobuta, the appointed person had concluded that the above dicta were consistent with the proposition that goodwill could be assigned without a transfer of the business to which the goodwill related or the assets of that business because the agreement between the Hong Kong company and the Singapore joint venture company had made no provision for the transfer to the Singapore joint venture company of the business to which the unregistered trade marks related and yet the Privy Council had not ruled out the possibility that the Singapore joint venture company would have been able to succeed in a passing–off action against the third party – see Kurobuta at paragraphs [64] and [65].[74]In Scandecor, a Swedish company which had acquired registered trade marks and other assets of an affiliated Swedish company that had gone into liquidation commenced proceedings against a former UK affiliate for infringement of the trade marks. The issue in the case was whether the failure by the Swedish company as the proprietor of the trade marks to enforce quality control over the goods sold by the former UK affiliate under a licence of the trade marks was inherently deceptive, with the result that the trade marks should be revoked. In the course of its decision, the House of Lords had summarised the history of registered trade mark assignability and explained how the original prohibition on the assignment of registered trade marks “in gross” had given way to a more relaxed approach under, first, the Trade Marks Act 1938 and, then, the Trade Marks Act 1994 pursuant to which, subject to certain exceptions, registered trade marks could be assigned either in connection with the transfer of a business or not.[75]In Kurobuta, the appointed person had concluded that, because registered trade marks could now be assigned separately from the business to which they related, the same must be true of unregistered trade marks – see Kurobuta at paragraphs [55] and [56].[76]Mr Gammie said that the decisions in Kurobuta, Star Industrial and Scandecor demonstrated that the purported assignment of the Goodwill by CPW to BBUK in this case would not have been rendered invalid if it was not accompanied by a transfer of the Businesses or any of the assets of the Businesses because, even if that was the case, BBUK was still able to carry on the Businesses and turn the Goodwill to account following the assignment. It could do that because it was permitted by the SPA to carry on the Businesses and it was able to carry on the Businesses even though it did not acquire any of the assets of the Businesses because it had access to the services to be provided to it by CPW under the MSA. It was therefore able to turn the Goodwill to account by carrying on the Businesses through the agency of CPW. Its position was no different from the assignee in Kurobuta.[77]Mr Brinsmead–Stockham said that the decision of the appointed person in Kurobuta was not binding on me and was, in any event, incorrect and not justified by the terms of the decisions in Star Industrial and Scandecor. He said that it had always been the case, and it remained the case, that, in order to be valid, an assignment of goodwill needed to be accompanied by a transfer of the business to which the goodwill related.

Conclusion

[78]I agree with Mr Gammie that, in Kurobuta, the appointed person upheld the validity of an assignment of goodwill, in the form of unregistered trade marks, even though that assignment had not been accompanied by the transfer of the business to which the goodwill related. However, notwithstanding the conclusion reached by the appointed person in Kurobuta, I do not agree that it is possible to effect a valid assignment of goodwill where the assignment is not accompanied by a transfer of the business to which the goodwill relates.[79]It is clear from Wadlow and the summary of the law in this area by Lord Nicholls in Scandecor that the rule prohibiting assignments “in gross” has historically required that, in order to be effective, an assignment of goodwill needs to be accompanied by a transfer of the business to which the goodwill relates. The fact that goodwill cannot be transferred separately from the business to which it relates and is simply a facet of that business is the subject of the very highest authority. It was made clear in a number of the judgments in Muller – see, in particular, Lord Macnaghten at page 224, Lord Davey at pages 226 and 227 and Lord Lindley at page 235. Consistent with that, Halsbury’s Laws of England (Personal Property (Volume 80 (2020)) at 809) starts by saying that “[goodwill] is not a thing which can be separated and dealt with apart from the business out of which it arises” and cites numerous authorities to that effect. It is also implicit in the terms of Section 275(1)(g) of the TCGA 1992 – which specifies that, for the purposes of the chargeable gains legislation, goodwill is to be treated as situated where the business to which it relates is carried on.[80]Accordingly, unless there is something in the three decisions set out above to compel the contrary conclusion, an assignment of goodwill which is not accompanied by a transfer of the business to which the goodwill relates is an assignment “in gross” and is invalid.[81]Turning then to the three decisions on which Mr Gammie relied, Star Industrial was a decision of the Privy Council. It is therefore technically not binding on me although it is of course persuasive. Star Industrial does not support the proposition that an assignment of goodwill made without a related transfer of the business to which the goodwill relates can still be valid. Indeed, Lord Jauncey, in describing the precise rights which were entitled to be protected by a passing off action in Reckitt & Colman Products Limited v Borden Inc and others [1990] RPC 341 at page 417, observed that such an action was a remedy for the invasion of a right of property in the business or goodwill likely to be injured by the misrepresentation and then cited Lord Diplock’s statement in Star Industrial to the effect that “[goodwill], as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached”.[82]The ratio of the decision in Star Industrial is that a company which has ceased to carry on business in a particular jurisdiction no longer has protectable goodwill in that jurisdiction and therefore cannot succeed in a passing off action against a person carrying on a business in that jurisdiction which is similar to the original business. The only relevance of the decision in the present context is that, as noted in paragraph 72 above, Lord Diplock then briefly addressed the question of whether the Singapore joint venture company which had succeeded to the business of the Hong Kong company might have been able to succeed in a passing off action against the third party and did not rule out that possibility. Although the appointed person in Kurobuta concluded from this that Lord Diplock was contemplating the possibility that an assignment of goodwill in isolation from the business to which it related might still be valid – see Kurobuta at paragraphs [63] to [65] – my reading of the relevant part of the decision is that Lord Diplock expressly declined to answer that question. What he actually said was that “their Lordships express no view as to what rights, if any, [the Singapore joint venture company] would have been entitled to enforce against the respondent…”.[83]Moreover, the circumstances which Lord Diplock was addressing in Star Industrial were that, although the business to which the goodwill related had ceased, the Hong Kong company might have retained a residue of goodwill which could have revived in the Singapore joint venture company as the successor to the Hong Kong company’s business. It is a long way from a situation where a business is being carried on both before and after an assignment of goodwill is made and the business is not transferred to the assignee but is instead left behind in the assignor. It seems to me that the possibility of deception in the latter case is much greater than on the facts of Star Industrial.[84]Scandecor was a decision of the House of Lords and is therefore binding on me. However, I can see nothing in that decision to support the conclusion that goodwill can be assigned without a transfer of the business to which the goodwill relates. Scandecor was a case dealing with the transferability of registered trade marks, which are the subject of a statutory regime. It describes the development of the statutory regime which allows for registered trade marks to be assigned without a simultaneous transfer of the goodwill in the business to which they related. As such, it says nothing about the transferability of goodwill in isolation from the business to which it relates. The appointed person in Kurobuta was in my view wrong when he said at paragraph [55] that the fact that there was a statutory regime allowing for the assignment of registered trade marks in isolation from the business to which they related meant that the same should be true of unregistered trademarks and, by extension, goodwill.[85]As for the decision in Kurobuta itself, that is not binding on me as it is a decision of the appointed person in a trade mark dispute and not a decision by a court. In any event, I have outlined in paragraphs 81 to 84 above why I think that the conclusions reached by the appointed person on the basis of Star Industrial and Scandecor were wrong.[86]I would add that, crucially, in my view, the decision in Kurobuta was highly dependent on its particular facts and those facts are very different from the present facts. In Kurobuta, it was unclear how the business to which the goodwill related had been conducted in the period immediately prior to the assignment in question. Moreover, following the assignment, the assignors had retained no interest in controlling the exploitation of the attractive force which brought custom to the business and it was up to the assignee to decide what to do with the business going forward. Consequently, there was no basis for believing that the public might be deceived by giving validity to the assignment – see Kurobuta at paragraphs [66] to [69] and [76] to [78].[87]In contrast, in this case, it is perfectly clear how the Businesses were being conducted in the period prior to the execution of the Agreements and, far from CPW’s retaining no interest in controlling the Businesses after the Agreements became effective, that control remained in CPW under the terms of MSA. In addition, it was CPW which was held out to the public, including its own employees and the networks, as carrying on the Businesses. In my view, to treat the assignment of the Goodwill in this case as being valid in the absence of a transfer of the Businesses would be contrary to the public policy that led to the establishment of the rule in the first place.[88]For the reasons set out above, I believe that, in order for the sale of the Goodwill in this case to have been valid, it needed to have been accompanied by a transfer of the Businesses to which it related and it is not sufficient for BBUK to have acquired some lesser interest in the Businesses or the assets of the Businesses, such as the ability to turn the Goodwill to account.[89]That is not to say that all of the assets of the Businesses needed to have been transferred with the Goodwill. I accept that an assignment of goodwill accompanied by a transfer of the business to which it relates can remain valid even if certain assets of the business are excluded from the transfer of the business because the person acquiring the goodwill and the business might well use different assets in carrying on the business from those used by the disponor. This was something recognised by Lord Brampton in Muller at page 231 when he referred to excluding from the sale of goodwill the premises from which the business has been carried on. However, in my view, it is not possible for goodwill to be validly assigned without a simultaneous transfer to the assignee of the business to which the goodwill relates.[90]Having said that, the conclusion which I have reached in dealing with Issue Three – see paragraphs 91 to 162 below – means that my conclusion in relation to Issue Two is ultimately only of academic interest. Even if I am wrong to say that an assignment of goodwill cannot be valid if it is not accompanied by a transfer of the business to which the goodwill relates, and all that is required in order for an assignment of goodwill to be valid is that, following the assignment, the assignee must be the person for whose benefit the business is carried on, it will be seen from my conclusion in relation to Issue Three that, in my view, on a realistic view of the facts in this case, BBUK was not the person for whose benefit the Businesses were carried on after the Agreements became effective. Instead, after that time, the Businesses continued to be carried on for the benefit of CPW. Issue Three – ownership of the Businesses following the execution of the Agreements The parties’ submissions

Issue Three – ownership of the Businesses following the execution of the Agreements

