Currys Retail Limited v The Commissioners for HMRC

Over the period between CPW’s acquisition of the Businesses from the Vendor Companies between 2004 and 2007 and the decision of the CPW Group to enter into the joint venture which led to the Degrouping in 2008, changing market conditions and falling profits had led the value of the Goodwill to decline considerably. At the point of its acquisition, the Goodwill had had a value of £107,658,000, as noted in paragraph 10(2) above. By the time that CPW was going to leave the CPW Chargeable Gains Group, the Goodwill was valued at approximately £50,800,000. This meant that, if CPW were to leave the CPW Chargeable Gains Group holding the Goodwill, CPW would become liable to a charge to corporation tax under Section 179(3) on value which no longer existed.

It is common ground that:

The key terms of the SPA were as follows:

The key terms of the MSA were as follows:

The Side Letter was executed on 29 January 2010, approximately eighteen months after the execution of the Agreements.

By the execution of the Side Letter, CPW and BBUK agreed that:

It is something of an under–statement to say that the Agreements and the Side Letter would not win any prizes for drafting. Mr Gammie, on behalf of CPW, candidly accepted that they contained a number of errors and infelicities.

As far as they relate to the issues to which this case gives rise, some notable features of the relevant documents are as follows:

In addition to the Agreements and the Side Letter, I was provided with a number of other documents for the purposes of this appeal. These were:

I set out below the features of those documents which I consider to be relevant to this decision.

Each of the Prior SPAs was in a conventional form for a business sale agreement in that it provided, inter alia, for:

In the Property Services Agreement, CPWUK agreed, inter alia, that it would discharge all the costs associated with all of the properties from which CPW carried on its retail business including rent, council taxes, property–related expenses, maintenance and insurance and CPW agreed, inter alia, that it would perform the “retail services” (namely, the operation and management of the stores) in each of the properties, reimburse CPWUK for the costs of managing and administering the properties as described above and pay to CPWUK an administration fee based on a fixed percentage of those costs.

In the Brand Licence, CPW Brands granted CPW a non–exclusive licence to use various intellectual property rights relating to the Businesses in the UK in return for royalties based on a fixed percentage of projected turnover from CPW’s use of the rights. The Brand Licence contained detailed provisions requiring CPW:

The Valuation Reports for each Business apart from the Business which CPW had acquired from CWSL noted that the Businesses to which they related “[had] been fully integrated into the CPW business … and [shared] all support functions. Separating the two businesses is not practical, and as such management services will continue to be provided by CPW to [BBUK]”.

The CPW 2008 Accounts related to the financial year of CPW immediately prior to the financial year in which the Agreements took effect. They:

The CPW 2009 Accounts related to the financial year of CPW in which the Agreements took effect. They:

The BBUK 2009 Accounts related to the financial year of BBUK in which the Agreements took effect. They recorded that:

The BBUK 2010 Accounts recorded that:

Each of the BBUK Remaining Accounts adopted the same format as the BBUK 2009 Accounts and the BBUK 2010 Accounts:

In the CPWG plc Letter, CPWG plc acknowledged that the reference in note 13 to the CPW 2009 Accounts to the fact that CPW had disposed of the “former trade and assets” of the Vendor Companies to BBUK was incorrect and should instead have referred solely to the “trade” or the “trade and goodwill” of the Vendor Companies in order to be consistent with the Agreements and the BBUK 2009 Accounts.

In the Dixons Letter, Dixons said, inter alia, as follows:

The Invoice – which was issued to CPWUK and not CPW for reasons which were not explained – provided for the payment to BBUK of “Royalties” in the amount of £11,000,000 in respect of the period ending 28 February 2009 and in the amount of £4,833,670 in respect of the period ending 30 September 2009, in each case exclusive of VAT. No subsequent invoices from BBUK in connection with the arrangement were provided to me.

The PCN, which contains the decision of the Respondents to which this appeal relates, provided as follows:

There had been protracted correspondence and discussions between the parties in relation to the application of Section 179(3) in respect of the Goodwill for a considerable period of time before the PCN was issued. The fact that the Correspondence set out in paragraphs 44 and 45 above includes letters from 2012 and 2015 shows as much.

In the course of that correspondence and those discussions, following a meeting of 10 May 2018 and a subsequent letter of 4 June 2018, Officer Andrew Lake of the Respondents wrote to Ms Anjali Sankla, the head of tax at Dixons, on 28 August 2018. Toward the end of that letter, immediately before the final section setting out the next steps in the process, Officer Lake said the following:

In the “Next steps” section which then followed, Officer Lake summarised the Respondents’ position by specifying that:

Ms Sankla replied to Officer Lake on 10 September 2018. In that letter, Ms Sankla raised a further question in relation to c) which she wanted answered before agreeing to the issue of the PCN and then, in relation to d), said as follows:

It became apparent at the hearing that the parties were agreed on a number of points in addition to the agreed facts and the agreed issues set out in paragraphs 6 to 24 above and the two points mentioned in paragraph 26 above. These were as follows:

The parties were also agreed that, if CPW continued to hold the Goodwill at the time when it left the CPW Chargeable Gains Group so that Section 179(3) applied:

Despite the considerable common ground, the parties disagreed on a number of issues which may be summarised as follows:

I will address each of the issues described above, in turn, in the rest of this decision.

The logical starting point is to note that the question in issue in the present proceedings is whether, for the purposes of Section 179(3), at the time when CPW left the CPW Chargeable Gains Group, it continued to hold the Goodwill, which was the asset that it had acquired from the Vendor Companies when it acquired the Businesses.

Mr Gammie submitted that this question was not a matter of statutory construction because the meaning of Section 179(3) was clear. It was common ground that the only thing that needed to be determined was whether CPW continued to own the Goodwill at the point when it left the CPW Chargeable Gains Group. The answer to that question depended solely on the legal rights and obligations to which the Agreements gave rise. That was solely a matter of contractual construction and not a matter of statutory construction.

It followed from this that the line of cases relating to statutory construction commencing with WT Ramsay Limited v Inland Revenue Commissioners [1982] AC 300 and recently embodied in the Supreme Court decision in Rossendale Borough Council v Hurstwood Properties (A) Limited and others, Wigan Council v Property Alliance Group Limited [2022] AC 690 (“Rossendale”) was irrelevant. This was not a case where it was necessary to consider whether the facts, viewed realistically, fell within the ambit of the relevant statutory provision, viewed purposively.

Mr Brinsmead–Stockham said that, on the contrary, the correct approach to construing and applying legislation was that set out in Rossendale and the earlier cases to which it referred. This required considering whether the relevant statutory provision (Section 179(3)), construed purposively, was intended to apply to the transaction, viewed realistically – see Collector of Stamp Revenue v Arrowtown Assets Limited [2003] 6 ITLR 454 at paragraph [35]. In this case, there was no dispute between the parties as to the correct purposive construction of Section 179(3). However, there was a dispute between them as to the relevant facts, viewed realistically. Those facts needed to be determined before it could be determined whether CPW should be treated as having continued to hold the Goodwill at the time when it left the CPW Chargeable Gains Group.

I agree with Mr Brinsmead–Stockham that Rossendale and the line of cases to which it referred requires me to determine the facts realistically before I can answer the question of whether CPW continued to hold the Goodwill when it left the CPW Chargeable Gains Group and that therefore, contrary to Mr Gammie’s submission, the legal rights and obligations to which the Agreements gave rise are not the only matters to be taken into account in this respect. Those legal rights and obligations are, of course, of great significance but they need to be considered in the round and in the light of all the surrounding facts.

