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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> Brian George Foulser & Anor v MacDougall (Officer of HM Revenue & Customs) [2007] EWCA Civ 8 (17 January 2007) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2007/8.html Cite as: [2007] EWCA Civ 8

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR JUSTICE LAWRENCE COLLINS)
CH/2005/APP/0260

		Royal Courts of Justice Strand, London, WC2A 2LL
		17 January 2007

Lord Justice Chadwick :

1. This is an appeal from an order made on 20 December 2005 by Mr Justice Lawrence Collins on an appeal under section 56A of the Taxes Management Act 1970 from a decision of the special commissioners (Dr John Avery-Jones CBE, sitting alone) released on 22 February 2005. The special commissioner had dismissed appeals by Mr Brian Foulser and his wife Mrs Doreen Foulser against amendments made by the Inspector of Taxes under section 9C of the 1970 Act to their self-assessments in respect of the year 1997-98. Put shortly, the effect of the amendments was to disallow claims to hold-over relief under section 165 of the Taxation of Chargeable Gains Act 1992 ("TCGA 1992") in respect of gifts of shares made by Mr and Mrs Foulser pursuant to a tax avoidance scheme.
2. The judge dismissed Mr and Mrs Foulser's appeal from the decision of the special commissioner. They appeal with the permission of this Court (Lord Justice Rix^[1]) granted on 29 March 2006.

The underlying facts

3. Mr Foulser was the owner of some 51% of the shares in BG Foods Limited ("BG Foods"), a company which he had set up in 1984. A further 9% of the shares in that company were held by Mrs Foulser. The business was very successful. In 1997 Mr and Mrs Foulser received an offer for their shares of £26 million. They took advice from MT Management Limited ("MTM"), an Isle of Man company, with a view to avoiding or reducing the substantial charge to capital gains tax which could be expected to arise on the disposal of those shares.
4. As a result of that advice the Foulsers, MTM and Irish Life International Limited ("Irish Life"), a company incorporated in the Republic of Ireland, took the following steps ("the scheme"):

(1) Mr and Mrs Foulser each established an Isle of Man settlement of which MTM was the sole trustee.

(2) MTM acquired four off-the-shelf Manx companies, Bilbo Adventure Limited, Morkend Limited, Wiscool Limited and Cannock Properties Limited. Bilbo Adventure Limited was held as an asset of Mr Foulser's settlement (Priory Trust). Morkend Limited ("Morkend") was held in that settlement as a subsidiary of Bilbo Adventure Limited. Wiscool Limited was held as an asset of Mrs Foulser's settlement (Natalie Trust). Cannock Properties Limited ("Cannock") was held in that settlement as a subsidiary of Wiscool Limited.

(3) Mr and Mrs Foulser each took out an insurance bond (described as a Personal Portfolio Bond) with Irish Life. The premium paid for each bond was £5,000.

(4) Mr Foulser assigned his bond to Morkend. Mrs Foulser assigned her bond to Cannock. As a result of the assignments the bonds became, indirectly, assets of the two settlements.

(5) On the instructions of Morkend and Cannock Irish Life acquired two off-the-shelf United Kingdom companies, Lazerman Limited ("Lazerman") and Motion Limited ("Motion"). Lazerman was held by Irish Life for the purposes of the bond taken out by Mr Foulser. Motion was held by Irish Life for the purposes of the bond taken out by Mrs Foulser. I shall explain that concept – "held by Irish Life for the purposes of the bond" – in a later paragraph of this judgment.

(6) Mr Foulser transferred his shares in BG Foods to Lazerman by way of gift. Mrs Foulser transferred her shares in BG Foods to Motion by way of gift.

5. The transactions which I have described were carried out in November 1997. Subsequently, in November 1998, Lazerman and Motion were sold to an independent third party (3i plc) for a consideration of £27 million. The purchaser thereby obtained control of the BG Foods shares formerly owned by Mr and Mrs Foulser. The purchase price was, of course, received by Irish Life as beneficial owner of Lazerman and Motion. But the terms of the bonds were such that the bondholders became entitled – as against Irish Life and by way of contract – to benefits of an equivalent amount. The economic effect was that the value of the BG Foods shares accrued to the two Isle of Man settlements.

The charge to tax

6. The basic rule is that capital gains tax is charged in respect of capital gains accruing to a person on the disposal of assets: section 1(1) TCGA 1992. For the purposes of the computation of the gains accruing on the disposal of an asset, a disposal by way of gift is deemed to be a disposal for a consideration equal to the market value of the asset: section 17(1) TCGA 1992. Prima facie, therefore, the transfers, in November 1997, of their BG Foods shares to Lazerman and Motion by Mr and Mrs Foulser (step (6) in the scheme) gave rise to charges to capital gains tax on substantially the whole of the value of those shares – a not inconsiderable sum.
7. The object and intent of Mr and Mrs Foulser and their advisers, in entering into the scheme, was that the amount of the chargeable gain which would otherwise accrue on the disposal of the BG Foods shares under step (6) would be reduced by a claim for relief made under section 165(4) TCGA 1992. The section is in these terms:

"165(4) Where a claim for relief is made under this section in respect of a disposal-

(a) the amount of any chargeable gain which, apart from this section, would accrue to the transferor on the disposal, and

(b) the amount of the consideration for which, apart from this section, the transferee would be regarded for the purposes of capital gains tax as having acquired the asset or, as the case may be, the shares or securities,

shall each be reduced by an amount equal to the held-over gain on the disposal."

In that context, the "held-over gain" means the chargeable gain which would have accrued on the disposal apart from section 165(4): section 165(6) TCGA 1992. The effect is that a person who has made a disposal in respect of which he or she can claim relief under section 165(4) is relieved from the capital gains tax which would otherwise be chargeable.

8. Section 165(4) is made applicable to a disposal otherwise than under a bargain at arms length of an asset within subsection (2): section 165(1) TCGA 1992. It is common ground that the BG Foods shares would fall within section 165(2) – see, in particular section 165(2)(b)(i) of the Act. But section 165(1) is subject, inter alia, to sections 166 and 167 TCGA 1992. Section 166(1) provides that section 165(4) shall not apply where the transferee is neither resident nor ordinarily resident in the United Kingdom. It is that provision which made it necessary that the companies to which the BG Foods shares were transferred under step (6) of the scheme – Lazerman and Motion – should be United Kingdom companies. Section 167 TCGA 1992 can be seen as complementary to section 166. Section 167(1) provides that section 165(4) shall not apply where the transferee is a company which is within section 167(2). Section 167(2) is in these terms:

"167(2) A company is within this subsection if it is controlled by a person who, or by persons each of whom –

(a) is neither resident nor ordinarily resident in the United Kingdom, and

(b) is connected with the person making the disposal."

9. Section 167(2)(b) TCGA 1992 must be read with section 286 of that Act (Connected persons: interpretation). Section 286(1) provides that:

"286(1) Any question whether a person is connected with another shall for the purposes of this Act be determined in accordance with the following subsections of this section (any provision that one person is connected with another being taken to mean that they are connected with one another)."

Subsection (2) – as it read at the relevant time - provided that a person is connected with an individual if that person is the individual's husband or wife or is a relative, or the husband or wife of a relative, of the individual or of the individual's husband or wife. "Relative", in that context, means brother, sister, ancestor or lineal descendant: subsection (8). Subsection (3) provided that a person, in his capacity as a trustee of a settlement, is connected with an individual who, in relation to the settlement, is a settlor, with any person connected with such an individual and with any body corporate which is connected with that settlement. Subsection (3A) provided for the circumstances in which, for the purposes of subsection (3), a body corporate is connected with a settlement. Subsection (4) provided that, save in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements, a person is connected with any person with whom he is in partnership, and with the husband or wife or a relative of any individual with whom he is in partnership. Subsections (5), (6) and (7) were in these terms:

"286(5) A company is connected with another company –

(a) if the same person has control of both, or a person has control of one and persons connected with him, or he and persons connected with him, have control of the other, or

(b) if a group of 2 or more persons has control of each company, and the groups either consist of the same persons or could be regarded as consisting of the same persons by treating (in one or more cases) a member of either group as replaced by a person with whom he is connected.

(6) A company is connected with another person, if that person has control of it or if that person and persons connected with him together have control of it.

(7) Any 2 or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another and with any person acting on the directions of any of them to secure or exercise control of the company."

10. "Control", for the purposes of section 286 TCGA 1992, is to be construed in accordance with section 416 of the Income and Corporation Taxes Act 1988 ("ICTA 1988"): section 288(1) TCGA 1992. So far as material, section 416 ICTA 1988 is in these terms:

"416(2) For the purposes of this Part, a person shall be taken to have control of a company if he exercises, or is able to exercise or is entitled to acquire, direct or indirect control over the company's affairs, and in particular, but without prejudice to the generality of the preceding words, if he possesses or is entitled to acquire -

(a) the greater part of the share capital or issued share capital of the company or of the voting power in the company; or

(b) such part of the issued share capital of the company as would, if the whole of the income of the company were in fact distributed among the participators (without regard to any rights which he or any other person has as a loan creditor), entitle him to receive the greater part of the amount so distributed; or

(c) such rights as would, in the event of the winding-up of the company or in any other circumstances, entitle him to receive the greater part of the assets of the company which would then be available for distribution among the participators.

(3) Where two or more persons together satisfy any of the conditions of subsection (2) above, they shall be taken to have control of the company…."

The Bonds

11. The special commissioner made the following findings of fact in relation to the Bonds, at paragraphs 13 and 14 of his decision ([2005] UKSPC SP C00462):

"13 . . . The general policy conditions provide as follows:

'3 Fund

The policy will be linked to a fund ("the Fund") established when the Policy comes into force. No other Policies will be linked to that Fund. Each fund is a separate and identifiable fund forming part of the Life Assurance Fund of the Company [Irish Life]. Each fund is divided into units of equal value.

The assets of the Fund which are owned directly and for the avoidance of doubt include assets owned by any investment vehicle or other legal entity within the Fund will be determined by the Proposer [defined as the person shown in the Schedule as Proposer or his executors, administrators or assigns, who are legally entitled to receive any benefits payable under the Policy] and his Investment Adviser [defined as the person appointed on the Investment Adviser Appointment Form], if any, subject to Condition 8 below and any other terms and conditions laid down by the Company from time to time. The amount of the benefits payable under the Policy will be calculated by reference to the aggregate value of the assets which are legally and beneficially owned by the Company and which are specified from time to time for the purposes of the Policy ('the Fund'). For the avoidance of doubt the Proposer will have no right or interest of any kind in or over the assets in the Fund and the Company will have full control over any company shares which are comprised in the Fund, however, this shall not affect the policyholders [sic] right to surrender or statutory cancellation rights in respect of the Policy.