[91]It was common ground that the Agreements did not give rise to a partnership between CPW and BBUK because the two companies did not at any stage carry on a business in common with a view of profit, which is a pre–requisite for a partnership to exist – see Section 1 of the Partnerships Act 1890. In addition, the parties clearly did not intend to create a partnership as both the SPA and the MSA contained provisions to that effect – see clause 11.8 in the SPA and clause 8.8 in the MSA.[92]Instead, the Appellant’s position was that the legal rights and obligations to which the Agreements gave rise involved a transfer of the Businesses by CPW and BBUK with the result that, once the Agreements became effective, it was BBUK that carried on the Businesses as principal whereas the Respondents’ position was the Agreements left CPW as the sole owner of the Businesses carrying on the Businesses as principal.[93]Mr Gammie submitted that, even if CPW’s disposal of the Goodwill could be effective only if it was accompanied by a transfer of the Businesses to BBUK, the only sensible interpretation of the legal rights and obligations to which the Agreements gave rise was that they had effected a transfer of the Businesses from CPW to BBUK. This was because, after the Agreements became effective, BBUK had the exclusive right to carry on the Businesses and to enjoy the profits which arose from the Businesses. That was the clear intention of the Agreements as a whole and the authorities showed that commercial documents should be construed:(1) with reference to their objects and the whole of their terms – see Asplin LJ in PM Law Limited v Motorplus Limited [2018] EWCA Civ 1730 and Chitty on Contracts (35th edition) (“Chitty”) at paragraph 16–071, referring to, inter alia, Lord Davey in NE Railway v Hastings [1900] AC 260; and(2) in a manner which gave rise to a commercially sensible conclusion that accorded with the parties’ intentions – see Chitty at paragraph 16–097, referring to, inter alia, Lord Diplock in Antaios Compania Naviera SA v Salen Rederierna AB [1985] AC 191.[94]In this case, the parties’ intentions, as reflected in the drafting of the Agreements, were that, once the Agreements became effective, BBUK would carry on the Businesses for its own account through the agency of CPW and that BBUK would pay CPW a management fee in return for CPW’s services. The fact that none of the assets of the Businesses had been transferred to BBUK was neither here nor there because BBUK was able to carry on the Businesses through the agency of CPW and, barring any termination of the MSA caused by a default of one of the parties, that agency would continue indefinitely and for at least fifteen years. Moreover, if the agency did come to an end, then BBUK would always be able to carry on the Businesses by other means. For example, at that stage, it could engage its own employees and enter into contracts with new customers. In addition, as a company engaged in a joint venture involving two groups, it had access to services provided from those two groups. For example, it could enter into a services arrangement with a company in one of the two groups which was similar to the one into which it had entered with CPW under the MSA. The ability of a person acquiring a business to do so without necessarily acquiring the assets or liabilities of the business was a feature of the conduct of a business to which the appointed person had referred in Kurobuta at paragraph [75] – see paragraph 70 above. In short, the conduct of a business was not dependent on a constancy in the assets which were used to carry on the business. Those assets could easily change from time to time without affecting the fact that the same business was still continuing.[95]To all intents and purposes therefore, the Agreements had effected a transfer of the Businesses from CPW to BBUK. After the Agreements became effective, it was BBUK and not CPW which owned the Businesses and CPW’s activities in respect of the Businesses were merely those of a service provider providing agency services to BBUK to enable BBUK to carry on the Businesses. CPW had ceased to have the right to carry on the Businesses for its own account. It was because of that reality that, in various places in the SPA, reference had been made to the fact that the Businesses had been transferred by CPW to BBUK. For example:(1) clause 4.1 referred to “completion of the sale and purchase of the Businesses and the Goodwill”;(2) clause 7.1 referred to the fact that the brand licence granted under that clause was “[in] addition to the transfer of the Businesses and the Goodwill”; and(3) clause 9.2 referred to the possibility that, for VAT purposes, the Respondents might treat “the transfer of the businesses” as constituting a supply.[96]Mr Gammie sought to support the proposition set out above by an analogy with circumstances where a partnership carried on a business but only one of the partners owned the goodwill in the business to the exclusion of the other partners – see Anna Trego and William Wilson Smith v George Stratford Hunt [1896] AC 7 (“Trego”) and Stekel v Ellice [1973] 1 WLR 191 (“Stekel”). He said that that was no different from circumstances where a person sold goodwill and a business to another person but then continued to carry on the business as agent for the other person. In both cases, the end result was that a person carried on the business but had no interest in the goodwill of that business. Thus, in this case, if CPW had assigned the Goodwill to BBUK and entered into a partnership with BBUK on terms that they would carry on the Businesses together, the assignment of the Goodwill to BBUK would be effective. It would therefore be perverse if a different result ensued simply because CPW and BBUK were not in partnership but CPW was carrying on the Businesses as BBUK’s agent.[97]A similar point had arisen in IN Newman Limited v Adlem [2005] EWCA Civ 741 (“Adlem”) where Mr Adlem had sold his business along with the goodwill to a purchaser but continued to work in the business. The majority in the Court of Appeal had upheld the passing off action brought against him by a subsequent owner of the business because he was doing business under his own name despite the sale. Adlem showed that a sale of goodwill could remain effective even if the seller continued to work for the purchaser as an employee or independent contractor after the sale. That was similar to the present case where CPW had continued to act as agent for BBUK after the sale.[98]Putting it another way, CPW’s agreement to carry on the Businesses as BBUK’s agent after the Agreements became effective was no different from a covenant given by an assignor of goodwill which restricted the trade of the assignor in the future. In both cases, the terms of the agreement or covenant in question provided the assignee of the goodwill with all the advantages that the assignee intended to acquire by taking the assignment and was therefore indicative that ownership of the goodwill had passed from the assignor to the assignee – see the Special Commissioner’s decision in Balloon Promotions v Wilson and another [2006] STC (SCD) 167 (“Balloon”) at paragraph [170]. Something similar had occurred in Kirby v Thorn EMI plc [1987] STC 621, where a covenant given by the seller of three companies to the purchaser of those companies to the effect that no company in the seller’s group would compete with the businesses carried on by the companies was held to be a part disposal of the goodwill held by the seller in respect of those businesses.[99]Mr Brinsmead–Stockham said that, on the contrary, on any realistic view of the facts, after the Agreements became effective, not only did ownership of the Businesses remain with CPW but it was CPW and not BBUK which carried on the Businesses. As such, viewed realistically, both the Goodwill and the Businesses remained in CPW. Mr Brinsmead–Stockham provided a number of reasons for reaching this view. As I refer to those reasons at some length in the conclusion which follows, I will not set them out in this section of the decision. Conclusion Introduction[100]I agree with Mr Brinsmead–Stockham that, on a realistic view of the facts in this case:(1) not only were the Businesses not transferred to BBUK pursuant to the combined effect of the Agreements; but also(2) after the Agreements became effective, CPW continued to carry on the Businesses as principal on its own account and did not do so as agent for BBUK.[101]I say that for the reasons which follow.

No provision in the Agreements for the transfer of the Businesses

[102]The starting point in this process must inevitably be the terms of the Agreements themselves.[103]At the hearing, both parties referred me to a number of decisions which related to the interpretation of contracts and, in particular, the inter–relationship between a textual and a contextual analysis of a contract and the extent to which the words in a contract should be construed in a manner which gives rise to a commercially sensible conclusion. However, I do not think that those cases are of great assistance in the context of this decision. I say that because I did not understand the parties’ disagreement in relation to identifying the legal rights and obligations to which the Agreements gave rise to be based in any way on a divergence in the meaning of the words used in the Agreements and, hence, to be a question of construing those words. Instead, their dispute turned on the conclusions to be drawn from those words.[104]With that introduction, I turn first to the terms of the SPA.[105]Both the recitals to, and the main operative provisions of, the SPA – which is to say clauses 2 and 3 – stipulated that, whilst CPW was agreeing to sell the Goodwill to BBUK, it was not selling the Businesses to BBUK but only selling the right to carry on the Businesses to BBUK. The language used in those provisions appears to have been quite deliberate and it contrasts with the language used in each of the Prior SPAs, which clearly did involve a transfer of the Businesses to CPW as a going concern and made express provision to that effect.[106]Moreover, only £1,000 of the aggregate consideration of £50,800,000 which was paid by BBUK to CPW under the SPA was allocated to the sale of the right to carry on the Businesses. The paucity of the amount in question is again indicative of the fact that the SPA was not contemplating a sale of the Businesses themselves (or, for that matter, ascribing much value to the right to carry on the Businesses).[107]In the circumstances, I can see no force in the argument that the fact that certain clauses in the SPA – notably, clauses 4.1, 7.1 and 9.2 – referred to there having been a transfer of the Businesses meant that the Businesses had been transferred. It is perfectly clear from the recitals and the main operative provisions that no such transfer was contemplated and that the references in those clauses to the Businesses’ having been transferred were simply drafting errors. No provision in the Agreements for the transfer of assets other than Goodwill or the assumption of any liabilities[108]It is also the case that the Agreements made no provision for the transfer to BBUK of any of the assets of the Businesses apart from the Goodwill or for the assumption by BBUK of any of the liabilities of the Businesses.[109]As regards the assets, clause 2.3 of the SPA provided that, except as expressly set out in the agreement, BBUK would acquire no right or title to any asset of the CPW Group. The SPA made no express provision for the transfer of any asset of the CPW Group apart from the Goodwill. Moreover, the further assurance obligation on CPW in clause 11.3 of the SPA required CPW to do all acts and execute all documents as might be required to vest the Goodwill in BBUK. It made no reference to any other asset of the Businesses. It follows that, leaving aside the Goodwill, the SPA made no provision for BBUK to acquire any of the assets which CPW had been using to carry on the Businesses such as customer contracts, debtors, stock or fixed assets.[110]As regards the liabilities, clause 2.2 of the SPA provided that, except as expressly set out in the agreement, BBUK would assume no liability in respect of the Businesses or any other business of the CPW Group. The SPA made no express provision for BBUK to assume any liability in respect of the Businesses or any other business of the CPW Group, which meant that those liabilities remained with CPW or the relevant member of the CPW Group.[111]Again, the failure on the part of the Agreements to provide for the transfer to BBUK of any assets of the Businesses apart from the Goodwill or for the assumption by BBUK of any of the liabilities of the Businesses contrasts starkly with the terms of the Prior SPAs, which did make provision to those effects in connection with the transfer of the Businesses to CPW.

