Ingenious Games LLP & Ors. v The Commissioners for HMRC

This is an application under CPR r 52.30(4) for permission to make an application under CPR r 52.30(1) to reopen the refusal of permission to appeal.

Having heard this morning from Mr Jonathan Peacock QC (who appeared with Mr Richard Vallat QC and Mr James Rivett QC for the Appellants) we announced that we did not need to hear from Mr Jonathan Davey QC (who appeared with Mr Michael Jones QC, Mr Nicholas Macklam and Mr Sam Chandler for the Respondents (“HMRC”)). That was on the basis that we were satisfied that permission should be refused. I now give my reasons for agreeing to that course.

This is a further round in the litigation as to the tax treatment of various Ingenious entities. The Appellants are three LLPs, Ingenious Games LLP, Inside Track Productions LLP and Ingenious Film Partners 2 LLP, the latter two of which were involved in film finance schemes and the first in a similar scheme involving video games. I will refer to them as “the Film LLPs” and “the Games LLP” respectively and to the three of them as “the LLPs”.

It is not necessary to give any account of the background. The parties are very familiar with it and anyone else who is interested can refer to the four decisions which are publicly available, namely two decisions of the First Tier Tribunal (“the FTT”) at [2016] UKFTT 521 (TC) and [2017] UKFTT 429 (TC), that of the Upper Tribunal (“the UT”) at [2019] UKUT 226 (TCC), and that of this Court at [2021] EWCA Civ 1180. For present purposes it is sufficient to say that the FTT decided among other things that, on a true analysis of what the LLPs did, their operations were conducted on the so-called 30:30 basis, not the Ingenious basis, and that on that basis the Film LLPs, although not the Games LLP, were trading with a view to profit. The UT agreed with the contractual analysis of the FTT, although their reasoning was not quite the same. But they held that none of the LLPs was trading on that basis, nor had a view to profit.

The LLPs then applied for permission to appeal to this Court. That was a second appeal, to which the Appeals from the Upper Tribunal to the Court of Appeal Order SI 2008/2834 (“the Appeals Order”) applied. The Appeals Order was made under s. 13 of the Tribunals, Courts and Enforcement Act 2007, and Article 2 of that Order reads as follows:

“Permission to appeal to the Court of Appeal in England and Wales ... shall not be granted unless the Upper Tribunal or, where the Upper Tribunal refuses permission, the relevant appellate court, considers that—

(a)

the proposed appeal would raise some important point of principle or practice; or

(b)

there is some other compelling reason for the relevant appellate court to hear the appeal.”

The application for permission came before Arnold LJ. Seven grounds of appeal were relied on. By his Order dated 24 February 2020 he granted permission on Grounds 1 (view to profit) and 3 (trading) on the basis that both had a real prospect of success and raised important points of principle. On the other grounds, that is Grounds 2 and 4 to 7, he refused permission. I should read the reasons that he gave in his Order:

“Ground 2 (contractual construction): although their reasoning was slightly different, both the FTT and the UT came to essentially the same conclusions. Contrary to the Appellants’ contention, the UT reached its conclusions applying conventional principles of contractual construction. (As the UT held and the Appellants accept, Ramsay does come in, but at the stage of considering whether the LLPs were trading.) I am doubtful whether the Appellants have a real prospect of success on the construction issues, but in any event this ground raises no important issue of principle or practice.

Ground 4 (incurred): this depends on the Appellants being correct on ground 2. In any event, the FTT and UT reached concurrent conclusions applying what is now a fairly well-established test. This ground has no real prospect of success, and in any event it raises no important issue of principle or practice.

Ground 5 (wholly and exclusively): again, this depends on the Appellants being correct on ground 2. In any event the FTT and UT reached concurrent conclusions applying a very familiar and well-established test. This ground has no real prospect of success, and in any event it raises no important issue of principle or practice.

Ground 6 (GAAP): again, this depends in part on ground 2. In any event, this issue was a matter for the FTT’s evaluation of the expert evidence having heard the experts. Moreover, the UT has upheld that evaluation, rightly concluding that the FTT had carefully discharged its task. The Appellants’ challenge to those conclusions has no prospect of success.

Ground 7 (capital or income): again, this depends at least in part on ground 2. This ground has no real prospect of success, and in any event it raises no important issue of principle or practice.”

The appeal on Grounds 1 and 3 was then heard over six days by this Court. In its judgment handed down on 4 August 2021 the Court (Henderson and Phillips LJJ and Sir David Richards) dismissed the appeal of the Games LLP but allowed the appeals of the Film LLPs on both Grounds 1 and 3, holding that they were trading with a view to profit. Subject to an outstanding application by the Games LLP for permission to appeal to the Supreme Court, that is a final determination of these issues.