In Rossendale, the Supreme Court was addressing the question of whether the owner of land – defined as the person entitled to possession of the land – for the purposes of legislation imposing rates on unoccupied land was the registered owner of the land or a special purpose vehicle established without any assets, liabilities or intended business to which a short lease of the land had been granted by the registered owner with the aim of conferring on the special purpose vehicle an entitlement to possession but on terms that enabled the registered owner to recover possession when it identified a potential tenant for the land and in anticipation that the special purpose vehicle would be dissolved or liquidated without discharging the liability to rates.

Lord Briggs and Lord Leggatt JJSC, setting out the judgment of the court, summarised the approach which should be adopted in answering that question as follows:

The Supreme Court concluded that, even though the leases were not shams and gave rise to genuine rights and obligations, a realistic view of the facts was that the registered owner remained the person entitled to possession of the land and that identifying the special purpose vehicle as the person so entitled would defeat the purpose of the legislation. They stressed that their conclusion was not founded on the fact that the only motive for the arrangement had been to avoid incurring rates. Instead, “[their] conclusion [was] based squarely and solely on a purposive interpretation of the relevant statutory provisions and an analysis of the facts in the light of the provisions so construed.”

In the present case, the question in issue is whether, when CPW left the CPW Chargeable Gains Group, CPW continued to hold the Goodwill. It is apparent that, in the light of Rossendale, the answer to that question does not depend solely on the legal rights and obligations to which the Agreements gave rise but instead on all the facts surrounding the transaction which occurred. Those facts include the legal rights and obligations to which the terms of the Agreements gave rise but those legal rights and obligations, whilst of great significance in the process, are just part of the overall picture and are not determinative in and of themselves.

Before I consider whether, on a realistic view of the facts, the effect of the Agreements in this case was that CPW disposed of the Goodwill to BBUK, it is necessary to consider the scope of the common law rule prohibiting the assignment of goodwill “in gross”.

Mr Gammie accepted the basic proposition that the goodwill attaching to a business could not be assigned “in gross” – which is to say without the assignee’s taking over some relevant interest in the business to which the goodwill related. However, he said that a “relevant interest” for this purpose did not require the assignee to have acquired the business to which the goodwill related or any of the assets of the business. It merely required that, following the assignment of the goodwill, the assignee was the person for whose benefit the business was carried on.

In making this submission, Mr Gammie relied on the decision of Geoffrey Hobbs QC as the appointed person in a trade mark dispute in Kurobuta Limited v Hallsworth [2021] R.P.C 13 (“Kurobuta”). In Kurobuta, the appointed person had concluded, at paragraphs [37] to [79] of his decision, that an assignment of goodwill in the form of unregistered trade marks could be valid even if it was not accompanied by a transfer of the business to which the trade marks related or the assets and resources of that business. In the view of the appointed person, all that was needed was that, following the assignment:

In reaching that conclusion, the appointed person had referred to the development of the authorities in this area, as demonstrated in two earlier judicial decisions, namely:

In Mr Gammie’s view, these decisions showed that that an assignment of goodwill could still be valid without a transfer of the business to which the goodwill related or the assets of that business as long as the assignee was capable of turning the goodwill to account in the future and there was no deception involved.

A critical part of the decision in Kurobuta was paragraph [75], in which the appointed person noted that a business was not a thing but a course of conduct and went on as follows:

In Star Industrial, a Hong Kong company which had previously abandoned its business in Singapore and then subsequently purported to transfer the unregistered trade marks which it had used in that business to a Singapore joint venture company in which it had an interest and which it had set up to carry on a similar business had failed in a passing–off action against a third party that was carrying on business under a name which was similar to the Hong Kong company. Referring to the decision in Muller, the Privy Council had held that, since the Hong Kong company had previously ceased to carry on business in Singapore and had no intention of itself resuming that business, it could not succeed in its passing–off action against the third party. Once the Hong Kong company had ceased to carry on business in Singapore, it ceased to have any proprietary right in Singapore which was entitled to protection by way of a passing–off action.

The Privy Council had then gone on to say as follows:

In Kurobuta, the appointed person had concluded that the above dicta were consistent with the proposition that goodwill could be assigned without a transfer of the business to which the goodwill related or the assets of that business because the agreement between the Hong Kong company and the Singapore joint venture company had made no provision for the transfer to the Singapore joint venture company of the business to which the unregistered trade marks related and yet the Privy Council had not ruled out the possibility that the Singapore joint venture company would have been able to succeed in a passing–off action against the third party – see Kurobuta at paragraphs [64] and [65].

In Scandecor, a Swedish company which had acquired registered trade marks and other assets of an affiliated Swedish company that had gone into liquidation commenced proceedings against a former UK affiliate for infringement of the trade marks. The issue in the case was whether the failure by the Swedish company as the proprietor of the trade marks to enforce quality control over the goods sold by the former UK affiliate under a licence of the trade marks was inherently deceptive, with the result that the trade marks should be revoked. In the course of its decision, the House of Lords had summarised the history of registered trade mark assignability and explained how the original prohibition on the assignment of registered trade marks “in gross” had given way to a more relaxed approach under, first, the Trade Marks Act 1938 and, then, the Trade Marks Act 1994 pursuant to which, subject to certain exceptions, registered trade marks could be assigned either in connection with the transfer of a business or not.

In Kurobuta, the appointed person had concluded that, because registered trade marks could now be assigned separately from the business to which they related, the same must be true of unregistered trade marks – see Kurobuta at paragraphs [55] and [56].

Mr Gammie said that the decisions in Kurobuta, Star Industrial and Scandecor demonstrated that the purported assignment of the Goodwill by CPW to BBUK in this case would not have been rendered invalid if it was not accompanied by a transfer of the Businesses or any of the assets of the Businesses because, even if that was the case, BBUK was still able to carry on the Businesses and turn the Goodwill to account following the assignment. It could do that because it was permitted by the SPA to carry on the Businesses and it was able to carry on the Businesses even though it did not acquire any of the assets of the Businesses because it had access to the services to be provided to it by CPW under the MSA. It was therefore able to turn the Goodwill to account by carrying on the Businesses through the agency of CPW. Its position was no different from the assignee in Kurobuta.

Mr Brinsmead–Stockham said that the decision of the appointed person in Kurobuta was not binding on me and was, in any event, incorrect and not justified by the terms of the decisions in Star Industrial and Scandecor. He said that it had always been the case, and it remained the case, that, in order to be valid, an assignment of goodwill needed to be accompanied by a transfer of the business to which the goodwill related.

I agree with Mr Gammie that, in Kurobuta, the appointed person upheld the validity of an assignment of goodwill, in the form of unregistered trade marks, even though that assignment had not been accompanied by the transfer of the business to which the goodwill related. However, notwithstanding the conclusion reached by the appointed person in Kurobuta, I do not agree that it is possible to effect a valid assignment of goodwill where the assignment is not accompanied by a transfer of the business to which the goodwill relates.

It is clear from Wadlow and the summary of the law in this area by Lord Nicholls in Scandecor that the rule prohibiting assignments “in gross” has historically required that, in order to be effective, an assignment of goodwill needs to be accompanied by a transfer of the business to which the goodwill relates. The fact that goodwill cannot be transferred separately from the business to which it relates and is simply a facet of that business is the subject of the very highest authority. It was made clear in a number of the judgments in Muller – see, in particular, Lord Macnaghten at page 224, Lord Davey at pages 226 and 227 and Lord Lindley at page 235. Consistent with that, Halsbury’s Laws of England (Personal Property (Volume 80 (2020)) at 809) starts by saying that “[goodwill] is not a thing which can be separated and dealt with apart from the business out of which it arises” and cites numerous authorities to that effect. It is also implicit in the terms of Section 275(1)(g) of the TCGA 1992 – which specifies that, for the purposes of the chargeable gains legislation, goodwill is to be treated as situated where the business to which it relates is carried on.

