TC09562 - [2025] UKFTT 00762 (TC)

So far, in determining whether or not, after the Agreements became effective, it was CPW that was carrying on the Businesses as principal or BBUK that was carrying on the Businesses through CPW as its agent, I have focused exclusively on the legal rights and obligations to which the Agreements gave rise. It may be seen from the above analysis that, in my view, those legal rights and obligations were such that the former was the case.

That conclusion is in fact sufficient to render moot my conclusions in relation to Issue One and Issue Two because, even if I were to espouse Mr Gammie’s position on both of those issues, my conclusion would be that, based solely on a contractual analysis of the legal rights and obligations to which the Agreements gave rise, BBUK acquired no relevant interest in the Businesses as a result of the Agreements and therefore the purported sale of the Goodwill was invalid as an assignment “in gross”. Thus, CPW continued to retain the Goodwill and to carry on the Businesses as principal after the Agreements became effective.

However, as I concluded in dealing with Issue One, in determining whether CPW continued to own the Goodwill when it left the CPW Chargeable Gains Group, I need to view the facts realistically. Any realistic appraisal of the facts inevitably extends beyond the legal rights and obligations to which the Agreements gave rise into other matters, which I identify below.

In my view, the other matters in this case all serve to confirm the conclusion that I have reached above. For instance:

There are certain other matters which I consider to be relevant in reaching a realistic view of the facts in this case.

First, Dixons confirmed in the Dixons Letter that none of the employees and none of networks had been informed of the transfer of the Businesses by CPW to BBUK. Whilst it is possible for a person not to disclose to third parties that it is acting as an agent for an undisclosed principal, it is unusual, to say the least, for that absence of disclosure to extend to the agent’s own employees. Moreover, the failure to inform the employees of something as significant as ceasing to carry on the Businesses as principal and starting to carry them on as agent for another company instead is not consistent with the statement in each of the CPW 2008 Accounts and the CPW 2009 Accounts referred to in paragraphs 39(1) and 40(3) above. Putting the position at its weakest, the absence of any disclosure to the employees and the networks in this case is entirely consistent with the conclusion that responsibility for carrying on the Businesses had not moved as a result of the execution of the Agreements and that it was CPW and not BBUK which carried on the Businesses after the Agreements became effective.

Secondly, the nature of the relationship between CPW and BBUK throughout the process needs to be taken into account. It is common ground that, although the Agreements were executed on 25 June 2008 and CPW did not leave the CPW Chargeable Gains Group until 30 June 2008, when the CPW Group sold 50% of the issued share capital of BBED to Best Buy Distributions Limited, that sale was achieved by the parties’ entering into a conditional sale and purchase agreement on 7 May 2008 which took effect only on 30 June 2008. What this means is that, at the time when the Agreements were executed, although BBUK was technically not part of the same chargeable gains group as CPW, both groups had already committed themselves to forming a joint venture which would include both CPW and BBUK.

I consider that this is relevant to a realistic view of the facts in this case because, at the time when the Agreements were executed and became effective, although the two companies were technically unconnected, it was known that they were highly likely to become connected within a matter of days. In my view, this would have informed the reasons why the Agreements were executed and the terms to which the parties agreed in entering into the Agreements. It was in both companies’ interests that CPW should be able to avoid a charge in respect of the Goodwill under Section 179(3) when it left the CPW Chargeable Gains Group but, apart from that, there was no commercial imperative to the transaction between them. From the commercial perspective, leaving aside the tax consequences, it was a matter of no concern to the parties whether, once the Agreements took effect, the Businesses were carried on by CPW as principal or by CPW as agent for BBUK. Both companies were members of the joint venture group. As such, it would be wrong to view the transaction which was effected by the Agreements as an entirely arm’s length arrangement.

The fact that both companies were members of the same joint venture group at the time when the Side Letter was executed also explains the somewhat peculiar terms of the Side Letter. At the time when the Side Letter was executed, the two companies had been in the same joint venture group for some eighteen months. As I have already noted, with the exception of the retrospective adjustment to the management fee, the Side Letter purported merely to set out the intentions of the parties in entering into the MSA. There is no evidence of those intentions in the terms of the Agreements themselves and it is unclear how the parties expected the Side Letter to apply as a contractual matter.

More significantly, the Side Letter provided for CPW to receive a reduced fee for its services (with retrospective effect) but did not provide for CPW to receive any consideration for agreeing to that change. That was not remotely arm’s length. At the hearing, Mr Gammie pointed out that clause 5.3 of the MSA had anticipated that the parties might subsequently adjust the management fee payable to CPW by agreement and that it was not uncommon for parties to an arrangement for the provision of services who were dealing at arm’s length to change the terms of the arrangement after the arrangement had been operating for a period of time. I agree that it is not uncommon for parties to an arrangement involving the provision of services to renegotiate the terms on which the services are being provided but only where the alteration in those terms is in return for an arm’s length consideration. Indeed, as Chadwick LJ pointed out in BJ Aviation Limited v Pool Aviation Limited [2002] EWCA Civ 163 at paragraph [22], where an agreement provides for the parties to agree something at a future date, there is no obligation on either party even to negotiate in good faith as regards that outstanding matter. I can therefore see no reason why, in the absence of the connection between the two companies, CPW would have agreed to the retrospective reduction in its management fee without receiving consideration of equivalent value from BBUK in return.

At the hearing, there was some debate between the parties as to the relevance of the fact that the transaction had no commercial imperative but was implemented for the purpose of enabling CPW to avoid a charge to tax under Section 179(3) in respect of the Goodwill. Mr Gammie said that this was not relevant to the analysis in any way because the only question to be answered was whether the consequence of the legal rights and obligations to which the Agreements gave rise was that CPW had ceased to own the Goodwill. Mr Brinsmead–Stockham said that the underlying purpose of the transaction was relevant to the analysis because it was one of the facts to be taken into account in reaching a realistic view of the facts.

I agree with Mr Brinsmead–Stockham that the purpose of the transaction is relevant in reaching a realistic view of the facts. I also agree with Mr Gammie that there is nothing inappropriate in a transaction which is designed to avoid a charge to tax under Section 179(3) in respect of an asset that has been the subject of an intra–group transfer by ensuring that the asset is no longer held by the transferee company at the time when it leaves the group.

I would therefore put the position this way.

If, on an analysis of the legal rights and obligations to which the Agreements gave rise, the proper conclusion were to be that CPW in this case had actually disposed of the Goodwill and Businesses before it left the CPW Chargeable Gains Group, then the fact that that actual disposal had been motivated solely by a desire to avoid a charge to tax in respect of the Goodwill under Section 179(3) would not prevent CPW from avoiding that charge to tax.

However, for all of the reasons set out above, my view is that that is not what CPW chose to do in this case. Instead, of actually disposing of the Goodwill and the Businesses, the effect of the transaction into which it entered was to leave it holding the Goodwill and the Businesses. The reason why CPW chose to implement the transaction in the way it did is that it did not really want to make an actual disposal of the Goodwill and Businesses. Had it wanted to do so, it could easily have achieved that outcome by the simple expedient of entering into a business and asset sale and purchase agreement with BBUK in a similar form to one of the Prior SPAs. Instead, CPW wished to avoid the charge without having to make that actual disposal and that, in my view, is a relevant matter to be taken into account in reaching a realistic view of the facts.