…

6. Valuations

The assets of the Fund will be valued on days (each called a 'Valuation Day') to be determined at the Company's discretion but no less than four times each year….

For the purpose of valuing private company shares, the value of such shares shall be calculated by reference to the latest available share valuation provided by the auditors of the private company. Such valuations shall be provided no less than annually.

7 Encashment

7.1 Full encashment

The Policy may be fully encashed at any time. The 'Encashment Value' payable will be the Policy Value on the Valuation Day following the receipt by the Company of its required written notification less the Encashment Charge.

The Policy Value for this purpose will reflect the cash amounts realised on selling all the investments of the Fund and after taking into account all the charges relating to the sale of those investments.

…

The Company is not obliged to find a buyer for the investments of the Fund and for the purposes of this section, if difficulties arise in selling the investments of the Fund, the Company may choose instead to transfer the investments to the Proposer after deducting the Encashment Charge, if any, together with any external expenses, taxes, duties and other charges incurred by the Company in connection with such a transfer and in so doing cancel the remaining number of Units attached to the Fund…..

7.2 Partial Encashment

The Policy may at any time or times be partially encashed provided that the Policy Value remaining after the Partial Encashment is not less than Stg.£7,000/US$10,000 (or currency equivalent)

However, the Partial Encashment will only be permitted if there is sufficient cash held within the Fund. If there is insufficient cash the Proposer or his Investment Adviser, if any, will be obliged to inform the Company which investments of the Fund are to be sold to meet the Partial Encashment….

8 Asset Disposal

For the avoidance of doubt, where private company shares or other illiquid assets are held within the Fund the Company reserves the right to dispose of such assets if its considers them to be valueless or contrary to the Company's normal investment philosophy or in relation to private company shares if it deems that the activities of the company are illegal, unethical or of a nature that may be of detriment to the reputation of Irish Life International. The Company's decision in such matters is final….

14 Notice of Assignment

All notices of assignment of the Policy must be given in writing at the Registered Office of the Company. The Proposer may only assign the Policy with the consent of the Company.'

14. There are separate conditions relating to private company shares which contain the following:

'1. A résumé of the private company must accompany the application….

3. An inception valuation of the shares of each private company requested for inclusion must be supplied by the appointed and recognised auditors of the company (cost to be borne by client). This will normally represent the net asset value of the company as stated in the latest set of audited accounts.

4. Irish Life International will not provide directors or other officers to private companies. The shares in the private company are held solely as an investment of the fund to which the policy is to be linked. It is not the intention of Irish Life International to undertake any day to day management. The applicant agrees and understands that Irish Life International does not take any responsibility for the value of the private company shares….'"

12. I have referred, earlier in this judgment, to the acquisition of Lazerman and Motion by Irish Life on the instructions of Morkend and Cannock, respectively (step (5) in the scheme). In that context the special commissioner made the following finding, at paragraph 16(8)(c) of his decision:

"The directors of Morkend and Cannock wrote to Irish Life [on 24 November 1997] saying 'Please accept this letter as our instruction to purchase [Lazerman Limited or Motion Limited], a company registered in England… on behalf of and owned by the bond.'^[2] Irish Life wrote to [MTM] agreeing to acquire Lazerman and Motion for £200 each."

The effect was that, when acquired by Irish Life, Lazerman and Motion were assets "specified from time to time for the purposes of the Policy ("the Fund")" - as contemplated by condition 3 of the bonds. In that sense Lazerman (with the BG Foods shares transferred to it by Mr Foulser) was held by Irish Life for the purposes of the bond which had been taken out by Mr Foulser and assigned by him to Morkend: Motion (with the BG Foods transferred to it by Mrs Foulser) was held by Irish Life for the purposes of the bond taken out by Mrs Foulser and assigned by her to Cannock. The special commissioner explained the position at paragraph 15 of his decision:

"15. In summary, Irish Life were the passive legal and beneficial owners of the assets held within the Bonds to which the Bondholder had a contractual right; they acted on instructions of the Bondholder or investment adviser with regard to investment; did not take part in day to day management of BG Foods; and accepted valuations by the auditors."

The special commissioner's decision

13. The special commissioner treated the position of each appellant (Mr Foulser or Mrs Foulser, as the case might be) as indistinguishable in principle. In relation to each appellant there was a "Bondholder" (Morkend or Cannock), who was the assignee of the bond taken out by the appellant, and an "Underlying Company" (Lazerman or Motion) to whom the appellant had transferred his or her BG Foods shares. He recorded that it was common ground that, for the purposes of section 167(2) TCGA 1992, control meant shareholder control. On that basis the person who controlled the transferee company for the purposes of that section was Irish Life. Irish Life was neither resident nor ordinarily resident in the United Kingdom: section 167(2)(a). So, as the revenue contended, the relevant question was whether Irish Life was connected with the person making the disposal (the appellant): section 167(2)(b). The answer to that question turned on the application of section 286(7) TCGA 1992 to the facts as he found them to be.
14. In reaching that conclusion the special commissioner rejected a preliminary submission advanced on behalf of the appellants. It was said that, if it were shown – for the purposes of section 286(7) TCGA 1992 – that the appellant and Irish Life had acted together (or were acting together) to secure or exercise control of the Underlying Company, it must necessarily follow that – for the purposes of section 167(2) TCGA 1992 - the Underlying Company was controlled by two persons (Irish Life and the appellant). And, if so, the case could not fall within section 167(2) because the requirement in paragraph (a) was not met. It could not be shown that each of the persons who controlled the Underlying Company (Irish Life and the appellant) was non-resident – that is to say, neither resident nor ordinarily resident – because, on any view, Mr and Mrs Foulser were resident in the United Kingdom.
15. The special commissioner rejected that preliminary submission for the reasons which he gave at paragraph 11 of his decision:

"11 The contentions of the parties show that they are applying a different definition of control at the start of s 167(2): [Counsel for the appellants] is applying the definition resulting from their being alleged to be connected persons, that Irish Life and the Foulsers are acting together to exercise control of the Underlying Company; and [counsel for the revenue] is applying the general definition of control in s 416(2), that as 100% shareholder Irish Life controls because it is able to exercise control over the Underlying Company's affairs. While it is strange at first sight that [counsel for the revenue] is contending in one part of s 167(2) that Irish Life controls the Underlying Company, and in another that Irish Life is acting together with the Foulsers in securing or exercising control of the Underlying Company, in my view there is no reason why he should not do so. There is no necessary connection between the applicable definition of control in the opening words of s 167 and the applicable definition of connection, which may involve acting together to secure or exercise control. One can approach the section by asking separately whether (a) Irish Life has control of the Underlying Company on any definition of control in s 416, to which the answer is obviously yes as it owned 100% of the shares; and (b) whether Irish Life is connected with the Appellant within any definition of connected persons in s 286, the applicable one being that they are acting together to secure or exercise control of the Underlying Company, which depends on the facts. . . . Accordingly I agree with [the revenue's] interpretation and I need to examine the facts."

16. The special commissioner rejected, also, a submission on behalf of the appellants that the question whether Irish Life was connected with either appellant was to be determined on the facts as they were at the time of the disposal; so that whatever happened after the disposal was irrelevant. It was said that, at the time of the disposal, the only communication between Irish Life and either appellant had been the taking out of the Bonds and the assignment of the Bond to the Bondholder: so it could not be held that Irish Life and either appellant had carried out any act together to secure or exercise control of the Underlying Company. On that point the special commissioner preferred the submission advanced on behalf of the revenue. He said this, at paragraph 12 of his decision:

"12 . . . [Counsel for the revenue] contends that, while agreeing that the matter is to be examined at the time of the disposal, one can determine whether parties are acting together to secure or exercise control only by looking at the whole circumstances, including what happened before and after the disposal, in so far as they help to determine the situation at the time of the disposal. Again I agree with [the revenue]. However, clearly events after the disposal which are independent of any arrangements set up at the time are irrelevant."

17. Accordingly, the special commissioner went on to make the findings of fact which he considered relevant to the question whether Irish Life was connected with the person making the disposal (the appellant) for the purposes of section 167(2)(b) TCGA 1992, read with section 286(7). At paragraph 16 of his decision he set out those findings, under 23 sub-paragraphs. On the basis of those findings of fact the special commissioner found both (i) that each appellant had acted together with Irish Life to secure control of the Underlying Company (paragraph 18) and (ii) that each appellant had acted together with Irish Life to exercise control of the Underlying Company (paragraph 26). At paragraph 26 of his decision he concluded:

"26 . . . Either on that basis [exercise of control], or on the basis that I have already found in paragraph 18 that they acted together to secure control of the Underlying Companies, the Appellants and Irish Life are therefore connected persons and s 167(2) prevents hold-over relief from applying on the gift of shares."

18. The hearing before the special commissioner extended over four days. On the third day of that hearing the appellants sought to introduce a new point: that section 167 TCGA 1992 was contrary to articles 43 and 56 of the EC Treaty "in making a distinction between a donee company according to whether it was owned by residents or non-residents". The application to introduce that point was opposed by the revenue. The special commissioner refused to allow the point to be argued before him. He did so on what may be seen as case-management grounds. He said this, at paragraph 3 of his decision:

"3 . . . I declined the application on the ground that following the preliminary hearing on 22 September 2003, at which the Appellants were represented, the Appellants were directed to prepare a Statement of Case by 30 January 2004 (about a year before the hearing) to which the Inspector was directed to reply by 27 February 2004 (being dates agreed by the representatives of the parties at the preliminary hearing). The purpose of a preliminary hearing is to obtain finality about the nature of each party's case so that the other party has full knowledge of the case to be answered. Obviously there may be situations where a case takes an unexpected turn and it may be necessary for arguments to be raised later. While I appreciate [counsel's] difficulty having been brought in only recently, this application did not fall into that category."

The appeal to the High Court

19. The appeal to the High Court under section 56A of the Taxes Management Act 1970 came before Mr Justice Lawrence Collins on 17 November 2005. Given that the revenue had successfully opposed the application to introduce the article 43 EC Treaty point at the hearing before the special commissioner, it is a surprise to find that the judge recorded, at paragraph [10] of his judgment [2005] EWHC 2958 (Ch), [2006] STC 311, that the same point was raised before him "without objection from the revenue".
20. The judge's view that the revenue did not object to the article 43 EC Treaty point being raised before him when it had not been raised before the special commissioner is difficult to reconcile with the objection that had been taken by the revenue in their skeleton argument dated 4 November 2005. After pointing out that it had never been contended that Irish Life had had any intention at any relevant time of seeking to maintain an establishment within the United Kingdom and that Irish Life was not before the court, the revenue had submitted (at paragraph 12 of the skeleton argument) that:

"Quite apart from that fundamental objection to the position now adopted by the Appellants, if they had wanted to ventilate this issue, they should have done so before the Special Commissioner, adducing evidence as to the true commercial position, actually raising the question whether Irish Life was exercising (or seeking to exercise) rights of establishment. Then the point could have been investigated and tested. . . ."

