Spring Capital Limited v The Commissioners for his Majesty's Revenue and Customs

This hearing was listed as a Case Management Hearing on a number of issues and an outstanding application from HMRC to exclude two witness statements.

I had written submissions from both parties. Numerous documents had been lodged with the Tribunal by both parties but the key Bundles were the Hearing Bundle extending to 208 pages and the Authorities Bundle extending to 298 pages.

Although the appellant’s application for a sist of the proceedings in the appeals had been opposed, of consent, it was agreed that a sist should be granted. It was agreed that the Directions issued after this hearing, would take effect from the date upon which the proceedings brought by the appellant in the Court of Session under case reference COS-A215-25 seeking declarator to the effect that the appellant may rely upon the terms of an undertaking provided by HMRC to the Court of Session on 19 May 2010, are finally determined.

I issued a summary decision on 25 September 2025 and associated Directions. The appellant thereafter asked for a decision with full written findings of fact and reasons in relation to what I had described as the “Valuation Issue”.

It had originally been proposed that expert evidence be adduced on two issues, namely:

After debate, Mr Welsh withdrew the witness statements of Mr Roger Barnard and Mr Ian Fieldhouse. Amended witness statements may be lodged, if so wished, in due course in terms of Direction 5 of the Directions which were issued contemporaneously with the summary decision.

At paragraph 1.2 of the Consolidated Grounds of Appeal lodged on 17 August 2018, the appellant’s alternative Ground of Appeal was that it would be an abuse of process if HMRC were to seek to re-litigate the issue of the market value of goodwill in the three tax years with which these appeals are concerned because at paragraph 252 in Spring Capital Limited v HMRC [2015] UKFTT 0066 (TC) (“the 2015 Decision”) Judge Brannan had said in (“the disputed statement”) that:

“… had it been necessary to decide the point, I would have accepted Mr Taub’s valuation of goodwill at £6,390,000”.

In submissions, it was argued for the appellant that to litigate the Valuation Issue was an “abuse of power” or res judicata; Judge Brannan had found as fact that the value of the goodwill was £6.39 million.

HMRC argued that the appellant’s position was misconceived, firstly, because Judge Brannan’s statement was obiter and secondly, because the approach to valuation that he had adopted was wrong in law.

In written submissions, it was conceded for the appellant that if the Tribunal determined that there was neither an abuse of power nor res judicata then the Tribunal would require to carry out a fact-finding exercise in relation to the market value of the goodwill and that expert evidence would be likely to be required.

I observe that although the written submissions referred to an abuse of power the Consolidated Grounds of Appeal referred to an abuse of process but I heard no argument on that.

At paragraph 2 of the 2015 Decision, Judge Brannan stated that: “…the main dispute …relates to whether the appellant is entitled to a deduction under Schedule 29 Finance Act 2002 (“FA 2002”) in respect of the purchase of goodwill.”.

At paragraph 217, he recorded that HMRC had argued that there had been no purchase of goodwill (and thus no amortisation deduction); the facts were consistent with a gradual migration of the trade.

At paragraphs 21 to 24 of the 2015 Decision, Judge Brannan had summarised the dispute between the parties which related to the manner in which the seafood trade moved from Spring Salmon & Seafood Limited (“SSS”) to the appellant. He stated:

“In a nutshell, the appellant argues that on 22 September 2004 SSS transferred its seafood business to Messrs Thomas. Then, on the same day, Messrs Thomas are said by the appellant to have transferred the seafood business to the appellant for consideration equal to market value – the agreement being evidenced, according to the appellant's evidence, by a minute of agreement dated 22 September 2004”.

Judge Brannan referred to that agreement as the tripartite transaction.

He explained that HMRC did not accept that the appellant purchased the goodwill attached to the seafood business for market value nor that the appellant had bought the business from MessrsThomas (nor, for that matter, that SSS sold its trade to Messrs Thomas).

