“We consider that to bring the PIP within the profit-sharing arrangements of the Partnership would go beyond those limits in the present case. It would be necessary to fix the taxpayer, in this case the Partnership, with a contract to which its members did not agree. In our view, the correct contractual analysis is that the individual partner has no right to share in the profits of the Partnership at the time when allocations were made to the Corporate Partner and that the terms of the Partnership Deed which allocated those profits to the Corporate Partner must be respected. It is also our view that the contractual effect of the PIP and the way in which it was operated in practice do not change that position. When profits were allocated between the partners under the Partnership Deed, each individual partner had a legitimate expectation that his or her provisional PIP Award would be made final unless they failed to meet the eligibility conditions. Individual partners only had a right or entitlement to receive their PIP Awards once they were entitled to withdraw the Special Capital. Even adopting a purposive construction of section 850 of ITTOIA 2005, the PIP did not form part of the profit-sharing arrangements of the Partnership. We therefore dismiss Ground 1 of the PIP Appeals.”
“(1) Income tax is charged under this Chapter on income from any source that is not charged to income tax under or as a result of any other provision of this Act or any other Act.”
“Before ITTOIA 2005 came into force, a residual charge to income tax arose under Schedule D Case VI on any annual profits or gains not falling under any other Case of Schedule D and not charged to tax under Schedules A, E and F. This residual charge to income tax is now found in section 687(1) of ITTOIA 2005 which was enacted as part of HMRC’s Tax Law Rewrite Project. It is common ground that section 687(1) was intended to have the same scope as the earlier legislation and that the authorities relating to Schedule D Case VI (which go back many years) remain relevant to its interpretation. The principles to be derived from those earlier authorities were summarised in Kerrison v HMRC[2019] 4 WLR 8 at [68] where the Upper Tribunal stated that the receipt must meet the following requirements: (1) The receipts must have the nature of “annual profits”
“… a tax avoidance scheme which was intended to avoid tax credits arising under a loan relationship. Company A lent money to Company B but instead of Company B paying interest to Company A, Company B issued irredeemable preference shares equal in value to a commercial rate of interest on the loan to Company C.”
‘It was suggested, however, that [the Rule] does not extend to mere voluntary payments. But the payments here were not voluntary in any relevant sense; they were made in the exercise of a discretion conferred by the will out of a fund provided for the purpose by the testatrix. It is true that the trustees had an absolute discretion whether to make a payment or not; but the question whether they should do so is one which they were bound to take into their consideration. They could not refuse to consider whether the income of the estate was sufficient to give [the beneficiary] the required degree of comfort. The fact that, after examining that matter, they might come to the conclusion that it was sufficient … does not, in my opinion, give to a payment, if and when made, the character of a voluntary payment in any relevant sense.’
“Although, in Cunard’s Trustees[1946] 1 All ER 159 , 27 TC 122, the court was addressing the question whether the payments were or were not voluntary, what Lord Greene said (see para [67] above) was equally relevant to the question whether there was a connection between the recipient and a source.”
“Within 30 days of the making of an allocation of profit to [GSAM] under clause 10.3(D), the Managing Member may, with the prior consent of [GSACS], make recommendations in writing to [GSAM] in the form set out at Schedule 6 as to the investment of such profit (after meeting tax and other liabilities) in shares in the Funds, the contribution of the proceeds of such shares into the Partnership as Special Capital and the reallocation of such Special Capital to other Members. Following the making of such recommendations, the Managing Member may notify each Member of the fact that a recommendation has been made in respect of them in the form set out at Schedule 7. The Managing Member may make further or alternative recommendations to [GSAM] from time to time with the prior consent of [GSACS]. For the avoidance of doubt, [GSAM] shall be under no obligation to follow the recommendations of the Managing Member and shall have absolute discretion as to how it applies any profit allocations it receives from the Partnership.” (appellants’ emphasis added).”