At paragraph 14 of the skeleton argument it was said that:

"The Court does not (and should not) rule on hypothetical questions concerning the rights of those who are not before it; in the absence of findings of fact and in the absence of a meaningful dispute on the issue."

21. At paragraph [33] of his judgment, the judge noted that:

"[33] There is no appeal from the Special Commissioner's findings of fact or law. The only question raised in the notice of appeal and in the arguments before me is the compatibility of TCGA 1992, section 167, with Article 43".

That led to the unusual position that it was unnecessary for the judge to address any of the points which had been before the special commissioner. His judgment was directed, solely, to a point which had not been argued before, or addressed by, the special commissioner.

22. The judge decided the article 43 EC Treaty point against the appellants. He summarised the appellants' argument at paragraphs [34] to [38] of his judgment. It is, I think, sufficient to refer to the following passages:

"[34] Mr and Mrs Foulser argue that the application of section 167 is unlawful because it restricts the right of establishment of Irish Life, an Irish company, contrary to Article 43. Section 167 is a general provision excluding the tax advantage whenever the transferee is foreign-controlled. This goes beyond any legitimate aim to prevent abuse or avoidance. The provision does not allow the national court to take account of the particular circumstances. It applies whatever the outcome on the notification of the taxpayer. The application of section 167 would in any case not pursue a legitimate aim. The case is indistinguishable from Case C-436/00 X, Y v Riksskatteverket [2002] ECR 1-10829, [2004] STC 1271.

. . .

[36] Such a general restriction on transfers to companies of one Member State by nationals of another Member State is a clear abuse of the right of freedom of establishment. Section 167 is a general provision excluding any case where the transferee is a company controlled by non-residents. . . .

[37] The mere fact that Mr and Mrs Foulser gain a UK tax advantage by transferring the shares to an Irish company does not preclude the application of Article 43. It is not a wholly artificial situation - there is a real transaction consisting in the transfer of the shares to an Irish insurance company. It is true that the transaction offers certain UK tax advantages and entails a loss of Revenue to the UK but this is not enough to justify interference with the right of establishment of the Irish company. The fact that the shares are transferred to a company which is not subject to UK legislation but is subject to the legislation of another Member State does not of itself involve tax avoidance. The fact that the Irish company is subject to a favourable tax regime is irrelevant. It is established in Ireland and is entitled to trade with the UK taking advantage of the local cost structure, including the tax regime.

[38] It is contrary to Article 43 for tax legislation to deny relief for a transfer to a company because it is foreign-owned. Although tax legislation may target purely artificial schemes, tax evasion or tax fraud cannot be inferred generally from the fact that the transferee company or its parent company is established in another Member State and cannot justify a fiscal measure which compromises the exercise of a fundamental freedom guaranteed by the Treaty. "

23. As the judge observed, at paragraph [45] of his judgment, the ruling in Case C-436/00 X, Y v Riksskatteverket was central to the appellants' argument. At paragraphs [45] to [59] he set out a careful and detailed analysis of the issues in that case. At paragraph [68] he concluded that the case was not determinative of the appeal which was before him. At paragraph [76] he reminded himself that it was the right of establishment that must be restricted if article 43 EC Treaty was to apply; and, at paragraph [78] that it was clear from Case C-436/00 that the Court of Justice "was concerned with a restriction on the right of a person in one Member State to pursue activities through the intermediary of a company or subsidiary in another Member State". At paragraphs [78] to [80] the judge said this:

"[78] The literature accompanying the Bonds makes it clear that Irish Life does not maintain a permanent place of business in the United Kingdom. It refers to another company in the group, City of Westminster Assurance Co Ltd, which is registered in England and to Irish Life Assurance plc, an Irish company with a branch in England, but there is no suggestion that these companies have any connection with the business involved in this case: some fund management activities are said to be carried out by Irish Life Assurance plc, but these Bonds involve no management by Irish Life.

[79] Irish Life was simply participating in a contractual transaction for a fee. The fiscal disadvantage from disallowance of the relief is suffered only by Mr Foulser, and the only consequence for companies such as Irish Life is the loss of the fee. In Case C-294/97 Eurowings Luftverkehrs AG v Finanzamt Dortmund-Unna [1999] ECR I-7447 it was held that giving tax advantages to lessees of aircraft leased by lessors established in that Member State and not in respect of leases of aircraft from lessors established in other Member States was an unlawful restriction on the right of freedom to provide services under Article 49. But it has not been argued in this case that section 167 could be a restriction under Article 49 on Irish Life's right to provide the Bonds for a fee.

[80] The only relevant consequence of section 167 is that companies in the position of Irish Life will no longer have the opportunity to earn a (modest) fee on schemes of this kind. Taxation provisions may have any number of incidental effects on the ability of financial institutions and professionals established in other Member States to charge fees, but that cannot of itself engage the right of freedom of establishment. In this case Irish Life's right to freedom of establishment is not engaged."

Accordingly, the judge dismissed the appeal.

The appeal to this Court

24. Mr and Mrs Foulser sought permission to appeal to this Court. Their appellants' notice, filed on 12 January 2006, advanced two grounds of appeal: (i) that the special commissioner erred in holding that section 167 TCGA 1992 applied on the facts in this case and (ii) that the judge erred in failing to hold that section 167 TCGA 1992 was incompatible with article 43 EC Treaty.
25. At first sight it is difficult to reconcile the appellants' contention that the special commissioner erred in holding that section 167 TCGA 1992 applied on the facts in this case with the position which they had taken before the judge. As the judge noted at paragraph [33] of his judgment (set out at paragraph [21] of this judgment), there was no appeal before him from the special commissioner's findings of fact or law. But it can be seen from the appellants' skeleton argument, dated 7 April 2006 and filed in this Court, that the point which the appellants now wish to advance under the first ground of appeal is not a point which was taken before the special commissioner. A convenient summary of the new point (described in the skeleton argument as "the Section 286(7) point") is found at paragraph 58 of the appellants' skeleton argument:

"58 In summary it is submitted that the Special Commissioner erred in law in deciding that Irish Life was connected with Mr Foulser for Section 167 purposes, for the following reasons:

(a) even if Section 286(7) applied to treat Irish Life and Mr Foulser in relation to Lazerman as connected, that is not a sufficient connection for Section 167 purposes;

(b) in any event Irish Life and Mr Foulser cannot have been acting together to secure or exercise control of Lazerman, at the time of the gift or at all, because,

(i) in relation to the acquisition of the Lazerman shares they cannot have been acting together to 'secure' control; and

(ii) in relation to the Lazerman shares they cannot have been acting together to 'exercise' control; and

(iii) in any event, they cannot have been 'acting together to' secure or exercise control of Lazerman when Irish Life owned all the shares and voting power."

26. In seeking permission to raise what was described as and acknowledged to be "an entirely new point" for the first time in the Court of Appeal, the appellants relied on the observations of this Court in Pittalis and another v Grant and another [1989] 1 QB 605, 611C-F:

"The stance which an appellate court should take towards a point not raised at the trial is in general well settled: see Macdougall v Knight (1889) 14 App Cas 194 and The Tasmania 91890) 15 App Cas 223. It is perhaps best stated in Ex parte Firth, In re Cowburn (1882) 19 Ch D 419, 429, per Sir George Jessel MR:

'the rule is that, if a point was not taken before the tribunal which hears the evidence, and evidence could have been adduced which by any possibility would prevent the point from succeeding, it cannot be taken afterwards. You are bound to take the point in the first instance, so as to enable the other party to give the evidence.'

Even if the point is a pure point of law, the appellate court retains a discretion to exclude it. But where we can be confident, first, that the other party has had opportunity enough to meet it, secondly, that he has not acted to his detriment on the faith of the earlier omission to raise it, and, thirdly, that he can be protected in costs our usual practice is to allow a pure point of law not raised below to be taken in this court. Otherwise, in the name of doing justice to the other party, we might, through visiting the sins of the adviser on the client, do an injustice to the party who seeks to raise it."

27. The appellants did not obtain the permission which they sought in relation to the first ground of appeal. Lord Justice Rix accepted ([2006] EWCA Civ 521, [6] and [7]) that it was "fairly arguable that the section 286 point or points are capable of raising important points of principle on the construction of the statute and the inter-relationship of sections 286 and 167"; but he did not feel able to form a view whether the Pittalis v Grant conditions were met. In particular, he was "entirely unable to form a real view . . . whether all the findings that the Revenue might have wanted, if the point had been raised before the commissioners, are there in the commissioners' findings and that the Revenue would not be prejudiced by the raising of the new point in any way – other than potentially in costs which can be dealt with in other ways". In those circumstances he adjourned the application for permission to appeal on the first ground (described in paragraph 2 of the order made on 29 March 2006 as the "Section 286" points) to the full Court with appeal to follow if permission to appeal were granted. That application is now before this Court.
28. Permission was granted in relation to the second ground of appeal (described in paragraph 1 of the order made on 29 March 2006 as the "Section 167" point). But it is clear that, when granting permission, Lord Justice Rix was led to think that the revenue had consented to the introduction of that point, as a new point, on the appeal before the judge. He said this ([2006] EWCA Civ 521, [4]):

"The EC point had not originally been taken before the special commissioners but during the course of the hearing an attempt was made to bring it into the argument. The special commissioners refused to allow that to happen, however on appeal to the judge, on the basis that no findings of special commissioners remained in issue, the Revenue consented to the point being made and on appeal to the judge that was the new, essential and only point. . . ."

In taking the view that the revenue had given consent to the point being introduced before the judge (notwithstanding the refusal of the special commissioner to allow it to be raised before him) Lord Justice Rix would have had no reason to question the observation at paragraph [10] of the judgment below to which I have already referred. The revenue were not represented at the permission hearing before Lord Justice Rix; and it seems unlikely that he was told that (in their skeleton argument of 4 November 2005) the revenue had objected to the introduction of the new point.

29. As I have said, in the absence of any explanation, I find it surprising that, having successfully opposed the introduction of the EC Treaty point before the special commissioner and having taken the position which they did in the skeleton argument filed on their behalf in the High Court, the revenue should have consented to the point being raised before the judge. And, if the revenue did, indeed, consent to the point being raised before the judge, it is a further surprise to find that the revenue take the same position in the skeleton argument filed in this Court as they did in the skeleton filed in the High Court. At paragraph 42 of the skeleton filed in this Court it is said, again, that:

"If the Appellants had wanted to ventilate the [article 43] issue, they should have done so before the Special Commissioner, adducing evidence as to the true commercial position, actually raising the question whether Irish Life was exercising (or seeking to exercise) rights of establishment. Then the point could have been investigated and tested. . . ."