In regard to migration of trade, at paragraph 126, Judge Brannan found that:

“126.

It seemed to me that these documents indicated that the seafood trade carried on by SSS ceased at some stage between September 2004 and February 2005 and during that period came to be carried on by the appellant. The impression created by the documents was, however, that there was a gradual migration of the trade rather than an outright transfer of the trade at a specific date. I was, however, satisfied that the trade which the appellant began to carry on was the same trade as that previously carried on by SSS”.

At paragraph 226, Judge Brannan found that the appellant’s accounts for 2005 and 2006 did not mention the purchase of goodwill because “it did not happen; it was simply an invention”.

At paragraph 229 he stated that:

“For these reasons, I am unable to accept that the appellant purchased goodwill from Messrs Thomas as recorded in the Minute. I further find, for the same reasons, that the tripartite transaction did not occur.”.

Paragraphs 230 and 231 read:

“230.

Instead, it seems to me that the evidence was consistent with the seafood trade of SSS being wound down during the autumn of 2004 and ceasing on 31 January 2005. During that period the appellant began to carry on that trade…

231.

Finally, the 2007 accounts appear to indicate that in that year the appellant purchased goodwill in the amount of £1,557,991, being the sum credited to the director’s loan account. Not only is this inconsistent with the various valuations of goodwill put forward by Mr Thomas (£20 million and latterly £6.39 million) it seems inexplicable that in the 2007 period the appellant would pay anything for the goodwill of a business which was transferred to it almost 2 years beforehand. I therefore do not consider the entry in the 2007 accounts to indicate that the appellant purchased goodwill in 2004 or indeed at any other time.”.

I narrate that background because it is relevant to the arguments as to whether the disputed statement is obiter or not.

HMRC relied upon the first sentence of paragraph 233 of the 2015 Decision for the proposition that any opinion expressed in respect of the value of goodwill did not form part of the 2015 Decision. However, it is appropriate to quote the whole of the paragraph which was the first of 20 paragraphs under the heading “Valuation of goodwill” and it reads:

“233.

In the light of my conclusion that the appellant did not purchase goodwill from Messrs Thomas on 22 September 2004 or at any other time, it is not strictly necessary to consider the evidence in relation to the market value of goodwill. Nonetheless, because much time at the hearing was spent considering valuation evidence, I shall summarise my main conclusions below.”

In the following paragraphs, having rejected an argument about the admissibility of HMRC’s expert witness evidence, Judge Brannan then analysed the principles relating to open market valuation articulated in The Duke of Buccleugh v IRC [1967] 1 All ER 129 (“Buccleugh”) and IRC v Gray (surviving executor of Lady Fox deceased) [1994] STC 360 (“Gray”) observing that in Gray the Court of Appeal had considered the decision in Buccleugh. Having done so he stated that he preferred the approach to valuation adopted by the appellant’s expert (based on Buccleugh) and he then accepted his valuation; hence the disputed statement.

It was argued for the appellant that the disputed statement at paragraph 252 is a “finding in fact in the alternative” and therefore could have been appealed by HMRC but was not; it was therefore res judicata.

I do accept that it is possible to make findings of fact in relation to an alternative case or on the basis that “If I am wrong in finding X then…”, and I have done so myself, but that is not really the issue.

Of course, I accept that the 2015 Decision does discuss the principles of open market valuation and, indeed that is referred to in the headnotes. One example of obiter dicta is where a judgment discusses what the outcome of an appeal would have been if the facts had been different. For the reasons set out in the excerpts from the 2015 Decision that I have narrated, in that case there was no reason to determine the market value of the goodwill because, the Tribunal found that there simply was no purchase of goodwill, albeit there had been a migration of trade.

Because HMRC had been successful and the disputed statement was obiter, HMRC had not sought to appeal Judge Brannan’s opinion that the value of £6.39 million advocated by the appellant’s expert rather than the £126,000 or nil suggested by HMRC would have been accepted by him.

