Anthony Outram & Anor v The Commissioners for HMRC

We have drawn the following conclusions… :

Montpelier presented the Pendulum CFD and surrounding arrangements to its customers as a tax avoidance scheme that, provided it went into Phase Two, would deliver trading losses. Montpelier told users of the scheme that they would first need to “establish a financial trade” before they purchased the Pendulum CFD which was the instrument by which the tax loss would be delivered.

The tax avoidance result could be achieved only if a Pendulum CFD entered Phase Two (or subsequent Phases). In that case, it was important that a user of the tax avoidance arrangements should appear to pay a high Designated Issue Value for rights under the Pendulum CFD but that, shortly after entering Phase Two, a Pendulum CFD could be said to have a low value for accounting purposes. So, for example, in Mr Worsfold’s case, the Designated Issue Value of the Pendulum CFD was £300,000 but just 5 or 6 days after it moved into Phase Two, the Pendulum CFD was said to have a value of just £4,653 for accounting purposes. The difference between the high Designated Issue Value and the low accounting value would be the tax loss that would be generated. That was the “GAAP anomaly” to which Mr Gittins referred in his evidence… Indeed it is precisely the basis on which all appellants are claiming the loss that is in dispute.

To achieve the result set out at [(2)], the Index Target Levels applicable to Phases Two to Five (and the lengths of Phases Two to Five) in the Pendulum CFD needed to be set at values that meant that, when Pendulum came to make its repurchase offer described at [44] above, it could justifiably offer a low price. Pendulum was not purporting to “value” the Pendulum CFD. However, it was hoped that a low repurchase value offered by a counterparty who was, at least ostensibly, transacting at arm’s length, would justify a low value for accounting purposes. Without such pricing of the Pendulum CFD, the “GAAP anomaly” that Mr Gittins identified could not be achieved, and the desired tax loss could not be generated.

If the appellants had had to pay the full Designated Issue Value of the Pendulum CFDs out of their own pockets the steps set out above would have achieved little. For example, Mr Worsfold would have paid £300,000 for a CFD that, a few days later, was, at least according to Pendulum, worth only £4,653. He would have made an economic loss of £295,347 and even if he obtained a tax loss as a result, that would only compensate him for part of his economic loss.

For the arrangements to function as a tax avoidance scheme, the arrangements had to produce a tax loss without an economic loss. That was achieved by the Bayridge Loan which meant that the appellants were not themselves funding the entire Designated Issue Value of the Pendulum CFDs out of their own resources. Under the Bayridge Loan, Bayridge funded 95% of the Issue Value of the Pendulum CFD on highly advantageous terms. The Bayridge Loan therefore operated to “ramp up” the amount that the appellants could claim they invested in the Pendulum CFD even though they had not in any economically real sense invested the full Designated Issue Value.

Phase One of the Pendulum CFD had two functions. Its first was to act as a smokescreen by enabling the appellants to argue that the Pendulum CFD was not inevitably going to produce a loss. That is why the presentation … speaks in slightly apologetic terms about the possibility that there might be a profit at Phase One. It also explains why Mr Gittins attached significance … to the effect that the Pendulum CFD might not produce a tax loss. Since counterparties had to fund the Initial Margin at Phase One out of their own resources, the second function of Phase One was to ensure that Pendulum would receive the Initial Margin from counterparties which was in the nature of a “fee” payable to Pendulum for the tax avoidance scheme that was offered.”

Claims to set-off their losses against current year income were made under s380 (the conditions for which are set out in s384). The combined effect of these provisions is that where a taxpayer incurs a loss in a trade in a particular year, that loss can be set off against other taxable income arising in the same year, or the immediately preceding year, but only where the requirements of s384 are met. Those requirements are that the trade was being carried on a commercial basis and with a view to the realisation of profits (which is deemed to be the case if the trade is carried on so as to afford a reasonable expectation of profit).

Claims for loss relief in earlier years were made under s381, which provides that relief is available for losses incurred in the first four tax years of a trade which, if the loss exceeds the income of that year, is applied to the preceding three years starting with the earliest. The loss relief under s381 is only available if the trade was carried on throughout the relevant year on a commercial basis and in such a way that profits could reasonably be expected to be realised in the period in which the loss occurred or shortly thereafter.

