“It is right, in my judgment, to strike two cautionary notes at this stage. 15 There is a well-recognised need for caution in permitting challenges to findings of fact on the ground that they raise this kind of question of law. That is well seen in arbitration cases and in many others. It is all too easy for a so-called question of law to become no more than a disguised attack on findings of fact which must be accepted by the courts. As this case 20 demonstrates, it is all too easy for the appeals procedure to the High Court to be misused in this way. Secondly, the nature of the factual inquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact. The question is not, has the party upon 25 whom rests the burden of proof established on the balance of probabilities the facts upon which he relies, but, was there evidence before the tribunal which was sufficient to support the finding which it made? In other words, was the finding one which the tribunal was entitled to make? Clearly, if there was no evidence, or the evidence was to the contrary 30 effect, the tribunal was not so entitled.”
“... for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if 35 any, which was relevant to that finding; and fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make.”
“Appellate courts have been repeatedly warned … not to interfere with 5 findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluations of those facts and inferences to be drawn from them. … The reasons for this approach are many. They include: i) The expertise of a trial judge is in determining what facts 10 are relevant to the legal issues to be decided, and what those facts are if they are disputed. ii) The trial is not a dress rehearsal. It is the first and last night of the show. iii) Duplication of the trial judge’s role on appeal is a 15 disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case. iv) In making his decisions the trial judge will have regard to the whole of the sea of evidence presented to him, whereas 20 the appellate court will only be island hopping. v) The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence). vi) Thus even if it were possible to duplicate the role of the 25 trial judge, it cannot in practice be done.”
“The court cannot substitute its own findings of fact for those of the decision-making authority if there was evidence to support them; and questions as to the 5 weight to be given to a particular piece of evidence … are for the decision-making authority and not the court.”
“The restrictions imposed by an appeal limited to points of law are in addition to the well-recognised difficulties facing any appellate court, such as not seeing the witnesses giving evidence, being confined to a review of evidence considered in much greater detail by the court below, and being unable to capture from the 15 judgement (however meticulous) every nuance which played an important part of the evaluation of the court below; see for example per Lord Hoffmann in Biogen Inc v Medeva plc [1997] RPC at 45…”
“Often a statutory test will require a multi-factorial assessment based on a number of primary facts. Where that is so, an appeal court (whether first or second) should be slow to interfere with that overall assessment…”
“The need for appellate caution in reversing the judge’s evaluation of the facts is based upon much more solid grounds than professional courtesy. 30 It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance … of which time and language do not 35 permit exact expression but which may play an important part in the judge’s overall evaluation.”
“If I had concluded that one or more of Mr Patchett-Joyce’s criticisms of the specific factors which the tribunal took into account in concluding that Megtian 35 have the requisite knowledge of fraud was made out, it might have been necessary for me to consider whether the remainder, taken together with those factors relied upon by the tribunal which were not challenged, nonetheless constituted a sufficient basis for its conclusion.”
“As the following discussion of the authorities indicates, the tribunal must undertake a two stage process: it is first necessary to determine what rights and obligations arise under an agreement or suite of agreements, and then necessary 25 to characterise them. In conducting the second step the labels the parties attach are not conclusive.”
“All the agreements for a particular film were entered into on the same day. 10 They cross-refer and are not intended to take effect sequentially. We regard them as a single package to be construed as one composite agreement.”
“… The two agreements were interdependent. Both would have been signed or neither. The two agreements must therefore be read together.”
“acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create … for acts 35 or documents to be a “sham”, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating.”
“Now, if one takes certain individual features of the transaction, and considers 40 them in isolation, it is possible to give some colour to Victory Partnership's argument. For example, it is no doubt correct that the mere fact that the taxpayer borrows money in order to incur capital expenditure does not prevent him from qualifying for a capital allowance under the section; likewise the mere fact that 37 such a loan is a non-recourse loan in the sense that the taxpayer is not personally liable for its repayment, the loan being repayable out of property or proceeds in the hands of the taxpayer, will not of itself prevent the transaction from constituting what is in truth a loan, or the expenditure so financed qualifying for a capital allowance. But it is well established in the cases that we should not, for 5 present purposes, have regard to such features in isolation. Indeed the authorities require us to look at related transactions such as those which were entered into on14 July 1980 as one composite transaction. It is that composite transaction which we have to analyse, as a whole, in order to ascertain its true nature and effect, and to decide whether the transaction so analysed results, on a true 10 construction of the relevant statutory provision, in the taxation consequences for which the taxpayer contends.”