In HMRC’s Skeleton Argument, it was pointed out that the appellant had relied upon paragraph 252 of the 2015 Decision in an application for leave to appeal the 2015 Decision. In refusing leave to appeal, on 21 September 2016, Judge Brannan had said that:

“The notice of appeal asserted that the Tribunal had ‘found’ that the value of SSS’s goodwill was £6.39 million. In fact, it would be more accurate to say that the Tribunal had found it unnecessary to decide the valuation issue but indicated that if it had it (sic) decided the point it would have accepted the £6.39 million valuation rather the (sic) much lower valuation put forward by HMRC. I make this point only to draw attention to the fact that there was no formal decision on the question of valuation of goodwill”.

That is an unequivocal statement by Judge Brannan.

Apart from the arguments on obiter dicta, or not, neither party directly addressed res judicata in submissions. Fortunately, Judge Brannan had explained res judicata at paragraphs 204 to 206 and 208 of the 2015 Decision and I agree with, and adopt, his narrative which reads as follows:

“204.

In Crown Estate Commissioners v Dorset County Council [1990] 1 All ER 19, Millett J (as he then was) stated (at 23):

“Res judicata is a special form of estoppel. It gives effect to the policy of the law that the parties to a judicial decision should not afterwards be allowed to relitigate the same question, even though the decision may be wrong. If it is wrong, it must be challenged by way of appeal or not at all. As between themselves, the parties are bound by the decision, and may neither relitigate the same cause of action nor reopen any issue which was an essential part of the decision. These two types of res judicata are nowadays distinguished by calling them “cause of action estoppel” and “issue estoppel” respectively.” [Emphasis added]

205.

Also, in Kirin-Amgen Inc v Boehringer Mannheim GmbH [1997] F.S.R. 289 at 303 Aldous LJ:

"... It cannot be right to bind a party to a finding of fact by a court when there was no need to that party to produce evidence to the contrary in that court".

206.

As Phipson On Evidence (17th edition) states at paragraph 43 – 31:

"A useful distinction is thus often drawn between matters necessarily decided and facts which came merely collaterally in question, or were incidentally cognisable."

208.

Furthermore, the doctrine of res judicata has a very limited application in tax appeals. In Barnett v Brabyn (Inspector of Taxes) [1996] STC 716 the taxpayer was assessed to tax on the basis that he was self-employed. His appeals for 1988/89, 1989/90 and 1990/91 were compromised under s 54 TMA on that basis. Additional assessments, on the same basis, were then made for the two latter years. It was argued that it was not open to the taxpayer to challenge the new assessments on a ground that had been implicitly decided in favour of the Revenue. Lightman J held that it was open to the taxpayer to do so. After noting that the effect of a s 54 agreement, namely that it had the same effect for res judicata and issue estoppel purposes as a determination on appeal of (at that time) the Commissioners, Lightman J said (at p 723c):

“Prior to the enactment of the Income Tax Management Act 1964 (the 1964 Act), the function of the tax commissioners was to make assessments and to hear appeals. It was well established during the period of that regime that they were not deciding a 'lis inter partes' and accordingly their decision in respect of one year's assessment could not create any form of res judicata or issue estoppel in respect of a later year's assessment (see IRC v Sneath [1932] 2 KB 362, 17 TC 149; Caffoor and others (Trustees of the Abdul Gaffoor Trust) v Comrof Income Tax, Colombo [1961] AC 584 at 598–589 and Spencer Bower and Turner Res Judicata (2nd edn, 1969) pp 260–266). The 1964 Act removed from the commissioners the function of making assessments. I do not think that this changes the position that (for present purposes) their decision on an appeal is not a decision on a 'lis inter partes'. This view accords with that expressed in the text books (see eg Whiteman on Income Tax (3rd edn, 1988) para 30.02 and Phipson on Evidence (14th edn, 1990) para 33.48). Accordingly a determination of an appeal by the commissioners or a s54 agreement cannot any more since 1964 than before 1964 afford scope for application of the doctrine of res judicata or issue estoppel in respect of assessments in succeeding years or additional assessments in the same year.” (see eg Whiteman on Income Tax (3rd edn, 1988) para 30.02 and Phipson on Evidence (14th edn, 1990) para 33.48). Accordingly a determination of an appeal by the commissioners or a s 54 agreement cannot any more since 1964 than before 1964 afford scope for application of the doctrine of res judicata or issue estoppel in respect of assessments in succeeding years or additional assessments in the same year.”