“An assessment on a person in a case involving a loss of income tax or capital gains tax -

brought about deliberately by the person,

…

may be made at any time not more than 20 years after the end of the year of assessment to which it relates (subject to any provision of the Taxes Acts allowing a longer period).”

“In this Act references to a loss of tax or a situation brought about deliberately by a person include a loss of tax or a situation that arises as a result of a deliberate inaccuracy in a document given to Her Majesty's Revenue and Customs by or on behalf of that person.”

AO claimed losses of £216,273. His tax return showed previous employment with Refco Overseas Limited (“Refco”), and AO confirmed he had traded in oil futures as an employee and then on his own account. He declared sales of contracts for differences (“CFDs”) of £87,850 and purchases of £283,944, of which £200,000 related to a contract between AO and Pendulum Investment Corporation (“Pendulum”). The margin on the other sales, was £3,906. At most, his only transactions in CFDs took place in the space of less than four months but in all probability in the space of less than one month.

RO claimed losses of £506,370. His tax return also showed previous employment with Refco, and he confirmed he had worked in oil futures. He declared CFD sales of £327,653 and purchases of £817,865, of which £500,000 related to a contract between RO and Pendulum. There was a discrepancy in the evidence related to these purchases and sales, but in oral evidence RO conceded that the small number of other sales had produced a loss of £155. His only transactions in CFDs took place in the space of less than one month.

The arrangements constituted a marketed tax avoidance scheme ([40]).

That scheme sought to create an artificial trading loss for tax purposes which the scheme users would be able to set against their general income ([41]).

The Pendulum Contract was a simple bet that the FTSE would have moved up or down from its level at the date of the contract by a specified range of points at specified dates in the future ([43]).

The Pendulum Contract was documented by a Master Agreement, an Offer to Trade and an Acceptance Confirmation Note (although the Appellants were not able to produce a signed copy of the version of the Master Agreement which governed their Pendulum Contracts) ([44] and [46]).

The Pendulum Contract provided for a maximum of five Phases. The counterparty would pay the Initial Margin to Pendulum. If the Designated Index moved (up or down) by an amount greater than the designated swing movement over Phase One, Pendulum would be obliged to pay the “Trade Profit” to the counterparty. If the Pendulum Contract did not terminate, it would move into Phase Two, and Pendulum would serve a Notice of Obligation on the counterparty requiring the counterparty to pay the Margin Call Balance. Phase Two was to last for two years. The Pendulum Contract provided for further Phases ([47]).

RO was looking for tax planning advice from Montpelier ([53]). In his witness statement AO stated his brother had introduced him to Montpelier, but in the hearing he said that Matthew Woolf and his brother had told him about Montpelier ([57]).

Montpelier Financial Services Limited (“Finance”) wrote to both Appellants on 28 February 2006 and each Appellant was told “You should consult your accountant or a tax specialist” as Finance were not giving advice on the tax treatment of CFDs. On 1 March 2006 the Appellants signed and returned a letter in which they each confirmed they understood that Finance was not advising them as to tax and that they must seek the advice of an accountant or tax specialist ([59 and 60]).

On 3 March 2006 both Appellants attended a meeting with Peter Crawford from Finance and Andrew Simpson from Montpelier Tax Consultants (City) Limited (“City”) ([62]).

The Appellants signed various documents at that meeting, including a Professional Services Agreement with Montpelier Tax Planning (Isle of Man) Limited (“MTP”) in which services provided by MTP were taxation advice in respect of the UK tax implications and consequences of the client commencing the trade of purchase and sale of derivative contracts ([65]).

The appellants’ recollection was that they were told that the scheme had been backed by Counsel and that it was legitimate. Anthony Outram said that no detail was given about that Opinion. In cross-examination he conceded that he was aware that Montpelier marketed tax planning and what he called “investments”. Neither could remember much else that they had been told although Ross Outram conceded that he had been aware that Montpelier marketed tax planning and that they were tax advisers. He said in cross-examination that Montpelier had marketed both tax planning and “trade” at the meeting. He said that it was “very possible” that tax advice had been given at the meeting. He said that he had been told that the fees were built into the cost of the CFD and that a loan was available to fund the Margin Call Balance (“MCB”) if it became payable. In his witness statement Anthony Outram said that he recollected that “…the fees were wrapped-up in the price paid for the CFD contract.” In cross-examination he could not remember if it was included in the initial Margin.”