Accordingly, unless there is something in the three decisions set out above to compel the contrary conclusion, an assignment of goodwill which is not accompanied by a transfer of the business to which the goodwill relates is an assignment “in gross” and is invalid.

Turning then to the three decisions on which Mr Gammie relied, Star Industrial was a decision of the Privy Council. It is therefore technically not binding on me although it is of course persuasive. Star Industrial does not support the proposition that an assignment of goodwill made without a related transfer of the business to which the goodwill relates can still be valid. Indeed, Lord Jauncey, in describing the precise rights which were entitled to be protected by a passing off action in Reckitt & Colman Products Limited v Borden Inc and others [1990] RPC 341 at page 417, observed that such an action was a remedy for the invasion of a right of property in the business or goodwill likely to be injured by the misrepresentation and then cited Lord Diplock’s statement in Star Industrial to the effect that “[goodwill], as the subject of proprietary rights, is incapable of subsisting by itself. It has no independent existence apart from the business to which it is attached”.

The ratio of the decision in Star Industrial is that a company which has ceased to carry on business in a particular jurisdiction no longer has protectable goodwill in that jurisdiction and therefore cannot succeed in a passing off action against a person carrying on a business in that jurisdiction which is similar to the original business. The only relevance of the decision in the present context is that, as noted in paragraph 72 above, Lord Diplock then briefly addressed the question of whether the Singapore joint venture company which had succeeded to the business of the Hong Kong company might have been able to succeed in a passing off action against the third party and did not rule out that possibility. Although the appointed person in Kurobuta concluded from this that Lord Diplock was contemplating the possibility that an assignment of goodwill in isolation from the business to which it related might still be valid – see Kurobuta at paragraphs [63] to [65] – my reading of the relevant part of the decision is that Lord Diplock expressly declined to answer that question. What he actually said was that “their Lordships express no view as to what rights, if any, [the Singapore joint venture company] would have been entitled to enforce against the respondent…”.

Moreover, the circumstances which Lord Diplock was addressing in Star Industrial were that, although the business to which the goodwill related had ceased, the Hong Kong company might have retained a residue of goodwill which could have revived in the Singapore joint venture company as the successor to the Hong Kong company’s business. It is a long way from a situation where a business is being carried on both before and after an assignment of goodwill is made and the business is not transferred to the assignee but is instead left behind in the assignor. It seems to me that the possibility of deception in the latter case is much greater than on the facts of Star Industrial.

Scandecor was a decision of the House of Lords and is therefore binding on me. However, I can see nothing in that decision to support the conclusion that goodwill can be assigned without a transfer of the business to which the goodwill relates. Scandecor was a case dealing with the transferability of registered trade marks, which are the subject of a statutory regime. It describes the development of the statutory regime which allows for registered trade marks to be assigned without a simultaneous transfer of the goodwill in the business to which they related. As such, it says nothing about the transferability of goodwill in isolation from the business to which it relates. The appointed person in Kurobuta was in my view wrong when he said at paragraph [55] that the fact that there was a statutory regime allowing for the assignment of registered trade marks in isolation from the business to which they related meant that the same should be true of unregistered trademarks and, by extension, goodwill.

As for the decision in Kurobuta itself, that is not binding on me as it is a decision of the appointed person in a trade mark dispute and not a decision by a court. In any event, I have outlined in paragraphs 81 to 84 above why I think that the conclusions reached by the appointed person on the basis of Star Industrial and Scandecor were wrong.

I would add that, crucially, in my view, the decision in Kurobuta was highly dependent on its particular facts and those facts are very different from the present facts. In Kurobuta, it was unclear how the business to which the goodwill related had been conducted in the period immediately prior to the assignment in question. Moreover, following the assignment, the assignors had retained no interest in controlling the exploitation of the attractive force which brought custom to the business and it was up to the assignee to decide what to do with the business going forward. Consequently, there was no basis for believing that the public might be deceived by giving validity to the assignment – see Kurobuta at paragraphs [66] to [69] and [76] to [78].

In contrast, in this case, it is perfectly clear how the Businesses were being conducted in the period prior to the execution of the Agreements and, far from CPW’s retaining no interest in controlling the Businesses after the Agreements became effective, that control remained in CPW under the terms of MSA. In addition, it was CPW which was held out to the public, including its own employees and the networks, as carrying on the Businesses. In my view, to treat the assignment of the Goodwill in this case as being valid in the absence of a transfer of the Businesses would be contrary to the public policy that led to the establishment of the rule in the first place.

For the reasons set out above, I believe that, in order for the sale of the Goodwill in this case to have been valid, it needed to have been accompanied by a transfer of the Businesses to which it related and it is not sufficient for BBUK to have acquired some lesser interest in the Businesses or the assets of the Businesses, such as the ability to turn the Goodwill to account.

That is not to say that all of the assets of the Businesses needed to have been transferred with the Goodwill. I accept that an assignment of goodwill accompanied by a transfer of the business to which it relates can remain valid even if certain assets of the business are excluded from the transfer of the business because the person acquiring the goodwill and the business might well use different assets in carrying on the business from those used by the disponor. This was something recognised by Lord Brampton in Muller at page 231 when he referred to excluding from the sale of goodwill the premises from which the business has been carried on. However, in my view, it is not possible for goodwill to be validly assigned without a simultaneous transfer to the assignee of the business to which the goodwill relates.

Having said that, the conclusion which I have reached in dealing with Issue Three – see paragraphs 91 to 162 below – means that my conclusion in relation to Issue Two is ultimately only of academic interest. Even if I am wrong to say that an assignment of goodwill cannot be valid if it is not accompanied by a transfer of the business to which the goodwill relates, and all that is required in order for an assignment of goodwill to be valid is that, following the assignment, the assignee must be the person for whose benefit the business is carried on, it will be seen from my conclusion in relation to Issue Three that, in my view, on a realistic view of the facts in this case, BBUK was not the person for whose benefit the Businesses were carried on after the Agreements became effective. Instead, after that time, the Businesses continued to be carried on for the benefit of CPW.

It was common ground that the Agreements did not give rise to a partnership between CPW and BBUK because the two companies did not at any stage carry on a business in common with a view of profit, which is a pre–requisite for a partnership to exist – see Section 1 of the Partnerships Act 1890. In addition, the parties clearly did not intend to create a partnership as both the SPA and the MSA contained provisions to that effect – see clause 11.8 in the SPA and clause 8.8 in the MSA.

Instead, the Appellant’s position was that the legal rights and obligations to which the Agreements gave rise involved a transfer of the Businesses by CPW and BBUK with the result that, once the Agreements became effective, it was BBUK that carried on the Businesses as principal whereas the Respondents’ position was the Agreements left CPW as the sole owner of the Businesses carrying on the Businesses as principal.