No transfer of employees

[112]Consistent with the approach to the assets and liabilities of the Businesses, and again as distinct from the terms of the Prior SPAs, both the SPA and the MSA provided that none of the contracts of employment of the employees on whom CPW had been relying to carry on the Businesses were transferred to BBUK – see clause 8 of the SPA and clause 6 of the MSA.

Did BBUK carry on the Businesses after the Agreements became effective?

[113]Just pausing at this stage, it is clear beyond any doubt that, leaving aside the Goodwill, the terms of the Agreements did not give rise, and were not intended to give rise, to a transfer by CPW to BBUK of:(1) the Businesses;(2) any of the assets of the Businesses;(3) any of the liabilities of the Businesses; or(4) any of the employees of the Businesses.[114]However, the terms of the Agreements did provide for the sale to BBUK of the right to carry on the Businesses as principal. Moreover, the Agreements provided that CPW would, insofar as it was able to do so, permit BBUK to assume the conduct of the Businesses and that BBUK would carry on the Businesses with effect from the completion date. They also provided that CPW would deliver to BBUK such items and documents as to enable BBUK to carry on the Businesses. In Mr Gammie’s submission, the legal rights and obligations to which these provisions gave rise meant that BBUK effectively became the owner of the Businesses at the time when the Agreements took effect because there was no difference between, on the one hand, formal ownership of a business, and, on the other hand, the ability to exercise all the rights of ownership of the business by carrying on the business.[115]I do not propose to address in this decision the question of whether there is a real difference between:(1) an agreement under which A agrees to transfer ownership of A’s business to B; and(2) an agreement under which A agrees that B can carry on A’s business. On that question, I will say only that the parties to the transaction must have thought that there was a difference because they took pains to provide for the latter and not the former in the Agreements. However, I do not think that the question needs to be addressed for reasons which will shortly become clear.[116]The legal rights and obligations to which the Agreements gave rise are a function of all of the provisions in the Agreements, taken as a whole, and not just the provisions mentioned in paragraph 114 above. It follows that I need to consider whether the terms described above, when taken together with the other terms of the Agreements taken as a whole, gave rise to legal rights and obligations which meant that, once the Agreements became effective, BBUK began to carry on the Businesses as principal.[117]The starting point in answering that question is to observe that:(1) BBUK had clearly been given the right to carry on the Businesses under the terms of the SPA; but(2) BBUK was, equally clearly, incapable of carrying on the Businesses in the same way as had CPW. It simply did not have the assets or liabilities with which to do so and all of the employees tasked with carrying on the Businesses remained in CPW. This meant that the only way that BBUK could carry on the Businesses was through CPW as its agent. In that regard, I do not doubt the fact that it is possible for a company to carry on a business through another company as its agent instead of through its own employees or independent contractors. As noted by the appointed person in Kurobuta at paragraph [75], a business can continue to be carried on notwithstanding a change in the assets and/or liabilities used in carrying on the business and in the way that the business is conducted. As such, once the Agreements became effective, it would have been perfectly possible for BBUK to carry on the Businesses as principal through the agency of CPW even though none of the assets of the Businesses had been transferred to BBUK, none of the liabilities of the Businesses had been assumed by BBUK and BBUK had no employees to carry on the Businesses.[118]However, I consider that that is not what happened in this case. On the contrary, in my view, the legal rights and obligations to which the Agreements gave rise were such that, after the Agreements became effective, the Businesses continued to be carried on by CPW as principal and CPW was merely required to make payments to BBUK which were equal to a fixed percentage of the future gross revenues of the Businesses.[119]I say that because the two fundamental features of carrying on a business as principal are:(1) the ability to dictate the overall strategy and direction of the relevant business, in addition to conducting the day–to–day activities of the business; and(2) an entitlement to the profits of the business and, in my view, after the Agreements became effective, it was CPW which enjoyed both of those rights under the terms of the Agreements whereas BBUK did not. The ability to dictate the overall strategy and direction of the Businesses[120]Starting with the ability to dictate the overall strategy and direction of the Businesses in this case, it is plain from the terms of the MSA that it was CPW and not BBUK which had this ability because of the all–embracing scope of CPW’s legal rights and obligations under clause 3 of, and schedules 1 and 2 to, the MSA. Those provisions conferred on CPW the right and obligation to provide the Management Services and to procure that CPWUK provided the Property Management Services. Moreover, clause 3.2 of the MSA expressly provided that BBUK would not do anything to restrict CPW from carrying out the Management Services or CPWUK from carrying out the Property Management Services. The scope of the Management Services was vast, entailing as it did everything involved in the management and operation of the Businesses. By definition therefore, it included all decisions, whether major or minor, in relation to the conduct of the Businesses. The only restrictions placed on CPW under the Agreements in relation to how it carried out the management and operation of the Businesses were that:(1) CPW had to carry out that management and operation “with reasonable care and skill to the extent as may be reasonably necessary for the Businesses to be continued to be operated to a no lesser standard to that operated immediately prior to the date of this Agreement” – see clause 3.1.2 of the MSA; and(2) CPW was required to take out various insurances – see clause 3.1.3 of the MSA.[121]In my view, these limitations did not mean that the ability to dictate the overall strategy and direction of the Businesses passed from CPW to BBUK. I say that because:(1) first, the limitations were not very onerous. In effect, they were no greater than the restrictions which are often placed on a borrower by a lender making a loan to finance the borrower’s business. Such restrictions operate as a restriction, to the extent specified, on the manner in which the borrower conducts its business but they do not mean that the borrower ceases to have the right to conduct its business or that that right of conduct passes to the lender; and(2) secondly, and perhaps more tellingly, the limitations were merely contractual restrictions on CPW’s right to dictate the overall strategy and direction of the Businesses. They did not confer on BBUK any positive control over that overall strategy and direction. BBUK had no ability to dictate that overall strategy and direction. That ability remained with CPW albeit that, if CPW exercised its rights in that regard in breach of the relevant limitations, then BBUK had a right to claim for breach of contract. In short, the limitations in clauses 3.1.2 and 3.1.3 of the MSA are in no way an indication that it was BBUK and not CPW which was carrying on the Businesses after the Agreements became effective. I should add that the limitations in question made perfect sense from the commercial perspective without leading to the conclusion that it was BBUK that was carrying on the Businesses after the Agreements became effective. Under the terms of the Agreements, BBUK had an entitlement to payments that were quantified by reference to the future gross revenues of the Businesses. It is therefore unsurprising that BBUK might have wanted some assurances from CPW to the effect that CPW’s activities in carrying on the Businesses would not prejudice the amount of those future gross revenues.[122]Given the above, I consider that the legal rights and obligations to which the Agreements gave rise were such that, after the Agreements became effective, it was CPW and not BBUK which was the entity entitled to dictate the overall strategy and direction of the Businesses. The effect of the Agreements was to leave CPW with virtually unrestricted control of all the key strategic decisions relating to the Businesses.[123]So far, the only legal rights and obligations I have been considering in relation to identifying which company had the right to determine the overall strategy and direction of the Businesses are those which arose under the Agreements. However, it is necessary to consider whether anything I have said so far is affected by the terms of paragraph 3 of the Side Letter. This provided that it had been the intention of the parties to the MSA all along that CPW would not take any “major strategic decision” in relation to the Businesses without BBUK’s prior approval. At the hearing, Mr Gammie submitted that this provision in the Side Letter should be construed as merely clarificatory in nature and that a limitation to that effect should be implied in the MSA itself. However, I can discern no evidence of this intention in the express terms of the MSA. On the contrary, the scope of the legal rights and obligations of CPW in managing and operating the Businesses as set out in clause 3 of, and schedules 1 and 2 to, the MSA was all–encompassing, suggesting that the parties were intending to agree, and were agreeing, to CPW’s having absolute control over the management and operations of the Businesses, including all strategic decisions, both major and minor, subject only to the minor limitations described in paragraph 120 above.[124]Mr Gammie did not suggest any basis in law on which the limitation described in paragraph 3 of the Side Letter should be implied in the MSA. The authorities show that strict constraints apply to the exercise of the power to imply a term in a contract – see Tesco Stores Limited v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28 at paragraphs [32] to [36] and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Limited [2015] UKSC 72 at paragraphs [15] to [31]. No basis for the exercise of that power, applying those principles, in this case was suggested. I do not think that the terms of the Side Letter, a document executed some eighteen months after the date of the Agreements and purporting to describe the intentions of the parties in entering into the MSA, is sufficient in and of itself to have that effect when those stated intentions were so at odds with the express terms of the MSA.[125]The ability to take major strategic decisions in the course of carrying on a business for another company is hardly an insignificant detail when it comes to setting out the scope of the respective legal rights and obligations of the parties to an agreement such as the MSA. It is of the essence of any agency arrangement that the respective legal rights and obligations of the principal and the agent are made clear so that the parameters of the agent’s activities on behalf of the principal are established from the outset. This is particularly true where the agency in question relates to carrying on the principal’s business. If it had been the intention of the parties at the time when the Agreements were executed that CPW’s ability to make major strategic decisions in relation to the Businesses would be restricted in the way set out in paragraph 3 of the Side Letter, then I have no doubt that that intention would have been reflected expressly in the terms of the MSA. In the circumstances, I do not see any basis for implying such a restriction in the terms of the MSA ab initio as I was urged to do by Mr Gammie. It follows that the earliest that the restriction on CPW’s right to make major strategic decisions described in paragraph 3 of the Side Letter could have taken effect was not until the Agreements had been in effect for some eighteen months.[126]Even then, I do not see that the limitation described in paragraph 3 of the Side Letter moves the dial on this point in any way.[127]First, when one looks at the terms of the Side Letter as a whole, the only paragraph which was actually said to be amending the MSA was paragraph 4, the paragraph effecting a reduction in the management fee payable to CPW. The other paragraphs in the Side Letter merely purported to set out retrospectively the intentions of the parties in entering into the MSA. It is therefore not immediately obvious that paragraph 3 of the Side Letter did effect any amendment to the terms of the MSA so far as they related to CPW’s ability to manage and operate the Businesses. Putting the case at its strongest, it might be said that, despite the infelicitous language, the purpose and effect of paragraph 3 was to amend the terms of the MSA in that respect going forward.[128]Secondly, even if it is possible to construe paragraph 3 of the Side Letter as effecting a change in those terms as a contractual matter, that amendment took effect only from the date on which the Side Letter was executed. Thus, the amendment was not operative at the time when CPW left the CPW Chargeable Gains Group, which is the relevant time so far as this decision is concerned.[129]Thirdly, each of the two points made in paragraph 121 above in relation to the limitations set out in clauses 3.1.2 and 3.1.3 of the MSA applies equally to the limitation in paragraph 3 of the Side Letter. As such, even if the Side Letter did have the effect of amending the terms on which CPW was managing and operating the Businesses on and after the date when the Side Letter was executed, that did not change the locus of control over the strategy and direction of the Businesses from CPW to BBUK at that stage. It was still CPW and not BBUK which had responsibility for deciding the strategic direction of the Businesses even after the amendment took effect. CPW had to obtain the approval of BBUK before implementing certain decisions but it remained responsible for initiating and then making those decisions, subject to that approval. It certainly did not mean that BBUK had the right to carry on the Businesses as it wished.