30. We have seen no transcript of the proceedings before Mr Justice Lawrence Collins. There is nothing in the material before us (save the observation at paragraph [10] of the judgment below, to which I have already referred) which supports the view that the revenue abandoned the position which they had taken in their skeleton argument. Counsel for the appellants in this Court did not appear in the court below and so were not able to assist us from their own recollection. Counsel for the revenue, who appeared both in this Court and below, had no recollection of the position having been abandoned; and (as I have said) if the objection had been abandoned below it would be surprising to find it, again, in the skeleton argument filed in this Court. The most that can be said, I think, is that the objection - although, plainly, taken in paragraph 12 of the skeleton argument filed in the High Court and not formally abandoned - was not pressed with a vigour sufficient to lead the judge to think that he needed to address it.
31. In those circumstances we invited the counsel for the revenue to consider whether they did seek to challenge the judge's view that the article 43 EC Treaty point was introduced before him without objection. The response was an application, on the second day of the hearing, to file a respondent's notice. No objection was taken on behalf of the appellants to the fact that that notice was out of time. So that notice is now before us. It is said that the judge ought to have dismissed the appellants' appeals on the additional or alternative grounds that: "the Appellants had not raised before the Special Commissioners, nor was there any evidence capable of establishing, nor was there any finding that Irish Life was seeking to exercise any right of establishment under Article 43 EC".
32. The appellants do not submit that the revenue are precluded from taking the point raised by the respondents' notice by the fact that permission to appeal in relation to the article 43 EC Treaty point has already been granted by the order made in this Court on 29 March 2006. It is understandable that the appellants do not make that submission. It is clear that Lord Justice Rix had not been told that there was an issue whether the article 43 EC Treaty point could, properly, be introduced on the appeal from the special commissioner. He did not have that issue in mind when he granted permission to appeal. But, as it seems to me, it is necessary to decide that issue before deciding whether this Court should entertain an appeal on the merits in relation to the article 43 EC Treaty point. There would be an apparent inconsistency if, having granted permission to argue the article 43 point on the merits, this Court were then to uphold the revenue's contention that the judge ought not to have allowed the point to be raised at all because it had not been raised before the special commissioner. On a strict analysis, if this Court were to find in favour of the revenue on the ground raised by the respondents' notice, it should give effect to that decision by discharging the permission to appeal granted by paragraph 1 of the order of 29 March 2006.
33. It follows, in my view, that there are two preliminary questions to be addressed: (i) should permission to appeal be granted in relation to the section 286 points and (ii) should this Court discharge the permission that has been granted in relation to the article 43 EC Treaty point on the ground that the judge should not have allowed that point to be introduced on the appeal before him. But, in addressing those points, it is necessary to take account of the arguments advanced by the parties on the substantive points themselves.

The section 286 points

34. I turn, first, to the new points which the appellants seek to raise in support of the first ground of appeal: that the special commissioner erred in law in holding that Irish Life was connected with Mr Foulser (or Mrs Foulser, as the case might be) for the purposes of section 167 TCGA 1992.
35. The first of the new points is, indeed, a pure point of law. It is said that, properly understood, section 286(7) TCGA 1992 must be seen as a deeming provision with a specific and limited purpose. That purpose is to assist in the interpretation and operation of the two subsections – subsections (5) and (6) of section 286 TCGA 1992 – which immediately precede it. Section 286(7) has no wider role: in particular, it cannot be relied upon in order to establish a relevant connection between Irish Life and the persons making the disposal of the BG Foods shares (the appellants) for the purposes of section 167(2)(b) TCGA 1992. The revenue accept that that point involves no investigation of the facts: permission to appeal, on that first new point, is not opposed on that ground.
36. Before addressing that first new point, it is pertinent to have in mind that the revenue's ability to rely on section 286(7) TCGA 1992 in order to establish a relevant connection for the purposes of section 167(2)(b) depends, of course, on the finding that Irish Life and the appellant (Mr or Mrs Foulser, as the case may be) were "acting together to secure or exercise control of" the Underlying Company (Lazerman or Motion). That finding was made by the special commissioner, at paragraphs 18 and 26 of his decision. It is said on behalf of the revenue that that was a finding of fact, from which section 56A of the Taxes Management Act 1970 provides no appeal. The appellants seek to surmount that hurdle by the submission that, on a proper understanding of the phrase "secure or exercise control", that finding was not open to the special commissioner. So, it is said, the special commissioner erred in law. That is the second of the new points which the appellants seek to raise under the first ground of appeal. Reliance on that new point is, of course, impossible to reconcile with the judge's understanding, noted at paragraph [33] of his judgment, that there was no appeal from the special commissioner's "findings of fact or law".
37. It is, I think, logical to address the question whether the special commissioner's finding that Irish Life and the appellant were acting together to secure or exercise control of the Underlying Company is open to challenge in this Court before addressing what I have described as the first new point – whether section 286(7) TCGA 1992 can be relied upon in order to establish a relevant connection for the purposes of section 167(2)(b).

Whether the special commissioner's finding that Irish Life and the appellants were acting together to secure or exercise control is open to challenge in this Court

38. The appellants' contentions in relation to the second of the new points are founded on observations of Mr Justice Lightman in Steele (Inspector of Taxes) v EVC International NV (1994) 69 TC 88; an appeal which required him to consider the meaning of the phrase "to secure control" in section 839(7) ICTA 1988, the terms of which are indistinguishable from those of section 286(7) TCGA 1992. Mr Justice Lightman said this, (ibid, 116A-G):

"[Counsel for the revenue] submitted before me that 'to secure' meant 'to acquire' or 'to obtain' and that it was sufficient for the purpose of the subsection to establish that the parties had originally acted together to obtain control: thereafter they were to be treated as 'acting together' and connected persons so long as they retained control. The original concerted action in obtaining control coloured that control and brought it within the subsection so long as that control was retained. I reject this construction for two reasons. First, the subsection requires the person to be acting together at the relevant times and not merely to have acted together in the past. Secondly, I think that the subsection is concerned with the position after, and not before, control has been obtained, and the word 'secure', therefore, cannot have the meaning for which [counsel] contends.

The verb 'to secure' has a number of possible meanings, the appropriate choice depending on the context. It can mean 'to acquire', or 'to obtain, or 'to bring about' (e.g. ss 791(a), 841(3), 749(5)(c) of the Act). But it can likewise mean 'to safeguard', 'to protect', or 'to make safe against loss'. It may be noted that s 416 uses the word 'acquire', and yet s 839 (which is to be construed by reference to s 416) deliberately uses a different word: 'secure'. It would be odd if the Parliamentary draftsman used the different words but did not thereby intend to convey a different meaning. In the context of s 839(7), I think that 'safeguard' is the proper and natural meaning of the word 'secure'. The subsection is concerned with the situation where there is an agreement or arrangement between persons having control (including for this purpose persons having an entitlement in the future to acquire control: see s 416(4)) designed to ensure that such control is retained. I am not deterred from reaching this conclusion by reason of the warning from counsel for both sides, who are experienced in this area of the law and have patiently and helpfully initiated me in its mysteries, that this construction has never previously been considered, let alone advanced. There is no authority to the contrary and (as it seems to me) there is no other tenable construction . . ."

39. The appellants submit that those observations establish two propositions. First, that the only meaning that can be given to the verb "to secure" in the context of section 839(7) ICTA 1988 – and, accordingly, in the context of section 286(7) TCGA 1992 – is "to safeguard": the verb cannot be given the meaning "to acquire" or "to obtain". Second, that the subsection is concerned with the situation where there is an agreement or arrangement between persons who "join forces" in relation to their separate shareholdings to produce a combined, controlling, shareholding: it is not applicable to the position where one person, who alone has control because he owns all the shares and all the voting power in the company, allows another person to exercise some or all of his shareholder rights and powers.
40. The first of those propositions received no support when Steele v EVC came before this Court on appeal. Lord Justice Morritt (with whose judgment the other members of the Court agreed) identified ([1996] STC 785, 792b-e; 69 TC 88, 124C-G) five propositions which had led the judge to his conclusion. In the circumstances that he agreed with the fifth of those propositions (acting together to exercise control) he did not find it necessary to decide whether the judge was correct as to the third and fourth (acting together to secure control). But he went on to say this (ibid, 796 c-d; 129D):

"The judge construed 'secure' in the sense of 'safeguard'. EVC contends that this is wrong and that it should be construed in the sense of 'obtain'. I do not see why it should necessarily be confined to either sense to the exclusion of the other. The point is of some importance for the definition of connected persons applies in 40 different contexts in the 1988 Act alone. In those circumstances, I prefer to leave it on the basis that I express no view on the construction of the word 'secure' in section 839(7) or on the correctness or otherwise of the decision of Lightman J on this point."