Mr Gammie submitted that, even if CPW’s disposal of the Goodwill could be effective only if it was accompanied by a transfer of the Businesses to BBUK, the only sensible interpretation of the legal rights and obligations to which the Agreements gave rise was that they had effected a transfer of the Businesses from CPW to BBUK. This was because, after the Agreements became effective, BBUK had the exclusive right to carry on the Businesses and to enjoy the profits which arose from the Businesses. That was the clear intention of the Agreements as a whole and the authorities showed that commercial documents should be construed:

In this case, the parties’ intentions, as reflected in the drafting of the Agreements, were that, once the Agreements became effective, BBUK would carry on the Businesses for its own account through the agency of CPW and that BBUK would pay CPW a management fee in return for CPW’s services. The fact that none of the assets of the Businesses had been transferred to BBUK was neither here nor there because BBUK was able to carry on the Businesses through the agency of CPW and, barring any termination of the MSA caused by a default of one of the parties, that agency would continue indefinitely and for at least fifteen years. Moreover, if the agency did come to an end, then BBUK would always be able to carry on the Businesses by other means. For example, at that stage, it could engage its own employees and enter into contracts with new customers. In addition, as a company engaged in a joint venture involving two groups, it had access to services provided from those two groups. For example, it could enter into a services arrangement with a company in one of the two groups which was similar to the one into which it had entered with CPW under the MSA.  The ability of a person acquiring a business to do so without necessarily acquiring the assets or liabilities of the business was a feature of the conduct of a business to which the appointed person had referred in Kurobuta at paragraph [75] – see paragraph 70 above. In short, the conduct of a business was not dependent on a constancy in the assets which were used to carry on the business. Those assets could easily change from time to time without affecting the fact that the same business was still continuing. 

To all intents and purposes therefore, the Agreements had effected a transfer of the Businesses from CPW to BBUK. After the Agreements became effective, it was BBUK and not CPW which owned the Businesses and CPW’s activities in respect of the Businesses were merely those of a service provider providing agency services to BBUK to enable BBUK to carry on the Businesses. CPW had ceased to have the right to carry on the Businesses for its own account. It was because of that reality that, in various places in the SPA, reference had been made to the fact that the Businesses had been transferred by CPW to BBUK. For example:

Mr Gammie sought to support the proposition set out above by an analogy with circumstances where a partnership carried on a business but only one of the partners owned the goodwill in the business to the exclusion of the other partners – see Anna Trego and William Wilson Smith v George Stratford Hunt [1896] AC 7 (“Trego”) and Stekel v Ellice [1973] 1 WLR 191 (“Stekel”). He said that that was no different from circumstances where a person sold goodwill and a business to another person but then continued to carry on the business as agent for the other person. In both cases, the end result was that a person carried on the business but had no interest in the goodwill of that business. Thus, in this case, if CPW had assigned the Goodwill to BBUK and entered into a partnership with BBUK on terms that they would carry on the Businesses together, the assignment of the Goodwill to BBUK would be effective. It would therefore be perverse if a different result ensued simply because CPW and BBUK were not in partnership but CPW was carrying on the Businesses as BBUK’s agent.

A similar point had arisen in IN Newman Limited v Adlem [2005] EWCA Civ 741 (“Adlem”) where Mr Adlem had sold his business along with the goodwill to a purchaser but continued to work in the business. The majority in the Court of Appeal had upheld the passing off action brought against him by a subsequent owner of the business because he was doing business under his own name despite the sale. Adlem showed that a sale of goodwill could remain effective even if the seller continued to work for the purchaser as an employee or independent contractor after the sale. That was similar to the present case where CPW had continued to act as agent for BBUK after the sale.

Putting it another way, CPW’s agreement to carry on the Businesses as BBUK’s agent after the Agreements became effective was no different from a covenant given by an assignor of goodwill which restricted the trade of the assignor in the future. In both cases, the terms of the agreement or covenant in question provided the assignee of the goodwill with all the advantages that the assignee intended to acquire by taking the assignment and was therefore indicative that ownership of the goodwill had passed from the assignor to the assignee – see the Special Commissioner’s decision in Balloon Promotions v Wilson and another [2006] STC (SCD) 167 (“Balloon”) at paragraph [170]. Something similar had occurred in Kirby v Thorn EMI plc [1987] STC 621, where a covenant given by the seller of three companies to the purchaser of those companies to the effect that no company in the seller’s group would compete with the businesses carried on by the companies was held to be a part disposal of the goodwill held by the seller in respect of those businesses.

Mr Brinsmead–Stockham said that, on the contrary, on any realistic view of the facts, after the Agreements became effective, not only did ownership of the Businesses remain with CPW but it was CPW and not BBUK which carried on the Businesses. As such, viewed realistically, both the Goodwill and the Businesses remained in CPW. Mr Brinsmead–Stockham provided a number of reasons for reaching this view. As I refer to those reasons at some length in the conclusion which follows, I will not set them out in this section of the decision.

I agree with Mr Brinsmead–Stockham that, on a realistic view of the facts in this case:

I say that for the reasons which follow.

The starting point in this process must inevitably be the terms of the Agreements themselves.

At the hearing, both parties referred me to a number of decisions which related to the interpretation of contracts and, in particular, the inter–relationship between a textual and a contextual analysis of a contract and the extent to which the words in a contract should be construed in a manner which gives rise to a commercially sensible conclusion. However, I do not think that those cases are of great assistance in the context of this decision. I say that because I did not understand the parties’ disagreement in relation to identifying the legal rights and obligations to which the Agreements gave rise to be based in any way on a divergence in the meaning of the words used in the Agreements and, hence, to be a question of construing those words. Instead, their dispute turned on the conclusions to be drawn from those words.

With that introduction, I turn first to the terms of the SPA.

Both the recitals to, and the main operative provisions of, the SPA – which is to say clauses 2 and 3 – stipulated that, whilst CPW was agreeing to sell the Goodwill to BBUK, it was not selling the Businesses to BBUK but only selling the right to carry on the Businesses to BBUK. The language used in those provisions appears to have been quite deliberate and it contrasts with the language used in each of the Prior SPAs, which clearly did involve a transfer of the Businesses to CPW as a going concern and made express provision to that effect.

Moreover, only £1,000 of the aggregate consideration of £50,800,000 which was paid by BBUK to CPW under the SPA was allocated to the sale of the right to carry on the Businesses. The paucity of the amount in question is again indicative of the fact that the SPA was not contemplating a sale of the Businesses themselves (or, for that matter, ascribing much value to the right to carry on the Businesses).

In the circumstances, I can see no force in the argument that the fact that certain clauses in the SPA – notably, clauses 4.1, 7.1 and 9.2 – referred to there having been a transfer of the Businesses meant that the Businesses had been transferred. It is perfectly clear from the recitals and the main operative provisions that no such transfer was contemplated and that the references in those clauses to the Businesses’ having been transferred were simply drafting errors.

It is also the case that the Agreements made no provision for the transfer to BBUK of any of the assets of the Businesses apart from the Goodwill or for the assumption by BBUK of any of the liabilities of the Businesses.

As regards the assets, clause 2.3 of the SPA provided that, except as expressly set out in the agreement, BBUK would acquire no right or title to any asset of the CPW Group. The SPA made no express provision for the transfer of any asset of the CPW Group apart from the Goodwill. Moreover, the further assurance obligation on CPW in clause 11.3 of the SPA required CPW to do all acts and execute all documents as might be required to vest the Goodwill in BBUK. It made no reference to any other asset of the Businesses. It follows that, leaving aside the Goodwill, the SPA made no provision for BBUK to acquire any of the assets which CPW had been using to carry on the Businesses such as customer contracts, debtors, stock or fixed assets.

As regards the liabilities, clause 2.2 of the SPA provided that, except as expressly set out in the agreement, BBUK would assume no liability in respect of the Businesses or any other business of the CPW Group. The SPA made no express provision for BBUK to assume any liability in respect of the Businesses or any other business of the CPW Group, which meant that those liabilities remained with CPW or the relevant member of the CPW Group.

Again, the failure on the part of the Agreements to provide for the transfer to BBUK of any assets of the Businesses apart from the Goodwill or for the assumption by BBUK of any of the liabilities of the Businesses contrasts starkly with the terms of the Prior SPAs, which did make provision to those effects in connection with the transfer of the Businesses to CPW.

