R v Inland Revenue Commissioners, ex p. Preston [1984] UKHL 5

House of Lords
Between
RAppellantInland Revenue Commissioners, ex p. PrestonRespondent
Before
Lord Templeman
It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal of the 31st day of July 1984 complained of in the said Appeal be, and the same is hereby, Affirmed and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellant do pay or cause to be paid to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments if not agreed between the parties.Cler: Parliamentor:

HOUSE OF LORDS

IN RE PRESTON (ENGLAND)

Lord Scarman Lord Edmund-Davies Lord Keith of Kinkel Lord Brightman Lord Templeman

LORD TEMPLEMAN

My Lords,This is an appeal in judicial review proceedings whereby the appellant Mr. Preston seeks a declaration that the respondent Inland Revenue Commissioners are not entitled to exercise and perform their statutory powers and duties under Part XVII of the Income and Corporation Taxes Act 1970 by counteracting a tax advantage alleged to have been obtained by the appellant by his dealings in the shares of Gymboon Ltd.Part XVII of the Act of 1970 begins with section 460. By section 460(6), if the commissioners have reason to believe that a taxpayer has obtained a tax advantage in consequence of a transaction in securities in the circumstances prescribed by section 461, the commissioners may notify the taxpayer in writing. The taxpayer may then make a statutory declaration that section 460 does not apply to him either because he has not been involved with any transactions in securities in the circumstances prescribed by section 461 or because he can show, in the words of section 460(1):
"that the transaction or transactions were carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained . . ."
If, notwithstanding the taxpayer's statutory declaration, the commissioners see reason to take further action, they shall by section 460(7)( a ) submit to a tribunal established for the purpose by section 463, a certificate to that effect together with the statutory declaration of the taxpayer and, if the commissioners wish, a counter-statement by the commissioners with reference to the matter. The tribunal after taking into consideration the statutory declaration by the taxpayer and the certificate and counter-statement by the commissioners shall by section 460(7)( b ) determine "whether there is or is not a prima facie case for proceeding in the matter . . ." If the tribunal determine that a prima facie case has been established, the commissioners by section 460 (3) shall counteract the tax advantage obtained by the taxpayer by a number of alternative adjustments, including an additional assessment to tax on such basis as the commissioners may specify by notice in writing served on the taxpayer as being requisite for counteracting the tax advantage so obtained. By section 462(1) the taxpayer to whom notice has been given may appeal to the special commissioners on the grounds that section 460 does not apply to him or that the adjustments directed to be made are inappropriate. An appeal lies from the special

- 1 -

commissioners to the tribunal under section 462(2). The tribunal shall rehear and determine the appeal and by section 462(3) the determination of the tribunal shall be final.In the present case, there has been a notification by the commissioners and a statutory declaration by the appellant both under section 460(6), followed by the presentation to the tribunal of a certificate, the statutory declaration and a counter-statement. The tribunal has determined under section 460(7) that there is a prima facie case for proceeding. The commissioners have proceeded by serving notice under section 460(3) designed to counteract, by means of an additional assessment, the tax advantage which they say the appellant has obtained. No appeal has yet been heard by the special commissioners under section 462 (1) because the appellant seeks by this appeal to obtain a declaration that all the steps taken against him by the commissioners pursuant to Part XVII of the Act of 1970 are unlawful.The dispute between the appellant and the commissioners has its origin in the activities of the appellant between 1974 and 1977. The appellant gave an account of his activities between those years in a letter dated 24 May 1978 written by the appellant to Mr. Thomas, an officer of the Special Investigations Section maintained by the commissioners. In November 1974 the appellant took employment with the Rossminster Group Ltd. "with a view to developing a commercial and corporate financial activity for the group, and with the ultimate aim of making such activity the principal, if not sole, activity of the group." He "built up a team of 6 or 7 competent corporate finance executives. Our activities were principally confined to commercial and corporate finance matters and, in particular, my own involvement with the other activities of Rossminster was minimal." By the latter part of 1976, "on the one hand the substance of Rossminster "s current financial well-being clearly now depended very little on my department and in commercial terms we were no longer an essential ingredient of the group's future well-being. At the same time, from a personal viewpoint, I had become progressively less sympathetic towards the nature and aims of Rossminster's main field of activity." It is common knowledge that Rossminster's main field of activity to which the appellant referred consisted of the invention, marketing and carrying into effect of large numbers of sophisticated tax avoidance schemes which were lawful and which were thought by Rossminster but not guaranteed to be effective. The appellant ceased to be employed by Rossminster in March 1977 and received an ex gratia payment.From information supplied to your Lordships by the appellant through his counsel, it appears that the tax returns for the appellant for the years 1974-75 and 1975-76 represented that after allowing for claims for loan interest, the appellant was not liable to pay any income tax. In the year 1974-75 a deduction of £11,592 loan interest was claimed for income tax purposes and a capital loss of £10,000 was shown for capital gains tax purposes. In the year 1975-76 a deduction of £26,074 loan interest was claimed for income tax purposes. In May 1978 the appellant's taxation returns were referred to the Special Investigations Section of the commissioners. After some preliminary correspondence, Mr. Thomas, the officer of the Special Investigations Section dealing

