Graham Chisnall & Ors v The Commissioners for HMRC

the Stock Exchange; and

any such stock exchange outside the United Kingdom as is for the time being designated for the purposes of this section as a recognised stock exchange by order made by the Board.

the lower of the 2 prices shown in the quotations for the shares or securities in The Stock Exchange Daily Official List on the relevant date plus one-quarter of the difference between those 2 figures, or

halfway between the highest and lowest prices at which bargains, other than bargains done at special prices, were recorded in the shares or securities for the relevant date,

choosing the amount under paragraph (a), if less than that under paragraph (b), or if no such bargains were recorded for the relevant date, and choosing the amount under paragraph (b) if less than that under paragraph (a).

There is no reason in principle why the Foulser Category 1 jurisdiction should be confined to alleged abuses of process occurring after the commencement of proceedings. It is a jurisdiction to protect the fairness of the proceedings, not merely a jurisdiction with respect to parties’ conduct in the proceedings. The fairness of the proceedings can be affected by conduct occurring before proceedings were commenced.

Foulser itself was not concerned with conduct of HMRC prior to the commencement of the Tribunal proceedings in that case, and does not address the question.

In Alway Sheet Metal Limited v Revenue & Customs [2017] UKFTT 198 (TC), [2017] SFTD 719 (“Alway Sheet Metal”), the Tribunal expressly stated, twice, that it had jurisdiction to consider the argument that delay by HMRC in making the decision under appeal meant that the appeal could not be dealt with fairly and justly (at [101] last sentence and [105] first two sentences). However, the Tribunal found that in the circumstances of that particular case, it was not appropriate to exercise that jurisdiction (at [105] third sentence, [106] fourth sentence, and [109]). There is an obvious difference between the Tribunal lacking jurisdiction, and the Tribunal declining to exercise, in the particular circumstances of an individual case, a jurisdiction that it does have.

It is true that in Alway Sheet Metal, the Tribunal said that the appellant was “not making any complaint as to how HMRC have conducted the litigation from the point at which the appellants notified their appeals to the Tribunal”, and that he was “therefore asking the Tribunal to punish HMRC for what the appellants consider to be unacceptable delay before Tribunal proceedings were commenced” (at [106]). However, the Tribunal did not say that it could never be appropriate to exercise powers to remedy unfairness in situations where conduct by HMRC prior to the institution of proceedings has caused unfairness in the proceedings. Rather, the Tribunal was thereby indicating only that it was not appropriate to do so in the circumstances of that case, presumably because no particular unfairness in the proceedings themselves had been identified. At most, the Tribunal thereby indicated that delay in making the decision under appeal will not of itself necessarily cause unfairness in the proceedings, and that in the absence of any claim of unfairness in the proceedings, any request for a remedy in respect of such conduct becomes a Foulser Category 2 case.

The Upper Tribunal reached the same conclusion in Hackett, in which the appellant also sought a remedy in respect of conduct of HMRC occurring before the commencement of the Tribunal proceedings. The Upper Tribunal said at [44] (first sentence) that the appellant had to establish that the abuse of process complained of fell within Foulser Category 1 (that is to say, that it directly affected the fairness of a hearing before the Tribunal). It further found at [46] (first sentence) that it had not been persuaded that any abuse by HMRC prior to the commencement of proceedings in that particular case had directly affected the fairness of the proceedings before the Tribunal. In the absence of any identified abuse affecting the fairness of the proceedings, the request for a remedy became a Foulser Category 2 case (at [46] (second sentence); also at [43] explaining Alway Sheet Metal). The Upper Tribunal did not find that an abuse by HMRC prior to the commencement of Tribunal proceedings could never affect the fairness of the Tribunal proceedings, or that an abuse by HMRC prior to the commencement of Tribunal proceedings that affected the fairness of the proceedings, if established, would be solely a Foulser Category 2 case rather than a Foulser Category 1 case.

In Nuttall v HMRC [2022] UKFTT 192 (TC) (“Nuttall Abuse Decision”) at [24], HMRC “accepted that as a matter of principle, conduct complained of before the proceedings commenced could in an appropriate case give rise to an abuse of process falling within category 1”. The Tribunal said in that case at [23] that it was difficult to see why that should not be the case. It indicated at [22] that it did not consider Hackett to have decided the contrary.