I observe, in passing, that the parties in the 2015 Decision included but were not limited to the parties in these appeals.

Judge Brannan made explicit, both at paragraph 233 of the 2015 Decision and in his refusal to give leave to appeal, that his discussion of valuation principles and his conclusion on valuation were not necessary. Therefore, neither those nor the disputed statement were an essential part of the 2015 Decision.

I too agree with that and therefore find that the disputed statement was obiter and furthermore, therefore the disputed statement was not res judicata. Accordingly, to litigate further would not be an abuse of process (or power).

Lastly, the second leg of HMRC’s argument was that they believed that Judge Brannan’s approach to valuation was not correct and, indeed in 2016 in Dyer v HMRC [2016] UKUT 381 (“Dyer”) Counsel for HMRC had, in the words of the Upper Tribunal “expended some energy in seeking to persuade us that the tribunal [in the 2015 Decision] was wrong”. The Upper Tribunal concluded that:

“47…We do not think we need to say more than that the question in Spring Capital arose in a rather different context, whether what the tribunal said is right or wrong, we do not derive any assistance from it.”.

For the appellant it was argued that Dyer was an unrelated case and in the interests of legal finality, because it was not analogous, it was not relevant to the issues of res judicata etc.

The matter having been argued by HMRC, I observe that the Upper Tribunal in Dyer did consider both Buccleugh and Gray (and other cases on valuation) and pertinently stated at paragraph 45 that they agreed that what was said in Buccleugh and Gray (and another case):

“….must be treated with a measure of caution, since those cases all related to the valuation of assets on death when somewhat different considerations arise. Nevertheless, some assistance can be derived from them, and in particular the principle that the asset …must be valued as it is on the relevant date, and not as it might be if certain steps were taken.”.

HMRC’s argument is that there was an error in law in the 2015 Decision since paragraphs 249, 250 and 251 read:

“ 249. Mr Thomas confirmed that he and his brother would have been prepared to sign employment contracts with a purchaser of the trade and to have entered into any required non-competition covenants. Mr Thomas and his brother had worked in the business for many years.

250.

The question, therefore, is whether on 22 September 2004 the trade should be valued on the basis that a prudent purchaser would heavily discount the value of the business because there were no contracts of employment and no non-competition covenants binding Messrs Thomas into the business or whether it should be valued on the basis that Messrs Thomas would remain with the business and that employment contracts and non-competition covenants would have been entered into.

251.

Mr Taub thought it reasonable to assume that the business should be valued on the latter basis. I agree with him. It seems to me that this method of valuation gives effect to what Hoffman LJ described as the "reality principle" to be derived from Buccleuch. In other words, it must be supposed that Messrs Thomas would take the necessary reasonable steps to sell the trade for the highest price. As regards the caveat in Buccleuch that this must not entail 'undue expenditure of time and effort', it seems to me that entering into employment contracts and non-competition covenants would not have involved undue time and effort, or, indeed, expense.”

I record these arguments for completeness, but I am not required to decide whether or not Judge Brannan’s approach to valuation (before the Upper Tribunal issued its guidance in that regard in Dyer) is right or wrong. I therefore decline to opine on the matter.

The Valuation Issue is not res judicata and remains a live issue. Accordingly, Directions in relation to expert evidence were issued contemporaneously with the summary decision.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.