- 2 -

with the matter, invited the appellant to call on Tuesday, 6 June and said in a letter dated 18 May that the particular matters that he would like to discuss were:
"(a) Your claims to relief for interest paid to Rossminster Acceptances Ltd.,
the loss which you have claimed in respect of the purchase and sale of shares in Jurby Raven Ltd., and allied operations,your transactions in the shares of Gymboon Ltd., Jacksons Bourne End Ltd., the Telbex Group Ltd., Powerstem Ltd., Alanvale Securities Ltd. and First London Securities Ltd.,the leaving payment which you received from Rossminster Management Services Ltd.It would be very helpful if you would bring to the meeting the documents, correspondence and other papers in your possession which are relevant to these matters."It subsequently transpired in July 1982 that among the documents in the appellant's possession which were relevant was an incomplete draft of the agreement whereby the appellant had sold his shares in Gymboon Ltd.The appellant replied by letter dated 24 May 1978. He pointed out "that although a chartered accountant, I am by no means well versed in highly-complex taxation matters, and feel that I am not competent to converse with you on equal terms. Subject to my comments below, therefore, if the interview is still considered necessary I feel that I must now seek professional advice. In the meantime, however, in order to facilitate the finalisation of my affairs I set out below certain information and observations on the matters specified in your letter of the 18 May. In this regard it seems to me that your questions fall into two main categories. Dealing first with the claims for relief for interest paid to Rossminster Acceptances Ltd. (in connection solely with which the holding of shares in First London Securities Ltd. arose) and for loss on disposal of shares in Jurby Raven Ltd., the following background information may be relevant." He then set out the history of his employment with Rossminster from which I have largely quoted and continued:
"As you will appreciate, as the head of the corporate financial and commercial activity at Rossminster I would have displayed a considerable lack of confidence in my employers if I had failed to enter into the transactions in question and into which all other senior employees of Rossminster had evidenced their intention to enter. The foregoing deals adequately, I hope, with the first category. Turning to the second category of matters raised by your enquiries, these involve commercial investments of business substance, and need not, in my view, be considered other than as capital transactions. As things stand today it is not a matter of great concern to me to see whether or not I

- 3 -

proceed with my claims for relief for interest or capital loss. What is most certainly of greater importance is that my taxation affairs are maintained on a current basis. Accordingly, without prejudice to any claim which may have to be made for interest relief or capital loss, I am prepared to forgo such claims for the years in question on the basis that by doing so I shall facilitate the agreement of my tax affairs. In the light of the above you may feel that a discussion is no longer necessary. However, if you still wish to proceed with such a meeting, perhaps you will provide me with a list of specific questions on which I can obtain professional advice."There was a telephone conversation between Mr. Thomas and the appellant on the 25 May 1978 and the substance of that conversation was confirmed the following day by a letter from Mr. Thomas in these terms:
"If I understand the penultimate paragraph of your letter correctly, you are withdrawing your claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April 1976, and you are not pursuing the inclusion in the computation of your gains chargeable to capital gains tax a loss on the disposal of shares in Jurby Raven Ltd. For the avoidance of doubt would you please let me have a note confirming these amendments to your income tax returns. I have considered your comments regarding the subjects mentioned in sub paragraphs (c) and (d) of my letter of 18 May 1978. As stated on the telephone, I should like the following information regarding the shares in Gymboon Ltd:
a. full details of the acquisition and disposal of these shares, including the names and addresses of the person from whom they were acquired and to whom they were sold, the relevant dates and numbers of shares involved.b. a note of the circumstances in which the value of the shares increased so quickly between September 1976 and the date of disposal. What was the precise nature of Gymboon Ltd.'s business activities?I look forward to hearing from you on these points. I confirm that I should not wish to trouble you with an interview if you withdraw your claim to relief for interest paid to Rossminster Acceptances Ltd. and for the loss on the disposal of the shares in Jurby Raven Ltd."After a reminder dated 21 June 1978 the appellant responded by a letter dated 23 June 1978 and provided the following information concerning the shares in Gymboon Ltd:

"(a) (i) On 10 April 1974, I acquired 50 per cent. of

the issued share capital in the company at par from Gardencare Group Ltd. (formerly Danecross Ltd.) of 44, Grange Walk, London, S.E.1.

- 4 -

(ii) On 1 February, 1975, I sold 15.4 per cent. of the shares in the company to Mrs. S. L. M. Aaronberg of 6, Westchester Drive, London, N.W.4 thus reducing my holding in the company to 34.6 per cent. This sale was made at par.(iii) On 11 January, 1977, and pursuant to an unsolicited offer, I sold my remaining holding in the company which, at that time, was 346 shares at 10p each, to Broadforth Ltd. (an unconnected party) of 1, Hanover Square, London, W.1 for £24,375.(b) Gymboon Ltd.'s activity was that of a dealer in shares and commodities, the latter being traded upon the London Metal Exchange, and it was as a result of the substantial profits generated by its dealing that the value of its snares increased as they did.I trust that the above is sufficient for your requirements and upon hearing from you that you have no further questions on my tax affairs, I shall be happy to write formally to you withdrawing my claims of relief for interest paid to Rossminster Acceptances Ltd. and for a loss on disposal of shares in Jurby Raven Ltd."There followed a letter from Mr. Thomas, dated 21 July 1978, which noted the information supplied regarding the shares in Gymboon Ltd. and said:
"On receipt of your note formally withdrawing your claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April 1976 and confirming that you are not pursuing the inclusion in the computation of your gains chargeable to capital gains tax of a loss on the disposal of shares in Jurby Raven Ltd. I propose to return your tax papers to H.M. Inspector of Taxes, North East 5 (London) as I do not intend to raise any further enquiries on your tax affairs."
The correspondence ended with a letter dated 28 July 1978 from the appellant in which, after acknowledging the letter from Mr. Thomas dated 21 July, he continued:
"Accordingly, I am pleased to give you formal notice that I hereby withdraw my claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April, 1976 and confirm that I am not pursuing the inclusion in the computation of my gains chargeable to capital gains tax of a loss on the disposal of shares in Jurby Raven Ltd."
In October 1978 tax assessments were made on the appellant taking into account the withdrawal of his claims for tax relief. On 16 October 1978 the appellant was assessed to capital gains tax in the sum of £7,302 in respect of the sale of the appellant's shares in Gymboon Ltd. This liability was set off against tax repayments in respect of certain annuity benefits received by the appellant when he left the employment of Rossminster.