Entitlement to the profits of the Businesses

[130]Turning then to the second essential feature of carrying on a business noted in paragraph 119 above – namely, an entitlement to the profits of the relevant business – in my view, the legal rights and obligations to which the Agreements gave rise meant that that was also entirely absent in this case so far as BBUK was concerned.[131]The profits of a business are a function of two components – the gross revenues to which the business gives rise and the expenses which must be incurred in earning those gross revenues. In my view, the legal rights and obligations to which the Agreements gave rise meant that BBUK neither had an entitlement to all of the future gross revenues of the Businesses nor had an obligation to meet any of the expenses of the Businesses. I say that for the reasons which follow.[132]Starting with the entitlement to future gross revenues, it is apparent from the rights and obligations to which clause 5 of the MSA gave rise that BBUK’s entitlement as regards the future gross revenues was simply to receive payments equal to a fixed percentage of those future gross revenues. CPW had no obligation to account to BBUK for the part of the future gross revenues which CPW was entitled to retain under the terms of the MSA.[133]Turning then to the expenses of the Businesses, it is apparent that the parties’ intentions in entering into the Agreements, as reflected in the legal rights and obligations to which the terms of the Agreements gave rise, were that responsibility for bearing all of the expenses relating to the Businesses lay with CPW and not BBUK. The broad scope of CPW’s obligations under clause 3 of, and schedules 1 and 2 to, the MSA were such that responsibility for discharging all of the expenses which were incurred in relation to the management and operation of the Businesses after the Agreements became effective rested solely with CPW. There was no obligation on the part of BBUK to reimburse CPW for any of the relevant expenses or to take responsibility in any way for those expenses.[134]It is at this point that I need to address the peculiar language in clause 5.1.2 of the SPA, which stipulated that, from completion of the SPA, CPW “shall assume the liabilities arising from the Businesses only on behalf of [BBUK]”. That was not an express statement to the effect that BBUK would be assuming any of the liabilities which CPW had incurred in respect of the Businesses before completion of the SPA. As such, it is not relevant to the point addressed in paragraph 110 above. However, it is potentially relevant in this context as it could conceivably be construed as saying that it was BBUK and not CPW which would be ultimately responsible as principal for discharging the future liabilities of the Businesses. In my view, the clause did not have that effect. This is because:(1) it is common ground that the SPA and the MSA should be read together and, for as long as the MSA remained in place, that would have been contrary to the terms of the MSA, which made it clear that it was CPW which had responsibility as principal for discharging all of the future liabilities incurred in the course of managing and operating the Businesses because its obligation to discharge those liabilities was part of the Management Services which it was obliged to provide;(2) it was clearly contrary to how the Agreements were intended to operate and did, in fact, operate, because the only way to make sense of the Agreements in economic terms was for CPW to discharge all the liabilities of the Businesses out of the share of the future gross revenues of the Businesses which it was entitled to retain under clause 5 of the MSA. The terms of clause 5 of the MSA meant that CPW had no obligation to account to BBUK for the part of the future gross revenues which CPW was entitled to retain under the terms of the MSA. It follows that the entitlement of BBUK was such that BBUK did not have the wherewithal to meet any of the expenses of the Businesses out of the amounts which it received;(3) as drafted, clause 5.1.2 makes no sense because, were the MSA to have come to an end, then CPW would no longer have been incurring any liabilities arising from the Businesses at all. In that event, CPW would have ceased to have any responsibilities under the MSA and would thus not have been incurring any liabilities in respect of the Businesses at all, whether for itself or for BBUK. It follows that, in that event, CPW could hardly have been incurring the liabilities of the Businesses “on behalf of BBUK”; and(4) finally, the clause appeared under the heading “Accounting Records”. Although the heading to a clause does not dictate its meaning, it is peculiar, to say the least, that a clause purporting to allocate ultimate responsibility for the future liabilities of the Businesses between the parties – a point of fundamental commercial importance to the parties – would be located beneath that heading.[135]In short, I believe that clause 5.1.2 is simply another error in the documents, possibly inserted in order to demonstrate that it was BBUK and not CPW that was carrying on the Businesses after the Agreements became effective.[136]It follows from the above that, if CPW, in the course of managing and operating the Businesses, was able to reduce the expenses necessary to run the Businesses, that was entirely for CPW’s benefit. Similarly, if CPW spent more in carrying on the Businesses than the portion of the gross revenues of the Businesses that it was entitled to retain when it made its payments to BBUK under clause 5 of the MSA, then that was CPW’s problem. In short, only CPW and not BBUK could ever make losses from the running of the Businesses. BBUK could make a loss if the gross revenues which it was entitled to receive under the MSA in any period were less than its interest cost and the Goodwill amortisation over that period but that would not have been a loss from the carrying on of the Businesses as such. It would instead have been a loss arising from its purchase of a right to receive a fixed percentage of the future gross revenues of the Businesses.[137]It can be seen that the effect of the legal rights and obligations to which the Agreements gave rise was that BBUK’s only entitlement under the Agreements was to payments equal to a fixed percentage of the future gross revenues of the Businesses. BBUK’s entitlement was not to the profits arising from the Businesses.[138]I do not think that the statement made in paragraph 1 of the Side Letter to the effect that the parties did not intend CPW to make any losses from carrying on the Businesses changes the above conclusion for the following reasons:(1) first, the Side Letter was not executed until some eighteen months after the Agreements became effective. I have already explained in the section of this discussion dealing with the ability to dictate the overall strategy and direction of the Businesses that I do not accept that the terms of the Side Letter should be implied in the MSA. Accordingly, even if paragraph 1 of the Side Letter effected some amendment in the terms of the MSA, the earliest that that change could have taken effect would have been the date of the Side Letter, which was eighteen months after CPW left the CPW Chargeable Gains Group;(2) secondly, the relevant paragraph purported to explain retrospectively the intentions of the parties in entering into the MSA. It did not purport to be amending the MSA. As I have already observed in the context of paragraph 3 of the Side Letter, there must be some doubt as to whether, as so drafted, paragraph 1 actually effected any change to the terms of the MSA;(3) thirdly, it is implicit in the language used in paragraph 1 of the Side Letter that CPW could realise a loss from carrying on the Businesses. The paragraph was merely saying that, in all but two circumstances, the parties would seek to avoid that loss by re–negotiating the management charge. It follows that: (a) in the two circumstances mentioned, the loss would remain in CPW; and (b) in any event, the paragraph merely required the parties to enter into negotiations to avoid the relevant loss. It was simply an agreement to agree and, as such, not legally binding. It therefore did not have the effect of preventing CPW from realising losses even where neither of the two circumstances expressly mentioned was in point; and(4) finally, it is worth noting that, as it happened, the amendment which was made to the management fee retrospectively pursuant to paragraph 4 of the Side Letter was not to prevent CPW from making a loss but quite the opposite. The fact that the management fee was reduced suggests that CPW was enjoying rather too much of the gross revenues of the Businesses than was good for BBUK. Conclusion in relation to the ability to dictate the overall strategy and direction of the Businesses and entitlement to the profits of the Businesses[139]In conclusion, it is apparent that, after the Agreements became effective and at the point when CPW left the CPW Chargeable Group, the legal rights and obligations to which the Agreements gave rise were such that:(1) it was CPW and not BBUK which had control over how the Businesses were conducted (albeit that CPW was required to comply with the limited restrictions set out in clauses 3.1.2 and 3.1.3 of the MSA in conducting the Businesses). Notwithstanding its contractual obligations to BBUK under clauses 3.1.2 and 3.1.3 of the MSA, if CPW wished to make any decision in relation to the Businesses, whether that decision related to the day–to–day operations of the Businesses or a major strategic initiative, then it was free to do so without asking for BBUK’s approval or informing BBUK of what it was doing whereas BBUK had no such rights; and(2) it was CPW and not BBUK which was exposed to the risks and rewards of owning the Businesses (although BBUK had some exposure to the future gross revenues which the Businesses generated because that would affect the quantum of the payments to which it was entitled).[140]At the hearing, Mr Gammie repeatedly referred to the arrangement effected by the Agreements as being one where it was BBUK alone that carried on the Businesses albeit through the agency of CPW. He described the arrangement as being analogous to one where a greengrocer sold his business to a third party but agreed to stay on and run the business for the new owner as an undisclosed agent for the new owner. In my view, where that analogy falls short is that, in that example, whilst the original owner would deal with customers as agent for the new owner, and customers might not know that the sale had occurred, the original owner would simply be providing a service to the new owner. Control over the strategic direction of the business would be held by the new owner and the economic risks and rewards of owning the business would be held by the new owner. It would be the new owner and not the original owner/agent who would be exposed to changes in the profitability of the business. In contrast, in this case, whilst BBUK was exposed to changes in the future gross revenues of the Businesses, because they would determine the quantum of the payments it received, it had no control over the strategic direction of the Businesses and no exposure to the profitability of the Businesses because it had no responsibility for, or exposure to, any of the expenses arising in relation to the Businesses.