The Appellants’ contention is that certain persons involved in the flotation of the companies, and/or who were involved in the Appellants’ investments in these companies, are no longer available to give evidence about the opinions that they held and calculations they made around the time of the flotations as to the future prospects of the companies and the value of the shares.

However, the Appellants have not established that any such evidence would be of potential relevance to the determination of the market value of the shares of an AIM-listed company on the date of flotation or admission to AIM, let alone on dates thereafter. The mere fact that the Appellants consider such evidence to be potentially relevant does not make it so. The Appellants have not for instance adduced any expert evidence stating that such evidence would be relevant to the determination of the market value of the shares.

Insufficient evidence has been presented by the Appellants to establish a significant likelihood that they could and would have obtained this evidence and sought to use it in the proceedings if the closure notices had been issued within a reasonable time. Nor is the Tribunal persuaded by the evidence presented by the Appellants that they have, since the closure notices were issued, made all reasonable efforts to obtain this evidence and failed, or that they could not with reasonable efforts have obtained some or all of this evidence.

The Appellants have also not established that delay in issuing the closure notices has prevented them from obtaining adequate alternative evidence of the market value of the shares on the material dates, for instance by means of an expert valuation report. The Appellants contend that an expert valuation report would be expensive. The Tribunal accepts this, given that HMRC appear to be of a similar view (see paragraph 66(3)(c) below). However, there would presumably also have been costs to the Appellants in obtaining and marshalling evidence from the persons referred to in sub-paragraph (a) above. The Appellants have not presented sufficient evidence to establish that alternative evidence would be so much more expensive as to render the proceedings unfair if they are forced to rely on it.

Even if the Appellants could establish some unfairness, they have not established that an order debarring HMRC from defending the proceedings would be the only way to secure fairness in the proceedings. Even assuming that the Foulser Category 1 jurisdiction includes a power to make a debarring order of the kind sought by the Appellants in this case, the exercise of this power would be justified only where no lesser order would meet the justice of the case (Foulser at [64]).

The Tribunal does not accept the Appellants’ suggestion that HMRC is in breach of a duty to disclose to the Appellants all material relevant to the valuation of the shares that is or has been or should have been in HMRC’s possession. (At the hearing, the Appellants argued for instance that “it does appear that the respondents at some stage had such material. … Where is it? Has it been preserved? Why is there no explanation as to its non-production?”)

It is for the Appellant to prove the value of the shares. The Tribunal does not accept the Appellants’ contention that “the party making the inquiry [HMRC] with the power to compel production of material, which the appellants would never have had, … is inevitably under a duty to carry out its inquiries efficiently, expeditiously and with a view to making sure it secures material which is relevant”.

All parties positively contend that the closure notices are wrong.

HMRC disavow, and the Appellants dispute, the valuations on which the closure notices are based. Counsel for HMRC expressed a preference for the Tribunal not to even look at those valuations because the parties do not rely on them and they have not been tested in cross-examination.

Although the Tribunal has a full appellate jurisdiction to determine the market value for itself, and may reach a conclusion that differs from that contended for by any of the parties, it must base its decision on the evidence in the proceedings.

At the hearing, all parties themselves agreed that this Tribunal cannot rely on findings of fact made by differently constituted Tribunals in other cases, or on evidence that was before Tribunals in other cases but is not before this Tribunal in the present proceedings.

Such prices are “information which a prudent prospective purchaser of the asset might reasonably require” within the meaning of s 273(3) TCGA. In oral evidence, Mr Cook said that a prudent potential purchaser of shares in an AIM-listed company “will look at what trades there have been”, and agreed with the proposition that it would “be entirely reasonable and consistent with how investors actually act to look at the price, to see whether it is going up or down”.

Section 272(3) and (4) TCGA appear to assume that but for these provisions, the prices at which shares trade on any stock exchange would in any event be important information in determining the market value of those shares. The apparent purpose of these provisions is to extend that assumption even further in the case of companies listed on The Stock Exchange Daily Official List (“SEDOL”), by making the quoted price conclusive other than in specified exceptional cases, and by determining how the SEDOL quoted price for a given day is to be determined.

AIM is part of the London Stock Exchange, and, in the words of Mr Cook in oral evidence, “No one is saying it’s an illegitimate market”.

No authority has been identified for the proposition that, as a matter of law, in the determination of the market value of shares listed on AIM, the prices at which shares have traded are to be ignored.