- 5 -

Subsequently, the Special Investigations Section received from Gymboon Ltd. the accounts of the company for the year ended 13 September 1977. Mr. Owston, an inspector of taxes, senior principal grade, employed in the Inland Revenue Technical Division, Special Investigations Section in an affidavit sworn on 22 December 1982 deposed that on 8 October 1979 he was one of the inspectors of taxes engaged in the Special Investigations Section considering the tax avoidance scheme known as the Rossminster Company Purchase Scheme.
"On that day there were referred to me the accounts of Gymboon Ltd. for the year ended 13 September 1977 ... It was apparent to me from those accounts that the shares of the company had been sold during the year ended 13 September 1977 by its former shareholders, of whom Mr. M. D. Preston was one, in the course of the Rossminster Company Purchase Scheme."
In April 1981, the claims for capital loss and loan interest for the year 1974-75 which the appellant had withdrawn in 1978 ceased by statute to be renewable and they cannot now be revived. The appellant's claim for loan interest for the year 1975- 76 ceased to be renewable in April 1982.By section 465 of the Act of 1970:
"Where it appears to the Board that by reason of any transaction or transactions a person may be a person to whom section 460 above applies, the Board may by notice in writing served on him require him, within such time not less than 28 days as may be specified in the notice, to furnish information in his possession with respect to the transaction or any of the transactions, being information as to matters, specified in the notice, which are relevant to the question whether a notice under subsection (3) of that section should be given in respect of him."
In exercise of the powers conferred by section 465, the commissioners by a notice dated 26 July 1982 required information from the appellant concerning the following transactions:
"1. On 13 September 1976 the subdivision of the 100 ordinary £1 shares of Gymboon Ltd. (Gymboon) into 1000 ordinary 10p shares.
On 10 January 1977 the creation by Gymboon of 300 13 per cent. redeemable preference shares of £1 each.On or about 10 January 1977 the grant to Broadforth Ltd. (Broadforth) of an option to subscribe for 300 13 per cent. redeemable preference £1 shares in Gymboon.On 11 January 1977 the following alterations in the share capital of Gymboon:(a) the increase in the authorised capital to £410 by the creation of 1000 ordinary 1p shares;

- 6 -

the conversion of the existing issued 1000 ordinary 10p shares into 1000 deferred 10p shares;

the rights issue of a 1000 ordinary 1p shares

5. On 11 January 1977 the sale by you to Broadforth of your 346 deferred 10p shares and 346 ordinary 1p shares (held on renouncable letters of allotment) in Gymboon for a consideration of £24,375.On 11 January 1977 the acquisition by St. George's Elizabethan Theatre Ltd. (St. George's) of all the shares in Gymboon.The transactions described as 'Annuity payment £75,000' in the note to the accounts of Gymboon for the year ended 13 September 1977.The transaction described as 'Donation to the then ultimate holding company being a UK registered charity £66,852' in the notes to the accounts of Gymboon for the year ended 13 September 1977.

(a) On 3 February 1977 the transfer of all the

shares in Gymboon to the Elizabethan Theatre Trust.(b) The write-down in respect of the fall in the value of the shares in Gymboon in the accounts of St. George's for the period 29 October 1975 to 4 February 1977."The information which was sought included the sale agreement whereby the appellant sold his Gymboon shares to Broadforth.By a letter dated 29 July 1982 the appellant supplied such information as was available to him including the only copy in his possession of the sale agreement, which was only an incomplete draft, whereby he sold his Gymboon shares to Broadforth. The appellant, however, prefaced the information which he furnished with a protest in the following terms:
"In your letter dated 21 July 1978 and sent to me by Special Investigations Section you stated 'I do not intend to raise any further enquiries on your tax affairs.' If you refer to this letter and to the correspondence which led up to it, you will see that this latter statement was a consequence of and in consideration for the withdrawal by me of certain claims for tax relief. I would contend accordingly that this correspondence constituted a binding legal agreement which estops you from now raising enquiries on Gymboon Ltd. or any other matters covered by the correspondence."
.On 14 September 1982 the commissioners served on the appellant notification under section 460(6) that the Board had reason to believe that section 460 applied to the appellant in respect of the

- 7 -

transactions which had been set out in the section 465 notice dated 26 July 1982.On 11 October 1982 the appellant made a statutory declaration pursuant to section 460(6). He contended that the sale of his shares in Gymboon and "the incidental alterations on the company's share capital preceding that sale" were outside the scope of section 460(1) as being transactions carried out for bona fide commercial reasons or in the ordinary course of making or managing investments and not having as their main objects or one of their main objects to enable tax advantages to be obtained. He also contended that the transactions did not fall within the scope of section 461 which rigidly defines the prescribed circumstances such as dividend stripping to which section 460 applies. Section 461 includes within its ambit tax advantages achieved by a scheme whereby a shareholder receives in connection with the distribution of profits of a company a consideration which represents assets of the company available for distribution by way of dividend but in such manner that the shareholder does not pay or bear tax on the consideration as income. In his statutory declaration the appellant gave detailed reasons why in his view sections 460 and 461 did not apply to the sale of his shares in Gymboon. The appellant also drew attention to the fact that he had been assessed to capital gains tax in the sum of £7,302 in respect of the purchase and sale of his shares in Gymboon Ltd. Finally, he drew attention to the 1978 correspondence and concluded:
"By reason of the agreement thus made the Inland Revenue is now contractually precluded from seeking to apply the provisions of the said section 460 to me in respect of the sale of the shares."
On 20 December 1982 the commissioners served a counter- statement under section 460(7). On the same day the commissioners certified to the tribunal, pursuant to section 460(7) that the commissioners saw reason to take further action and on the 28 January 1983 the tribunal constituted under section 463 determined that there was a prima facie case for proceeding against the appellant under section 460.The legality of the commissioners' actions was challenged in these proceedings on 18 November 1982 when the appellant applied for leave to apply for an order prohibiting the commissioners from taking any further steps under Part XVII of the Act of 1970 for the purpose of investigating or assessing the appellant to further tax liabilities in connection with the affairs of Gymboon Ltd. In his application the appellant asserted that the conduct of the commissioners in "invoking section 460 was a breach of contract or breach of representations made in the 1978 correspondence with Mr. Thomas and that "In the premises the said conduct of the commissioners constitutes an improper exercise alternatively an abuse of the statutory powers of collection and management of Inland Revenue." In his affidavit in support sworn on 17 November 1982 the appellant made the same submissions and said:
"if I had realised that the commissioners would subsequently attempt to go back on their word and their agreement with me made in 1978, I should not have agreed to withdraw my claims for tax relief."