“Contractual terms in which one party to the contract is given the power to exercise a discretion, or to form an opinion as to relevant facts, are extremely common. It is not for the courts to rewrite the parties’ bargain for them, still less to substitute themselves for the contractually agreed decision-maker. Nevertheless, the party who is charged with making decisions which affect the rights of both parties to the contract has a clear conflict of interest. That conflict is heightened where there is a significant imbalance of power between the contracting parties as there often will be in an employment contract. The courts have therefore sought to ensure that such contractual powers are not abused. They have done so by implying a term as to the manner in which such powers may be exercised, a term which may vary according to the terms of the contract and the context in which the decision-making power is given.”
“It is clear, however, that unless the court can imply a term that the outcome be objectively reasonable for example, a reasonable price or a reasonable term, the court will only imply a term that the decision-making process be lawful and rational in the public law sense, that the decision is made rationally (as well as in good faith) and consistently with its contractual purpose.”
“But whatever term may be implied will depend on the terms and the context of the particular contract involved.”
“…subject to any contrary indications in the relevant document, the law readily imposes an obligation that the power must be exercised in good faith. In an LLP context, there will, the authors suggest, generally be implied into the LLP agreement a requirement that a decision-making power must be exercised in good faith…”
“An important feature of the above line of authorities is that in each case the discretion did not involve a simple decision whether or not to exercise an absolute contractual right. The discretion involved making an assessment or choosing from a range of options, taking into account the interests of both parties. In any contract under which one party is permitted to exercise such a discretion, there is an implied term. The precise formulation of that term has been variously expressed in the authorities. In essence, however, it is that the relevant party will not exercise its discretion in an arbitrary, capricious or irrational manner. Such a term is extremely difficult to exclude, although I would not say it is utterly impossible to do so. Certainly clause 1.1.5 of the conditions in the present case is not effective to exclude such a term, if it is otherwise to be implied.”
“The discretion which is entrusted to the Trust in relation to service failure points and deductions in the present case is very different from the discretion which existed in the authorities discussed above. The Trust is a public authority delivering a vital service to vulnerable members of the public. It rightly demands high standards from all those with whom it contracts. There may, of course, be circumstances in which the Trust decides to award less than the full amount of service failure points or to deduct less than it is entitled to deduct from a monthly payment. Nevertheless the Trust could not be criticised if it awards the full number of service failure points or if it makes the full amount of any deduction which it is entitled to make. The discretion conferred by clause 5.8 simply permits the Trust to decide whether or not to exercise an absolute contractual right. 92. There is no justification for implying into clause 5.8 a term that the Trust will not act in an arbitrary, irrational or capricious manner. If the Trust awards more than the correct number of service failure points or deducts more than the correct amount from any monthly payment, then that is a breach of the express provisions of clause 5.8. There is no need for any implied term to regulate the operation of clause 5.8.”
“The types of contractual decisions that are amenable to the implication of a Braganza term are decisions which affect the rights of both parties to the contract where the decision-maker has a clear conflict of interest. In one sense all decisions made under a contract affect both parties, but it is clear that Baroness Hale had in mind the type of decision where one party is given a role in the on-going performance of the contract; such as where an assessment has to be made. This can be contrasted with a unilateral right given to one party to act in a particular way, such as right to terminate a contract without cause.”
“It is open to the members to agree to exclude or limit the scope of the implied fetter and to agree expressly that the power is capable of being exercised free of any good faith or other restraint.”
“170. The background to the CAP should not be overlooked. It was described as a deferred bonus scheme. One of the reasons for the implementation of the CAP was to comply with FSA requirements for deferral of amounts derived by the individuals from their work. It was clear from the evidence, not least the fact that recommendations could be and were altered before reallocations were made, that the payments were made to reward individual members for their performance and to incentivise particular behaviour. 171. Although these were not allocations of profit, as established above, it is nevertheless clear that there is a connection between the activities of the individual members and the subsequent reallocation of Special Capital.”