“Many transactions take place by the entry into a series of contracts…. In such cases, where the transaction is in truth one transaction all the contracts may be read together 40 for the purpose of determining their legal effect. This principle is a more specific example of the general principle that background is admissible in interpreting a written contract. It applies to other documents executed as part of the same transaction, 38 whether they happen to be executed before, at the same time as, or after the document requiring to be interpreted.”
“[T]he driving principle in the Ramsay line of cases continues to involve a 30 general rule of statutory construction and an unblinkered approach to the analysis of the facts. The ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically.”
“… for the purposes of [the statutory provision] the only relevant concept is whether ownership of the property has passed from the lessor to the lessee. On the agreed facts in the cases with which we are concerned, that condition was unquestionably satisfied, and I cannot see any scope for giving to the concept of 20 ownership in this context, as defined in the [statutory provision], anything other than its normal legal meaning. The legislation is therefore not amenable to a wider, purposive construction which could allow scope for the Ramsay principle to operate.”
“It is manifest that some transactions may be so effected or inspired by fiscal considerations that the shape and character of the transaction is no longer that of a trading transaction. The result will be not that a trading transaction with unusual features is revealed but that there is an 25 arrangement or scheme which cannot fairly be regarded as being a transaction [in the nature of trade].”
“… the mere fact that a group of companies sets out to avail itself of the opportunity of obtaining a fiscal advantage which Parliament has itself provided says nothing as to whether the requirement which Parliament has imposed as the condition of obtaining that fiscal advantage – that is to say that the asset in 30 question must be acquired “as trading stock” – has been fulfilled. It would, as it seems to me, be strange if it were otherwise. Indeed, I find it hard to conceive of a situation in which an asset is acquired under an intra-group transfer “as trading stock”, and an election made to convert the capital loss into a trading loss, where fiscal considerations have not played some part in the thinking of those 35 concerned in planning or executing the transaction.”
“The issue of trading calls, in my view, for an assessment of the actual arrangements which the parties put in place and the wider context in which the£7.67m came to be paid. It is a different question from what sum was actually expended on research and development for the purposes of s.437(1) and the court 15 is not restricted to considering only those parts of the contractual arrangements which qualify for relief.”
“(a) Considering for green-lighting films proposed by Ingenious entities. In 40 that context we note here that we do not regard the LLPs as having gone out to search for new films save perhaps in the discussions Mr Clayton had with Fox 66 close to 5 April when new films were sought to mop up subscribed capacity, or a “valve” operated to cope with situations in which subscriptions were insufficient. (b) Complex, serious and detailed negotiation of the commercial terms of agreements for the making of films. (c) Entering into contracts for the making of films and in relation to their 5 exploitation under which substantial sums were put at risk. (d) Keeping an eye on what was going on in the making of the films and in particular paying some attention to the costs of production but without any significant involvement in the creation of the films. (e) Receiving revenue and reviewing revenue statements from films; 10 (f) Accounting and administration.”
“The respondent argues that intending to constitute a valid partnership is not the same thing as intending to carry on business in common with a view to profit. I 30 agree. The parties in the present case, however, set up a valid partnership within the meaning of s 2 of the Partnerships Act. They had the intention to and did carry on business in common with a view to profit. This conclusion is not based simply on the parties’ subjective statements as to intention. It is based on the objective evidence derived from the Partnership Agreement entered into by the 35 parties.”
“It seems to me that three general points may be made about the expression 'with 35 a view to ....'. In the first place, it is a less specific expression than 'for the sole purpose of ....' or 'with the principal or dominant intention of ....'; and (as the judge rightly acknowledged in paragraph 28 of his judgment) it suggests a degree of flexibility of meaning and application. That said, the word 'view' plainly connotes some element (albeit undefined) of purpose, intention or 40 contemplation. Secondly, in the particular context of section 43(11)(a) (and in contrast to the similar expression insection 44(1) of the Bankruptcy Act 1914 ) it is looking to the future: the relevant 'view' is a view as to a particular future 86 event, viz. 'potential emoluments' becoming 'relevant emoluments'. Thirdly, the expression 'with a view to', when coupled with the word 'potential', indicates to me that the future event in question is one which may or may not occur: it is enough that it should have the potential to occur.”
“… when assessing whether a trade is being carried on on commercial lines, the likelihood of profit seems to me to be central to an assessment of its commerciality. The question is whether the trade is being carried on in a way 5 that a person seriously interested in commercial success would carry it on. Such a person would be unlikely to regard a trade which had a remote possibility of a small profit as worth carrying on as a commercial venture, even though it could be said that there was a realistic possibility of profit.”