41. The second of the propositions for which the appellants claim to find support in Mr Justice Lightman's observations in Steele v EVC – that section 839(7) ICTA 1988 (and, so section 286(7) TCGA 1992) was not applicable to the position where one person, who alone has control because he owns all the shares and all the voting power in the company, allows another person to exercise some or all of his shareholder rights and powers – was of no relevance to the decision in that case (either before the judge or on appeal). In Steele the shares in the relevant company (European Vinyls Corporation (Holdings) BV, referred to in the judgments as "EVC Holdings" or "EVC") were held by EniChem SpA and Imperial Chemical Industries plc (and two other ICI companies) under the terms of a joint venture agreement. The appellants are entitled to point out that the judge observed that section 839(7) ICTA 1988 was concerned with "the situation where there is an agreement or arrangement between persons having control . . . designed to ensure that such control is retained"; but that observation must be seen in the context that that was the position on the facts in that case. There is nothing to suggest that the judge (or this Court) intended to hold that the subsection could have no application to a case where one person (having exclusive voting control of a company through ownership of all the shares) enters into an agreement or arrangement with another that he will exercise that control in accordance with the wishes of that other person. That question did not arise in the Steele case.
42. If it were necessary to decide the point, I would hold that Mr Justice Lightman was wrong to take the view, in Steele, that the only meaning to be given to the verb "to secure" in the context of section 839(7) ICTA 1988 was "to safeguard". I would accept that the verb may have a more extensive meaning than "to obtain" or "to acquire" – for the reason which Mr Justice Lightman gave (ibid, 116D-E) – but that does not lead to the conclusion that the enlarged meaning does not include a compilation of those more particular meanings. For my part I would respectfully endorse the comment of Lord Justice Morritt that (given the many and various contexts in which the definition of connected persons falls to be applied in taxing legislation) there is no reason why "to secure" should necessarily be confined to one meaning to the exclusion of other meanings which it could naturally and properly bear. I would hold, also, that there is no reason why the concept of two or more persons "acting together to . . . exercise control of a company" should, necessarily, be confined to cases where each of the persons acting together has less than a controlling shareholding, so that (absent some combination between them) none would be able to exercise control individually. It seems to me that the concept is sufficiently wide to include cases where one person (who has shareholder or voting control) agrees to exercise that control in accordance with the wishes of another.
43. It follows that – on the basis that the second of the new points which the appellants seek to advance in this Court in support of their first ground of appeal can, properly, be introduced on an appeal - I am not persuaded that the special commissioner erred in his approach to the question of fact which he had to decide: did Irish Life and the appellant act together to secure or exercise control of the Underlying Company?
44. But there is, as it seems to me, a threshold reason why permission to raise that point should be refused. It is, I think, accepted on behalf of the appellants that it is not open to them to seek to reopen the special commissioner's findings of fact in this Court – on the basis of a new point of law - unless they can show not only that the special commissioner was plainly wrong in his approach (as a matter of law) but also (i) that he made all the primary findings of fact that would be needed in order to decide the point on the correct view of the law and (ii) on the basis of those findings the only conclusion which he could properly reach was that for which the appellants now contend. Even if, contrary to the view which I have expressed, the appellants could show that the special commissioner was plainly wrong in his approach as a matter of law, they cannot satisfy the remainder of that test.
45. The special commissioner was invited by the appellants to approach that question of fact on the basis that "secure" was to be given the meaning "succeed in obtaining or achieving; gain possession of": paragraph 8 of the appellants' supplemental skeleton argument dated 30 January 2005. The only point taken by the appellants in this context was that, because Irish Life and the appellants had not met or communicated prior to 24 November 1997, they could not be said to have done anything "proactive in concert or combination". Although reference had been made to the decision in Steele (at paragraph 25 of the appellants' skeleton dated 21 January 2005), that case was said to be "concerned with joint ownership which is not in point here". So the special commissioner was not asked to consider the construction of "to secure" which is now advanced; he was not asked to consider whether two persons could act together to exercise control of a company when one of them owned all the shares in that company; he made the findings of fact that he did on the basis that the appellants accepted that the points now advanced did not arise; and he was not asked to make the findings of fact which he would or might have needed to make (one way or the other) if he had appreciated that those points were in issue and might be taken to appeal.
46. In those circumstances, as it seems to me, it is impossible to be confident that the special commissioner made all the primary findings of fact that would be needed in order to decide the point on what is now said to be the correct view of the law. Indeed, given the way in which the appellants invited him to approach the matter, it would be fortuitous and surprising if he had done so. Further, on the basis of those findings which he did make (set out at paragraph 16 of his decision), it is impossible to hold that the only conclusion which he could properly have reached was that Irish Life and the appellant did not act together to secure (in the sense of safeguard) and exercise control of the Underlying Company. Given the finding that he did make in paragraph 17 of his decision - that the purpose and effect of the arrangements made in November 1997 was that:

"17 . . . Irish Life . . . would do what it was told by the Bondholder or the investment adviser in dealing with the funds held within the Bond. . . . Irish Life had no interest in exercising rights of ownership and would act on the instructions of the Bondholder, a company owned ultimately by a settlement of which the Appellants were life tenants."

- it may be said that he would have reached the conclusion that he did even if he had approached his task on the basis of what the appellants now say reflects a correct view of the law.

47. For those reasons I would hold that the special commissioner's finding that Irish Life and the appellant were acting together to secure or exercise control of the Underlying Company is not open to challenge in this Court. I return, therefore, to the first of the new points advanced in support of the first ground of appeal. As I have said, permission to appeal in reliance on that point is not opposed by the revenue.

Whether section 286(7) TCGA 1992 can be relied upon in order to establish a relevant connection for the purposes of section 167(2)(b)

48. It is not in dispute that, for the purposes of section 167(2) TCGA 1992, each of the Underlying Companies is controlled by a person, Irish Life, who is not resident or ordinarily resident in the United Kingdom. The relevant question, in relation to each of the Underlying Companies, is whether Irish Life "is connected with the person making the disposal" in respect of which that Underlying Company is the transferee. So, in relation to Lazerman, the relevant question is whether Irish Life is connected to Mr Foulser. Section 286(1) TCGA 1992 requires that question to be determined "in accordance with the following subsections . . . :" that is to say, in accordance with subsections (2) to (8) of section 286.
49. Section 286(7) TCGA 1992 requires that: "Any 2 or more persons acting together to secure or exercise control of a company shall be treated in relation to that company as connected with one another". It was common ground before the special commissioner that, if in November 1997 (at the time of the disposal by Mr Foulser of his BG shares to Lazerman) Irish Life and Mr Foulser were acting together to secure or exercise control of Lazerman, then it must follow that, in relation to Lazerman, Irish Life and Mr Foulser must be treated as connected with one another. At first sight that proposition seems now - as it must then have seemed to the parties – obvious and uncontroversial. But it is that proposition that the appellants now seek to challenge by their first ground of appeal.
50. As I have said, the appellants now submit that, properly understood, subsection (7) of section 286 TCGA 1992 must be seen as a deeming provision, the only purpose of which is to assist in the interpretation and operation of the two subsections – subsections (5) and (6) – which immediately precede it. That, it is submitted, becomes clear when sub-section (7) is construed in the context of section 286 TCGA 1992 as a whole.
51. The structure of section 286 TCGA 1992 may be summarised as follows:

(1) Subsection (1) defines the scope of the section: it requires that, for the purposes of the Act, any question whether a person is connected with another is to be determined in accordance with the subsections that follow. Those subsections fall into three broad groups: (i) provisions of general application, (ii) provisions of specific application and (iii) provisions which are ancillary to those in the other two groups.

(2) Subsections (2), (5) and (6) are of general application. Subsection (2) defines circumstances in which a person (A) is connected with an individual (B). Subsection (5) defines circumstances in which a company (C1) is connected with another company (C2). Subsection (6) defines circumstances in which a company (C) is connected with another person (D).

(3) Subsections (3) and (4) are of specific application. Subsection (3) defines circumstances in which a person (T), in his capacity as trustee of a settlement, is connected with (a) an individual (S) who is the settlor, (b) any person (S1) who is connected with S, and (c) any body corporate (S2) which is connected with the settlement. Subsection (4) defines circumstances in which a person (P1) who is in partnership with another (P2) is connected with P2 and (where P2 is an individual) with the husband or wife or a relative of P2: P1 is so connected "except in relation to acquisitions or disposals of partnership assets pursuant to bona fide commercial arrangements".

(4) Subsection (3A) is ancillary to subsection (3): it prescribes the meaning to be given to the concept "any body corporate which is connected with that settlement" in paragraph (c) of subsection (3). Subsection (8) is ancillary to subsections (2) and (4): it prescribes the meaning to be given to the word "relative" when used in those two subsections.

(5) Subsection (7) is of specific application: in the sense that it defines circumstances in which two or more persons (X) and (Y) who act together in relation to a company (C) are to be treated as connected with one another in relation to that company. The question is whether (as the appellants submit) the subsection is also ancillary: in the sense that it applies only in the context of an enquiry under subsections (5) or (6).

52. It is not in dispute that subsection (7) does apply in the context of an enquiry under subsections (5) or (6) of section 286 TCGA 1992. Paragraph (a) in subsection (5) provides that two companies (C1 and C2) are connected when X has control of C1 and persons connected with X (or X and persons connected with X) have control of C2. In a case where Y has control of C2 (or where X and Y have control of C2) the two companies will be connected if X and Y are connected. Subsection (6) provides that a company (C) is connected with a person (D) when D and persons connected with D together have control of C. So, in a case where X and Y have control of C, the company and X will be connected if X and Y are connected. In that context, the connection between X and Y may be general in nature: where, for example, X and Y are individuals connected under the test in subsection (2). But subsection (7) provides a test of specific connection: that is to say, a test which treats X and Y as connected persons in relation to C, but not otherwise.
53. The fact that subsection (7) applies in the context of an enquiry under subsections (5) and (6) of section 286 TCGA 1986 does not lead to the conclusion that that is the only context in which subsection (7) applies. The first – and, to my mind, the most obvious – indication that the legislature did not intend to restrict the application of subsection (7) to the purposes of subsections (5) and (6), or to the purposes of section 286 as a whole, is that the subsection contains no such restriction. By contrast, subsection (3A) contains the specific restriction "For the purposes of subsection (3) above"; and subsection (8) contains the restriction "In this section". And it is important to keep in mind the opening words of subsection (1): "Any question whether a person is connected with another shall for the purposes of this Act be determined in accordance with the following subsections". The most that can be said, as it seems to me, is that the only context within section 286 TCGA 1992 as a whole in which it would be necessary to ask the question "are X and Y connected with one another in relation to company C" is that of an enquiry under subsections (5) or (6). But, as I have said, that does not lead to the conclusion that the subsection can have no application in other contexts.
54. The appellants draw attention to the distinction between the words which the legislature has used in subsection (7) - "shall be treated . . . as connected with one another" – and the words used in subsection (2) – "A person is connected with an individual" – and in other subsections of section 286 TCGA 1992. It is said that the words of subsection (7) – when contrasted with the words used in other subsections – show an intention that subsection (7) was to have effect as a "deeming provision": that is to say, that the subsection requires that a relationship which did not exist be treated as if it did exist. In one sense that may be true. If X and Y act together to secure or exercise control of company C they are not, for that reason alone, connected for all purposes (as they would be if, for example, they fell within subsection (2)): they are treated as connected only in relation to company C. To put the point another way: in relation to company C – and only in relation to company C – X and Y (who would not otherwise be connected with one another) are deemed to be connected persons. But, as it seems to me, the fact that subsection (7) may take effect as a "deeming provision" – in the sense that I have described – does not lead to the conclusion that it is only in the context of an enquiry under subsections (5) and (6) that the subsection can have that effect. It leads only to the conclusion that subsection (7) of section 286 TCGA 1992 can only be given effect in the context of an enquiry whether X and Y are to be treated as connected in relation to company C. The enquiry under section 167(2)(b) TCGA 1992 is such an enquiry: it is an enquiry whether X (who controls company C) is connected with Y (who is making a disposal to company C as transferee).
55. It follows that I am not persuaded that there is anything in the language of section 286 TCGA 1992 as a whole – or in subsection (7) in particular – which leads to (or even supports) the conclusion that the only purpose of subsection (7) is to assist in the interpretation and operation of the two subsections – subsections (5) and (6) – which immediately precede it.
56. The appellants seek to rely – in this context, as in the other to which I have already referred – on observations of Mr Justice Lightman in Steele v EVC. The issue in that case (so far as material in the present context) was whether EVC, a joint venture company established in the Netherlands, was entitled under a double tax treaty to a tax credit in the United Kingdom in respect of dividends paid to it by a United Kingdom subsidiary. That turned on whether EVC could establish that "it was not controlled by . . . two or more . . . connected persons together, . . . any of whom would not have been entitled to a tax credit if he had been the beneficial owner of the dividends" for the purposes of article 10 of the Double Taxation Relief (Taxes on Income) (Netherlands) Order 1980, SI 1980/1961 (cited at [1996] STC 785, 788b-c). As I have already explained both Mr Justice Lightman and this Court held that the controlling shareholders of EVC (EniChem SpA and Imperial Chemical Industries plc) were connected by virtue of section 839(7) ICTA 1988. But it was necessary, also, to decide whether that led to the conclusion that they were connected for the purposes of article 10(3) of the 1980 Order. It was said on behalf of EVC that the connection effected by section 839(7) was insufficient (69 TC 88, 114D-E):

"s 839(7) does not operate to make '. . . persons acting together to secure or exercise control of a company' connected with one another simpliciter, but merely '. . . connected with one another in relation to that company'; there is nowhere to be found in the relevant legislation any independent or free-standing concept of persons being connected 'in relation to a company'; and the only purpose and scope of the application of s 839(7) appears to be to extend the ambit of s 839(5) and (6)."

