Rowland v Boyle (Inspector of Taxes)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Lloyd |
| Judgment Date | 11 April 2003 |
| Neutral Citation | [2003] EWHC 781 (Ch) |
| Court | Chancery Division |
| Docket Number | Case No: CH/2002/APP/0738 |
| Date | 11 April 2003 |
[2003] EWHC 781 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(REVENUE)
ON APPEAL FROM THE SPECIAL COMMISSIONERS
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lloyd
Case No: CH/2002/APP/0738
John Higham Q.C. (instructed by Stephenson Harwood for the Appellant)
David Ewart (instructed by Solicitor for the Inland Revenue for the Respondent)
Hearing dates: 25 and 26 February 2003
JUDGMENT: APPROVED BY THE COURT FOR HANDING DOWN (SUBJECT TO EDITORIAL CORRECTIONS)
Mr Justice Lloyd
This is an appeal by Mr Reginald Stanley Rowland against the dismissal by Special Commissioners of his appeal against assessments to income tax which were issued on 4 September 2000 to reverse the effect of his having secured interest relief for the tax years 1988/9 through to 1992/3 inclusive. Because the assessments were made more than 6 years after the end of the years of assessment in question, they had to be based on making good to the Crown a loss of tax due to fraudulent or negligent conduct of the taxpayer: Taxes Management Act 1970 section 34(1) and section 36(1). The Special Commissioners found that Mr Rowland's conduct had been fraudulent. Mr Rowland is a chartered accountant who had been in practice for many years, and even now, as I gather, is not fully retired from professional practice. His standing as a professional man renders the more grave the finding of dishonesty against him. That, quite apart from the fact that a substantial amount of tax is at stake, led to his challenging the Special Commissioners' decision by way of this appeal.
Mr Rowland's claim to relief was based on the proposition that the relevant bank interest was incurred by him. In fact it was charged on bank loans made to a company called Internoms Limited, owned by himself and his wife. He made the claim on the basis that Internoms was acting as a nominee for him in borrowing the money on which the interest was charged. The Special Commissioners concluded that Internoms was not acting as a nominee and that Mr Rowland did not believe that it was, and therefore that, when he made the claim for relief in respect of the interest, he knew that he was not entitled to it.
That conclusion by the Special Commissioners involves findings of fact and inferences. An appeal from the Special Commissioners, however, lies only on a point of law. The point of law here has to be that the findings of fact made could not have been justified by the evidence before the Special Commissioners (Edwards v. Bairstow [1956] AC 14), and that the inferences could not be justified by the primary facts found. It is accepted that where, as here, the findings in question involve fraudulent and therefore criminal conduct, although the burden of proof is the balance of probabilities, there is a degree of inherent unlikelihood that a professional man otherwise of good character would commit such acts, and that such a finding should therefore be regarded as requiring correspondingly stronger evidence before the balance shifts in favour of the Revenue. There is, however, no suggestion that the Special Commissioners misdirected themselves about the burden of proof in the passage (paragraphs 103 to 107) in their decision where they dealt with this point. Accordingly it does come back to a question whether there was evidence before the Special Commissioners which could justify their findings of fact, and in turn the inferences which they drew.
The claim arose from an unsuccessful joint venture in relation to a property in Pimlico, embarked on in 1988, and financed by bank borrowing, where a large old property was bought and was converted into flats, the latter being sold off at premiums. The cost of the work and the borrowings, taken, no doubt, with the decline in the property market from 1989, and the time it took to carry out the conversion work, meant that flats were not sold as quickly or for such good prices as would have been necessary for the venture to be profitable. It was in those circumstances that Mr Rowland sought to claim the deduction of the interest, which he said he had borne, against his other income for tax purposes. He claimed it as interest as such, rather than as a trading loss, but he did not claim it in the first year in which, if the claim was justified, he could have done so.
I must summarise the history, in order to put into context the principal matters on which the Special Commissioners relied in reaching their conclusion, and to consider the criticisms addressed by Mr Higham Q.C. to their reasoning. The facts are set out in detail in paragraphs 8 to 92 of the Special Commissioners' decision, and are not challenged by the Appellant.