Final observations

[141]So far, in determining whether or not, after the Agreements became effective, it was CPW that was carrying on the Businesses as principal or BBUK that was carrying on the Businesses through CPW as its agent, I have focused exclusively on the legal rights and obligations to which the Agreements gave rise. It may be seen from the above analysis that, in my view, those legal rights and obligations were such that the former was the case.[142]That conclusion is in fact sufficient to render moot my conclusions in relation to Issue One and Issue Two because, even if I were to espouse Mr Gammie’s position on both of those issues, my conclusion would be that, based solely on a contractual analysis of the legal rights and obligations to which the Agreements gave rise, BBUK acquired no relevant interest in the Businesses as a result of the Agreements and therefore the purported sale of the Goodwill was invalid as an assignment “in gross”. Thus, CPW continued to retain the Goodwill and to carry on the Businesses as principal after the Agreements became effective.[143]However, as I concluded in dealing with Issue One, in determining whether CPW continued to own the Goodwill when it left the CPW Chargeable Gains Group, I need to view the facts realistically. Any realistic appraisal of the facts inevitably extends beyond the legal rights and obligations to which the Agreements gave rise into other matters, which I identify below.[144]In my view, the other matters in this case all serve to confirm the conclusion that I have reached above. For instance:(1) further support for the conclusion that, viewed realistically, CPW continued to have the sole conduct of the Businesses as principal after the Agreements became effective are: (a) the Valuation Reports and the Dixons Letter. Both of these made it clear that separating the Businesses from CPW’s other businesses was impracticable because of the extent to which the Businesses were integrated into the activities of those other businesses. It was therefore not practical for the Businesses to be carried on separately from CPW’s other businesses. It is hard to see how CPW could have been carrying on the Businesses as agent for BBUK and its other businesses as principal on its own account when it was not practical to carry on the Businesses separately from those other businesses. There is certainly no evidence that it was possible to disaggregate the Businesses from CPW’s other businesses or that any exercise to that effect was undertaken; (b) the BBUK Accounts. These disclosed that no remuneration was ever payable to the directors of BBUK, suggesting that, if there was any oversight of the activities of the Businesses by BBUK’s directors, that oversight was likely to have been minimal; (c) the schedule of Properties appended to both the SPA and the MSA. These listed only 37 properties whereas, in fact, the Businesses were carried on at 101 properties when the Agreements became effective. This meant that, under the terms of the Agreements, BBUK did not have access to more than two–thirds of the properties at which the Businesses were being conducted; (d) the brand licence granted by CPW to BBUK in clause 7.1 of the SPA. This clause gave rise to a number of points as follows: (i) first, the clause was perfunctory in nature. It contained none of the detail which would normally be found in a licence of trade marks and which was in fact set out in the Brand Licence granted by CPW Brands to CPW (as described in paragraph 37 above); (ii) secondly, whereas the Brand Licence was terminable by CPW Brands on three months’ notice, there was no termination right in the brand licence granted by CPW to BBUK in clause 7.1. Accordingly, CPW could have been in a position in which it was unable to meet its obligations to BBUK under clause 7.1 of the SPA because it had no rights from CPW Brands to licence; (iii) thirdly, whereas CPW was obliged to pay a royalty to CPW Brands under the Brand Licence, there was no obligation on BBUK to pay an equivalent royalty to CPW. Consequently, the cost of using the trade marks remained in CPW alone; and (iv) finally, it is unclear how the Brand Licence would have operated if the effect of the Agreements had been that it was BBUK and not CPW that was carrying on the Businesses. The Brand Licence required CPW to pay royalties to CPW Brands based on CPW’s projected turnover “in respect of its use of the [trade marks]”. If the effect of the Agreements was that BBUK began to carry on the Businesses as principal, then none of the turnover arising in CPW in respect of the Businesses would have been “in respect of [CPW’s] use of the [trade marks]”. Instead, all of that turnover would have been referable to management services income. That would have severely impacted upon the quantum of the royalties payable under the Brand Licence. In short, if the true legal effect of the Agreements had been that BBUK had started to carry on the Businesses and CPW’s role in relation to the Businesses had just been as agent for BBUK, I would have expected to see very different provisions in relation to the brand licence in the SPA and some acknowledgement of the effects of the transaction in the form of amendments to the terms of the Brand Licence; (e) the terms of the Property Services Agreement. Under the Property Services Agreement, CPW agreed with CPWUK that it would perform the “retail services” – which is to say the management and operation of the Businesses. At the time when the Property Services Agreement was executed, CPW was clearly managing and operating the Businesses as principal on its own account. If CPW had ceased to do so as principal and was merely performing the retail services as BBUK’s agent, I would have expected to see some acknowledgment of that in an amendment to the obligation in the Property Services Agreement because, strictly, the retail services would then be being performed by BBUK (through the agency of CPW) and not by CPW; and (f) the absence of detailed termination provisions in the MSA. Although the MSA made provision for the MSA to be terminated, it did not include any provisions dealing with the apportionment of the management fee for the period in which termination occurred or provisions which would have enabled BBUK to carry on the Businesses without CPW in that event. BBUK had no access to the assets or liabilities of the Businesses and BBUK had no employees. It also had no back–up contracts with any other person. It is therefore unclear how BBUK would have been able to carry on the Businesses in those circumstances. Mr Gammie sought to explain this by saying that BBUK was a member of a joint venture group and therefore potentially had access to assets, employees or services from related companies but I do not see that as an adequate explanation. The principle that each company is an independent entity even if it is a member of a group is enshrined in company law. The fact that BBUK potentially had access to assets, employees or services from companies that were related to it did not mean that it would necessarily have been able to agree terms with those entities for the provision of the assets, employees or services that it needed to carry on the Businesses. It would have been negligent for the directors of BBUK to expose the company to circumstances where it had no wherewithal to carry on the Businesses – Businesses for which it had paid a vast sum of money – because the MSA had terminated. At the hearing, Mr Brinsmead–Stockham said that the idea that BBUK would carry on the Businesses itself in any circumstances was “simply not grounded in reality” and I agree; and(2) further support for the conclusion that, viewed realistically, it was CPW and not BBUK that was entitled to the profits of the Businesses after the Agreements became effective are: (a) the terms of the Invoice. These simply required the payment to BBUK of an amount equal to a fixed percentage of the gross revenues of the Businesses. Moreover, the Invoice referred to those amounts as “Royalties” and did not suggest that BBUK had any entitlement to the profits of the Businesses. On the contrary, they suggested that BBUK’s entitlement was simply to an amount equal to a fixed percentage of the gross revenues of the Businesses; and (b) the terms of the Accounts. The directors’ report in the CPW 2009 Accounts made no mention of any change in the nature of CPW’s activities in relation to the Businesses as a result of the transaction effected by the Agreements. In addition, the description of CPW’s turnover in the CPW Accounts did not change as between the CPW 2008 Accounts (before the transaction effected by the Agreements occurred) and the CPW 2009 Accounts (after the transaction effected by the Agreements had occurred). There was no mention of a management fee in the CPW 2009 Accounts and, in both cases, the relevant Accounts showed CPW as continuing to receive the gross revenues of the Businesses and incurring the expenses of the Businesses. The only change brought about by the execution and completion of the Agreements was that, in the CPW 2009 Accounts, CPW’s entitlement to the gross revenues of the Businesses reflected CPW’s obligation under clause 5 of the MSA to pay an amount equal to 5% of the gross revenues to BBUK. The BBUK Accounts showed BBUK as receiving, as its only turnover, “intercompany managed services income” equal to the fixed percentage of the gross revenues of the Businesses to which it was entitled under the MSA and as incurring, as its only expenses, the interest payable under the loan from CPW and the amortisation of the Goodwill.[145]There are certain other matters which I consider to be relevant in reaching a realistic view of the facts in this case.[146]First, Dixons confirmed in the Dixons Letter that none of the employees and none of networks had been informed of the transfer of the Businesses by CPW to BBUK. Whilst it is possible for a person not to disclose to third parties that it is acting as an agent for an undisclosed principal, it is unusual, to say the least, for that absence of disclosure to extend to the agent’s own employees. Moreover, the failure to inform the employees of something as significant as ceasing to carry on the Businesses as principal and starting to carry them on as agent for another company instead is not consistent with the statement in each of the CPW 2008 Accounts and the CPW 2009 Accounts referred to in paragraphs 39(1) and 40(3) above. Putting the position at its weakest, the absence of any disclosure to the employees and the networks in this case is entirely consistent with the conclusion that responsibility for carrying on the Businesses had not moved as a result of the execution of the Agreements and that it was CPW and not BBUK which carried on the Businesses after the Agreements became effective.[147]Secondly, the nature of the relationship between CPW and BBUK throughout the process needs to be taken into account. It is common ground that, although the Agreements were executed on 25 June 2008 and CPW did not leave the CPW Chargeable Gains Group until 30 June 2008, when the CPW Group sold 50% of the issued share capital of BBED to Best Buy Distributions Limited, that sale was achieved by the parties’ entering into a conditional sale and purchase agreement on 7 May 2008 which took effect only on 30 June 2008. What this means is that, at the time when the Agreements were executed, although BBUK was technically not part of the same chargeable gains group as CPW, both groups had already committed themselves to forming a joint venture which would include both CPW and BBUK.[148]I consider that this is relevant to a realistic view of the facts in this case because, at the time when the Agreements were executed and became effective, although the two companies were technically unconnected, it was known that they were highly likely to become connected within a matter of days. In my view, this would have informed the reasons why the Agreements were executed and the terms to which the parties agreed in entering into the Agreements. It was in both companies’ interests that CPW should be able to avoid a charge in respect of the Goodwill under Section 179(3) when it left the CPW Chargeable Gains Group but, apart from that, there was no commercial imperative to the transaction between them. From the commercial perspective, leaving aside the tax consequences, it was a matter of no concern to the parties whether, once the Agreements took effect, the Businesses were carried on by CPW as principal or by CPW as agent for BBUK. Both companies were members of the joint venture group. As such, it would be wrong to view the transaction which was effected by the Agreements as an entirely arm’s length arrangement.[149]The fact that both companies were members of the same joint venture group at the time when the Side Letter was executed also explains the somewhat peculiar terms of the Side Letter. At the time when the Side Letter was executed, the two companies had been in the same joint venture group for some eighteen months. As I have already noted, with the exception of the retrospective adjustment to the management fee, the Side Letter purported merely to set out the intentions of the parties in entering into the MSA. There is no evidence of those intentions in the terms of the Agreements themselves and it is unclear how the parties expected the Side Letter to apply as a contractual matter.[150]More significantly, the Side Letter provided for CPW to receive a reduced fee for its services (with retrospective effect) but did not provide for CPW to receive any consideration for agreeing to that change. That was not remotely arm’s length. At the hearing, Mr Gammie pointed out that clause 5.3 of the MSA had anticipated that the parties might subsequently adjust the management fee payable to CPW by agreement and that it was not uncommon for parties to an arrangement for the provision of services who were dealing at arm’s length to change the terms of the arrangement after the arrangement had been operating for a period of time. I agree that it is not uncommon for parties to an arrangement involving the provision of services to renegotiate the terms on which the services are being provided but only where the alteration in those terms is in return for an arm’s length consideration. Indeed, as Chadwick LJ pointed out in BJ Aviation Limited v Pool Aviation Limited [2002] EWCA Civ 163 at paragraph [22], where an agreement provides for the parties to agree something at a future date, there is no obligation on either party even to negotiate in good faith as regards that outstanding matter. I can therefore see no reason why, in the absence of the connection between the two companies, CPW would have agreed to the retrospective reduction in its management fee without receiving consideration of equivalent value from BBUK in return.[151]At the hearing, there was some debate between the parties as to the relevance of the fact that the transaction had no commercial imperative but was implemented for the purpose of enabling CPW to avoid a charge to tax under Section 179(3) in respect of the Goodwill. Mr Gammie said that this was not relevant to the analysis in any way because the only question to be answered was whether the consequence of the legal rights and obligations to which the Agreements gave rise was that CPW had ceased to own the Goodwill. Mr Brinsmead–Stockham said that the underlying purpose of the transaction was relevant to the analysis because it was one of the facts to be taken into account in reaching a realistic view of the facts.[152]I agree with Mr Brinsmead–Stockham that the purpose of the transaction is relevant in reaching a realistic view of the facts. I also agree with Mr Gammie that there is nothing inappropriate in a transaction which is designed to avoid a charge to tax under Section 179(3) in respect of an asset that has been the subject of an intra–group transfer by ensuring that the asset is no longer held by the transferee company at the time when it leaves the group.[153]I would therefore put the position this way.[154]If, on an analysis of the legal rights and obligations to which the Agreements gave rise, the proper conclusion were to be that CPW in this case had actually disposed of the Goodwill and Businesses before it left the CPW Chargeable Gains Group, then the fact that that actual disposal had been motivated solely by a desire to avoid a charge to tax in respect of the Goodwill under Section 179(3) would not prevent CPW from avoiding that charge to tax.[155]However, for all of the reasons set out above, my view is that that is not what CPW chose to do in this case. Instead, of actually disposing of the Goodwill and the Businesses, the effect of the transaction into which it entered was to leave it holding the Goodwill and the Businesses. The reason why CPW chose to implement the transaction in the way it did is that it did not really want to make an actual disposal of the Goodwill and Businesses. Had it wanted to do so, it could easily have achieved that outcome by the simple expedient of entering into a business and asset sale and purchase agreement with BBUK in a similar form to one of the Prior SPAs. Instead, CPW wished to avoid the charge without having to make that actual disposal and that, in my view, is a relevant matter to be taken into account in reaching a realistic view of the facts.

