Thorpe v HM Revenue and Customs

JurisdictionEngland & Wales
CourtCourt of Appeal (Civil Division)
JudgeLord Justice Lloyd,Sir Scott Baker,Lord Justice Dyson
Judgment Date15 March 2010
Neutral Citation[2010] EWCA Civ 339
Docket NumberCase No : A3/2009/1383
Date15 March 2010

[2010] EWCA Civ 339




(Sir Edward Evans-Lombe)

Before: Lord Justice Dyson

Lord Justice Lloyd


Sir Scott Baker

Case No : A3/2009/1383


Mr John R Macdonald QC appeared on behalf of the Appellant.

Miss Ingrid Simler QC and Mr Andreas Gledhill (instructed by HMRC Solicitors Office) appeared on behalf of the Respondent.

(As Approved by Court)

Lord Justice Lloyd

Lord Justice Lloyd:


Mr Thorpe, the appellant, was the sole director, and he and his wife were the only shareholders, of a company, Juriscommerce Securities Limited (“the company”). He and his wife were the only employees of the company. The company set up a pension scheme for its employees in March 1979 by a declaration of trust. The administrator of the scheme at that stage was Manufacturers Life Insurance Company Limited, invariably referred to as ManuLife. Eventually the scheme was accepted by the Revenue as an exempt approved scheme with effect relating back to 1979. In the meantime, sadly, Mrs Thorpe died in 1991. The benefits arising under the scheme on her death were paid out.


After her death Mr Thorpe was the only employee of the company and the only member of the scheme. In March 1998 he formulated a plan to wind down the company's business with a view to eventual closure on the part of the company and retirement on his part. He intended to retire in March 1999, by which time the business of the company would have been brought to a close.


In that situation it was open to Mr Thorpe to take the benefit of the entire pension fund on his retirement by taking pension benefits under the scheme, with a maximum allowable tax free cash-lump sum on retirement and a pension by way of annuity provision as regards the balance. However, Mr Thorpe did not wish to follow that course. Instead he wished to take the whole fund as a cash sum. That is in effect what he did in 1998 to 2000, receiving some £260,000 which represented originally the proceeds of an insurance policy which had been the sole asset of the scheme, amplified since it was cashed in by further contributions and interest and so on.


He did retire on 31 March 1999. The Revenue did not accept that it was open to him to take the whole benefit of the scheme funds in this way. Originally it assessed him to tax on the sum paid out to him as a payment not authorised by the rules of the scheme. It also later withdrew approval of the scheme, having at one stage previously asserted that approval had ceased automatically. In the meantime in 2000 the company was dissolved.


Mr Thorpe appealed all these various assessments to the Special Commissioners. The appeal was heard by Mr Julian Ghosh QC in January 2008 and was dismissed by a decision released on 19 May 2008. Mr Thorpe appealed to the Chancery Division. The appeal was heard by Sir Edward Evans-Lombe, and in the judgment which he delivered on 26 March 2009 he dismissed Mr Thorpe's main appeal, although he did allow an appeal against certain assessments on a point that was first raised in the course of the hearing.


With permission granted by Patten LJ, Mr Thorpe appeals against the dismissal of his appeal by Sir Edward. HMRC, which by then the Revenue had become, put in a respondent's notice, but chose not to pursue its cross-appeal against the judge's decision so far as it allowed some parts of Mr Thorpe's appeal.


The issues before us are two. First, was the judge wrong to dismiss Mr Thorpe's appeal having regard to the fact that, as he contends, Mr Thorpe was at the material time the only beneficiary of the trust and therefore entitled to take the whole fund for his sole benefit under the principle of Saunders v Vautier (1841) Cr. & Ph 240. Second, should the relevant assessment have been set aside, in any event, on appeal because the Inland Revenue's withdrawal of approval of the scheme was invalid as a matter of public law, being unreasonable and ultra vires, devoid of any reasonable ground or basis.