After noting that the revenue did not dissent from that proposition, Mr Justice Lightman went on to explain why it did not assist the taxpayer (ibid, 114H-I):

"In my view the insuperable obstacle to this submission is the width of the words in Article 10(3)(d), namely 'for any purpose'. These words, in my view, clearly embrace the connection under s 839(7). Though this connection is 'in relation to that company' only and the subsection appears to be directed only to extending the scope of the connection under subss (5) and (6), nonetheless subs (7) creates a genuine connection, albeit for a limited purpose, namely the application of subss (5) and (6). Accordingly the shareholders in EVC Holdings are treated as connected under the laws of the United Kingdom relating to the taxes covered by the Convention, albeit for this limited purpose. . . ."

That passage was referred to by Lord Justice Morritt in this Court ([1996] STC 785, 797e-f; 69 TC 88, 130E-G) with apparent approval. But it is pertinent to note that Lord Justice Morritt drew attention (ibid, 798a-b; 131D) to section 736 ICTA 1988, which, as he said, provided a "separate context in which sub-s (7) alone is applicable".

57. In my view the fact that, in Steele v EVC, Mr Justice Lightman accepted, without dissent from the revenue, the proposition that subsection (7) of section 839 ICTA 1988 "appears to be directed only to extending the scope of the connection under subss (5) and (6)" is of no assistance to the appellants in the present case. It is important to have in mind that subsection (1) of section 839 ICTA 1988 gave a limited effect to the provisions in that section. Those provisions applied only: "For the purposes of, and subject to, the provisions of the Tax Acts which apply this section". In the context of the issue which was before the court in Steele v EVC it was immaterial whether or not there was some other provision in the Tax Acts (as defined in section 831(2) ICTA 1988) which applied section 839 – or, specifically, section 839(7). The relevant question was whether the existence of section 839(7) in the domestic legislation brought the case within article 10(3) of the 1980 Order. On a true analysis of the observations on which the appellants seek to rely, Mr Justice Lightman was doing no more (in this context) than recording (without critical examination) a proposition which had not been disputed and which he did not need to decide for the purposes of the issue which was before him.
58. Of more relevance, as it seems to me, is the reference in the judgment of Lord Justice Morritt to section 736 ICTA 1988. It can be seen (ibid, 797d; 130E) that that was prompted by a submission made by the revenue on the appeal; which suggests, perhaps, that the revenue may have thought it necessary to challenge on the appeal Mr Justice Lightman's apparent acceptance of the proposition that subsection (7) of section 839 ICTA 1988 was directed only to extending the scope of subsections (5) and (6) of that section. Be that as it may, on this appeal, both parties relied on section 736(4) ICTA 1988.
59. Section 736 ICTA 1988 is within Chapter II (Transfers of Securities) of Part XVII (Tax Avoidance) of the Act. It is an anti-avoidance provision directed at companies dealing in securities. Subsection (2) applies where (amongst other conditions) a dealing company has a holding in another company resident in the United Kingdom which amounts to, or is an ingredient in a holding amounting to, 10 per cent of all holdings of the same class in that company – section 736(1)(a). Where subsection (2) applies, the subsection requires (in effect) that an amount equal to a material reduction in the value of any security comprised in the holding which is attributable to a distribution made in respect of that holding shall (if the security has not been realised) be disregarded for the purposes of any valuation, or (in other cases) be treated as a trading receipt. Subsection (4) provides, at paragraph (a), that, for the purposes of subsection (2), all of a company's holdings of the same class in another company are to be treated as ingredients constituting a single holding and, at paragraph (b), that "a company's holding of a particular class shall be treated as an ingredient in a holding amounting to 10 per cent of all holdings of that class if the aggregate of that holding and other holdings of that class held by connected persons amounts to 10 per cent of all holdings of that class". The relevance of those provisions, in the present context, lies in the reference in section 736(4)(b) to connected persons.
60. Section 736(4) ICTA 1988 continues:

"736(4) . . .

(a) . . .

(b) . . .

and section 839 shall have effect in relation to paragraph (b) above as if, in subsection (7) of that section, after the words 'or exercise control of' in each place where they occur there were inserted the words 'or to acquire a holding in'."

There can be no doubt, as it seems to me, that the opening words of that final paragraph – "section 839 shall have effect in relation to paragraph (b) above" – are required in order that section 839 ICTA 1988 as a whole should be applicable for the purposes of determining, in the context of paragraph (b), whether persons having holdings of the same class are connected persons; and that those words have that effect – section 839(1) ICTA 1988. There can be no doubt, also, that if the final paragraph had ended after those opening words, the question whether persons having holdings of the same class were connected persons would be determined by reference to the whole of section 839, including subsection (7) – whatever the effect of subsection (7) might be in that context. The effect of the words which come after the opening words – "as if, in subsection (7) of that section, after the words 'or exercise control of' in each place where they occur there were inserted the words 'or to acquire a holding in'" – is not to make subsection (7) applicable to an enquiry (under section 736(4)(b) ICTA 1988) to which it would otherwise have had no application at all: it is to enlarge the scope of subsection (7) in its application to that enquiry. That effect is achieved by providing that, in its application to an enquiry under section 736(4)(b), subsection (7) of section 839 is read with additional words:

"839(7) Any two or more persons acting together to secure or exercise control of or to acquire a holding in a company shall be treated in relation to that company as connected with one another . . ."

I should add, for completeness, that the same drafting technique has been adopted in section 177(7) TCGA 1992.

61. As I have said, each party seeks to obtain assistance from the final paragraph of section 736(4) ICTA 1988. The appellants submit that the paragraph has been included because the legislature recognised that, without it, section 839(7) ICTA 1988 would have no application. That, as it seems to me, is true; but simplistic. It is true because, without the opening words of the final paragraph, none of the subsections of section 839 would have any application – that is the effect of section 839(1). It is over-simplistic because the opening words alone (which contain no reference to subsection (7)) make the whole of section 839 applicable. The words which follow – introduced by the hypothesis "as if" – assume that subsection (7) is applicable: as I have said, the purpose of those following words is to enlarge the scope subsection (7), not to make it applicable.
62. The revenue submit, correctly in my view, that the final paragraph of section 736(4) ICTA 1988 provides a clear indication that the legislature recognised and intended that, in a case where section 839 (as a whole) was made applicable, subsection (7) could have an effect which was independent of subsections (5) and (6). It is, I think, clear that the relevant question in the context of section 736(4)(b) is whether X, a person who has a holding of a particular class in company C, is connected with Y, a person who has another holding of the same class in company C. If so – and if the holdings of X and Y together amount to 10 per cent of all holdings of that class – then X's holding is treated as an ingredient in a holding amounting to 10 per cent, so that section 736(2) becomes applicable in relation to it. X is necessarily a company – see the opening words of section 736(2)(b). Y may well be (but will not necessarily be) a company also. Plainly X and Y may be connected by virtue of the provisions of subsections (5) or (6) of section 839 ICTA 1988 (with or without recourse to subsection (7) in its unmodified form). And, equally clearly, the legislative purpose, when including in the final paragraph of section 736(4) the words which are introduced by the hypothesis "as if", was to provide a connection between X and Y – based on "acting together to . . . acquire a holding" – which would not exist in the absence of those words. It seems to me beyond doubt that the legislature intended that connection to be provided by the application, in the context of section 736(4)(b), of the modified subsection (7) independently of subsections (5) and (6) of section 839. The fact that X and Y are acting together to acquire a holding in a company C is a relevant and apposite basis upon which to deem X and Y connected persons in relation to company C in the context of section 736(4) ICTA 1988 – which is concerned with the amount of X's holding in company C. The fact that X and Y are acting together to acquire a holding in company C is an irrelevant and inapposite basis upon which to deem X and Y connected persons in relation to company C in the context of subsections (5) and (6) of section 839 – which are concerned with control of company C (and not with the holding of shares which do not give control). The same points could be made in relation to sections 177 and 286 TCGA 1992.
63. For those reasons I reject the appellants' submission that, when construed in the context of section 286 TCGA 1992 as a whole, subsection (7) must be seen as a provision the purpose of which is limited to the interpretation and operation of the two subsections which immediately precede it. In my view it is clear that, on a true construction, section 286(7) can be relied upon in order to establish a relevant connection between Irish Life and the persons making the disposal of the BG Foods shares (the appellants) for the purposes of section 167(2)(b) TCGA 1992.
64. We were pressed in the course of the hearing with an elaborate argument – advanced for the first time in a supplemental skeleton argument dated 12 October 2006 – based on examples which, it is said, demonstrate that, as a matter of policy, it could not have been the intention of the legislature that section 286(7) TCGA 1992 – or section 839(7) ICTA 1988 – should (in the absence of some provision as those in section 177(7) TCGA 1992 or section 736(4) ICTA 1988) have any independent application. I hope it will not be thought discourteous – or lacking in respect to the ingenuity with which that argument was formulated and advanced – if I do no more than draw attention to the observation of Lord Justice Morritt, when faced with a similar argument in Steele v EVC (ibid, 796f-h; 129F-G). He pointed out that the fact that the revenue's construction of section 839(7) ICTA 1988 might have unforeseen and unwelcome consequences – in that case, the denial of consortium relief made available by section 402 ICTA 1988 by the operation of section 410(2)(iii) in just those circumstances in which it was to be presumed that Parliament intended it to be available – was no reason for not construing section 839(7) ICTA 1988 in accordance with its terms. In my view the effect of section 286(7) TCGA 1992, in relation to the enquiry required under section 167(2)(b), is clear. I am not persuaded that the Court should refuse to give to the section the effect which, as a matter of construction, it was plainly intended to have in that context on the basis that, in other contexts, the section might be found to have unforeseen or unwelcome consequences.