Consistent with the approach to the assets and liabilities of the Businesses, and again as distinct from the terms of the Prior SPAs, both the SPA and the MSA provided that none of the contracts of employment of the employees on whom CPW had been relying to carry on the Businesses were transferred to BBUK – see clause 8 of the SPA and clause 6 of the MSA.

Just pausing at this stage, it is clear beyond any doubt that, leaving aside the Goodwill, the terms of the Agreements did not give rise, and were not intended to give rise, to a transfer by CPW to BBUK of:

However, the terms of the Agreements did provide for the sale to BBUK of the right to carry on the Businesses as principal. Moreover, the Agreements provided that CPW would, insofar as it was able to do so, permit BBUK to assume the conduct of the Businesses and that BBUK would carry on the Businesses with effect from the completion date. They also provided that CPW would deliver to BBUK such items and documents as to enable BBUK to carry on the Businesses. In Mr Gammie’s submission, the legal rights and obligations to which these provisions gave rise meant that BBUK effectively became the owner of the Businesses at the time when the Agreements took effect because there was no difference between, on the one hand, formal ownership of a business, and, on the other hand, the ability to exercise all the rights of ownership of the business by carrying on the business.

I do not propose to address in this decision the question of whether there is a real difference between:

The legal rights and obligations to which the Agreements gave rise are a function of all of the provisions in the Agreements, taken as a whole, and not just the provisions mentioned in paragraph 114 above. It follows that I need to consider whether the terms described above, when taken together with the other terms of the Agreements taken as a whole, gave rise to legal rights and obligations which meant that, once the Agreements became effective, BBUK began to carry on the Businesses as principal.

The starting point in answering that question is to observe that:

However, I consider that that is not what happened in this case. On the contrary, in my view, the legal rights and obligations to which the Agreements gave rise were such that, after the Agreements became effective, the Businesses continued to be carried on by CPW as principal and CPW was merely required to make payments to BBUK which were equal to a fixed percentage of the future gross revenues of the Businesses.

I say that because the two fundamental features of carrying on a business as principal are:

Starting with the ability to dictate the overall strategy and direction of the Businesses in this case, it is plain from the terms of the MSA that it was CPW and not BBUK which had this ability because of the all–embracing scope of CPW’s legal rights and obligations under clause 3 of, and schedules 1 and 2 to, the MSA. Those provisions conferred on CPW the right and obligation to provide the Management Services and to procure that CPWUK provided the Property Management Services. Moreover, clause 3.2 of the MSA expressly provided that BBUK would not do anything to restrict CPW from carrying out the Management Services or CPWUK from carrying out the Property Management Services. The scope of the Management Services was vast, entailing as it did everything involved in the management and operation of the Businesses. By definition therefore, it included all decisions, whether major or minor, in relation to the conduct of the Businesses. The only restrictions placed on CPW under the Agreements in relation to how it carried out the management and operation of the Businesses were that:

In my view, these limitations did not mean that the ability to dictate the overall strategy and direction of the Businesses passed from CPW to BBUK. I say that because:

Given the above, I consider that the legal rights and obligations to which the Agreements gave rise were such that, after the Agreements became effective, it was CPW and not BBUK which was the entity entitled to dictate the overall strategy and direction of the Businesses. The effect of the Agreements was to leave CPW with virtually unrestricted control of all the key strategic decisions relating to the Businesses.

So far, the only legal rights and obligations I have been considering in relation to identifying which company had the right to determine the overall strategy and direction of the Businesses are those which arose under the Agreements. However, it is necessary to consider whether anything I have said so far is affected by the terms of paragraph 3 of the Side Letter. This provided that it had been the intention of the parties to the MSA all along that CPW would not take any “major strategic decision” in relation to the Businesses without BBUK’s prior approval. At the hearing, Mr Gammie submitted that this provision in the Side Letter should be construed as merely clarificatory in nature and that a limitation to that effect should be implied in the MSA itself. However, I can discern no evidence of this intention in the express terms of the MSA. On the contrary, the scope of the legal rights and obligations of CPW in managing and operating the Businesses as set out in clause 3 of, and schedules 1 and 2 to, the MSA was all–encompassing, suggesting that the parties were intending to agree, and were agreeing, to CPW’s having absolute control over the management and operations of the Businesses, including all strategic decisions, both major and minor, subject only to the minor limitations described in paragraph 120 above.

Mr Gammie did not suggest any basis in law on which the limitation described in paragraph 3 of the Side Letter should be implied in the MSA. The authorities show that strict constraints apply to the exercise of the power to imply a term in a contract – see Tesco Stores Limited v Union of Shop, Distributive and Allied Workers and others [2024] UKSC 28 at paragraphs [32] to [36] and Marks and Spencer plc v BNP Paribas Securities Services Trust Co (Jersey) Limited [2015] UKSC 72 at paragraphs [15] to [31]. No basis for the exercise of that power, applying those principles, in this case was suggested. I do not think that the terms of the Side Letter, a document executed some eighteen months after the date of the Agreements and purporting to describe the intentions of the parties in entering into the MSA, is sufficient in and of itself to have that effect when those stated intentions were so at odds with the express terms of the MSA.

The ability to take major strategic decisions in the course of carrying on a business for another company is hardly an insignificant detail when it comes to setting out the scope of the respective legal rights and obligations of the parties to an agreement such as the MSA. It is of the essence of any agency arrangement that the respective legal rights and obligations of the principal and the agent are made clear so that the parameters of the agent’s activities on behalf of the principal are established from the outset. This is particularly true where the agency in question relates to carrying on the principal’s business. If it had been the intention of the parties at the time when the Agreements were executed that CPW’s ability to make major strategic decisions in relation to the Businesses would be restricted in the way set out in paragraph 3 of the Side Letter, then I have no doubt that that intention would have been reflected expressly in the terms of the MSA. In the circumstances, I do not see any basis for implying such a restriction in the terms of the MSA ab initio as I was urged to do by Mr Gammie. It follows that the earliest that the restriction on CPW’s right to make major strategic decisions described in paragraph 3 of the Side Letter could have taken effect was not until the Agreements had been in effect for some eighteen months.

Even then, I do not see that the limitation described in paragraph 3 of the Side Letter moves the dial on this point in any way.

First, when one looks at the terms of the Side Letter as a whole, the only paragraph which was actually said to be amending the MSA was paragraph 4, the paragraph effecting a reduction in the management fee payable to CPW. The other paragraphs in the Side Letter merely purported to set out retrospectively the intentions of the parties in entering into the MSA. It is therefore not immediately obvious that paragraph 3 of the Side Letter did effect any amendment to the terms of the MSA so far as they related to CPW’s ability to manage and operate the Businesses. Putting the case at its strongest, it might be said that, despite the infelicitous language, the purpose and effect of paragraph 3 was to amend the terms of the MSA in that respect going forward.

Secondly, even if it is possible to construe paragraph 3 of the Side Letter as effecting a change in those terms as a contractual matter, that amendment took effect only from the date on which the Side Letter was executed. Thus, the amendment was not operative at the time when CPW left the CPW Chargeable Gains Group, which is the relevant time so far as this decision is concerned.

Thirdly, each of the two points made in paragraph 121 above in relation to the limitations set out in clauses 3.1.2 and 3.1.3 of the MSA applies equally to the limitation in paragraph 3 of the Side Letter. As such, even if the Side Letter did have the effect of amending the terms on which CPW was managing and operating the Businesses on and after the date when the Side Letter was executed, that did not change the locus of control over the strategy and direction of the Businesses from CPW to BBUK at that stage. It was still CPW and not BBUK which had responsibility for deciding the strategic direction of the Businesses even after the amendment took effect. CPW had to obtain the approval of BBUK before implementing certain decisions but it remained responsible for initiating and then making those decisions, subject to that approval. It certainly did not mean that BBUK had the right to carry on the Businesses as it wished.