Mr Rowland is a chartered accountant, in practice for many years, during the relevant time in a firm called Wagstaff, Rowland & Huntley. Internoms was a company established by him, whose first objects were to act as nominee or trustee. He and his wife were the directors and shareholders. Until the relevant transaction it was dormant. One of his clients was Mrs Gwenda Wood, along with two companies of which she was the director and. shareholder, Ruleregal Ltd and Ruleregal (Construction) Ltd. Two other individuals featured in the history: first, Mr Parkinson, a solicitor in the firm of L B Marks & Co, who had acted previously for Mrs Wood and for Ruleregal, though not for Mr Rowland or Internoms, but did act for Internoms in the transaction, and secondly Mr Clare, a manager at Midland Bank who had known Mr Rowland for some years and had an exceptionally strong business relationship with him. Midland Bank was one of two banks which provided finance for the transaction.
The transaction itself consisted of the purchase of a property, 75 St George's Square in Pimlico, its conversion into (eventually) six flats and their sale. Contracts were exchanged for the purchase on 20 July 1988, with completion on 12 August. The purchaser was Internoms. Originally, however, the purchase had been identified by Mrs Wood and the first offer to buy, subject to contract, had been made (and accepted) in March on behalf of Ruleregal. Mr Rowland became aware of the proposed purchase soon after that. Both he and Mrs Wood sought finance for the transaction, Mrs Wood from Dunbar Bank, in the name of Ruleregal, and Mr Rowland from Midland on behalf of Jnternoms. Mr Rowland dealt with Mr Clare about this, and met him on 20 May 1988, a meeting of which Mr Clare made a contemporary note.
Both requests for finance were successful, Midland Bank as to £250,000 and Dunbar up to £886,000 (to cover 70% of the development costs). By June the purchase was to proceed in the name of Internoms, instead of Ruleregal, though it is clear that there was some sort of joint venture in relation to the project between Mr Rowland and Mrs Wood. After a delay due to occupation by squatters, exchange took place at the property on 20 July, with both Mr Rowland and Mr Parkinson present. On 9 August Mr Parkinson sent to Mr Rowland some documents which required attention in connection with the proposed charge to Dunbar to secure their lending. This led to a telephone conversation and a subsequent letter by Mr Parkinson to Dunbar's solicitors, Grangewoods, to which I will have to return. Completion took place on 12 August of the purchase and of the security for Dunbar's lending. Midland's lending was not secured on the property bought. From then on Internoms had loan accounts with both banks, to which interest was debited quarterly, starting in September 1988.
I can summarise the later history of the project itself even more briefly. Building work started in early 1989, being undertaken by Ruleregal Construction. The construction work was funded as to 70% by Dunbar's facility. Ruleregal Construction bore the balance, paying its subcontractors. By mid 1989 this burden was causing problems for Mrs Wood. She sought a contribution from Mr Rowland, unsuccessfully. The first flat sold was number 6, in December 1989. Further flats were sold, but much more slowly than had been hoped. Mrs Wood's financial difficulties continued and relations between her and Mr Rowland deteriorated. By the end of 1990 four out of the six flats were sold, £207,000 remained owing to Dunbar and £300,000 to Midland. In the early part of 1991 the relations between Mr Rowland and Mrs Wood broke down, Mr Rowland countering her previous requests for a contribution to the cost by claiming from her a contribution to the expense that he had borne. In response she denied that there had been any joint venture. Both her companies went into insolvent liquidation in April 1991. In August 1991 the fifth flat was sold.
In April 1989 Mr Rowland had submitted his tax return in respect of income for the year to 5 April 1989. He made no claim for relief in that return in respect of any of the interest on the loans which had accrued and been paid up to 5 April 1989. On 22 August 1991 he submitted his returns for the years to 5 April 1990 and 1991. In these he claimed relief for "interest on other loans" in respect of the interest paid on the Dunbar and Midland loans for three years: to 5 April 1989, 1990 and 1991. In a covering letter he drew attention to this claim for relief and explained the purpose of the loans. He said that the project made a substantial loss and that he would supply a copy of the accounts when the last flat had been sold. Later, in a letter dated 6 January 1992, with which he sent Dunbar's certificates of interest, all addressed to Internoms, he said that "for the purposes of convenience the property was held in the name of Internoms a nominee company controlled by myself which has never traded". On 24 February 1992 he sent to the Revenue the accounts for...
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