“…the taxpayer and a colleague set up a hedge fund. They transferred the fund to a new fund manager and the taxpayer and his colleague became its employees. They entered into a separate bonus agreement under which they were paid a bonus for the transfer of their fund. They were then made redundant and brought a claim against their new employer. They settled the claim on terms that they received compensation for the failure to pay the bonus. An issue arose as to the correct tax treatment of the compensation to be paid under the settlement. It was common ground that the compensation should have the same tax treatment as the bonus. But HMRC also took the view that the payments fell within Case VI of Schedule D whereas the taxpayer contended that the bonus was in the nature of the capital sum subject to capital gains tax”
“In this Chapter references to an occupation, in relation to an individual, are references to any activities of a kind undertaken in a profession or vocation, regardless of whether the individual— (a) is carrying on a profession or vocation on the individual's own account, or (b) is an employee or office-holder.”
“It was clear from the evidence of the individual members that their activities in respect of HFFX were the design and development of software-based trading strategies. Their titles (whilst not conclusive) support this: the team consisted [sc.] of researchers and developers, not commodity traders or market advisers. They had none of the infrastructure required for such buying and selling. The evidence provided was that all of the infrastructure and functions relating to the foreign exchange transactions was provided by GSA and that trading in foreign exchange financial instruments was undertaken by GSA.”
“the fact that there are two ways of carrying [a genuine commercial transaction] out — one by paying the maximum amount of tax, the other by paying no, or much less, tax — it would be quite wrong, as a necessary consequence, to draw the inference that, in adopting the latter course, one of the main objects is, for the purposes of the section, avoidance of tax. No commercial man in his senses is going to carry out a commercial transaction except upon the footing of paying the smallest amount of tax that he can…”
“I consider that it is clear from AG’s evidence that he had a main object of reducing a tax liability in agreeing to the CAP, as he considered that the alternative restricted fund shares arrangements carried an “unfair tax position” and also believed that there would be tax savings to the use of the CAP. Whilst he also had other objects in agreeing to the CAP, I consider that it was clear from his evidence that the tax position was an important part of that decision as he emphatically contrasted the tax position that would arise from the alternative deferral arrangements that were under consideration and also explained the tax benefits of the arrangements to [Mr Howson]. I do not consider that it is credible that he was not interested in a potential tax saving of more than 40% on very substantial earnings.”
“After reviewing the additional correspondence, Officer Frusher concluded that the 2012/13 self-assessments of the individual members were insufficient and so raised discovery assessments for 2012/13 on31 March 2017 .”
“Whilst the meeting and the additional information provided was helpful, it ultimately did not revise my view of the nature of the Capital Allocation Plan. After reviewing the additional correspondence, I considered whether the 2012/13 self-assessments were sufficient and concluded that they were not. Consequently, I raised discovery assessments for 2012/13 for the relevant Individuals on31 March 2017 .”
“This will be a critical factor. If publication would be truly against the public interest then no doubt the information should be redacted. If publication would destroy the subject matter of the proceedings – such as a technical trade secret – then redaction may be justified. The effect on competition and competitiveness could be a factor but will need to [be] examined critically.”
“Obviously judges do not deliberately insert irrelevant information into judgments but not every word of a judgment is as important as every other word. It may be that some sensitive information can be redacted without seriously undermining the public’s understanding of the reasons.”
“…a patentee seeking damages for patent infringement on a lost profit basis knows that they will have to disclose their profit margin in the proceedings and that those proceedings are public. A third party whose only relationship with the case is that they are a party to a contract disclosed by one of the parties to the litigation is in a different position.”
“Having considered the arguments of the parties, I consider that the Appendix should not be redacted. I do not agree that the “powerful reasons [and] evidence” required for redaction as noted in Unwired Planet are present: in particular, the information is question is now several years out of date and the Appellants should have known that the information would need to be disclosed in public proceedings. The fact that some of the Appellants may not have received all of the information to date is irrelevant, as I agree that they would be entitled to receive the information if they requested it.”
“in tax cases the public interest generally requires the precise facts relevant to the decision to be a matter of public record, and not to be more or less heavily veiled by a process of redaction or anonymisation. The inevitable degree of intrusion into the taxpayer's privacy which this involves is, in all normal circumstances, the price which has to be paid for the resolution of tax disputes through a system of open justice rather than by administrative fiat.”