BCM Cayman LP v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeLady Justice Whipple,Lord Justice Nugee,Lord Justice Lewison
Judgment Date12 October 2023
Neutral Citation[2023] EWCA Civ 1179
CourtCourt of Appeal (Civil Division)
Docket NumberCase No: CA-2022-002051
(1) BCM Cayman LP
(2) BlueCrest Capital Management Cayman Limited
The Commissioners for His Majesty's Revenue and Customs

[2023] EWCA Civ 1179


Lord Justice Lewison

Lord Justice Nugee


Lady Justice Whipple

Case No: CA-2022-002051



Mr Justice Leech and Upper Tribunal Judge Thomas Scott

[2022] UKUT 00198 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Jonathan Peacock KC, John Brinsmead-Stockham KC and Edward Hellier (instructed by Slaughter and May) for the Appellants

Rupert Baldry KC, Thomas Chacko and James Kirby (instructed by the Solicitor for HMRC) for the Respondents

Hearing dates: 25 & 26 July 2023

Approved Judgment

Lady Justice Whipple



This is the appeal of BCM Cayman LP (the “Cayman LP”) and BlueCrest Capital Management Cayman Limited (“Cayman Ltd”), together the “appellants”, against the decision of the Upper Tribunal (Leech J and Judge Thomas Scott), [2022] UKUT 00198 (TCC) reported at [2022] STC 1586. The UT dismissed the appellants' appeal against the decision of the First-tier Tribunal (Judge John Brooks), [2020] UKFTT 0298 (TC). The UT granted permission to appeal to this Court.


The appeal concerns the appellants' tax returns for the years ending 30 November 2007 to 31 December 2013. Having opened enquiries into those years, on 31 March 2017 HMRC sent closure notices to the appellants. Allowing for certain adjustments to reflect what are now agreed deductions, HMRC's case is that the appellants owe £32,247,848 in corporation tax. The appellants dispute that liability raising a number of challenges which are summarised at [24]–[28] below.


The appellants were represented by Jonathan Peacock KC, John Brinsmead-Stockham KC and Edward Hellier (none of whom appeared below). The respondents, HMRC, were represented by Rupert Baldry KC and Thomas Chacko (who did appear below) and James Kirby (who did not appear below). I am grateful to all counsel and their respective legal teams for their expert presentation of this appeal.




The facts were agreed in a statement of facts and issues set out in full by the FTT at [8] of its decision. It is only necessary in this judgment to summarise the key facts, which I take substantially from the UT's decision at [2]–[9].


The BlueCrest group carries on the trade of investment management. At the start of the period under consideration here, a UK limited partnership, BlueCrest Capital Management LP (“UK LP” or the “UK Partnership”) carried on part of that trade. In 2007 certain members of the UK Partnership wished to sell part of their interests, amounting to 19% of the equity. The remaining members agreed to acquire those interests with a view to providing an “equity pool” for other members or employees of the group. Cayman LP (also referred to as the Cayman Partnership) was formed in the Cayman Islands as a limited partnership to hold the interests of the buyers. Cayman Ltd was incorporated in the Cayman Islands to become a general partner of Cayman LP. Cayman Ltd was wholly owned by BlueCrest Capital Management Cayman Holdings Ltd (“Cayman Holdings”). The Cayman Partnership was governed by a deed of partnership (the “Cayman LP Deed” or the “Cayman Partnership Deed”).


The sellers assigned their combined 19% interest in the UK Partnership to Cayman Ltd and it then contributed that interest to the Cayman LP as a capital contribution. Cayman LP became a party to the UK LP's amended and restated deed of partnership (the “UK LP Deed” or the “UK Partnership Deed”). As a limited partnership under Cayman law, Cayman LP did not have separate legal personality.


To fund the acquisition, Cayman Ltd borrowed $200 million from the Royal Bank of Scotland plc (“RBS”) (the “Loan”) and issued $165 million in loan notes (the “Loan Notes”) to the sellers. RBS became a member of the Cayman Partnership (and was identified as the “Corporate Limited Partner” in that Partnership). RBS also entered into a swap transaction with Cayman Holdings governed by the 2002 ISDA Master Agreement which the parties called the “Total Return Swap” or “TRS”.


On 11 June 2008 RBS assigned its interest in Cayman LP to Fyled Energy Ltd (“Fyled”) (later renamed Morgan Stanley Montrose Investments Ltd), which became the Corporate Limited Partner in the Cayman Partnership. The TRS was novated with the effect that RBS was replaced by Fyled as the counterparty. Cayman Holdings also entered into the “Financial Contract” (together with a side letter) with another counterparty, Morgan Stanley Cooper Ltd (“MS Cooper”), a company incorporated in the UK and wholly owned by the Morgan Stanley Group. These new arrangements collectively replaced the original TRS. I shall refer to the original and the modified arrangements collectively as the “TRS arrangements” which I will discuss in greater detail below.


