Hitch and Others v Stone (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | LADY JUSTICE ARDEN,SIR MARTIN NOURSE,LORD JUSTICE KAY |
| Judgment Date | 27 January 2001 |
| Neutral Citation | [2001] EWCA Civ 63 |
| Docket Number | Case No: A3/1999/1007 CHRVF |
| Court | Court of Appeal (Civil Division) |
| Date | 27 January 2001 |
[2001] EWCA Civ 63
Lord Justice Kay
Lady Justice Arden and
Sir Martin Nourse
Case No: A3/1999/1007 CHRVF
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM HIGH COURT OF JUSTICE
CHANCERY DIVISION (REVENUE)
Jonathan Parker J
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Philip Vallance QC and Ms Karen Steyn (instructed by the Solicitor of Inland Revenue appeared for the Appellant.)
Mr Leolin Price QC, Ms Penelope Reed and Mr John Smart (instructed by Messrs Gregory, Rowcliffe & Milners appeared for the Respondent)
This is an appeal against the order of Jonathan Parker J dated 18 March 1999 whereby he allowed the appeal of the taxpayers by way of case stated pursuant to section 56 of the Taxes Management Act 1970 from the decision of the Special Commissioners, Mr T.H.K. Everett and Mr D.A. Shirley dated 2 March 1998 holding that an agreement dated 6 April 1984 ("the 1984 Agreement") made between (1) Thomas Henry Hitch on behalf of himself, his father and sister (together the Hitch family); (2) Conteglade Properties PTE Ltd ("Conteglade") and (3) Monarch Assurance Company Ltd ("Monarch") was a sham within the meaning of that term given by Diplock LJ in Snook v. London & West Riding Investments Ltd [1967] 2 QB 786, 802. In that passage, Diplock LJ said this:
'As regards the contention of the plaintiff that the transactions between himself, Auto-Finance, Ltd. and the defendants were a "sham", it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means 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. One thing I think, however, is clear in legal principle, morality and the authorities (see Yorkshire Railway Wagon Co. v. Maclure ((1882) 21 Ch D 309); ( Stoneleigh Finance, Ltd. v. Phillips [1965] 1 All ER 513,[1965] 2 QB 537), that for acts 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.'
The question stated for the opinion of the Court was whether on the facts as found the Special Commissioners erred in holding that the 1984 Agreement was a sham. There is no dispute as to the test for ascertaining whether a document is a sham, the relevant test being that laid down in the Snook case. In the present case the 1984 Agreement referred to in the case stated was carried into completion by a deed dated 22 June 1984 ("the 1984 Deed"). The question stated by the Special Commissioners does not refer to this Deed, a point to which I turn below.
The issues arising on this appeal
It is well-established that an unsuccessful party before the Special Commissioners can appeal to the court only on a point of law. Accordingly, as Jonathan Parker J recognised, the issues for determination by the court must be issues of law. However a perverse decision by the Special Commissioners on the facts may involve an error of law. The court will intervene "if the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances too the court must intervene. It has no option but to assume that there has been an error in point of law." (per Lord Radcliffe in Edwards v Bairstow [1956] AC 14). Accordingly in relation to questions of fact the court can review the findings of (primary and secondary) fact by the Commissioners to see whether they are unreasonable, rather than from the point of view of correctness. For the reasons summarised below Jonathan Parker J reached the conclusion that the decision of the Commissioners could be set aside on this basis.
The issues for determination on this appeal as I see it are:
Was the Special Commissioners' finding that the 1984 Agreement was a sham such as to be capable of being set aside on the ground of unreasonableness?
Did the Special Commissioners make any finding as to whether or not the 1984 Deed was a sham?
As a matter of law, can an instrument which in part fulfils the requirements of a sham for the purposes of the Snook test be held, as respects such part, to be a sham notwithstanding that the balance of the instrument is not shown to be a sham?
If the Special Commissioners were (a) not in error on finding that the 1984 Agreement was a sham and (b) in error in not making a finding as to whether the 1984 Deed was a sham, is a finding that the 1984 Deed was (so far as it was an internal document) a sham in fact the only finding that they could have properly made on the question of sham as regards that Deed?