Before dealing with those two points I will set out a little more of the facts. Before the Special Commissioner there was a statement of agreed facts, although Mr Thorpe gave oral evidence in addition. I have already mentioned some of the facts. By the material date in 1998 the scheme was governed by a supplemental trust deed dated 1 January 1994 made between the company of the first part, Mr Thorpe of the second part and Hartley Pensions Management Services Limited (Hartley) and Miss Alison Thorpe, daughter of Mr Thorpe, of the third part. The original trustees had been ManuLife and Mr Thorpe. In 1994 they became Mr Thorpe, Hartley and Miss Thorpe. The scheme became at that stage a small self-administered scheme.


The company had formulated rules for the scheme but it retained the right to vary those rules subject to provisos of a normal kind. Under the rules, benefits would take the form of a lump sum on death in service, a pension payable to the member on retirement, and a pension payable to a widow and/or any dependants on the member's death whether in service or after retirement. A dependant means a child up to the age of 18 and any other individual who, in the trustees' opinion, is financially dependent on the member at the date of death or retirement as the case may be. It does not, for example, as some pension schemes do, exclude someone who comes into such a relationship with the member after retirement.


Benefits are of course limited by reference to what are said to be statutory limits but in practice that means limits consistent with continued Inland Revenue approval.


Rule 5 dealt with the payment of pension benefit and as usual precluded commutation or assignment except if permitted by the rules, which in effect means that commutation is allowed as regards the tax-free lump sum but not otherwise. Under Rule 6 the lump sum benefit on death in service was payable at the discretion of the trustees to all or any of the widow of the member and his dependants, children and grandchildren. Rule 8 imposed the then normal limits on pension benefits as one sixtieth of final remuneration per year of service up to a maximum of 40 years.


As I say, Mr Thorpe retired from the company service on 31 March 1999. He was then 68 years old with some 23 years of service. Before that time, after the 1994 amendments, the original ManuLife pensions policy, the original sole asset of the scheme, was assigned to the trustees and was cashed in with proceeds of some £132,000 originally paid into a building society deposit account. Thereafter until 1998 contributions continued to be paid by the company and also by Mr Thorpe.


Following a further review of the position, the company decided to cease making contributions to the fund, the last of them being made in August 1998. At that stage it executed a deed with the trustees, described as a deed of discharge, under which the trustees accepted that it would make no further contributions to the scheme. One feature of the deed was that the company, which had under the rules the power by deed to appoint or remove trustees, purported to assign that power to Mr Thorpe. Hartley informed Mr Thorpe as to the pension benefits which he could receive by way of a cash lump sum and an annuity which would exhaust the fund and would not leave anything for a widow or dependant's pension. It would have been a matter for Mr Thorpe's choice as to whether he took a pension annuity solely for his own benefit or whether he included provision for a widow or dependant. Since at that stage his wife was long since dead and he apparently had no intention of remarrying, and has not remarried, and, on the footing that there was at that stage at any rate no other dependant, it would have been an entirely natural and rational decision on his part if he had sought to take pension benefits in the normal way, to take the maximum available tax-free lump sum in cash and to take the balance by way of an annuity for his sole benefit.


However, as he explained in his witness statement, he found the prospect of taking any part of his pension benefits by way of annuity unattractive because it was financially disadvantageous, as compared with taking the whole pension fund as a lump sum if he could do so free of tax liability. He conceived the idea that, being the sole beneficiary, as he thought he was, he was entitled to direct the trustees to pay the whole fund over to him. This he did by notice dated 5 November 1998 on the express basis that he was absolutely entitled to the whole beneficial interest declared by the trust deed. Hartley declined to accept the validity of this demand. In response to that, on 16 November 1998 he sent a further document signed by him purporting to remove Hartley as a trustee. It does not appear to me that that could have been effective on any basis. Hartley pointed out in reply that at least a deed was required and they said a new pensioneer trustee would need to be appointed, this being in effect one of the conditions of continued Revenue approval of a small self-administered scheme because of the very risk that otherwise the funds would be applied otherwise than in accordance with the terms of the scheme.


At that time the balance in the building society account was some £255,000. In December Mr Thorpe was able to withdraw £200,000 of that from the building society account in which it stood. I know not how he did that but it may be that the signature of two trustees was sufficient and that he was able therefore...

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