The UK LP allocated profits in the UK Partnership to the members of the UK Partnership in the order of priority specified in the UK Partnership Deed. It allocated profits to Cayman LP to cover the monthly payment of interest due under the Loan before allocating the remaining profits to the limited partners in agreed proportions.


Cayman LP allocated profits in the Cayman Partnership to the members of the Cayman Partnership in the order of priority specified in the Cayman Partnership Deed. It allocated profits to Cayman Ltd to pay the interest due on the Loan, then it allocated profits to pay off the 15% interest due under the Loan Notes, before then allocating profits to the limited partners (excluding the Corporate Limited Partner) in agreed proportions. The Corporate Limited Partner only became entitled to a profit allocation in one of two circumstances, specified in the Cayman Partnership Deed: if there was a trigger event (which never occurred during the currency of these arrangements), or if the UK LP made “Superprofits” in excess of a given benchmark (which did occur during the currency of these arrangements, and which gives rise to the current appeal).


On 1 December 2008 the business of the UK Partnership was transferred to BCM LLP (the “UK LLP”). There was a later reorganisation of the UK LLP involving a move to Guernsey in April 2010 which is not relevant for present purposes.


On 30 November 2010 Fyled ceased to be a partner of Cayman LP and the Financial Contract was terminated. That brought an end to the TRS arrangements.


It was common ground below that the analysis was no different for RBS than for Fyled, and further, that the move of the business from the UK LP into the UK LLP made no difference to the outcome. The UT therefore addressed the issues on the basis that the relevant profit allocations were made by UK LP, without separately analysing the position for the successor UK LLP. Neither party suggested that approach was wrong, but both accepted that the Limited Partnership Act 1907 governed the LP whereas the Limited Liability Partnerships Act 2000 governed the LLP, so that the analysis was to that extent, at least, different for the LLP.



The Cayman LP Deed provided for Superprofits to be allocated to the Corporate Limited Partner in the event that the UK Partnership made profits in excess of a certain level. In the event that Superprofits were paid to Cayman Ltd, under the terms of the Cayman LP Deed, Cayman Ltd would allocate them to the Corporate Limited Partner and that allocation would trigger a payment by the Corporate Limited Partner or its associate to Cayman Holdings under the TRS arrangements. Cayman Holdings would then use the funds which it received from the Corporate Limited Partner to subscribe for capital in Cayman Ltd which Cayman Ltd would use in turn to prepay its borrowings (the Loan and the Loan Notes).


In the event, the UK Partnership did not make Superprofits when RBS was the Corporate Limited Partner of the Cayman Partnership. But it did make Superprofits after Fyled became the Corporate Limited Partner on 11 June 2008. Superprofits were paid to Fyled on three occasions, once in the year ending 30 November 2008 when the investment business was being carried on by UK LP, in the amount of £13,138,385; and twice in the year ending 30 November 2009 when the investment business was being carried on by UK LLP, in the aggregate amount of £33,988,539 (see FTT [8(41)]).


The purpose of the allocation of Superprofits to the Corporate Limited Partner was to enable Cayman Ltd to prepay part of the Loan and of the debt due under the Loan Notes. We were shown two documents which were before the FTT and the UT which evidenced that purpose. The first is the disclosure document submitted by Ernst & Young LLP to HMRC on 13 July 2007 under the Disclosure of Tax Avoidance Scheme (“DOTAS”) rules (see Part 7 of the Finance Act 2004). That document described a “bespoke tax planning arrangement”, indicating that “the structure described effectively enables pre-tax income to be applied to fund repayment of the debt …”. The second is a report for the BlueCrest Group prepared by EY on 5 July 2007, the day before the arrangements were implemented. It summarised the structure and anticipated tax treatment. This was stated at paragraph 15:

“New partners may in future be introduced to [Cayman LP]. [Cayman LP] will operate as a ‘second tier’ partnership, giving individuals the ability to share in group profits and to potentially benefit from capital appreciation without being introduced directly into [UK LP]”.



Many agreements were executed by the appellants and related parties in order to give effect to these arrangements. For the purposes of this appeal, it is unnecessary to consider most of them in detail. The exceptions are the partnership deeds governing the...

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  • Corporate Law Update: 14 - 20 October 2023
    • United Kingdom
    • Mondaq UK
    • 23 October 2023
    ...doing so. As a result, they had not become direct partners in the UK LP. Access the Court of Appeal's decision in BCM Cayman LP v HMRC [2023] EWCA Civ 1179 TCFD reports improved disclosure against its recommendations but room for The Taskforce on Climate-related Financial Disclosures (TCFD)......

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