Turning then to the second essential feature of carrying on a business noted in paragraph 119 above – namely, an entitlement to the profits of the relevant business – in my view, the legal rights and obligations to which the Agreements gave rise meant that that was also entirely absent in this case so far as BBUK was concerned.

The profits of a business are a function of two components – the gross revenues to which the business gives rise and the expenses which must be incurred in earning those gross revenues. In my view, the legal rights and obligations to which the Agreements gave rise meant that BBUK neither had an entitlement to all of the future gross revenues of the Businesses nor had an obligation to meet any of the expenses of the Businesses. I say that for the reasons which follow.

Starting with the entitlement to future gross revenues, it is apparent from the rights and obligations to which clause 5 of the MSA gave rise that BBUK’s entitlement as regards the future gross revenues was simply to receive payments equal to a fixed percentage of those future gross revenues. CPW had no obligation to account to BBUK for the part of the future gross revenues which CPW was entitled to retain under the terms of the MSA.

Turning then to the expenses of the Businesses, it is apparent that the parties’ intentions in entering into the Agreements, as reflected in the legal rights and obligations to which the terms of the Agreements gave rise, were that responsibility for bearing all of the expenses relating to the Businesses lay with CPW and not BBUK. The broad scope of CPW’s obligations under clause 3 of, and schedules 1 and 2 to, the MSA were such that responsibility for discharging all of the expenses which were incurred in relation to the management and operation of the Businesses after the Agreements became effective rested solely with CPW. There was no obligation on the part of BBUK to reimburse CPW for any of the relevant expenses or to take responsibility in any way for those expenses.

It is at this point that I need to address the peculiar language in clause 5.1.2 of the SPA, which stipulated that, from completion of the SPA, CPW “shall assume the liabilities arising from the Businesses only on behalf of [BBUK]”. That was not an express statement to the effect that BBUK would be assuming any of the liabilities which CPW had incurred in respect of the Businesses before completion of the SPA. As such, it is not relevant to the point addressed in paragraph 110 above. However, it is potentially relevant in this context as it could conceivably be construed as saying that it was BBUK and not CPW which would be ultimately responsible as principal for discharging the future liabilities of the Businesses. In my view, the clause did not have that effect. This is because:

In short, I believe that clause 5.1.2 is simply another error in the documents, possibly inserted in order to demonstrate that it was BBUK and not CPW that was carrying on the Businesses after the Agreements became effective.

It follows from the above that, if CPW, in the course of managing and operating the Businesses, was able to reduce the expenses necessary to run the Businesses, that was entirely for CPW’s benefit. Similarly, if CPW spent more in carrying on the Businesses than the portion of the gross revenues of the Businesses that it was entitled to retain when it made its payments to BBUK under clause 5 of the MSA, then that was CPW’s problem. In short, only CPW and not BBUK could ever make losses from the running of the Businesses. BBUK could make a loss if the gross revenues which it was entitled to receive under the MSA in any period were less than its interest cost and the Goodwill amortisation over that period but that would not have been a loss from the carrying on of the Businesses as such. It would instead have been a loss arising from its purchase of a right to receive a fixed percentage of the future gross revenues of the Businesses.

It can be seen that the effect of the legal rights and obligations to which the Agreements gave rise was that BBUK’s only entitlement under the Agreements was to payments equal to a fixed percentage of the future gross revenues of the Businesses. BBUK’s entitlement was not to the profits arising from the Businesses.

I do not think that the statement made in paragraph 1 of the Side Letter to the effect that the parties did not intend CPW to make any losses from carrying on the Businesses changes the above conclusion for the following reasons:

In conclusion, it is apparent that, after the Agreements became effective and at the point when CPW left the CPW Chargeable Group, the legal rights and obligations to which the Agreements gave rise were such that:

At the hearing, Mr Gammie repeatedly referred to the arrangement effected by the Agreements as being one where it was BBUK alone that carried on the Businesses albeit through the agency of CPW. He described the arrangement as being analogous to one where a greengrocer sold his business to a third party but agreed to stay on and run the business for the new owner as an undisclosed agent for the new owner. In my view, where that analogy falls short is that, in that example, whilst the original owner would deal with customers as agent for the new owner, and customers might not know that the sale had occurred, the original owner would simply be providing a service to the new owner. Control over the strategic direction of the business would be held by the new owner and the economic risks and rewards of owning the business would be held by the new owner. It would be the new owner and not the original owner/agent who would be exposed to changes in the profitability of the business. In contrast, in this case, whilst BBUK was exposed to changes in the future gross revenues of the Businesses, because they would determine the quantum of the payments it received, it had no control over the strategic direction of the Businesses and no exposure to the profitability of the Businesses because it had no responsibility for, or exposure to, any of the expenses arising in relation to the Businesses.

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.

Taking all of the above into account, it is my view that, viewing the facts realistically, as I am required to do by the authorities, not only were the Businesses not transferred to BBUK pursuant to the combined effect of the Agreements but also, after the Agreements became effective, it was CPW which continued to carry on the Businesses as principal and the Businesses were not carried on by BBUK as principal through the agency of CPW. It follows that, on a realistic view of the facts:

In the light of the above conclusions, I do not consider that the analogies provided by Mr Gammie and described in paragraphs 96 to 98 above affect the conclusion in any way.

As regards the analogy in paragraph 96 above, I do not see how cases such as Trego and Stekel – which establish that, where persons are carrying on a business in common, ownership of the goodwill in the business can be owned by one of the partners to the exclusion of the others – shed any light on the present question for two reasons. First, those cases were not addressing the question of whether goodwill can be assigned without an accompanying transfer of the business to which the goodwill relates but the wholly different question of identifying the consequences of having disposed of, or failing to own, the goodwill to which the business relates. Secondly, and perhaps more relevantly, the partner owning the goodwill in those cases also carried on the business to which the goodwill related, which is to say the partnership business. The fact that another person carrying on the same partnership business had no interest in the goodwill of the business is not authority for the proposition that goodwill can be assigned to a person who acquires no interest in the business to which the goodwill relates.

Similarly, Adlem sheds no light on the question of whether goodwill can be assigned without an accompanying transfer of the business to which the goodwill relates. It too related to the wholly different question of identifying the consequences of having disposed of the goodwill to which the business relates. In Adlem, the sale of the goodwill by Mr Adlem had been accompanied by a sale of the business to which the goodwill related.

As regards the analogy in paragraph 98 above, that analogy falls away in the light of my conclusion to the effect that CPW continued to carry on the Businesses as principal on its own account and not as agent for BBUK. In Balloon, the fact that the franchisees covenanted not to compete with the franchisor was held to indicate that the franchisees had assigned goodwill to the franchisor. In this case, the conclusion I have reached that CPW did not agree to carry on the Businesses as agent for BBUK but continued to do so as principal on its own account means that there is no parallel to be drawn between the present case and the facts in Balloon.

In dealing with Issue Three, I have deliberately avoided any consideration of whether, because BBUK was required to pay interest to CPW out of the amounts that it received under clause 5 of the MSA, on a realistic view of the facts, CPW retained significantly more than 95% (or 91.19%) of the gross revenues of the Businesses after the Agreements became effective. I do not need to address that question in order to determine this appeal. However, for the reason I mention in dealing with Issue Seven below, it is potentially relevant in determining the tax consequences of the transaction which was effected by the Agreements and I will therefore return to this point when I address Issue Seven.