“15. An obvious difficulty which affects allegations and oral evidence based on recollection of events which occurred several years ago is the unreliability of human memory. 16.While everyone knows that memory is fallible, I do not believe that the legal 25 system has sufficiently absorbed the lessons of a century of psychological research into the nature of memory and the unreliability of eyewitness testimony. One of the most important lessons of such research is that in everyday life we are not aware of the extent to which our own and other people's memories are unreliable and believe our memories to be more faithful than they are. Two 30 common (and related) errors are to suppose: (1) that the stronger and more vivid is our feeling or experience of recollection, the more likely the recollection is to be accurate; and (2) that the more confident another person is in their recollection, the more likely their recollection is to be accurate. 17.Underlying both these errors is a faulty model of memory as a mental record 35 which is fixed at the time of experience of an event and then fades (more or less slowly) over time. In fact, psychological research has demonstrated that memories are fluid and malleable, being constantly rewritten whenever they are retrieved. This is true even of so-called 'flashbulb' memories, that is memories of experiencing or learning of a particularly shocking or traumatic event. (The very 40 description 'flashbulb' memory is in fact misleading, reflecting as it does the misconception that memory operates like a camera or other device that makes a fixed record of an experience.) External information can intrude into a witness's 91 memory, as can his or her own thoughts and beliefs, and both can cause dramatic changes in recollection. Events can come to be recalled as memories which did not happen at all or which happened to someone else (referred to in the literature as a failure of source memory). 18.Memory is especially unreliable when it comes to recalling past beliefs. Our 5 memories of past beliefs are revised to make them more consistent with our present beliefs. Studies have also shown that memory is particularly vulnerable to interference and alteration when a person is presented with new information or suggestions about an event in circumstances where his or her memory of it is already weak due to the passage of time. 10 19.The process of civil litigation itself subjects the memories of witnesses to powerful biases. The nature of litigation is such that witnesses often have a stake in a particular version of events. This is obvious where the witness is a party or has a tie of loyalty (such as an employment relationship) to a party to the proceedings. Other, more subtle influences include allegiances created by the 15 process of preparing a witness statement and of coming to court to give evidence for one side in the dispute. A desire to assist, or at least not to prejudice, the party who has called the witness or that party's lawyers, as well as a natural desire to give a good impression in a public forum, can be significant motivating forces. 20 20.Considerable interference with memory is also introduced in civil litigation by the procedure of preparing for trial. A witness is asked to make a statement, often (as in the present case) when a long time has already elapsed since the relevant events. The statement is usually drafted for the witness by a lawyer who is inevitably conscious of the significance for the issues in the case of what the 25 witness does nor does not say. The statement is made after the witness's memory has been "refreshed" by reading documents. The documents considered often include statements of case and other argumentative material as well as documents which the witness did not see at the time or which came into existence after the events which he or she is being asked to recall. The statement 30 may go through several iterations before it is finalised. Then, usually months later, the witness will be asked to re-read his or her statement and review documents again before giving evidence in court. The effect of this process is to establish in the mind of the witness the matters recorded in his or her own statement and other written material, whether they be true or false, and to cause 35 the witness's memory of events to be based increasingly on this material and later interpretations of it rather than on the original experience of the events. 21.It is not uncommon (and the present case was no exception) for witnesses to be asked in cross-examination if they understand the difference between recollection and reconstruction or whether their evidence is a genuine 40 recollection or a reconstruction of events. Such questions are misguided in at least two ways. First, they erroneously presuppose that there is a clear distinction between recollection and reconstruction, when all remembering of distant events involves reconstructive processes. Second, such questions disregard the fact that such processes are largely unconscious and that the strength, vividness and 45 apparent authenticity of memories is not a reliable measure of their truth. 22.In the light of these considerations, the best approach for a judge to adopt in the trial of a commercial case is, in my view, to place little if any reliance at all 92 on witnesses' recollections of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts. This does not mean that oral testimony serves no useful purpose – though its utility is often disproportionate to its length. But its value lies largely, as I see it, in the opportunity which cross-examination affords to 5 subject the documentary record to critical scrutiny and to gauge the personality, motivations and working practices of a witness, rather than in testimony of what the witness recalls of particular conversations and events. Above all, it is important to avoid the fallacy of supposing that, because a witness has confidence in his or her recollection and is honest, evidence based on that 10 recollection provides any reliable guide to the truth.”