The factual background
The principal participants in the events underlying the Special Commissioners' decision are the Hitch family to whom I have already referred, Mr Patrick Taylor, a solicitor specialising in tax avoidance and companies managed or controlled by Mr Taylor. Mr Taylor managed or controlled Conteglade, a company incorporated in Singapore, Monarch and Monarch Munificence Ltd ("Munificence"), a charitable company formed in Northern Ireland. Two further companies participate in the relevant transactions, namely Crest Homes plc and Crest Estates Ltd. For simplicity, I will in general call them both Crest. They are not connected with either the Hitch family or Mr Taylor.
I now summarise the facts as found by the Special Commissioners or appearing from the documents referred to in their decision. It was the combination of facts rather than individual facts that led the Special Commissioners to consider that the 1984 Agreement was a sham. In summarising the facts, I adopt the helpful distinction made by Jonathan Parker J between internal documents, that is documents involving the Hitch family and Mr Taylor's companies, and external documents, being those involving some one or more of those persons and in addition other parties. The 1984 Agreement was an internal document. The 1984 Deed, however, was both an internal and external document. It was made between (1) the Hitch family; (2) Conteglade; (3) Monarch Munificence Ltd; (4) Monarch; (5) Crest Homes plc and (6) Crest Estates Ltd. It is common ground that in this case the external documents were not shams. An issue of law arises as to whether a document which is both an internal document and an external document is capable of ever being held to be a sham.
These proceedings arise out of the disposal and subsequent development of most of Abbey Farm, Blunsdon St Andrew, near Swindon, Wiltshire. Abbey Farm comprised two blocks of land divided by a lane. A particular feature of the prospective development of the farm was that it was thought that planning permission would be obtained for the land south of the lane (about 400 acres) but not for that north of the lane (about 60 acres) and this point appears to have played a significant part in the design of the arrangements which were put in place by the taxpayers. Mr Hitch senior, who has since died, acquired the farm in 1947 but since 1968 it has been owned by the Hitch family. The taxpayers for the purposes of these proceedings are Mr Henry Hitch (whom I will call Mr Hitch) the deceased's son and, with his sister, one of the deceased's executors, and his brother in law, Mr Geoffrey Handy (assessed on behalf of his wife, Beatrice Ann Handy, the deceased's daughter and Mr Hitch's co-executor). The Hitch family wanted to maximise the return from the disposal of their land and were anxious about the impact of development land tax and the events set out under the subheadings which follow constitute the various steps or links in the chain towards attainment of those objectives. References in this judgment to the red land are to land forming part of Abbey Farm to the south of the lane, but excluding the site of Mr Hitch senior's bungalow and adjoining paddock. References to the green land are to the remainder of Abbey Farm.
(i) Negotiations with British Car Auctions
Early in 1983 Mr Hitch instructed a Mr Geoffrey Edwards, a chartered surveyor, to dispose of Abbey Farm. On 18 March 1983 Mr Edwards wrote to Mr Hitch reporting that British Car Auctions ("BCA") had offered to buy the whole of Abbey Farm for £800,000. He advised refusal of that offer and suggested that the initial asking price as agricultural land should be £1m and that enhancement value of £30,000 per acre should be paid in the event of planning permission being granted for development. Shortly after this, Mr Edwards dropped out of the events until a question arose as to who should pay Mr Edwards' fees.
(ii) Start of Mr Taylor's involvement
In March 1983, Mr Hitch met Mr Taylor, a solicitor and a specialist in tax planning. The Special Commissioners found that the Hitch family wished to accept whatever offer for Abbey Farm would produce the largest post tax benefit for the family. On 5 April 1983 Mr Taylor wrote to Mr Hitch outlining possible solutions to the problems regarding development land tax, capital gains tax, capital transfer tax and income tax. The Special Commissioners attached a copy of the letter to their decision. That scheme involved off-shore trusts, a...
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