The terms of the conclusion I have reached above in relation to Issue Three effectively mean that Issue Four and Issue Five fall away. However, for completeness, I will set out the submissions which were made by the parties, and my conclusions, in relation to each of those issues.

Mr Gammie submitted that, even if CPW continued to hold the Goodwill after the Agreements became effective, because it continued to own and carry on the Businesses, CPW should be treated as holding the Goodwill after that time on a bare trust for BBUK. As such, BBUK should be treated as owning the Goodwill for the purposes of corporation tax on chargeable gains pursuant to Section 60 of the TCGA 1992. He said that, in that event, the facts in this case would be analogous to those in Don King Productions Inc v Warren and others [2000] Ch 291 (“Don King”).

In Don King, the parties had entered into a partnership for the promotion of professional boxing in Europe and, on the dissolution of the partnership, a question arose as to the ownership of certain agreements for the management and promotion of professional boxers. Mr Warren had purported to assign these agreements to the partnership even though, as a matter of law, the agreements could not be assigned because they involved the rendering of personal services and, in some cases, contained an express prohibition on assignment. The Court of Appeal had held that, even though the benefit of the agreements could not be assigned in law, the only way to give effect to the evident intention of the parties was to treat Mr Warren as holding the agreements on trust for the partnership. Similarly, in this case, the evident intention of the parties was that the Goodwill would be assigned by CPW to BBUK and, if this was not possible in law, then it should be treated as taking place in equity.

Mr Brinsmead–Stockham said that the analogy with the facts in Don King was misconceived.

Leaving aside the fact that Don King related to a transfer of assets into a partnership, a key distinction was that the personal services contracts which were the relevant assets in Don King existed as assets in their own right. Their existence was not dependent on a relationship with a business. There was a barrier to the transfer of the contracts in law but that did not prevent the contracts from being transferable in equity. In contrast, in this case, it was not that there was a barrier to the transfer of goodwill in law. Nobody doubted that goodwill was an assignable asset. Instead, there was a general principle that goodwill could not be assigned without an accompanying transfer of the business to which it related, based on public policy and in order to avoid deception. There was no reason why the same principle would not apply in equity as well as law and there was no authority to suggest that it did not.

In addition, Mr Brinsmead–Stockham said that Don King was concerned with wholly commercial arrangements and therefore it was not surprising that the court was willing to intervene in equity. In contrast, in this case, the sole purpose of the arrangement was to avoid a tax liability and this was a further reason why a court should not be prepared to intervene by imposing a trust.

Mr Brinsmead–Stockham said that, in any event, the Respondents did not accept that the objective intention of the parties in entering into the Agreements was that, once the Agreements became effective, the Businesses would be carried on by BBUK and BBUK would own the Goodwill. In reality, viewed objectively, the intention was that it was CPW which would continue to carry on the Businesses on its own account and own the Goodwill and that BBUK would simply acquire a right to payments equal to a fixed percentage of the future gross revenues of the Businesses.

Finally, Mr Brinsmead–Stockham said that, even if he was wrong about equity intervening in this case, he did not accept that there would be a bare trust of the Goodwill for the purposes of Section 60 of the TCGA 1992. That was because, in order for a bare trust to exist for the purposes of that section, the equitable owner had to have the exclusive right to direct how the asset should be dealt with – see Section 60(2) of the TCGA 1992 – and, in this case, it was clear from clause 3.2 of the MSA that BBUK had no right to intervene in the management and operation of the Businesses.

I agree with Mr Brinsmead–Stockham that Don King is not authority for the proposition that, in this case, if the transfer of the Goodwill was ineffective in law because it was not accompanied by a transfer of the Businesses, CPW should be regarded as holding the Goodwill on bare trust for BBUK.

I have reached that conclusion for essentially two reasons.

The first is that, for the reasons which I set out in some detail in relation to Issue Three, when the facts are viewed realistically, it was not intended that BBUK would acquire any interest in the Businesses or carry on the Businesses after the Agreements became effective. Instead, the intention of the parties was that CPW would continue to carry on the Businesses on its own account and that BBUK would simply acquire a right to payments equal to a fixed percentage of the future gross revenues of the Businesses. On that basis, the circumstances here are very different from those which prevailed in Don King, where the clear intention of the parties was that the benefit of the agreements would belong to the partnership and therefore the Court of Appeal was willing to apply equitable principles to achieve that result. Here, there is no need to invoke equitable principles to achieve the purpose of the parties because, when the facts of the transaction are viewed realistically, that purpose was to leave the Businesses and the Goodwill in CPW’s hands.

Moreover, even if that were not the case, I do not understand how an assignment of goodwill which has been held to be invalid in law because it is an assignment “in gross” can somehow nevertheless be effective in equity. As I have outlined in paragraph 52(7)(b) above, the origins of the rule to the effect that an assignment “in gross” is invalid are that a purported assignment of goodwill without an accompanying transfer of the business to which the goodwill relates is inherently deceptive, with the result that public policy dictates that it should not be recognised. That being the case, it is hard to see why equity would assist to give rise to that outcome.

For the above reasons, I am of the view that, if the transfer of the Goodwill in this case was ineffective because it was not accompanied by a transfer of the Businesses, CPW should not be regarded as having held the Goodwill on bare trust for BBUK.

Mr Gammie submitted that, even if BBUK had not acquired the Goodwill in law or in equity after the Agreements became effective, CPW no longer retained the Goodwill at that stage because, by virtue of its obligations under the Agreements, it could no longer turn the Goodwill to account. Once the Agreements became effective, CPW retained the right to receive a management charge based on a fixed percentage of the future gross revenues of the Businesses but it lost the ability to benefit from the future profits of the Businesses or to dispose of the Businesses or the Goodwill to someone else in the future. Consequently, CPW should be treated as having surrendered its rights in the Goodwill by entering into the Agreements and thus as not being the owner of the Goodwill at the point when it left the CPW Chargeable Gains Group – see O’Brien v Benson’s Hosiery (Holdings) Limited [1979] STC 735 (“O’Brien”).

Mr Brinsmead–Stockham said that the decision in O’Brien was not relevant in this case for a number of reasons. First, it was not concerned with goodwill but with an employment contract. Secondly, the issue in O’Brien was whether an employment contract could be an asset for the purposes of corporation tax on chargeable gains. It was held that it could be. However, in this case, it was common ground that goodwill was an asset for the purposes of corporation tax on chargeable gains. Finally, and most importantly, in O’Brien, the asset in question – the employment contract – had been surrendered in return for a payment whereas, in this case, CPW continued to own the Goodwill after the Agreements became effective. It had not surrendered its rights to the Goodwill and it could still turn those rights to account.

I agree with Mr Brinsmead–Stockham that the transaction effected by the Agreements did not mean that CPW ceased to be the owner of the Goodwill or the Businesses. On the contrary, for the reasons which I have set out in some detail in relation to Issue Three, when the facts are viewed realistically, it was not intended that CPW would surrender its rights in the Goodwill or lose its ability to benefit from the future profits of the Businesses in any way. Instead, the intention of the parties was that CPW would continue to own the Goodwill and carry on the Businesses on its own account and that it would simply be obliged to pay to BBUK amounts equal to a fixed percentage of the future gross revenues of the Businesses.

On that analysis, after the Agreements became effective, CPW continued to be entitled to the profits of the Businesses (subject to its obligation to make the payments to BBUK mentioned above) and remained free to dispose of the Goodwill and the Businesses as it chose, including to BBUK. The fact that it was required to pay to BBUK amounts equal to a fixed percentage of the future gross revenues of the Businesses did not preclude it from turning to account either the Goodwill or the Businesses or, for that matter, any asset of the Businesses other than the Goodwill.