Conclusion

[156]Taking all of the above into account, it is my view that, viewing the facts realistically, as I am required to do by the authorities, not only were the Businesses not transferred to BBUK pursuant to the combined effect of the Agreements but also, after the Agreements became effective, it was CPW which continued to carry on the Businesses as principal and the Businesses were not carried on by BBUK as principal through the agency of CPW. It follows that, on a realistic view of the facts:(1) both the Goodwill and the Businesses remained with CPW after the Agreements became effective; and(2) the asset which BBUK acquired in return for its payment of £50,800,000 was neither the Goodwill nor the Businesses but rather the right to receive payments equal to a fixed percentage of the future gross revenues of the Businesses.[157]In the light of the above conclusions, I do not consider that the analogies provided by Mr Gammie and described in paragraphs 96 to 98 above affect the conclusion in any way.[158]As regards the analogy in paragraph 96 above, I do not see how cases such as Trego and Stekel – which establish that, where persons are carrying on a business in common, ownership of the goodwill in the business can be owned by one of the partners to the exclusion of the others – shed any light on the present question for two reasons. First, those cases were not addressing the question of whether goodwill can be assigned without an accompanying transfer of the business to which the goodwill relates but the wholly different question of identifying the consequences of having disposed of, or failing to own, the goodwill to which the business relates. Secondly, and perhaps more relevantly, the partner owning the goodwill in those cases also carried on the business to which the goodwill related, which is to say the partnership business. The fact that another person carrying on the same partnership business had no interest in the goodwill of the business is not authority for the proposition that goodwill can be assigned to a person who acquires no interest in the business to which the goodwill relates.[159]Similarly, Adlem sheds no light on the question of whether goodwill can be assigned without an accompanying transfer of the business to which the goodwill relates. It too related to the wholly different question of identifying the consequences of having disposed of the goodwill to which the business relates. In Adlem, the sale of the goodwill by Mr Adlem had been accompanied by a sale of the business to which the goodwill related.[160]As regards the analogy in paragraph 98 above, that analogy falls away in the light of my conclusion to the effect that CPW continued to carry on the Businesses as principal on its own account and not as agent for BBUK. In Balloon, the fact that the franchisees covenanted not to compete with the franchisor was held to indicate that the franchisees had assigned goodwill to the franchisor. In this case, the conclusion I have reached that CPW did not agree to carry on the Businesses as agent for BBUK but continued to do so as principal on its own account means that there is no parallel to be drawn between the present case and the facts in Balloon.[161]In dealing with Issue Three, I have deliberately avoided any consideration of whether, because BBUK was required to pay interest to CPW out of the amounts that it received under clause 5 of the MSA, on a realistic view of the facts, CPW retained significantly more than 95% (or 91.19%) of the gross revenues of the Businesses after the Agreements became effective. I do not need to address that question in order to determine this appeal. However, for the reason I mention in dealing with Issue Seven below, it is potentially relevant in determining the tax consequences of the transaction which was effected by the Agreements and I will therefore return to this point when I address Issue Seven.[162]The terms of the conclusion I have reached above in relation to Issue Three effectively mean that Issue Four and Issue Five fall away. However, for completeness, I will set out the submissions which were made by the parties, and my conclusions, in relation to each of those issues. Issue Four – assignment in equity The parties’ submissions

Issue Four – assignment in equity

[163]Mr Gammie submitted that, even if CPW continued to hold the Goodwill after the Agreements became effective, because it continued to own and carry on the Businesses, CPW should be treated as holding the Goodwill after that time on a bare trust for BBUK. As such, BBUK should be treated as owning the Goodwill for the purposes of corporation tax on chargeable gains pursuant to Section 60 of the TCGA 1992. He said that, in that event, the facts in this case would be analogous to those in Don King Productions Inc v Warren and others [2000] Ch 291 (“Don King”).[164]In Don King, the parties had entered into a partnership for the promotion of professional boxing in Europe and, on the dissolution of the partnership, a question arose as to the ownership of certain agreements for the management and promotion of professional boxers. Mr Warren had purported to assign these agreements to the partnership even though, as a matter of law, the agreements could not be assigned because they involved the rendering of personal services and, in some cases, contained an express prohibition on assignment. The Court of Appeal had held that, even though the benefit of the agreements could not be assigned in law, the only way to give effect to the evident intention of the parties was to treat Mr Warren as holding the agreements on trust for the partnership. Similarly, in this case, the evident intention of the parties was that the Goodwill would be assigned by CPW to BBUK and, if this was not possible in law, then it should be treated as taking place in equity.[165]Mr Brinsmead–Stockham said that the analogy with the facts in Don King was misconceived.[166]Leaving aside the fact that Don King related to a transfer of assets into a partnership, a key distinction was that the personal services contracts which were the relevant assets in Don King existed as assets in their own right. Their existence was not dependent on a relationship with a business. There was a barrier to the transfer of the contracts in law but that did not prevent the contracts from being transferable in equity. In contrast, in this case, it was not that there was a barrier to the transfer of goodwill in law. Nobody doubted that goodwill was an assignable asset. Instead, there was a general principle that goodwill could not be assigned without an accompanying transfer of the business to which it related, based on public policy and in order to avoid deception. There was no reason why the same principle would not apply in equity as well as law and there was no authority to suggest that it did not.[167]In addition, Mr Brinsmead–Stockham said that Don King was concerned with wholly commercial arrangements and therefore it was not surprising that the court was willing to intervene in equity. In contrast, in this case, the sole purpose of the arrangement was to avoid a tax liability and this was a further reason why a court should not be prepared to intervene by imposing a trust.[168]Mr Brinsmead–Stockham said that, in any event, the Respondents did not accept that the objective intention of the parties in entering into the Agreements was that, once the Agreements became effective, the Businesses would be carried on by BBUK and BBUK would own the Goodwill. In reality, viewed objectively, the intention was that it was CPW which would continue to carry on the Businesses on its own account and own the Goodwill and that BBUK would simply acquire a right to payments equal to a fixed percentage of the future gross revenues of the Businesses.[169]Finally, Mr Brinsmead–Stockham said that, even if he was wrong about equity intervening in this case, he did not accept that there would be a bare trust of the Goodwill for the purposes of Section 60 of the TCGA 1992. That was because, in order for a bare trust to exist for the purposes of that section, the equitable owner had to have the exclusive right to direct how the asset should be dealt with – see Section 60(2) of the TCGA 1992 – and, in this case, it was clear from clause 3.2 of the MSA that BBUK had no right to intervene in the management and operation of the Businesses.