- 8 -

On behalf of the commissioners Mr. Thomas swore an affidavit in reply on 22 December 1982. He said that in 1978 the appellant:
"did not tell me that the sale price of the shares was based on an asset value which excluded provision for corporation tax on those profits ... I now understand that the £24,733 paid to the applicant for his Gymboon shares was in excess of their true market value and could only have been paid because no provision had been made for corporation tax .... I am advised that since the applicant was able to obtain cash from the sale of his shares in Gymboon which represented the accumulated profits of the company available for distribution by way of dividend without payment of tax thereon as income, the transaction is caught by the anti-avoidance provisions of Part XVII of the Income and Corporation Taxes Act 1970. At no time did I say or imply that the Board of Inland Revenue would not contemplate proceedings under these provisions."
In argument before your Lordships, the commissioners without implying bad faith on the part of the appellant, indicated by their counsel that in their view the value of the appellant's shares in Gymboon Ltd. increased from £34.60 to £24,735 partly "as a result of the substantial profits generated by its dealings" as the appellant informed Mr. Thomas in the appellant's letter dated 23 June 1978 but also partly because the effect of the Rossminster company purchase scheme was to relieve Gymboon from its liability to corporation tax by artificial transactions.On 25 January 1983 Woolf J. granted the appellant leave to apply for judicial review and on 23 February 1983 the application came before the same judge. On the following day Woolf J. "ordered and declared that the Commissioners of Inland Revenue were and are not entitled in the circumstances of the case to exercise their powers pursuant to Part XVII of the Income and Corporation Taxes Act 1970 in respect of the acquisition in 1974 and subsequent disposal by the applicant of shares in Gymboon Ltd. and that the commissioners purported exercise of the said powers in respect thereof was and is unlawful." The reasons of the judge are to be found in the report of the case in [1983] 2 All.E.R. 300. On 31 July 1984 the Court of Appeal (Lawton, Griffiths and Dillon L.JJ.) allowed an appeal by the commissioners from the decision of Woolf J. and discharged the order which he had made: see [1984] 3 W.L.R. 945. Your Lordships were informed that the commissioners have made on the appellant under section 460 an additional assessment to income tax to counteract the tax advantage which they assert he obtained from the shares of Gymboon Ltd. An appeal by the appellant to the special commissioners pursuant to section 462(1) of the Act of 1970 against the additional assessment made under section 460(3) awaits the result of this present appeal whereby the appellant with leave of your Lordships' House, appeals against the decision of the Court of Appeal. It will be for the special commissioners and the tribunal to determine, if this appeal fails, whether section 460 applies and if so whether in computing the tax advantage obtained by the appellant and the appropriate amount of any counteracting assessment, the capital gains tax of £7,302 paid by the appellant in respect of the Gymboon shares should be taken into account. If

- 9 -

on this appeal it appears that the actions taken by the commissioners under section 460 have been unlawful, the commissioners cannot proceed to enforce the additional assessment made upon the appellant under section 460, whether or not the appellant in 1977 fell foul of section 460. If your Lordships determine that the actions taken by the commissioners under section 460 have been lawful, then subject to the appeal procedure provided by section 462 to the special commissioners and the tribunal, the commissioners will proceed to enforce the additional assessment.Woolf J. rightly decided that the appellant had no remedy against the commissioners for breach of contract or breach of representations made by Mr. Thomas in 1978 because the commissioners could not in 1978 bind themselves not to perform in 1982 the statutory duty of counteracting a tax advantage imposed on the commissioners by section 460 of the Act of 1970. The only remedy which might be available to the appellant was the remedy of judicial review. Judicial review is available where a decision-making authority exceeds its powers, commits an error of law, commits a breach of natural justice, reaches a decision which no reasonable tribunal could have reached, or abuses its powers. Judicial review should not be granted where an alternative remedy is available. In most cases in which the commissioners are said to have fallen into error, the remedy of the taxpayer lies in the appeal procedures provided by the tax statutes to the General Commissioners or Special Commissioners. This appeal structure provides an independent and informed tribunal which meets in private so that the taxpayer is not embarrassed in disclosing his affairs and the commissioners are not inhibited by their duty of confidentiality. The commissioners and the tribunals established to hear appeals from the commissioners have wide knowledge and experience of fiscal law and practice. Appeals from the General Commissioners or the Special Commissioners lie, but only on questions of law, to the High Court by means of a case stated and the High Court can then correct all kinds of errors of law including errors which might otherwise be the subject of judicial review proceedings: see Edwards v. Bairstow [1956] AC 14 . Judicial review process should not be allowed to supplant the normal statutory appeal procedure. The present circumstances are exceptional in that the appeal procedure provided by section 462 cannot begin to operate if the conduct of the commissioners in initiating proceedings under section 460 was unlawful.My Lords,it is clear that the commissioners are amenable to the remedy of judicial review in a proper case. In Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] AC 617 a group of self-employed taxpayers applied for an order of mandamus directing the commissioners to collect tax from casual employees with whom the commissioners had made an arrangement not to investigate tax evasion prior to 1977. In the instant case the appellant seeks an order to restrain the commissioners from proceeding to collect the tax which they have assessed on the appellant under section 460. In the Self-Employed case Lord Wilberforce said, at p. 631:
"The Inland Revenue Commissioners are a statutory body. Their duties are, relevantly, defined in the Inland Revenue