By this application, the LLPs seek to reopen Arnold LJ’s dismissal of permission to appeal on Grounds 2 and 4 to 7 under CPR r 52.30. It is not necessary for the purposes of this short permission judgment to conduct an exhaustive analysis of the principles applicable to such applications. They have been repeatedly considered and restated by this Court in numerous judgments. It is sufficient to make the following points:

In these circumstances, we asked Mr Peacock in what respect the process before Arnold LJ could be said to have gone wrong. He said Arnold LJ had failed to grasp the inter-relationship of the various issues. But I do not think this is a sustainable criticism. A judge dealing with an application for permission to appeal is necessarily bound to grapple with the arguments put before him or her by way of the Grounds of Appeal and the skeleton argument. In the present case, the key question is the way in which Arnold LJ dealt with Ground 2. That is because if he was entitled to refuse permission on Ground 2 I do not think that the decisions on Grounds 4 to 7 can be faulted as they were all presented to him in the skeleton argument as dependent more or less on the UT’s view on contractual construction which was the subject of Ground 2.

Thus in the skeleton argument it was said of Ground 4 (incurred):

“The UT’s impermissible approach to the contracts also led the UT to decide that the LLPs had not incurred 100% of the budgeted costs of the film.”

Of Ground 5 (wholly and exclusively), the skeleton said:

“This issue must be considered on the premise that the LLPs incurred 100% of the budgeted cost of the films in the course of a trade carrying on with a view to profit (because this is the only case in which the point is relevant).”

Of Ground 6 (GAAP), it was said:

“The UT’s rejection of the LLP’s accounts in the expert evidence rested on (i) the UT’s impermissible approach to the contracts…”

Of Ground 7 (capital or income) it was said:

“The UT’s conclusion that the expenses incurred by the LLPs on making the film were capital rests on the UT’s impermissible approach to the contracts…”

In those circumstances, the key question is whether anything went wrong with Arnold LJ’s treatment of Ground 2. The very highest that Mr Peacock put his case on this was that the UT’s underlying error on contractual construction was to allow its erroneous perception of the trading with a view to profit questions to infect its consideration of contractual construction and so Ground 2 was all bound up with Grounds 1 and 3.

I have very considerable doubts whether this is a sustainable characterisation of the UT’s decision. The UT first decided the construction question at length and in detail and, as Mr Peacock eventually accepted in oral argument, this was a decision by them, and not merely obiter comments. The treatment of these issues extends from [79] to [163] in the main decision, and from [564] to [634] in the Appendix. It was only once they had dealt with the questions of construction that they went on to consider the questions of trading and view to a profit. That, as I put to Mr Peacock in argument, seems to me not only what they did but logically the only way in which they could properly have approached the questions, because one cannot ask the question whether someone is trading with a view to profit until you know what it is they are in reality doing. As the UT themselves said at [46] of their decision:

“The LLP’s Ground 1 [which was the contractual construction ground] feeds into their arguments on all of the issues. Therefore, after reaching some general conclusions as to the construction of the contractual documents, we shall apply our conclusions on the relevant contractual issues that arise when considering each of the issues in turn.”

But it is not necessary to consider that in any great detail. Even putting Mr Peacock’s case at its highest, the critical question for present purposes is whether Arnold LJ understood the way in which the case was being put before him. The way in which Ground 2 was characterised in the skeleton argument put before him was in summary as follows:

“The UT’s conclusions on these contracts were incorrect as a matter of interpretation and (in relation to several issues) impermissibly adopted a “Ramsay” approach to contractual construction. In construing the contracts to determine the legal rights of the parties, the UT ignored aspects of the contracts which it viewed as not “substantive” or lacking “commercial reality” (see e.g. UT [158]). It may be open to the court to ignore such matters when deciding whether a transaction answers a statutory description (i.e. on the Ramsay basis properly applied); it is not open to the court to rewrite the commercial deal between the parties at the necessarily prior stage of establishing what the deal was…”

Then later:

“…if and insofar as the UT decided any issue of contractual construction against the LLPs on what it considered to be a “realistic” view of the facts (i.e. a Ramsay approach), the UT committed an error of law: Ramsay is a principle of statutory, not contractual, interpretation.”