“492. We come to the following conclusions in relation to the nature of the “view”: (a) the test requires some element of purpose, intention or contemplation. That is apparent from the word “view” and the approach to 20 it by other courts and tribunals; (b) whether or not a taxpayer has a subjective intention depends on all the evidence: a mere assertion of intention may not be enough; (c) The test does not require an overriding objective of making profit or its pursuit to be the main or predominant purpose of the activity. 25 As Lord Hoffmann said in Dextra, had that been intended Parliament would no doubt have used such expressions “which are by no means unfamiliar in tax legislation”. (d) Thus the existence of other hopes or intentions in the conduct of the business need not prevent the carrying on of the business having a 30 view of profit. (e) Having an intention to make profit is not enough; the taxpayer must conduct the business with a view to profit. The nature of the conduct of the business is relevant. The test is about how the trade is carried on and how the taxpayer intends to carry it on. That focuses on the activities of 35 the business and their possible future income, and that focus is a counterweight to a purely subjective analysis of the taxpayer’s motives or hopes. (f) A “view” looks to the future – to the intentions as to the conduct of the business and the results which will flow from it. The taxpayer’s 40 94 intentions as to the conduct of the business are part of the subjective elements of the test. (g) Dextra indicates that there may be some objective element in “with a view to” although in a different statutory context. In the present context “profit” has a meaning independent of what the taxpayer considers 5 it to be: that indicates an objective element in the test: an assessment of whether the intended conduct of the business has a realistic possibility of delivering a profit. In Vodafone Millett LJ said (742J) that the determination of purpose in section 74 TA 88: “… does not involve an enquiry of the taxpayer whether 10 he consciously intended to obtain a trade or personal advantage by the payment. The primary enquiry is to ascertain what was the primary object of the taxpayer in making the payment. Once ascertained, its characterisation as a trade or private purpose is a matter for the commissioners, not the taxpayer”
“It seems to us that the kind of realistic view of the facts which a purposive interpretation of the statute requires is one which, as we have said, recognises that section 34 (74) is set in the context of determining the profit of the taxpayer, 35 and that “profit” is concerned with the commercial and economic consequences of the taxpayer’s actions. That is why we view “incurred” as being concerned with whether the taxpayer bore the economic burden of an expense. If the LLP was, contrary to our view, liable to pay 100, then the statutory question is whether realistically it bore the economic burden of that liability. The realism 40 required by that question is a requirement to look at what real economic burden, what outflow of value, affected the LLP. That requires an answer to the question: “leaving aside the rights to the film, how were the assets and obligations of the 118 LLP different after the liability to pay 100 was satisfied?”
“893. The incurring of the liability of 30, and the payment of 30 may have had the effect that the investors would get a tax loss, but that was incidental. It is true that the 30 was spent under an agreement which it was hoped would deliver a loss based on 100. But it was not the obligation to pay 30 which had the tax 30 avoidance purpose but the obligation (assuming there was one) to treat the 70 to be paid by CD to the PSC as an expense incurred by the LLP. The obligation to pay 30 gave rise to the debit. That obligation was matched by rights to 30% of GDI. Its purpose was to secure their benefit.”
“…seems to us to ignore the evidence that it was Ingenious personnel who required that the PSC enter into the EP contract and therein agreed to pay the fee. Various emails showed the importance Ingenious personnel attached to 20 Ingenious obtaining the fees it expected. The Operator negotiated the agreements on behalf of the LLP. The correspondence showed that it required the EP contract. The requirement to pay the fee was thus imposed by the LLP through the agency of the Operator. Why did the LLP impose that obligation? It was not to obtain any benefit in the making of the film. We conclude it was not paid for 25 the purposes of making the film.”
“(a) the terms of the EP contract referred to the rendering of services to the PSC, not the LLP; that might include bringing the LLP to the party, but it does 30 not include bringing the film to the LLP. Regarding the fee payable under that contract as paid for bringing the film to the LLP requires one to treat the contract (which we repeat was imposed by the LLP through the Operator) as not representing what its terms said; (b) under the Operator’s Agreement the LLP acquired the services of the 35 Operator. Those services included the identification of suitable films and the negotiation of agreements. This agreement was in place before the agreements for any film and thus before the EP contract. Any service Ingenious personnel rendered in bringing a film to an LLP or organising for its contract would naturally have been rendered under the Operator’s Agreement. Mr Reid accepted 40 that it was the Operator’s responsibility to make sure that production was going 124 well. There was no need for the same services to be supplied by another entity; and (c) there was no indication in the oral evidence, besides perhaps the suggestion that at times Ingenious personnel were wearing two hats, that before the EP agreement was signed the Operator had engaged the services of the EP to 5 organise financing and get the film ready when that was part of the Operator’s own role. Indeed it is difficult to see how the Operator could have done that on behalf of the PSC for which it held no agency.”