- 10 -

Regulation Act 1890 and the Taxes Management Act 1970. Section 1 of the Act of 1890 authorises the appointment of commissioners 'for the collection and management of inland revenue ’ and confers on the commissioners 'all necessary powers for carrying into execution every act of Parliament relating to inland revenue.' By section 13 thecommissioners must 'collect and cause to be collected every part of inland revenue and all money under their care and management and keep distinctive accounts thereof.' Section 1 of the Act of 1970 provides that 'Income tax . . . shall be under the care and management of the commissioners.' This Act contains the very wide powers of the board and of inspectors of taxes to make assessments on persons designated by Parliament as liable to pay income tax . . . From this summary analysis it is clear that the Inland Revenue Commissioners are not immune from the process of judicial review."Lord Wilberforce said, at p. 632, that from the authorities and from principle:
"a taxpayer would not be excluded from seeking judicial review if he could show that the revenue had either failed in its statutory duty toward him or had been guilty of some action which was an abuse of their powers or outside their powers altogether. Such a collateral attack - as contrasted with the direct appeal on law to the courts - would no doubt be rare, but the possibility certainly exists."
Lord Diplock, at p. 637, stated:
"Judicial review is available only as a remedy for conduct of a public officer or authority which is ultra vires or unlawful, but not for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise, . . ."
Then at p. 644, he added that the commissioners:
"are accountable to Parliament for what they do so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a court of justice for the lawfulness of what they do, and of that the court is the only judge."
Lord Roskill said, at p. 660, that the commissioners:
"are, and must as a public body charged with the performance of a public duty of crucial importance be, amenable to the general law and liable to possible correction if their statutory powers are exceeded, or their statutory duties are not lawfully discharged."
The speech of my noble and learned friend Lord Scarman was to the same effect and he made observations as to the principle of fairness. At p. 650, Lord Scarman referred to the remedy of mandamus as one which has:

- 11 -

"been recognised by the judges as a remedy for certain forms of abuse of discretion, upon the principle that the improper or capricious exercise of discretion is a failure to exercise the discretion which the law has required to be exercised."
In considering the statutory provisions applicable to the commissioners, Lord Scarman said, at p. 651:
"They establish a complex of duties and discretionary powers imposed and conferred in the interest of good management upon those whose duty it is to collect the income tax. But I do not accept that the principle of fairness in dealing with the affairs of taxpayers is a mere matter of desirable policy or moral obligation. Nor do I accept that the duty to collect 'every part of inland revenue' is a duty owed exclusively to the Crown ... I am persuaded that the modern case law recognises a legal duty owed by the revenue to the general body of the taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that their are no favourites and no sacrificial victims."
He concluded, at p. 652, "I am, therefore, of the opinion that a legal duty of fairness is owed by the revenue to the general body of taxpayers."Mr. Brodie, on behalf of the appellant, submitted that if, as Lord Scarman announced in the Self-Employed case [1982] A.C. 617, the commissioners owe a duty of fairness to the general body of taxpayers, the commissioners must equally owe a duty of fairness to each individual taxpayer. I agree, but a taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties including their duties under section 460 to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness, but the commissioners themselves must bear in mind that their primary duty is to collect, not to forgive, taxes. And if the commissioners decide to proceed, the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. The commissioners possess unique knowledge of fiscal practices and policy. The commissioners are inhibited from presenting full reasons to the court for their decisions because of the duty of confidentiality owed by the commissioners to each and every taxpayer.The court can only intervene by judicial review to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that "the unfairness" of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers an abuse of power by the commissioners.

- 12 -

In most cases in which the court has granted judicial review on grounds of "unfairness" amounting to abuse of power there has been some proven element of improper motive. In the leading case of Padfield v. Minister of Agriculture [1968] AC 997 the Minister abstained from exercising his statutory discretion to order an investigation because he feared the consequences of the investigation might be politically embarrassing. In Congreve v. Home Office [1976] Q.B. 629 the Minister exercised his power to revoke television licences because he disapproved of the conduct of the licence holders, albeit they had acted lawfully. In Laker Airways Ltd, v. Department of Trade [1977] QB 643 the Minister exercised his statutory discretion to give directions with regard to Civil Airways with the ulterior motive of making it impossible for one of the airlines to pursue a course of which the Minister disapproved. In these cases judicial review was granted because the Ministers acted "unfairly" when they abused their powers by exercising or declining to exercise those powers in order to achieve objectives which were not the objectives for which the powers had been conferred. The question of "fairness" was considered in H.T.V. Ltd, v. Price Commission [1976] I.C.R. 170.In that case the Price Commission misconstrued the counter inflation price code and changed its mind as to the treatment of exchequer levy as an item in the costs of television companies allowable for the purpose of increasing their advertising charges within the limits prescribed by the code. The effect of the change of mind of the Price Commission was to deprive the companies of an increase of advertising charges which they were plainly intended to enjoy and which they badly needed in order to remain financially viable. Lord Denning M.R., at p. 185, said "It is often been said, I know, that a public body, which is entrusted by Parliament with the exercise of powers for the public good, cannot fetter itself in the exercise of them. It cannot be estopped from doing its public duty. But that is subject to the qualification that it must not misuse its powers: and it is a misuse of power for it to act unfairly or unjustly towards a private citizen where there is no overriding public interest to warrant it. So when an army officer was told that his disability was accepted as attributable to war service, and he acted on it by not getting his own medical opinion, the Minister was not allowed to go back on it; see Robertson v. Minister of Pensions [1949] 1 Q.B. 227. And where an owner, who was about to build on his land, was told that no planning permission was required and he acted on it by erecting the building the Minister was not allowed to go back on it: see Wells v. Minister of Housing and Local Government [1976] 1 W.L.R"1000 and Lever Finance Ltd, v. Westminster (City) London Borough Council [1971] 1 QB 222 . Very recently when a man was issued with a television licence then although the Minister had power to revoke it, it was held that it would be a misuse of that power if he revoked it without giving reasons or for no good reasons: see Congreve v. Home Office [1977] 2 W.L.R. 291." In the first three cases cited by Lord Denning the authorities acted in a manner for which, if the authorities had not been emanations of the Crown, the applicants would have enjoyed a remedy by way of damages or an injunction for breach of contract or breach of representations. In the third case of Congreve, as I have indicated, the decision was "unfair" because the Minister was actuated by an irrelevant motive.