Conclusion

[170]I agree with Mr Brinsmead–Stockham that Don King is not authority for the proposition that, in this case, if the transfer of the Goodwill was ineffective in law because it was not accompanied by a transfer of the Businesses, CPW should be regarded as holding the Goodwill on bare trust for BBUK.[171]I have reached that conclusion for essentially two reasons.[172]The first is that, for the reasons which I set out in some detail in relation to Issue Three, when the facts are viewed realistically, it was not intended that BBUK would acquire any interest in the Businesses or carry on the Businesses after the Agreements became effective. Instead, the intention of the parties was that CPW would continue to carry on the Businesses on its own account and that BBUK would simply acquire a right to payments equal to a fixed percentage of the future gross revenues of the Businesses. On that basis, the circumstances here are very different from those which prevailed in Don King, where the clear intention of the parties was that the benefit of the agreements would belong to the partnership and therefore the Court of Appeal was willing to apply equitable principles to achieve that result. Here, there is no need to invoke equitable principles to achieve the purpose of the parties because, when the facts of the transaction are viewed realistically, that purpose was to leave the Businesses and the Goodwill in CPW’s hands.[173]Moreover, even if that were not the case, I do not understand how an assignment of goodwill which has been held to be invalid in law because it is an assignment “in gross” can somehow nevertheless be effective in equity. As I have outlined in paragraph 52(7)(b) above, the origins of the rule to the effect that an assignment “in gross” is invalid are that a purported assignment of goodwill without an accompanying transfer of the business to which the goodwill relates is inherently deceptive, with the result that public policy dictates that it should not be recognised. That being the case, it is hard to see why equity would assist to give rise to that outcome.[174]For the above reasons, I am of the view that, if the transfer of the Goodwill in this case was ineffective because it was not accompanied by a transfer of the Businesses, CPW should not be regarded as having held the Goodwill on bare trust for BBUK. Issue Five – not the same asset The parties’ submissions

Issue Five – not the same asset

[175]Mr Gammie submitted that, even if BBUK had not acquired the Goodwill in law or in equity after the Agreements became effective, CPW no longer retained the Goodwill at that stage because, by virtue of its obligations under the Agreements, it could no longer turn the Goodwill to account. Once the Agreements became effective, CPW retained the right to receive a management charge based on a fixed percentage of the future gross revenues of the Businesses but it lost the ability to benefit from the future profits of the Businesses or to dispose of the Businesses or the Goodwill to someone else in the future. Consequently, CPW should be treated as having surrendered its rights in the Goodwill by entering into the Agreements and thus as not being the owner of the Goodwill at the point when it left the CPW Chargeable Gains Group – see O’Brien v Benson’s Hosiery (Holdings) Limited [1979] STC 735 (“O’Brien”).[176]Mr Brinsmead–Stockham said that the decision in O’Brien was not relevant in this case for a number of reasons. First, it was not concerned with goodwill but with an employment contract. Secondly, the issue in O’Brien was whether an employment contract could be an asset for the purposes of corporation tax on chargeable gains. It was held that it could be. However, in this case, it was common ground that goodwill was an asset for the purposes of corporation tax on chargeable gains. Finally, and most importantly, in O’Brien, the asset in question – the employment contract – had been surrendered in return for a payment whereas, in this case, CPW continued to own the Goodwill after the Agreements became effective. It had not surrendered its rights to the Goodwill and it could still turn those rights to account.

Conclusion

[177]I agree with Mr Brinsmead–Stockham that the transaction effected by the Agreements did not mean that CPW ceased to be the owner of the Goodwill or the Businesses. On the contrary, for the reasons which I have set out in some detail in relation to Issue Three, when the facts are viewed realistically, it was not intended that CPW would surrender its rights in the Goodwill or lose its ability to benefit from the future profits of the Businesses in any way. Instead, the intention of the parties was that CPW would continue to own the Goodwill and carry on the Businesses on its own account and that it would simply be obliged to pay to BBUK amounts equal to a fixed percentage of the future gross revenues of the Businesses.[178]On that analysis, after the Agreements became effective, CPW continued to be entitled to the profits of the Businesses (subject to its obligation to make the payments to BBUK mentioned above) and remained free to dispose of the Goodwill and the Businesses as it chose, including to BBUK. The fact that it was required to pay to BBUK amounts equal to a fixed percentage of the future gross revenues of the Businesses did not preclude it from turning to account either the Goodwill or the Businesses or, for that matter, any asset of the Businesses other than the Goodwill. Issue Six – the relevance of the transaction effected by Agreements in the event that Section 179(3) applied The parties’ submissions[179]Mr Gammie said that, although the “conclusion about the matter” set out in the PCN was simply to the effect that a degrouping charge arose under Section 179 of the TCGA 1992, the “description of the matter”, as set out in the PCN, was stated to be the application of Section 179 of the TCGA 1992, as a whole, to the Goodwill. It followed that the “matter” was the application of Section 179 of the TCGA 1992 as a whole and therefore it was not correct for the FTT in determining this appeal against the PCN to deal solely with the charge under Section 179(3) without going on to consider the impact of that charge on the tax consequences of the transaction effected by the Agreement. Although he accepted that the PCN had said that the conclusion reached by the Respondents in relation to Section 179(3) did not affect anything else that the Respondents were still checking in CPW’s company tax return for the relevant accounting period, he said that that disclaimer was referring to matters arising in respect of the relevant accounting period which were completely unrelated to the application of Section 179 of the TCGA 1992.[180]He added that, if the PCN had been a final closure notice instead of a partial closure notice, then the way that the matter had been described would have required a determination of the impact of the charge under Section 179(3) on the tax consequences of the transaction effected by the Agreements because that was what was required by Section 179 of the TCGA 1992 as a whole.[181]Finally, he pointed out that the issues agreed by the parties in advance of the hearing included the effect of the Agreements on the quantum of the tax due – see paragraph 24(2)(b) above. That would not have been the case if the tax implications of the Agreements were outside the scope of this appeal. In any event, the quantum of the charge under Section 179(3) itself was agreed.[182]Mr Brinsmead–Stockham said that this appeal was against the PCN, which related solely to the application to CPW of Section 179(3) in respect of the Goodwill. It followed that that was the only matter which needed to be addressed in these proceedings. The potential adjustments to be made to the tax consequences of the transaction effected by the Agreements were not relevant to the application of Section 179(3) as it was common ground that, pursuant to Sections 179(4) and 179(13) of the TCGA 1992, the transaction effected by the Agreements was to be treated as taking place after the disposal and re–acquisition under Section 179(3). Accordingly, those adjustments were something to be addressed in due course by agreement or, if necessary, by way of the issue of a further partial closure notice or final closure notice and subsequent appeal.[183]Mr Brinsmead–Stockham said that the fact that the tax implications of the transaction effected by the Agreements did not need to be addressed in this appeal against the PCN was tolerably clear from the nature of the PCN as a partial closure notice and the terms of the PCN. However, if any doubt remained on that point, the terms of the PCN Correspondence put it beyond doubt. In the PCN Correspondence, the parties had clearly agreed that any consideration of the tax implications of the transaction effected by the Agreements was an “other matter” which would be addressed in due course once the application or otherwise of Section 179(3) had been determined.