Other evidence may show that the prices at which shares traded on the stock market are of little value in determining their market value, or even of no value at all.

However, it is not the case, as HMRC appear to contend, that any expert valuation report must inevitably have more evidential weight than the prices at which shares actually trade on AIM, or that any expert valuation report must inevitably be accepted as better evidence unless the Tribunal finds that absolutely no weight at all can be attached to the expert report.

The fact that a proposed expert witness is an employee of one of the parties generally means that they have an actual or apparent interest in the outcome of the proceedings. However, the existence of such an interest does not automatically render the evidence of the proposed expert inadmissible. The decision as to whether a proposed expert witness with such an interest should be permitted to give evidence is a matter of fact and degree, having regard to the nature and extent of the interest or connection. (See Gallaher International Ltd v Tlais Enterprises Ltd (No. 2) [2007] EWHC 464 (Comm) (“Gallaher”) at [82] quoting Armchair Passenger Transport Ltd v Helical Bar Plc & Anor [2003] EWHC 367 (QB) (“Armchair”) at [29].)

The Tribunal is satisfied that Mr Cook has sufficient relevant expertise to be permitted to give evidence as an expert (Gallaher at [82] quoting Armchair at [29]).

The Tribunal is satisfied that Mr Cook is aware of his primary duty to the Tribunal and is willing and able despite his connection with HMRC to carry out that duty (Gallaher at [82] quoting Armchair at [29]). In particular, in his written reports, he confirms that he understands that duty.

In relation to Frenkel Topping, HMRC have not sought to explain why the Cook Report is more reliable than the Weaver Report.

In relation to Vista, HMRC have not sought to explain why the Cook Report is more reliable than the Taylor Report.

The fact that an expert witness is an employee of one of the parties may affect the weight to be given to their expert evidence. This may be so, whether or not the circumstances of the case satisfy the legal test for apparent bias (Gallaher at [88], Armchair at [65]; Field v Leeds City Council [1999] EWCA Civ 3013 at [31] May LJ).

Mr Cook works in HMRC’s SAV. Various members of SAV have participated in HMRC’s work on cases involving claims for tax relief for gifts of shares to charity.

Mr Cook said in cross-examination that he did not make enquiries about previous valuations by SAV in relation to Frenkel Topping and Vista shares “because that would immediately compromise my independence”, and that “it would be frankly idiotic for me to have done that”. He said that “I have been at pains really to avoid chatting about this work, this specific work with anyone in my office”.

Nevertheless, the Cook Reports make clear that Mr Cook was aware of the contents of the decision in Netley. Mr Cook was thus aware that the position of HMRC in that case was that the market value of Frenkel Topping shares on 28 July 2004 was 6.6 pence per share. He thus also knew that the Tribunal in that case rejected the HMRC valuation, and found that the shares had on that date a market value that was some two and a half times as much. His instructions received from HMRC then expressly asked him when preparing his valuation “not to use the Netley decision as a starting point”.

The Tribunal takes into account that the Appellants themselves dispute the valuation in the Weaver Report, and in no way suggest that the valuation in Netley should be treated as the starting point in the present case. However, the issue is not whether the valuations in Netley or in the Weaver Report is correct. The issue is whether the above circumstances affect the evidential weight to be given to the evidence of Mr Cook.

There is no suggestion that suitable experts in this area so scarce that HMRC are required to rely on their own employees to give expert evidence (compare Gallaher at [87]). It appears that HMRC have in these proceedings asked an employee to act as expert due to the high cost of independent experts, rather than their unavailability (see paragraph 66(3)(c) below). However, the Tribunal is not satisfied that cost implications leave HMRC with no reasonable alternative. There are presumably ways for HMRC to mitigate such costs (such as through the instruction of joint experts, or through hearing more cases together, or through a greater use of the lead case mechanism).

Furthermore, the Tribunal is not satisfied from the explanation given that HMRC could not have relied on Mr Weaver as the expert in these proceedings. He was HMRC’s expert witness in Netley. He prepared the Weaver Report as an independent external expert. Furthermore, even if there was a need for a further expert report, it is not apparent why HMRC felt the need to instruct the expert expressly “not to use the Netley decision as a starting point”. HMRC could have left it to the expert to determine what would be the appropriate starting point for a valuation.