Nowhere is it said in that skeleton that the UT’s decision as to the contractual construction issues which were the subject of Ground 2 was infected by their erroneous decisions as to trading and with a view to profit raised by Grounds 1 and 3. Nowhere is it said that if permission to appeal were granted on Grounds 1 and 3, then it should necessarily be granted on Ground 2 because favourable conclusions on these issues would undermine the UT’s decision on construction which was the subject of Ground 2. I therefore reject the submission that there is any material before the Court to support the proposition that the process before Arnold LJ was corrupted or came anywhere close to being within the very narrow set of circumstances in which CPR r 52.30 can be properly invoked.

That is sufficient to dispose of the present application for permission. But I add two further matters.

Firstly, one of the points taken by HMRC was that there was an unreasonable delay in making the present application. Arnold LJ’s decision on permission to appeal was made at the end of February 2020, the appeal was heard over six days in March 2021, and the judgment of the Court of Appeal was handed down on 4 August 2021. This application however was not brought until 11 March 2022, over seven months later.

The question is whether that application should have been brought before the substantive appeal was heard, that is between February 2020 and March 2021. Mr Peacock said No; that it was a pre-condition of an application under CPR r 52.30 that the decision could be said to cause injustice; and that this could not be said until it was known whether the appeal on Grounds 1 and 3 succeeded or not, as unless and until that had happened it could not be said that any injustice had been caused.

I unhesitatingly reject that submission. Where permission to appeal has been granted on some grounds but not others so that an appeal will take place in any event, an application under CPR r 52.30 on the basis that the refusal of permission on the refused grounds should be reopened must in my judgment be brought as soon as possible and (assuming of course that the relevant facts were then known to the applicants) well before the hearing of the substantive appeal so that if the CPR r 52.30 application succeeds there can be a single hearing of the appeal rather than two. This is particularly so if, as here, it is suggested that the refused grounds should have been permitted precisely because they were all bound up with the grounds on which permission to appeal was granted. Here the LLPs knew the terms of the limited permission granted by Arnold LJ in February 2020 and could at that stage have worked out the potential consequences were their appeal on Grounds 1 and 3 to succeed. It was in those circumstances wholly wrong in my judgment to keep the CPR r 52.30 application back until after they saw whether their appeal on Grounds 1 and 3 succeeded or not. I would have been prepared to refuse this application on that ground alone, although, for the reasons I have given, it does not in fact arise.

I add that even if there had been justification for waiting until the outcome of the appeal was known, it is very difficult to see any justification for delaying from 4 August 2021 to 11 March 2022 before bringing the application. It is true that CPR r 52.30 does not contain any specific time limits. That is understandable, as in some cases it may take a long time for matters justifying reopening to come to the attention of the applicant. But that does not mean that where the applicant does know the grounds on which he wishes to make his application he can be as leisurely as he likes about it.

The second point I would like to add is this. Mr Peacock pointed out that under the terms of Article 2 of the Appeals Order, which I read earlier, the question is whether the appeal raises an important point of principle of practice, not whether each ground does. That is true, and the same is true of the second appeals test for appeals from Court decisions under CPR r 52.7. It was suggested by Mr Peacock, somewhat faintly, that that meant that Arnold LJ was wrong to consider each of the grounds against this test.

I do not accept that. The Court has express power under CPR r 52.6(2)(a) when granting permission either under this rule, which is the rule for first appeals, or under CPR r 52.7, which is the rule for second appeals, to limit the issues to be heard. It is standard practice when considering an application for permission to appeal in a first appeal to consider whether each of the grounds has a real prospect of success, even though under CPR r.52.6 the rule is phrased by reference to whether the appeal has such a prospect. Similarly, it is standard practice when considering permission to appeal for a second appeal under CPR r 52.7 or under Article 2 of the Appeals Order to consider whether the grounds put forward should all be permitted to go forward to a full appeal. I see nothing wrong in the familiar practice of permitting some grounds to go forward on the basis they do raise an important point of principle or practice but refusing permission to appeal on other grounds on the basis that they do not. Of course, if the issues are all truly bound up together the Court may well allow grounds to go further even if, had they been viewed in isolation, it would have been difficult to say that they raised any important point of principle. But the Court is certainly not in my judgment obliged to permit all arguable grounds to go forward just because one of them, and hence the appeal as a whole, raises some important point of principle and practice.

Those are the reasons why I agreed that permission in this case should be refused.

For the avoidance of doubt we are agreed that permission should be given (if necessary) under paragraph 6.1 of the Practice Direction (Citation of Authorities) [2001] 1 WLR 1001 for our judgments to be cited, despite the fact that this application is (arguably) an application for permission to appeal and hence within the categories referred to in paragraph 6.2.

I agree that permission was rightly refused for the reasons given by my Lord.

I also agree.