The article 43 EC Treaty point

65. As I have said, the first question under this head is whether this Court should discharge the permission that has been granted in relation to the article 43 EC Treaty point on the ground that the judge should not have allowed that point to be introduced on the appeal before him. The premise underlying that question is that the judge was wrong to think that the revenue had withdrawn or abandoned their objection to the point being raised at that stage; notwithstanding that they had been successful in their opposition to the late introduction of the point before the special commissioner and the position which they had taken in their skeleton argument of 4 November 2005. On the material before us, I think we must accept that premise.
66. It is pertinent to keep in mind that the special commissioner refused the late application to introduce the article 43 EC Treaty point on case management grounds. There had been a preliminary hearing in September 2003. At that hearing the appellants were directed to prepare a statement of case by 30 January 2004; to which the revenue were to respond by 27 February 2004. As the special commissioner observed, the purpose of those directions was "to obtain finality about the nature of each party's case so that the other party has full knowledge of the nature of the case to be answered". The appellants sought to introduce the Article 43 EC treaty point for the first time at the end of January 2005, on the third day of a four day hearing. To allow that application would have defeated the purpose of the preliminary hearing and the direction given some 16 months earlier. I find it difficult to see how the special commissioner's decision to refuse the application could be criticised.
67. Nevertheless, that decision was the subject of appeal. The first of the grounds of appeal in the appellants' notice filed in the High Court on 21 April 2005 was that the special commissioner erred in law in "not allowing it to be argued that section 167 Taxation of Capital gains Act 1992 was incompatible with the EU Treaty". That ground is developed (but shortly) in the skeleton argument filed with the appellants' notice. It is said, at paragraph 5 of that skeleton argument, that:

"5. . . . The special Commissioner was wrong to prevent the European Law point being argued. This is because Article 43 is part of the fundamentals of European law incorporated into United Kingdom law."

The proposition that article 43 EC Treaty is part of the law of the United Kingdom is not in dispute. But that, as it seems to me, does not begin to address the question whether the special commissioner was entitled, on the case management grounds which he gave, to refuse to allow the point to be raised for the first time at a late stage in the hearing before him. Paragraph 5 of the skeleton argument continues:

"As the point is one of pure law and not dependent on the evidence there is no reason for the Court to exercise its inherent discretion to exclude it especially as it was raised at the hearing (see eg Pittalis v Grant [1989] 1 QB 605 at 611E-F). To decide otherwise might raise points under Article 6 of the European Convention on Human Rights."

There are three observations which can be made in relation to that passage. First, it is not addressed to the question whether the special commissioner was entitled to exercise his case management powers in the way that he did: rather it is addressed to the different question whether a new point could be introduced for the first time on appeal. Second, it is difficult to see (and the authors of the skeleton argument do not explain) how the special commissioner's decision to exclude the point in the proper exercise of case management powers – or to uphold the special commissioner's exercise of those powers - "might raise points under Article 6" of the Convention. Third, it is said in terms that the point "is not dependent on the evidence".

68. For my part I would accept that, if the judge had been satisfied that the article 43 EC Treaty point was, indeed, "not dependent on the evidence" - so that the point could be decided without reference to the evidence (or any evidence) – it would have been open to him to allow the "point . . . of pure law" to be argued before him notwithstanding the special commissioner's decision to refuse to entertain it. That is because the judge could have taken the view, without holding that the special commissioner had been wrong to exercise his case management powers as he did, that the vice which the special commissioner had identified – that is to say, the raising of a new point without warning and at a late stage in the course of the hearing – did not infect the conduct of the appeal. Whatever the position before the special commissioner, by the time the matter was before the judge on appeal the revenue had had ample time to respond to the point – if it were, indeed, a point of pure law.
69. It is important, therefore, to note, first, that the judge did not treat the article 43 EC Treaty point as a point of pure law, not dependent on the evidence. As I have said, he directed himself (at paragraph [76] of his judgment) that it was Irish Life's right of establishment that must be restricted if article 43 EC Treaty was to apply; and he held (at paragraph [80], after reference at paragraphs [78] and [79] to the particular facts of this case) that: "In this case Irish Life's right to freedom of establishment is not engaged". And, second, that the appellants do not, themselves, suggest, in their skeleton argument filed in this Court, that the article 43 EC Treaty point is a point of pure law, not dependent on the evidence.
70. Given that the judge did not treat the article 43 EC Treaty point as a point of pure law, not dependent on the evidence, he should, in my view, have refused to entertain it. I have already set out, earlier in this judgment and in another context, the passage in the judgment of this Court in Pittalis v Grant [1989] 1 QB 605, 611E-F, on which the appellants rely. If the point were not a "pure point of law", that passage does not assist the appellants. And it is important to keep in mind that, on a proper analysis, the point was not a "new point" - in the sense that it was not "a point not raised at trial". The point was raised before the special commissioner, but he ruled, on case management grounds, that the appellants should not be allowed to pursue it. The judge was invited to allow an appeal from that ruling, but he did not do so. He did not do so because he thought that the revenue were content for the article 43 EC Treaty point to be argued. Had the judge thought it necessary to consider whether to allow an appeal from the special commissioner's ruling, he would (as it seems to me) have been bound to hold that there was no basis upon which that ruling could be challenged. And, as I have sought to point out, if the article 43 EC Treaty point were not a pure point of law, it could not properly be entertained on an appeal to the High Court unless the appeal from that ruling were allowed.
71. Unless this Court were persuaded that the article 43 EC Treaty point is, truly, a pure point of law, the matters to which I have referred in the preceding paragraphs provide, as it seems to me, a sufficient basis upon which this Court should decide that the point should not be entertained on this appeal; and that the permission to appeal granted in paragraph 1 of the order of 29 March 2006 should be discharged. In that context it is of significance that, as I have already noted, the appellants do not suggest, in their skeleton argument filed in this Court, that the article 43 EC Treaty point is a point of pure law, not dependent on the evidence.
72. The appellants' submissions on the article 43 EC Treaty point are set out at paragraph 60 of their skeleton argument dated 7 April 2006:

"60 Mr Foulser submits that Section 167 TCGA is an unlawful restriction on the freedom of establishment of Irish Life, contrary to Article 43. That is, first, Section 167 makes a foreign element the basis for a difference in UK tax treatment, that element being the fact that a company established in another Member State (here, Irish Life) has a controlling holding in the transferee company. Secondly, the exclusion of tax relief constitutes a restriction (admittedly a minor one) on the freedom of establishment of Irish Life, that is its ability to acquire a (direct) controlling holding in Lazerman and an (indirect) controlling holding in BG Foods. Thirdly, Section 167, insofar as it excludes categorically and generally the advantage of hold-over relief whenever the transferee is foreign controlled, does not allow the national courts to make a case-by-case analysis taking account of the particular facts of each case. Fourthly, the criterion on the basis of which hold-over relief is excluded, namely the fact that the transferee is controlled by a company established in another Member State relates to the exercise of the freedom of establishment guaranteed by the Treaty and cannot, therefore, in itself, constitute an abuse of the right of establishment. Fifthly, the loss of tax which would be likely to result from the granting of hold-over relief cannot be relied upon in order to justify unequal treatment that is, in principle, incompatible with Article 43."

In the present context it is the second of those submissions – "the exclusion of tax relief constitutes a restriction (admittedly a minor one) on the freedom of establishment of Irish Life, that is its ability to acquire a (direct) controlling holding in Lazerman and an (indirect) controlling holding in BG Foods" that is material.

73. In support of that second submission it is said on behalf of the appellants (at paragraph 66 of the skeleton argument) that the judge was wrong to hold, as he did at paragraphs [78], [79] and [80] of his judgment: (i) that it was relevant that Irish Life maintained no permanent place of business in the United Kingdom; (ii) that, in issuing the Bond Irish Life was "simply participating in a commercial transaction for a fee"; and (iii) that the only effect of section 167 TCGA 1992 on Irish Life is that it would no longer have the opportunity to earn a modest fee on schemes of a similar nature. It can be seen from the manner in which those points are developed in the following paragraphs of the skeleton argument that the appellants' contentions are clearly fact-specific:

(1) It is accepted that Irish Life does not maintain a permanent place of business in the United Kingdom; but that, it is said, is "completely irrelevant" (paragraph 68 of the skeleton argument). What matters is that Irish Life "had a controlling holding in BG Foods via its subsidiary, Lazerman [and] it was certainly not precluded, by the terms of the Bond or otherwise, from exercising that control": further, that "it can hardly be denied that Irish Life exercised control over its subsidiary, Lazerman, if (contrary to the submissions on s. 167 above) the Special Commissioner was right to hold that Irish Life and Mr Foulser were acting together to exercise control of Lazerman" (paragraph 70).

(2) It is said that the judge's view that Irish Life was simply participating in a contractual transaction for a fee "misunderstands the nature of a personal portfolio bond, and its effect on the parties to it" (paragraph 71). Further, it is said that "the fact that Irish Life owned the shares pursuant to the bond, and so had a contractual obligation to pay (in the event of surrender or death) a sum calculated by reference to the value of the shares, indeed equal to that value less its fees, does not mean that Irish Life had no economic interest in the shares; on the contrary, its ability to earn the fees depended on its ownership of the shares" (paragraph 72). And it is said that "it is by no means an uncommon feature of modern investment products for an insurance or other companies obligations to an investor to be based on the value of assets which the company owns" (paragraph 73).

(3) The appellants challenge the judge description of Irish Life's fee as "modest". But that, it is said, is beside the point: "section 167 restricts Irish Life's freedom of establishment in the UK, and thereby its ability to make a profit, whether modest or not" (paragraph 75).