- 13 -

In the H.T.V. case [1976] I.C.R. 170 my noble and learned friend, then Scarman L.J., said, at p. 189:
"Agencies, such as the Price Commission, must act fairly. If they do not, the High Court may intervene either by prerogative order to prohibit, quash or direct a determination as may be appropriate, or, as is sought in this case, by declaring the meaning of the statute and the duty of the agency ... It is a common place of modern law that such bodies must act fairly. . . It is not really surprising that a code must be implemented fairly, and that the courts have power to redress unfairness."
Scarman L.J., after considering the Price Commission's change of mind, said, at p. 192, that "the commission's inconsistency has already resulted in unfairness, and unless corrected, could cause further injustice. First, it gives rise to a real possibility of an erosion of profit margin . . ." Next, if, as the Price Commission contended, the Exchequer levy was excluded in 1976 but included in 1973 then the television companies would be unable to obtain a fair increase in advertising charges corresponding to increases in costs between 1973 and 1976:
"The commission, to avoid being unfair, must either include or exclude Exchequer levy as a cost upon both sides of the comparison. Since it has made clear that, in the absence of a ruling to the contrary, it intends to exclude it when calculating current profit margins, the commission must also exclude it when calculating the profit margin at April 30, 1973. I am not completely sure that it intends so to do if it succeeds in this litigation. . . The commission has acted inconsistently and unfairly; and on this ground were it necessary, I would think H.T.V. are also entitled to declaratory relief."
In the H.T.V. case [1976] I.C.R. 170, the "unfairness" of the decision was due not to improper motive on the part of the Price Commission but to an error of law whereby the Price Commission misconstrued the code they were intending to enforce. If the Price Commission had not misconstrued the code, they would not have acted "inconsistently and unfairly." Of course the inconsistent and unfair results to which Scarman L.J. drew attention were themselves powerful support for the contention that the Price Commission must have misconstrued the code.In the present case, the appellant does not allege that the commissioners invoked section 460 for improper purposes or motives or that the commissioners misconstrued their powers and duties. However, the H.T.V. case and the authorities there cited suggest that the commissioners are guilty of "unfairness" amounting to an abuse of power if by taking action under section 460 their conduct would, in the case of an authority other than Crown authority, entitle the appellant to an injunction or damages based on breach of contract or estoppel by representation. In principle I see no reason why the appellant should not be entitled to judicial review of a decision taken by the commissioners if that decision is unfair to the appellant because the conduct of the commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuseof power for which in the present case judicial review is the sole remedy and an appropriate remedy. There may be cases in which conduct which savours of breach of conduct or breach of representation does not constitute an abuse of power; there may be circumstances in which the court in its discretion might not grant relief by judicial review notwithstanding conduct which savours of breach of contract or breach of representation. In the present case, however, I consider that the appellant is entitled to relief by way of judicial review for "unfairness" amounting to abuse of power if the commissioners have been guilty of conduct equivalent to a breach of contract or breach of representations on their part.The sole question which now falls to be determined is whether upon the true construction of the correspondence which passed between the appellant and Mr. Thomas in 1978, the commissioners, acting by Mr. Thomas, purported to contract or purported to represent that they would not thereafter re-open the tax assessments of the appellant for the years 1974-75 and 1975-76 if he withdrew his claims for interest relief and capital loss for those years. Woolf J. concluded [1983] 3 A11.E.R. 300, 310:
"on my reading of the material, the taxpayer was led to believe that the 1978 (sic) share transaction was closed when he paid the capital gains tax on those shares. For him to now be faced with a new claim in respect of that transaction would be wrong and improper unless there were circumstances of which I have no evidence and to which I know not, which would alter the normal implication to be drawn from such a situation."
In my opinion the judge overlooked the evidence that in 1978 Mr. Thomas did not receive from the appellant and was not in possession from other sources of information which was significant for the purposes of section 460.By no stretch of imagination could the answer given by the appellant in his letter of 23 June 1978, "On 11 January 1977 . . . I sold my remaining holding in the company, which at that time was 346 shares of 10p each to Broadforth Ltd. . . for £24,375" be regarded as providing "full details of the . . . disposal of these shares" requested by the inspector, in the light of the series of steps, seven in all, which were carried out for the purpose of effecting the sale. The inhibitory effect which the inspector's letter of 21 July 1978 would, or might, have had on future Revenue action was lost to the appellant by the fact that it did not contain the full disclosure which the inspector had the right to expect and on which he plainly relied.The 1978 correspondence discloses an initial request on the part of Mr. Thomas to discuss with the appellant all the matters set forth in the letter from Mr. Thomas dated 18 May 1978. When the appellant offered to withdraw his capital loss and interest claims there was no further need to discuss those claims. The appellant gave certain information on the other matters, which information Mr. Thomas was prepared to accept as satisfactory. Mr. Thomas concluded his enquiries on the basis of the information supplied to him by the appellant. The correspondence does not support the view that Mr. Thomas agreed that no further enquiries

- 15 -

would be made or action taken by the commissioners if they received further information from which the commissioners could reasonably suspect that the assessments made in the light of the information supplied by the appellant did not represent his full liability to tax.By section 29(3) of the Taxes Management Act 1970: "If an Inspector or the Board discovers -that, any profits which ought to have been assessed to tax have not been assessed, or:-

that an assessment of tax is or has become insufficient, or:-

( c ) that any relief which has been given is or has become excessive,the Inspector or, as the case may be, the Board may make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged,"By section 460(3) of the Income and Corporation Taxes Act 1970 the commissioners are charged with the duty of counteracting any tax advantage by means of an assessment. The only limitation on that duty is imposed by section 460(9) whereby no assessment may be made later than six years after the chargeable period to which the tax advantage relates, in this case not later than 5 April 1983.In my opinion, the 1978 correspondence does not disclose any agreement or representation that the commissioners would abandon their right and neglect their duty of raising further assessments on the appellant before April 1983 in respect of any of the matters canvassed in the correspondence if further information showed that, notwithstanding the explanations furnished by the appellant in 1978, further tax was chargeable.Save in exceptional circumstances such as those which obtained in the Self-Employed case [1982] AC 617 , I do not think it would be proper for the commissioners to absolve a taxpayer from a tax liability of which the commissioners were unaware. The 1978 correspondence does not indicate any intention on the part of Mr. Thomas to absolve the appellant from undisclosed liability. This does not mean that the appellant did not derive any benefit from the agreement made in 1978 whereby he abandoned the claims to interest relief and capital loss which he never sought to justify and in which he expressed a singular lack of confidence. The appellant obtained from the 1978 agreement that which he sought, namely, avoidance of the inconvenience of an interview, release from the time and trouble involved in studying and answering further questions and the expense of professional advice. He obtained these advantages and a speedy assessment of his tax liability on the basis of the information which he supplied in the course of the correspondence.When the commissioners received further information from the accounts of Gymboon Ltd. and from their investigations of the