“In our judgement the LLPs incurred 5 out of 30 for the purpose of rewarding a member of the Ingenious organisation and not for the engagement in a film or in return for introducing it to the film, or even for assisting it in raising capital. It 20 was an obligation added to the transaction by the Operator for the benefit of the Ingenious group and not for the purposes of the LLP’s business; it was not forced upon the LLP by the CD. We conclude that 5 out of the 30 was not incurred wholly and exclusively for the trade of the LLP.”
“…The LLP did not get the benefit of the monies paid to the PSC by the Lender. [Mr Cannon] regarded the LLP as being liable to pay only 30 since its obligation to make payment was subject to the PSC receiving the funds from the Lender: it 35 did not have to make any transfer of value until the Lender had paid its 70. Thus he regarded the LLP as incurring expenditure of only 30. Even if there could be said to be a legal obligation to transfer 100 he regarded the LLP as not being required to transfer economic benefit of more than 30. This he regarded as consistent with the LLP acquiring an asset – the right under the CDA to payment 40 from the CD – which was limited to 30% of the distributable income. 130 …The obligation of the LLP to pay 30 gave rise to the corresponding recognition of 30 of stock. His preferred designation would be as a long-term contract but he accepted that it made no difference to the GAAP profit. Mr Cannon accepted that the stock should be written down to NRV and that it was correct to use an estimation technique for so doing, but he regarded the 5 LLP's practice of taking into account projected future income as insufficiently prudent. He would reduce the turnover and profit (and implicitly also the carrying value of the debtor or stock) accordingly.”
“Mr Cannon did not consider that the LLP should have recognised that part of 10 the distributable income (BDR/BR) which was required to be paid directly to the Lender – either as part of its turnover or in assessing the NRV of its interest in a film.”
“In summary, it seems to us that these provisions require that the assets and 30 liabilities arising to an entity from a group of transactions intended to achieve an overall commercial effect must be determined by considering what legal rights and obligations arise from those transactions, and therefore what economic benefits can be controlled or suffered by the entity by recourse to law, and then considering those as a whole together with any other features of the transactions 35 or the setting in which they take place (including the position of third parties if relevant) to determine what is the commercial or economic substance of the economic benefits and obligations of the entity.”
“1057. In our view, there was in substance no sale of rights in the film by the LLP to the CD: for FRS5 purposes the LLP only ever had one asset of substance, namely its rights against the CD. That right was held “for use on a continuing basis in the …business”
“(a) Minimum income or virtually certain income was understated by the effect of: (i) the reduction of 50% applied to sales agents’ low estimates; 10 (ii) the discount for the time value of money applied in the ITP estimates for Independent films and in the IFP2 estimates for Studio films; (iii) the application of a ratio of P&A expenditure to box office exceeding 60%. (b) The deduction for Participations should have been calculated using the actual 15 rates applicable in the film documentation. 12% was excessive. (c) Neither ITP [nor] IFP2 operated a policy of determining NRVs at about 20% of budget, but in practice the decisions taken by both entities were biased in favour of elements of the calculations which would deliver NRV closer to 20%. (d) This practice resulted in the understatement of NRVs when measured against 20 a policy of calculating NRV as minimum income or virtually certain income.”
“… the [LLP] shall, subject to receipt by the [CM] of funding under the Loan Agreement and opening of the Production Account, advance, or cause to be advanced, the Production Funds to the Production Account to be disbursed in accordance with the Approved Production Budget and the Approved 5 Cashflow…”
“On its own clause 3.1 might appear to create a contingent obligation for the 15 LLP to pay or procure the payment of the full amount of the Production Funds (100) to the PSC. But the contingency is the receipt of funding by the CM under the Loan Agreement and that agreement expressly provides for such funding to be advanced by payment to the Production Account. Thus the obligation in clause 3.1 arises only if 70 (65) has been paid to the Production Account by the 20 Lender. As a result this clause cannot oblige the LLP to pay more than 30 (35).”
“...apart from anything which could be derived from the terms of the film agreements negotiated by the Operator, there was no express or implied 10 entitlement for the CM to drawings under the Members’ Agreement equal to 50% of the receipts of the LLPs from any film or otherwise. There was thus no pre-existing right of the CM to a particular amount or proportion of drawings which was capable of being assigned or alienated by the relevant agreements.”
“Capital Contributions shall be treated as made only when the amount of such Capital Contribution is actually received in freely transferable funds by the [LLP].”
“Until repayment in full of the [CM loan] from the sums directed to the Studio by the CM pursuant to the payment instruction agreed between the 15 [CM, the LLP and the CD], the [CD] shall pay…100% of the remaining Gross Receipts to or at the direction of [the LLP].”