74. It is, I think, pertinent to keep in mind that section 167 TCGA 1992 does not have the effect of denying to, or withholding from, Irish Life, Lazerman or BG Foods any relief from tax to which those companies would otherwise be entitled. Indeed, the section has the effect that Lazerman, as transferee of the BG Foods shares, is treated as acquiring those shares at market value: that is to say, for a consideration which is much higher than would be the case if section 165(4) TCGA 1992 did apply – so relieving Lazerman of a latent (but potentially substantial) charge to capital gains tax on its own disposal of those shares. Further, there is nothing in section 167 TCGA 1992 which restricts the ability of Irish Life to acquire the shares in Lazerman; or which restricts the ability of Lazerman to acquire the BG Foods shares transferred to it by Mr Foulser. The effect of section 167 TCGA 1992, on the facts found by the special commissioner in the present case, is that it removes any tax incentive which Mr Foulser might otherwise have to transfer his BG Foods shares to Lazerman for no consideration. But, of course, the tax incentive is not to be seen in isolation. Mr Foulser would not have transferred the BG Foods shares to Lazerman for no consideration unless the terms of the Bond provided a contractual right to receive a payment equivalent to the full value of those shares; and it is unlikely that he would have done so unless the terms of the Bond and the circumstances in which it was issued led him to think that he could continue to control the factors which affected that payment (in particular, the fortunes of BG Foods and the price at which Lazerman would be sold to arrangements to an outside purchaser). If Mr Foulser had not thought that he would remain in control of those factors, it is (at the least) unlikely that he would have transferred the BG Foods shares to Lazerman or purchased the Bond from Irish Life. Irish Life would have lost a sale.
75. Section 167 TCGA 1992 has that effect on the facts in the present case because, as the special commissioner found, the terms of the Bond and the circumstances in which it was issued, led to the conclusion that Irish Life and Mr Foulser were acting together to secure or exercise control of Lazerman; that, accordingly, Irish Life was to be treated as connected with Mr Foulser by virtue of section 286(7) TCGA 1992; and that that was sufficient to satisfy the requirement in section 167(2)(b). It is important to keep that in mind. If section 167 TCGA 1992 does have the effect of restricting the freedom of establishment of Irish Life within the meaning of article 43 EC Treaty (which I should not be taken to accept) it does not do so by reason of any restriction on Lazerman, on BG Foods or on Irish Life's ownership of Lazerman and (indirectly) of the BG Foods shares. It does so by reason of the terms on which, and the circumstances in which, Irish Life agreed to issue the Bond to Mr Foulser. That is why, as it seems to me, the appellants cannot avoid the need to advance arguments which are fact-specific; and that is why the article 43 EC Treaty point cannot be said to be a point of pure law.
76. It is for that reason that I would hold that – the special commissioner having refused to allow the article 43 EC Treaty point to be pursued before him and there being, in this Court, no appeal (and no prospect of a successful appeal) from that ruling – the point should not be entertained on this appeal. The permission to appeal granted in paragraph 1 of the order of 29 March 2006 should be discharged.
77. It follows that it is both unnecessary and inappropriate to decide whether the judge was correct to reach the conclusion which he did. But I think it right to add that I have not been persuaded by the arguments which were advanced in this Court that the judge's reasoning can be faulted. As I have said, it seems to me that, on a true analysis, it is not the freedom of Irish Life to conduct its business through Lazerman or BG Foods that is restricted by section 167 TCGA 1992. If that section does have a restrictive effect on Irish Life it is because it will deter those United Kingdom tax payers who see a bond-based scheme with a non United Kingdom resident insurance company as a means of avoiding a potential charge to capital gains tax from entering into arrangements which enable them to remain in control of the factors affecting the underlying value of the asset which is to be transferred under that scheme (in the present case, the BG Foods shares); and so (because the ability to control those factors is likely to be of importance to them) lead to a result that fewer bonds are sold. But, as the judge pointed out, that restriction (if made out) would be a restriction on Irish Life's freedom to provide services; not a restriction on its freedom of establishment.

A reference to the European Court of Justice

78. We were invited by the appellants to refer to the Court of Justice the question whether article 43 EC Treaty precludes the application of section 167 TCGA 1992 to a disposal by a United Kingdom resident (A) to a United Kingdom resident company (B) of a controlling interest in a United Kingdom resident trading company (D) in circumstances where a company (C) resident in another Member State owns all the shares in B and A owns no shares in B. Even if it were appropriate for this Court to decide the article 43 EC Treaty point on this appeal, that question, simpliciter, would not be a suitable subject for a reference. On those facts alone, there is no reason to think that section 167 TCGA 1992 has any application. What is required – if that section is to apply - is that C is connected with A: section 167(2)(b). The appellants seek to meet that requirement by adding the rider: "Is the answer to this question affected by the facts that – (i) immediately before, and for the purposes of the disposal by A to B, C acquired the shares in B, an off-the-shelf company with no assets, and C entered into an insurance contract with A under which C promised to pay A, on surrender, a sum equal to the value of the shares in B and A promised to pay C an annual fee calculated by reference to the same value; (ii) C does not intend to undertake the day-to-day management of B or D and is content for A to undertake such management; (iii) C is equally willing to enter into the above transactions whether or not section 167 applies?". Again, that does not seem to me an appropriate question for a reference. The question whether, on those additional facts, C is connected with A is a matter for domestic law; not for the Court of Justice.
79. I am content to accept that, in another case, it might be possible to frame a suitable question to refer to the Court of Justice, based on findings of fact made by the special commissioner. But I do not think we should attempt to do so in this case. For the reasons which I have given it is neither necessary nor appropriate for this Court to decide the article 43 EC Treaty point. We do not need a ruling from the Court of Justice.

Conclusion

80. I would grant permission to appeal on the first ground of appeal (paragraph 2 of the order of 29 March 2006), but limited to the first of the new points advanced in support of that ground. I would refuse permission to appeal in relation to the second of the new points. I would discharge the permission to appeal granted by paragraph 1 of that order. I would dismiss the appeal. I would refuse the application for a reference to the Court of Justice.

Lord Justice Longmore:

81. I agree and add only some short observations on the question whether this court should entertain the second new point contained in the first ground of appeal.
82. This was a point on which submissions were never addressed to the Special Commissioner and is a point which calls for a closer examination of or a different perspective on the facts than the Special Commissioner afforded to the facts at the time. The usual practice of the court as set out in Pittalis v Grant [1989] QB 605 cannot apply without qualification to appeals where the court is not permitted to find facts for itself. The true question in the appeal is not whether the court should entertain an appeal on a point not argued before the judge but whether it should entertain a point not argued before the Special Commissioner.
83. Those familiar with the law of arbitration will know that it is for the arbitrator to find the facts and the court, if it gives permission to appeal on a point of law arising from those facts, can then determine the legal consequences of those facts. That is analogous to the relationship of the Special Commissioner and the courts. In the "bad old days" before the Arbitration Act 1979, the special case procedure made separation of fact and law essential and gave rise to many difficulties. Since 1979 arbitration appeals have become more similar to Revenue appeals and have become much less technical than they were, but it is still essential that the court does not trespass on the fact finding role of the arbitrator. Since leave to appeal can only be granted on a question of law, no leave is likely to be granted unless the arbitrator has been made aware of the point of law sought to be argued so that he can find the relevant facts of the case in the proper context. Decisions as to the granting or refusal of leave are not now reported so there is little recent authority but there is pre-1979 authority that is still relevant.
84. Thus in Sinason-Teicher Inter American Grain Corporation v. Oilcakes & Oilseeds Trading Company Ltd [1954] 1 WLR 935, 942 a new point, not submitted to the arbitrator, was sought to be raised before the court and Devlin J said (page 382):-

". . . it is plain that it was not taken below in the sense that the committee's attention was never directed to the question of whether they should apply their minds to what was a reasonable date on the basis of September 16. They applied their minds entirely on the basis of September 10. It is important in these cases that people who are going to argue points of law before the Court should get the facts found which they want for the purpose of arguing the point of law they want to submit to the Court . . ."

So also in Aruna Mills Ltd. v Dhanrajmal Gobindram [1968] 1 Lloyds Rep 304, Donaldson J said (page 312):-

"It is the duty of parties to an arbitration who desire to raise questions of law for the decision of the Court to make plain to the arbitrators all the points on which they wish the facts to be found for the purpose of arguing the questions of law".

85. These citations show that Pittalis v Grant cannot be regarded as authority for the proposition that, even where the facts of the case are within the exclusive domain of a tribunal such as an arbitrator or the Special Commissioner, parties can argue new points when they arrive at the court. It would only be if it is impossible to conceive that the facts would have been found any differently by the fact-finding tribunal that it will be appropriate to allow a new point of law to be argued in court whether that court is a court of first instance or an appellate court. Lawrence Collins J was not, in fact, asked to entertain the new point espoused by Mr Prosser QC. This court cannot now be expected to entertain what my Lord has called the second of the new points for the first time.

Mr Justice Lindsay:

86. I agree with the judgment of Chadwick LJ and add only two short points. The first is by way of a follow up to the analogies drawn by Longmore LJ from pre-1979 arbitration authorities and practice. Another area – doubtless there are several - where appeal is only permitted on the law is to be found where there is an appeal from an Employment Tribunal to the Employment Appeal Tribunal. In Jones v Governing Body of Burdett Coutts School [1998] IRLR 521 CA the judgment of Robert Walker LJ, with which Morritt and Stuart-Smith LJJ agreed, contains at and after its paragraph 19, a collection of and comment upon authorities (not limited to employment authorities and some of which are more recent than 1979) as to the proper approach of an appellate court where, on an appeal in that area, it is sought to raise a point of law, even one "plainly right", which had not been raised or had been raised but conceded at the fact-finding level.
87. The second point I raise is by way of yet further support for Chadwick LJ's conclusion, at [75] above, that the Article 43 EC Treaty point cannot be said to be a point of pure law, one not dependent on the evidence. Plainly there are many forms which restriction on freedom of establishment can take but the one which would be relevant here would be where there exists some factor likely to be materially dissuasive of a transfer by a resident of one Member State of a holding of shares in a company incorporated in that Member State to a company incorporated in another Member State. So far as concerns that broad class of restriction on freedom of establishment (in contrast to restriction on the free movement of capital) it is a requirement, if the notion of freedom of establishment is to be engaged at all, that the quality or quantity of shares transferred was to be such that the transferee, by reason of the transfer, would gain at least two things relative to the company whose shares were being transferred. Firstly, the shareholding transferred has to give its holder "definite influence over that company's decisions" and, secondly, should allow him "to determine its activities" – see de Baeck v Belgische Staat, a decision of the ECJ, Second Chamber, of 8^th June 2004 – see paras 21 and 25. It is not enough that the transfer of shares should have been made "less attractive"; those two conditions are required to be satisfied. That, surely, could only be held to be the case if there were to be an investigation, not as to domestic deeming, but into the facts, at any rate where, as here, there is, at lowest, room for real doubt as to whether the transferee's shares, in the light of the terms of the bond and the Special Commissioner's findings at his paragraph 15 – see para [12] above – gave it or were intended to give it both that "definite influence" and were such as to allow the transferee "to determine the activities" of the company whose shares were transferred. There was no such investigation nor, for my part, could I say that it was incontestable that the only outcome, had there been one, could have been that the two conditions would have been held to have been satisfied.
88. I, too, would make the order proposed by Chadwick LJ in his paragraph 80.

Note 1   The order of 29 March 2006 appears, on its face, to have been made by Lord Justice Rix and Lord Justice Neuberger; but it is common ground that Lord Justice Neuberger was not a member of the constitution.    [Back]

Note 2   Note: Although the special commissioner referred, at paragraph 18 of his decision, to “the direction from the Underlying Company” as the immediate cause of the acquisition by Irish Life of Lazerman and Motion, it is clear that he intended to refer to the direction from the directors of the Bondholder (Morkend or Cannock).     [Back]