UT (Tax & Chancery) UT-2023-000031 - [2024] UKUT 00168 (TCC)

The FTT stated at [176]:

Ms Nathan KC submitted that the FTT wrongly relied on Lord Hoffman’s speech in Investors Compensation Scheme v West Bromwich Building Society [1998] 1WLR 896 (“ICS”) in rejecting the relevance of the extra statutory materials on which the Appellant relied as an aid to construction.

She argued as follows. First, ICS concerned contractual construction, and the speech of Lord Hoffman is inapplicable to the different exercise of statutory construction. The correct approach to statutory construction is set out in UBS, upon which the Appellant relied. Further, Lord Hoffman did not criticise the use of extrinsic materials as an aid to statutory construction (he was not concerned with that in that case) or even contractual construction. In his speech, Lord Hoffman drew on documents extrinsic to the contract to construe the contract (see pp.910D-F and 913H-914A). Lord Hoffman stated, when interpreting a contract, the background against which the contract must be construed “includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man” (see p.913A).

Secondly, Ms Nathan KC contended that the Appellant was entitled to, and was correct to rely on extra-statutory materials as an aid to construction. Explanatory notes and government reports may be relied on to identify the mischief at which the legislation is aimed its purpose and meaning: Regina (O) v Secretary of State for the Home Department [2022] UKSC 3 at [30] (‘R (O)’). The FTT accordingly erred in disregarding the extra-statutory material relied upon by the Appellant (at [176]). In so stating, the FTT misunderstood and misapplied binding authority, such as R (O), where Lord Hodge stated at [30] that while extrinsic material cannot displace the clear words of the statute, “The context disclosed by such materials is relevant to assist the court to ascertain the meaning of the statute…”

Thirdly, she submitted that the FTT erred in failing to give the Appellant an opportunity to make submissions on the relevance and meaning of ICS. It is an error of law for a tribunal to rely on an authority in reaching its decision which it does not give the parties the opportunity to address, where that authority is central to the tribunal’s decision (in the sense of not being peripheral): Stanley Cole (Wainfleet) Ltd v Sheridan [2003] ICR 1449, at [31]; Lithuanian Beer Ltd v HMRC [2019] 1 WLR 627, at [33].

We reject the Appellant’s submissions.

Firstly, the Appellant has sought to undermine the Decision on the basis of the FTT’s reference to the case of ICS. There is nothing material in the point which assists the Appellant in his present appeal to the UT. The FTT referred to ICS once, fleetingly, in a single paragraph, on the penultimate page of the Decision subsequent to the FTT having already, emphatically, decided the substance of the case against the Appellant, it stated (Decision at [175]):

The reference to ICS then comes in the next paragraph (Decision at [176]) as part of a “concluding remark” in which the FTT refers correctly to the Appellant having provided the FTT with an “ample quantity” of “extrinsic material … deployed in aiding statutory construction”. This is consistent, with the Supreme Court’s recent statement in respect of the process of statutory interpretation including the observation that “[e]xternal aids to interpretation must … play a secondary role” (see Regina (O) v Secretary of State for the Home Department [2022] UKSC 3 at [28] and following including at [30]).

Secondly, the FTT addressed the Appellant’s submissions as to the legislative history of Schedule 13, FA 1996 at [121]-[122] and Annex 3 of the Decision:

The FTT then addressed the Appellant’s arguments as to the relevance of the extra statutory material – the parliamentary material and Explanatory Notes to the Finance Bills - at [123]-[126] and Annex 4:

The FTT returned to the topic of the Explanatory Notes at [133]-[135] concluding:

Therefore, on a fair reading of the Decision, it is clear that the FTT did adequately consider the materials cited to it by the Appellant. We agree with the FTT’s observation when refusing permission to appeal on this ground:

Thirdly, the Appellant’s representatives were given ample opportunity before the FTT, through both written and oral submissions, to make such points as they wished to make, about such materials as they wished to refer to, in contending for a particular construction of the legislation in question. The FTT read and heard those submissions, and considered those materials, and also read and heard HMRC’s submissions, and considered such other materials as were before it, and then produced a long and detailed Decision which engaged expressly with the Appellant’s submissions and the materials to which the Appellant had referred. The mere fact that the FTT did not take from the materials what the Appellant would have liked is not a basis for overturning the Decision. Finally, there was no debate before the FTT as to whether the Appellant should have the opportunity to refer the FTT to such materials as were in the FTT hearing bundle; it was their ultimate relevance and materiality that doubted, as stated at [176] of the Decision(“the extent and the relevance of extrinsic material being deployed…”). There was no procedural unfairness.

Ms Nathan KC took us at length through the following the same and additional extra statutory materials during the hearing: Inland Revenue Consultative Document, ‘The Taxation of Gilts and Bonds’ (May, 1995); Bank of England Consultative Paper, ‘Strips and new instruments in the Gilt-Edged Market’ (May, 1995); Annex A, Minutes of Evidence to the Treasury Select Committee, January 2000; Standing Committee B debate, 17 June 2003, Col 611 925; andExplanatory Notes to clause 181, Finance Bill 2003.

She relied on the fact that passages from these documents evidence that part of the legislative intent behind Schedule 13, FA 1996 in its various iterations was to encourage a market for gilts and the various provisions were not aimed at anti-avoidance. However, there was nothing contained within what Ms Nathan KC cites which supports her construction of paragraph 14A specifically or Schedule 13 generally: nothing which states or implies that the concept of “loss” or ‘amount payable on the transfer’ involves an artificial loss devoid of commercial or economic reality. The explanation for such absence in the materials is that the Appellant’s interpretation was not part of Parliament’s intent and the construction of the provisions applied by the FTT was the proper one.

We dismiss Ground 4.