- 16 -

Rossminster group and ultimately from the appellant and his fellow shareholder, there was nothing in the 1978 agreement which made it unfair for the commissioners to enforce any liability to tax which Mr. Thomas did not know to exist in 1978. Some significant information might have come to light in 1978 if Mr. Thomas had interviewed the appellant but Mr. Thomas desisted from making further enquiries from the appellant at the request of the appellant and on the basis of the information supplied by the appellant. That information was woefully inadequate. Full details of the disposal were requested. Bare details alone were given. When the application for judicial review came before Woolf J. it was plain from the facts and the evidence that the commissioners were invoking section 460 notwithstanding the 1978 agreement, because the commissioners were not in possession of the full facts in 1978. Nevertheless the judge pressed the commissioners to give further evidence about the commissioners' reasons for invoking section 460 and about their process of reasoning. He then dismissed their further evidence as inadequate: [1984] 3 W.L.R. 945, 950, 951. My Lords it was not open to Woolf 3. to usurp the functions of the commissioners or to investigate further their reasons and reasoning for invoking section 460. The sole question for the judge on judicial review was whether in the light of the 1978 agreement it was an abuse of power for the commissioners to invoke section 460. In my opinion it was not.Faced with these difficulties Mr. Brodie on behalf of the appellant concentrated on two matters which he said made the decision of the commissioners to proceed under section 460 an abuse of power.As to the first matter, Mr. Brodie made great play with what he described as a "concession" volunteered by counsel for the commissioners in the course of argument in the Court of Appeal, namely that in the 1978 disclosures and correspondence the appellant acted "innocently." But the state of mind of the appellant in 1978 is not in issue or in evidence in these proceedings. I decline to be influenced by a casual, courteous and irrelevant observation made in argument by one counsel and forensically elevated by another into a "concession." The state of mind of the appellant in 1978 may be explored in section 460 proceedings in order to shed light on the intentions of the appellant in 1977. This appeal is confined to a consideration of the propriety of the conduct of the commissioners in invoking section 460 notwithstanding the terms of the 1978 correspondence.As to the second matter, Mr. Brodie relied on a submission which was first considered by Lawton L.J. in the Court of Appeal; [1984] 3 W.L.R. 945. Lawton L.J. referred, at p. 952, to the submission of Mr. Brodie that:
"The Inland Revenue had said that they knew by 8 October 1979 that Mr. Preston's shares had been sold in the course of a Rossminster tax avoidance scheme. Despite their knowledge the Inland Revenue did not take any action under section 460 until September 1982, by which date, as they must have known, it was too late for Mr. Preston to seek relief pursuant to section 33 of the Taxes Management Act 1970."

- 17 -

Lawton L.J. dismissed this submission summarily in the last sentence of his judgment on p.953 when he said "The delay in initiating the procedure was not enough to make the decision an abuse of power."I have already observed that the appellant never sought to justify his claims which he said were of no great concern to him and were less important than the establishment of his tax affairs on a current basis. That object he achieved. In his statutory declaration of 11 October 1982, his affidavit sworn on 17 November 1982, and his notice of application for leave to apply for judicial review dated 18 November 1982, the appellant did not complain of any 'delay but complained of breach of contract, breach of representation, or conduct analogous to breach of contract or breach of representation constituting an abuse of power. On 22 December 1982 the affidavit of Mr. Owston on behalf of the commissioners stated that the commissioners

appreciated by 8 October 1979 that the appellant had sold his

shares "in the course of the Rossminster Company Purchase Scheme." No evidence was filed on behalf of the appellant thereafter complaining of delay between 1979 and 1982. The commissioners were invited to give further evidence during the hearing before Woolf J. but not on the reasons for delay between 1979 and 1982 and there is no reference to or reliance upon that delay in the judgment of Woolf J.A decision in 1979, when the commissioners received the Gymboon accounts, to invoke section 460 but not to take action under that section until after April 1982 when the appellant's claims had expired, would have been inspired by an improper motive and would have constituted an abuse of power. If the commissioners had deliberately waited from 1979 until 1982 in order that the claims of the appellant might be time barred, different considerations would have applied. But there is no suggestion that the commissioners waited deliberately. The appellant chose to withdraw his claims. He ran the risk, of course unwittingly, that his claims would cease to be renewable before the expiry of the time limit which governed the actions of the commissioners and before the commissioners in fact took action. It is not surprising that the significance of the passing of time with regard to the appellant's claims was not present to the minds of the commissioners. The commissioners were not asked to explain the delay. There are several possible reasons which come to mind. The difficulties and complications of enforcing section 460 are well known: see for example, Inland Revenue Commissioners v. Garvin [1981] 1 WLR 793 . We do not know how many relevant tax avoidance schemes and how many cases which might have involved such schemes were under consideration between October 1979 and April 1982. We know that after the decision of this House in Ramsay Ltd, v. Inland Revenue Commissioners [1982] AC 300 the Chancellor of the Exchequer estimated that the tax avoidance industry could have cost the Revenue £300 m. annually. We can suspect that priority was accorded by the commissioners to the investigation of each case which required action at some time between October 1979 and April 1982 in order that an additional assessment might not become barred by lapse of time under section 460(3) or otherwise. We can suspect that the numbers of the staff of the Inland Revenue equipped and available to investigate and unravel possible

- 18 -

liability under section 460 and other tax avoidance provisions of fiscal legislation were limited. We know that the commissioners did not obtain copies of the contract for the sale of the appellant's shares until July 1982 and we were informed that the commissioners consider that contract to be relevant to the question of whether the appellant sought to obtain a tax advantage by the sale of his shares. In these circumstances the appellant has not shown that delay between 1979 and 1982 converted the commissioners otherwise lawful actions into an abuse of power. I would dismiss the appeal.