Conclusion

[184]I agree with Mr Brinsmead–Stockham that, for the reasons he gives:(1) the sole matter to be determined in this appeal is whether CPW continued to hold the Goodwill at the point when it left the CPW Chargeable Gains Group; and(2) the tax implications of the transaction effected by the Agreements is therefore not in issue in this appeal. That much is readily apparent from the fact that the PCN is a partial closure notice and the “conclusion about the matter” and the reason given for that conclusion in the terms of the PCN itself. However, any residual doubt as to the conclusions in paragraphs 184(1) and 184(2) above is emphatically resolved by the terms of the PCN Correspondence.[185]I am not persuaded by the point made by Mr Gammie set out in paragraph 181 above. I agree that it is odd that the parties agreed that the impact of the transaction on the quantum of the tax due was an issue to be determined in this appeal but I would say that:(1) it is clear from the preamble to the listed issues – see paragraph 24(1) above – that what is in issue in this appeal is whether or not Section 179(3) applied and, if so, the quantum of the tax to which that would give rise;(2) I believe that the terms of the agreed issue as described in paragraph 24(2)(b) can be explained by reference to an erroneous understanding by both parties of how Section 179 of the TCGA operated in a case where an asset held by a company leaving a group had been the subject of a part disposal by the company before it left the group – see more on this in paragraph 195 below; and(3) in any event, I do not believe that the terms of that agreed issue can possibly outweigh the very clear terms of the PCN and the agreement between the parties set out in the PCN Correspondence.[186]It follows from this that, in my view, the resolution of Issue One to Issue Five is sufficient to determine this appeal in favour of the Respondents and that Issue Seven is not in point. However, because I heard the parties’ respective arguments in relation to Issue Seven, I summarise below those arguments and my initial thoughts on them without reaching any conclusions on that issue. Issue Seven – the tax consequences of the transaction effected by Agreements in the event that Section 179(3) applied The parties’ submissions[187]Mr Gammie said that, if a charge under Section 179(3) arose in respect of the Goodwill, then CPW would be treated as having re–acquired the Goodwill for £107,658,000 at the start of the accounting period in which CPW left the CPW Chargeable Gains Group.[188]CPW’s subsequent receipt in that accounting period of £50,800,000 from BBUK would then have amounted to a part disposal of that Goodwill pursuant to Section 22 of the TCGA 1992 because the sum in question was a capital sum derived from the Goodwill. The Goodwill derived its value from the anticipated future profits of the Businesses and, at the time when the Agreements were executed:(1) that value was equal to the amount paid by BBUK under the SPA; and(2) the sum paid by BBUK for the Goodwill was attributable to its right to receive part of those future profits (in the form of a fixed percentage of the future gross revenues of the Businesses). It therefore followed that the amount received by CPW from BBUK must have “derived from” the Goodwill for the purposes of Section 22 of the TCGA 1992.[189]Mr Gammie said that, in calculating the chargeable gain or allowable loss arising from the part disposal, it was necessary to determine how much of the aggregate base cost in the Goodwill following the deemed re–acquisition of the Goodwill, of £107,658,000, should be allocated to the part disposal pursuant to Sections 38 and 42 of the TCGA 1992. The latter section specified that, on a part disposal, the proportion of the aggregate base cost in the asset which was allocable to the part disposal should be determined by using the formula in Section 42(2) of the TCGA 1992 of A divided by A plus B, where A was the consideration received on the part disposal and B was the market value of the property which remained undisposed of following the part disposal.[190]In this case, A was £50,800,000 and B was nil because, following the part disposal, CPW could no longer turn the Goodwill to account. CPW had effectively realised the full value of the Goodwill in entering into the Agreements with BBUK. The sum of £50,800,000 reflected the parties’ valuation of the future profits of the Businesses and that valuation had never been challenged. It followed that, following the transaction effected by the Agreements, the value of the entitlement to profits retained by CPW was nil. This was reflected in the fact that CPW had written the Goodwill down to nil in the CPW 2009 Accounts.[191]Mr Brinsmead–Stockham said that he disagreed with the above analysis in two respects.[192]First, he did not accept that the sum received by CPW under the SPA had given rise to a part disposal of the Goodwill. The transaction effected by the Agreements had not given rise to the creation of an interest in, or right over, the Goodwill or the surrender of any of CPW’s rights over the Goodwill. CPW remained the sole owner of the unencumbered Goodwill after the transaction had been effected. The source of the payments made by CPW to BBUK was not the Goodwill but simply the contractual provisions in the Agreements pursuant to which CPW became obliged to make the payments. As such, the lump sum received by CPW from BBUK was not a capital sum derived from the Goodwill but simply consideration for the right to receive payments equal to a fixed percentage of the future gross revenues of the Businesses.[193]Secondly, even if the receipt in question had given rise to a part disposal of the Goodwill, he did not accept that the market value of the Goodwill after the Agreements had become effective was nil. No evidence had been adduced to show that the value of the future profits of the Businesses to which CPW was entitled after deducting the future payments due to BBUK was nil. It followed that, when the part disposal formula in Section 42(2) of the TCGA was applied to the aggregate base cost of £107,658,000, it was by no means clear that B was nil and therefore that the whole of that aggregate base cost could be allocated to the part disposal.[194]Mr Gammie said that, if the Respondents wished to raise valuation questions, they should have done so at an earlier stage in the proceedings. It was now some years since the transaction effected by the Agreements had occurred and it would be hard to procure valuation evidence at this stage. The Respondents had been on notice from the grounds of appeal that one of the arguments which the Appellant wished to make in this appeal was that it had made a part disposal of the Goodwill.[195]Mr Brinsmead–Stockham accepted that the grounds of appeal had mentioned that no account had been taken of the part disposal in the PCN but pointed out that:(1) the manner in which the Appellant had referred to the part disposal in the grounds of appeal suggested that the Appellant was unaware of how the part disposal point interacted with the charge under Section 179(3) pursuant to Section 179(13) of the TCGA 1992. The implication in the grounds of appeal was that the fact that there had been a part disposal reduced the quantum of the charge under Section 179(3), which was now agreed not to be the case;(2) a similar approach had been adopted by the Respondents in their statement of case, because the Respondents had alleged in the statement of case that the Agreements had not given rise to a disposal or a part disposal of the Goodwill;(3) it therefore appeared that both parties had been proceeding initially in the erroneous belief that a part disposal of the Goodwill would affect the quantum of the charge under Section 179(3), which was presumably why the agreed list of issues had taken the form that it did; and(4) in any event, the burden of proof in this appeal was on the Appellant and the grounds of appeal had not said that the entire base cost in the Goodwill would be allocable to that part disposal or that the part disposal would give rise to an allowable loss that would offset all but £50,800,000 of the chargeable gain arising under Section 179(3). The first intimation that the Respondents had had that the Appellant wished to argue that the residual value of the Goodwill following the part disposal was nil – so that the entire base cost in the Goodwill was allocable to the part disposal – was when the Respondents had received the Appellant’s skeleton argument shortly before the hearing and the Respondents had dealt with that argument in their skeleton argument.[196]It followed that there was no procedural bar to the Respondents’ raising the valuation issue at this stage.

Conclusion

[197]The conclusion which I have reached in relation to Issue Six means that it is unnecessary for me to reach any decision on the tax consequences of the transaction effected by the Agreements and I will therefore desist from doing so.[198]However, without finally deciding the points in issue, I would say as follows:(1) based on my conclusion as to a realistic view of the facts in this case, the payment of £50,800,000 which was made by BBUK to CPW under the SPA was consideration for the right to be paid amounts equal to a fixed percentage of the future gross revenues of the Businesses and not consideration for either the Goodwill or the Businesses, both of which remained in CPW;(2) those future gross revenues were a fundamental part of the future profits of the Businesses, as those future profits were simply a function of the future gross revenues of the Businesses minus the future expenses incurred in carrying on the Businesses – see paragraph 131 above. Moreover, the way in which the parties calculated the amount paid by BBUK for its right to receive payments equal to a fixed percentage of the future gross revenues was by reference to the expected future profits of the Businesses;(3) it is common ground that goodwill is the attractive force which generates the future profits of the business to which it relates. Consequently, it must be the case that the Goodwill in this case represented the future profits of the Businesses;(4) in the circumstances, although I agree with Mr Brinsmead–Stockham that CPW continued to own the Goodwill after the Agreements became effective, on a realistic view of the facts, after it had received the payment from BBUK, CPW had effectively given up its interest in part of the future gross revenues of the Businesses and, since those future gross revenues were a significant component of the future profits of the Businesses, I believe that that payment should properly be seen as a capital sum derived from the Goodwill and therefore as giving rise to a part disposal of the Goodwill;(5) as for determining the chargeable gain or allowable loss which arose from that part disposal, I agree with Mr Brinsmead–Stockham that, before the Appellant is able to establish that the whole of its re–acquisition base cost of £107,658,000 in the Goodwill should be allocated to the part disposal, the Appellant needs to produce some evidence to show that, following the part disposal, the market value of the Goodwill was nil. None of the evidence that I have seen in the course of this appeal compels that conclusion. I say that for two reasons. The first and main one is that, based on my analysis of the transaction effected by the Agreements, CPW retained the right to a fixed percentage of the future gross revenues of the Businesses but remained subject to the obligation to meet all of the future expenses of the Businesses. It is not clear to me that, on the date when CPW received the capital sum, the difference between the present value of the future gross revenues which CPW was entitled to retain and the present value of the future expenses was either nil or a negative figure. It is perfectly possible that it was a positive figure. Indeed, the fact that the parties saw fit to reduce retrospectively (under the terms of the Side Letter) the fixed percentage of the future gross revenues which CPW was entitled to retain suggests that it was in fact a positive figure and that the parties subsequently wanted to re–balance the parties’ respective entitlements to the future gross revenues of the Businesses to give BBUK a better deal. There is a second point, to which I have alluded obliquely in paragraph 161 above, which is that, in determining what portion of the future gross revenues of the Businesses CPW in fact retained, on a realistic view of the facts, it is not necessarily the case that that was only the 95% (or 91.19% as the case may be) to which reference was made in the MSA or the Side Letter. Instead, it is conceivable that, on a realistic view of the facts, the interest which BBUK was obliged to pay to CPW under the loan arising from the outstanding purchase price should properly be treated as having reduced BBUK’s entitlement to the future gross revenues of the Businesses and consequently as augmenting CPW’s retained entitlement to those gross revenues. That would inevitably affect the inputs into the part disposal formula and lead to a smaller allowable loss. Having said that, I can see that that would potentially involve some double counting because the loan pursuant to which the interest was payable funded the consideration of £50,800,000 which CPW received in making the part disposal. Nevertheless, it is an issue that I think would need to be considered in any resolution of Issue Seven. I do not have to address it in this decision; and(6) I do not see any procedural bar to the Respondents’ raising the valuation issue at the point when the tax consequences of the part disposal fall to be agreed or determined. Leaving aside the fact that, based on my conclusion on Issue Six, the part disposal issue is not a matter which falls to be addressed in this appeal, I agree with Mr Brinsmead–Stockham that, at the point when part disposal was mentioned in the grounds of appeal and the statement of case for this appeal, both parties were proceeding on the basis of an erroneous understanding of how any part disposal of the Goodwill would interact with the charge under Section 179(3).[199]All of the above is a matter for the parties to try to agree or to dispute in a future appeal. It does not form any part of my determination of this appeal.

disposition

[200]For the reasons given above, this appeal fails. In my view, CPW continued to remain the owner, in law and in equity, of the Goodwill at the time when it left the CPW Chargeable Gains Group and the charge under Section 179(3) in respect of the Goodwill as described in the PCN is correct. The implications of that charge on the tax implications of the transaction effected by the Agreements is not a matter that I need to address in this decision because of the terms of the PCN and the PCN Correspondence.

Right to apply for permission to appeal

[201]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. Release Date: 23rd JUNE 2025