The Tribunal finds that the above matters, considered cumulatively with the matters in paragraph 66(1) above, seriously diminish the evidential weight to be given to Mr Cook’s expert evidence. Although it is unnecessary to determine whether the legal test for apparent bias is satisfied, the Tribunal finds that these cumulative circumstances would lead a fair-minded and informed observer to conclude that there is a real possibility that the Cook Report on Frenkel Topping is biased in favour of the position taken by HMRC in Netley that the shares had on 24 July 2004 a significantly lower value than 17.5 pence per share.

The Tribunal emphasises that it makes no finding of actual bias on the part Mr Cook, and does not question his professionalism in any way. The finding is one of apparent bias in the Cook Report (not on the part of Mr Cook personally) based on the totality of the circumstances.

Absent any evidence to the contrary, the Tribunal accepts that a valuer, in order to value an AIM listed company, does not necessarily need to be an expert in AIM, or have specific training in the valuation of AIM-listed companies. However, in view of the matters in paragraph 66(1) and (2) above, the extent of Mr Cook’s expertise in relation to AIM-listed companies assumes some relevance.

If Mr Cook had particular expertise in valuing AIM-listed companies, that might for instance have provided some explanation as to why HMRC chose to instruct him rather than to use an independent outside expert, or might have explained why HMRC considered his report to be more reliable than the Weaver Report or the Taylor Report.

However, Mr Cook accepted in oral evidence that he cannot recall ever receiving any specific training in the valuation of AIM shares, or ever valuing the shares of an AIM-listed company, and said that those working in SAV are not generally required to value AIM shares. He also said that there is no HMRC manual giving guidance on valuing AIM shares, and that he is not aware of any such document produced by RICS. He said in oral evidence that “I am very conscious of not trying to sort of portray myself as some sort of AIM expert”, and that “the reasons why I have been brought into this case is that it costs a huge amount of money to pay for an independent expert witness”.

The Tribunal can accept as a matter of general principle that a lower volume of trading will result in lower reliability. However, the Tribunal should not simply make assumptions about what level of trading will result in what degree of reliability. This is in principle a matter for evidence or expert opinion. This question was addressed on the basis of evidence in Close v Revenue and Customs [2022] UKFTT 193 (TC) (“Close”) at [91] and in Dwan v Revenue and Customs [2022] UKFTT 36 (TC) at [36]-[37].

In some cases, it may be possible for a Tribunal to form its own conclusion on this issue based on the evidence as a whole, even though no evidence deals specifically with the issue as such. The finding in Netley at [247] that “trades on AIM in the period from 28 July 2004 to April 2005 … demonstrate[] a very thin market on which little reliance can be placed” was a finding based on the evidence in that case.

However, the Tribunal cannot be expected to form a view on the issue in a given case in the absence of any (expert) evidence to which the Tribunal attaches significant weight that provides a basis for that view.

Given its conclusions as to the weight to be attached to Mr Cook’s evidence, the Tribunal is not prepared to find on the basis of that evidence that the prices at which the shares traded are of no value in determining market value. The Tribunal accepts that these prices are of less value than they would be if the volume of trading had been higher. The Tribunal cannot go further than that on the evidence available in these particular proceedings.

Both parties agree that the Tribunal cannot adopt or rely on findings of fact in other cases based on evidence that is not before the Tribunal in these proceedings. The Tribunal therefore cannot rely on findings of fact in other cases that volumes of trading in shares was too thin to be a reliable indicator of market value.

HMRC accept that the share prices have not been affected by tax avoidance motives or market manipulation (see paragraph 40 above).

There is no suggestion that the businesses acquired by Frenkel Topping and Vista were anything other than legitimate and established businesses.

Although the HMRC skeleton argument sets out in detail the history of the flotation of these two companies (involving the establishment of cash shells to which investors subscribed, and which subsequently acquired existing businesses and listed on AIM), it ultimately forms no part of HMRC’s case in these proceedings that there was anything unusual or improper about any aspect of the flotations that is material to the question that the Tribunal must decide.

Although there were fluctuations in the prices of Frenkel Topping and Vista shares throughout the relevant period (see paragraph 42 above), there has been no suggestion that these were so great or so erratic as to make it implausible that these prices could be a reflection of actual market value, or to make it impracticable to extrapolate from them the market value on dates on which there were no trades in these shares (see paragraph 43 above).