Mr Gammie said that, although the “conclusion about the matter” set out in the PCN was simply to the effect that a degrouping charge arose under Section 179 of the TCGA 1992, the “description of the matter”, as set out in the PCN, was stated to be the application of Section 179 of the TCGA 1992, as a whole, to the Goodwill. It followed that the “matter” was the application of Section 179 of the TCGA 1992 as a whole and therefore it was not correct for the FTT in determining this appeal against the PCN to deal solely with the charge under Section 179(3) without going on to consider the impact of that charge on the tax consequences of the transaction effected by the Agreement. Although he accepted that the PCN had said that the conclusion reached by the Respondents in relation to Section 179(3) did not affect anything else that the Respondents were still checking in CPW’s company tax return for the relevant accounting period, he said that that disclaimer was referring to matters arising in respect of the relevant accounting period which were completely unrelated to the application of Section 179 of the TCGA 1992.

He added that, if the PCN had been a final closure notice instead of a partial closure notice, then the way that the matter had been described would have required a determination of the impact of the charge under Section 179(3) on the tax consequences of the transaction effected by the Agreements because that was what was required by Section 179 of the TCGA 1992 as a whole.

Finally, he pointed out that the issues agreed by the parties in advance of the hearing included the effect of the Agreements on the quantum of the tax due – see paragraph 24(2)(b) above. That would not have been the case if the tax implications of the Agreements were outside the scope of this appeal. In any event, the quantum of the charge under Section 179(3) itself was agreed.

Mr Brinsmead–Stockham said that this appeal was against the PCN, which related solely to the application to CPW of Section 179(3) in respect of the Goodwill. It followed that that was the only matter which needed to be addressed in these proceedings. The potential adjustments to be made to the tax consequences of the transaction effected by the Agreements were not relevant to the application of Section 179(3) as it was common ground that, pursuant to Sections 179(4) and 179(13) of the TCGA 1992, the transaction effected by the Agreements was to be treated as taking place after the disposal and re–acquisition under Section 179(3). Accordingly, those adjustments were something to be addressed in due course by agreement or, if necessary, by way of the issue of a further partial closure notice or final closure notice and subsequent appeal.

Mr Brinsmead–Stockham said that the fact that the tax implications of the transaction effected by the Agreements did not need to be addressed in this appeal against the PCN was tolerably clear from the nature of the PCN as a partial closure notice and the terms of the PCN. However, if any doubt remained on that point, the terms of the PCN Correspondence put it beyond doubt. In the PCN Correspondence, the parties had clearly agreed that any consideration of the tax implications of the transaction effected by the Agreements was an “other matter” which would be addressed in due course once the application or otherwise of Section 179(3) had been determined.

I agree with Mr Brinsmead–Stockham that, for the reasons he gives:

I am not persuaded by the point made by Mr Gammie set out in paragraph 181 above. I agree that it is odd that the parties agreed that the impact of the transaction on the quantum of the tax due was an issue to be determined in this appeal but I would say that:

It follows from this that, in my view, the resolution of Issue One to Issue Five is sufficient to determine this appeal in favour of the Respondents and that Issue Seven is not in point. However, because I heard the parties’ respective arguments in relation to Issue Seven, I summarise below those arguments and my initial thoughts on them without reaching any conclusions on that issue.

Mr Gammie said that, if a charge under Section 179(3) arose in respect of the Goodwill, then CPW would be treated as having re–acquired the Goodwill for £107,658,000 at the start of the accounting period in which CPW left the CPW Chargeable Gains Group.

CPW’s subsequent receipt in that accounting period of £50,800,000 from BBUK would then have amounted to a part disposal of that Goodwill pursuant to Section 22 of the TCGA 1992 because the sum in question was a capital sum derived from the Goodwill. The Goodwill derived its value from the anticipated future profits of the Businesses and, at the time when the Agreements were executed:

Mr Gammie said that, in calculating the chargeable gain or allowable loss arising from the part disposal, it was necessary to determine how much of the aggregate base cost in the Goodwill following the deemed re–acquisition of the Goodwill, of £107,658,000, should be allocated to the part disposal pursuant to Sections 38 and 42 of the TCGA 1992. The latter section specified that, on a part disposal, the proportion of the aggregate base cost in the asset which was allocable to the part disposal should be determined by using the formula in Section 42(2) of the TCGA 1992 of A divided by A plus B, where A was the consideration received on the part disposal and B was the market value of the property which remained undisposed of following the part disposal.

In this case, A was £50,800,000 and B was nil because, following the part disposal, CPW could no longer turn the Goodwill to account. CPW had effectively realised the full value of the Goodwill in entering into the Agreements with BBUK. The sum of £50,800,000 reflected the parties’ valuation of the future profits of the Businesses and that valuation had never been challenged. It followed that, following the transaction effected by the Agreements, the value of the entitlement to profits retained by CPW was nil. This was reflected in the fact that CPW had written the Goodwill down to nil in the CPW 2009 Accounts.

Mr Brinsmead–Stockham said that he disagreed with the above analysis in two respects.

First, he did not accept that the sum received by CPW under the SPA had given rise to a part disposal of the Goodwill. The transaction effected by the Agreements had not given rise to the creation of an interest in, or right over, the Goodwill or the surrender of any of CPW’s rights over the Goodwill. CPW remained the sole owner of the unencumbered Goodwill after the transaction had been effected. The source of the payments made by CPW to BBUK was not the Goodwill but simply the contractual provisions in the Agreements pursuant to which CPW became obliged to make the payments. As such, the lump sum received by CPW from BBUK was not a capital sum derived from the Goodwill but simply consideration for the right to receive payments equal to a fixed percentage of the future gross revenues of the Businesses.

Secondly, even if the receipt in question had given rise to a part disposal of the Goodwill, he did not accept that the market value of the Goodwill after the Agreements had become effective was nil. No evidence had been adduced to show that the value of the future profits of the Businesses to which CPW was entitled after deducting the future payments due to BBUK was nil. It followed that, when the part disposal formula in Section 42(2) of the TCGA was applied to the aggregate base cost of £107,658,000, it was by no means clear that B was nil and therefore that the whole of that aggregate base cost could be allocated to the part disposal.

Mr Gammie said that, if the Respondents wished to raise valuation questions, they should have done so at an earlier stage in the proceedings. It was now some years since the transaction effected by the Agreements had occurred and it would be hard to procure valuation evidence at this stage. The Respondents had been on notice from the grounds of appeal that one of the arguments which the Appellant wished to make in this appeal was that it had made a part disposal of the Goodwill.

Mr Brinsmead–Stockham accepted that the grounds of appeal had mentioned that no account had been taken of the part disposal in the PCN but pointed out that:

It followed that there was no procedural bar to the Respondents’ raising the valuation issue at this stage.

The conclusion which I have reached in relation to Issue Six means that it is unnecessary for me to reach any decision on the tax consequences of the transaction effected by the Agreements and I will therefore desist from doing so.

However, without finally deciding the points in issue, I would say as follows:

All of the above is a matter for the parties to try to agree or to dispute in a future appeal. It does not form any part of my determination of this appeal.

For the reasons given above, this appeal fails. In my view, CPW continued to remain the owner, in law and in equity, of the Goodwill at the time when it left the CPW Chargeable Gains Group and the charge under Section 179(3) in respect of the Goodwill as described in the PCN is correct. The implications of that charge on the tax implications of the transaction effected by the Agreements is not a matter that I need to address in this decision because of the terms of the PCN and the PCN Correspondence.

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.