LORD SCARMAN

My Lords,I would dismiss the appeal for the reasons to be developed by my noble and learned friend, Lord Templeman, with whose speech I agree. Since, however, the appellant relies on the principle of fairness as the ground for judicial review in this case and cites in support of his submission my speech in Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self- Employed and Small Businesses Ltd. [1982] AC 617 , I think it necessary to explain why I have reached the conclusion that his case fails.I shall do so by stating a few propositions relevant to the appeal which I believe to be correct in law, by making a few comments upon the facts of this particular case, and by indicating what I consider to be the true reason for dismissing the appeal. But first, and by way of preface, I must make clear my view that the principle of fairness has an important place in the law of judicial review: and that in an appropriate case it is a ground upon which the court can intervene to quash a decision made by a public officer or authority in purported exercise of a power conferred by law.First, "the Inland Revenue Commissioners are not immune from the process of judicial review:" per Lord Wilberforce in the National Federation of Self-Employed case, at p. 631. This proposition, if it were ever doubted, is now, as I understand it, put beyond doubt by the speeches of your Lordships in the present appeal.The second proposition relates to the grounds upon which a taxpayer may seek judicial review of a decision taken by the Commissioners of Inland Revenue. The commissioners have their statutory powers and duties, the exercise of which can be challenged by the process of judicial review only if certain principles of general application are met. The taxpayer must show either a failure to discharge their statutory duty to him or that they have abused their powers or acted outside them: Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] AC 617 , per Lord" Wilberforce, p. 632, and per Lord Roskill, p. 660.

- 19 -

My third proposition is that unfairness in the purported exercise of a power can be such that it is an abuse or excess of power. This was the view of the law which I expressed in the National Federation of Self-Employed case (notably at p. 650): and it remains my view. I do not consider it to be inconsistent with the words of Lord Diplock in that case, p. 637, which my noble and learned friend Lord Templeman quotes in his speech, namely that:

"judicial review is available only as a remedy for conduct of

a public officer or authority which is ultra vires or

unlawful, but not for acts done lawfully in the exercise of

an administrative discretion which are complained of only as being unfair or unwise."I do not understand my Lord to have been saying that the unfairness of what has been done can in no circumstances become relevant in determining whether what was done was ultra vires or unlawful. If, however, the words are to be understood in that sense, then with very great respect I cannot accept them as a totally accurate statement of the law. I stand where I stood in the Court of Appeal decision, H.T.V. Ltd, v. Price Commission [1976] I.C.R. 170. The present case, as is clear from the speech of my noble and learned friend, Lord Templeman, illustrates how and in what circumstances the principle of fairness falls to be considered in determining whether a statutory power has been abused or exceeded. I return later to this, the critical point in the appeal.My fourth proposition is that a remedy by way of judicial review is not to be made available where an alternative remedy exists. This is a proposition of great importance. Judicial review is a collateral challenge: it is not an appeal. Where Parliament has provided by statute appeal procedures, as in the taxing statutes, it will only be very rarely that the courts will allow the collateral process of judicial review to be used to attack an appealable decision. In the first part of his speech my noble and learned friend, Lord Templeman, has set out in detail the ample appeal procedures available to a taxpayer aggrieved by a decision of the commissioners to exercise their powers and duties under Part XVII of the Act of 1970 to counteract a tax advantage alleged to have been obtained by him.But cases for judicial review can arise even where appeal procedures are provided by Parliament. The present case illustrates the circumstances in which it would be appropriate to subject a decision of the commissioners to judicial review. I accept that the court cannot in the absence of special circumstances decide by way of judicial review to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. But circumstances can arise when it would be unjust, because it would be unfair to the taxpayer, even to initiate action under Part XVII of the Act of 1970. For instance, as my noble and learned friend points out, judicial review should in principle be available where the conduct of the commissioners in initiating such action would have been equivalent, had they not been a public authority, to a breach of contract or a breach of a representation giving rise to an estoppel. Such a decision could be an abuse of power: whether it was or not and

- 20 -

whether in the circumstances the court would in its discretion intervene would, of course, be questions for the court to decide.It was the appellant's case that upon the true construction of the correspondence in 1978 between him and Mr. Thomas, an officer of the Special Investigations Section, the commissioners purported to contract or to represent that they would not thereafter re-open the tax assessments of the appellant for the years 1974-75 and 1975-76 if he withdrew his claims for interest relief and capital loss. Had he made good this case, I do not doubt that he would have been entitled to relief by way of judicial review for unfairness amounting to abuse of the power to initiate action under Part XVII of the Act of 1970. But he failed upon the construction of the correspondence as my noble and learned friend demonstrates in his speech.Secondly, had the appellant made good his case based on delay, the process of judicial review would have been available to him. The appellant's case on delay was that the commissioners had delayed initiating action to counteract the tax advantage which the appellant realised from his dealings in the shares of Gymboon Ltd. until his own claims for interest relief and capital loss had become statute barred by lapse of time. I, like others of your Lordships, was impressed by this case when it was first advanced by Mr. Brodie, Q.C. for the appellant. But the factual analysis of the circumstances of the delay undertaken by my noble and learned friend in his speech has convinced me that it would be unreasonable and unjust to treat the delay as an abuse of power, which in other circumstances it might well have been.For the reasons, therefore, given by my noble and learned friend, Lord Templeman, I am of the opinion that the appellant has failed to make out his case for intervention of the court by way of judicial review. I would dismiss the appeal.

LORD EDMUND-DAVIES

My Lords,For the reasons developed in the speech of my noble and learned friend, Lord Templeman, which I have had the advantage of reading, I would concur in dismissing the appeal.

LORD KEITH OF KINKEL

My Lords,I have had the benefit of reading in advance the speech to be delivered by my noble and learned friend, Lord Templeman. I agree with it, and for the reasons given by him I too would dismiss the appeal.

- 21 -

LORD BRIGHTMAN

My Lords,I also agree that this appeal should be dismissed for the reasons given by my noble and learned friend, Lord Templeman.

- 22 -