The Appellants received an Offer to Trade from Pendulum ([72] to [77]), and the first phase in the Pendulum Contract was for seven days, with a designated swing movement of up and down 140 points of the close of FTSE trading on the previous day.

The Appellants paid the Initial Margin of 7% of the issue value on 16 March 2006; AO paid £14,000 and RO paid £35,000 ([78]).

The FTSE did not exceed the designated swing movement at the end of Phase One, so both entered Phase Two. Under the terms of the Master Agreement the Appellants were required to pay the balance of the Designated Issue Value (ie the Margin Call Balance) under the Pendulum Contracts on being served with a Notice of Obligation to pay the Margin Call Balance from Pendulum. Service of those Notices should have triggered a draw-down of the loans ([80]).

Pendulum served Notices of Obligation on the Appellants on 27 March 2006; £186,000 for AO and £465,000 for RO ([81]).

The Appellants both stated that they signed loan agreements with Mandaconsult AG (“Mandaconsult”). The copies produced to HMRC were undated and signed only by the Appellants ([83]). The loan was not interest bearing but the lender was entitled to a fee (specified as equal to varying levels of profit, payable in the event that profits were made), repayment was due on the 50^th anniversary of the agreement or earlier upon specified defaults such as being of unsound mind or bankruptcy but not in the event of death ([84]). In a letter dated 23 June 2014, Mandaconsult informed BR that it had never signed any loan agreements with AO or RO and had never made any payments to AO or RO ([87]).

The terms of the proposed loans were wholly uncommercial but, of course, in the event there were no loans ([88]).

At no time has either Appellant contacted Pendulum to check if the Margin Call Balance had been paid and if so by whom ([89]).

Neither Appellant had contacted Pendulum at the end of the subsequent phases to ascertain whether or not they had made a profit or if there was a different valuation for the contract. Although to be fair, Ross Outram did say that he knew he had not made a profit ([91]).

The true objective of the Appellants in entering into the Pendulum Contracts was not to make a profit at the end of any Phase but to lose at the end of Phase One so as to create a loss in respect of which they did not bear the full economic cost but which reduced their liability to tax ([137]).

The PowerPoint presentation and speaking notes (which we refer to as the “Montpelier Materials”), whilst dated two months after the date of the Appellants’ Pendulum Contracts, accurately represent how Montpelier marketed the arrangements ([138]). The Pendulum Contracts were marketed to the Appellants as a tax avoidance scheme, and the Appellants knew that ([140]).

Montpelier’s marketing focused on a two-stage process, establishing a trade and then incurring losses. That part of the message does not appear to have been acted upon by the Appellants. The Appellants did not commence any trade before entering into the Pendulum Contract ([142] to [143]). Both Appellants only entered a very small number of other CFD contracts; and these were after the date of the Pendulum Contracts ([144] and [145]). The CFD contracts other than the Pendulum Contracts were mere window dressing to give the impression of trading ([147]).

The FTT did not accept that either Appellant was trading in CFDs and even if they were wrong they were not doing so on a commercial basis with a view to profit. Very few, if any, of the badges of trade are present. If you do not have a trade, as Montpelier made very clear, you cannot relieve any losses ([148] and [149]).

There was no loan constituted in any way. The Appellants suffered no economic loss ([157]).

On 23 August 2021, at my behest, the Tribunal wrote to the parties intimating that I had considered the Applications for Permission to Appeal. I had not had an opportunity to speak to Mr Bell but it was my intention to review the Decisions in terms of Rule 41 the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (as amended) ("the Rules”).

…

I considered in accordance with Rule 40 of the Rules whether to review the Decision and decided that if there was a perceived lack of clarity, which would be an error of law, then I should undertake a review.

That being the case, in terms of Rule 41(3) of the Rules, I was required to give the parties the opportunity to make representations in relation to the proposed action.

I did so and the draft suggested changes were issued on 2 May 2023.

On 25 May 2023, as directed, both parties lodged with each other their submissions on the proposed revisions.

…

I had said in the decision on the application for leave to appeal that I had had in mind the parameters for review set out in paragraph 45(8) in Vital Nut Co. Limited v HMRC [2017] UKUT 192 (TCC). Barnes Roffe argue that the proposed changes appear to do more than clarify the original reasoning.

Their submissions on the proposed revisions were detailed and I have carefully considered them. I had intended to address those but on reflection, I believe that there is a bigger problem.

One of the issues that Barnes Roffe raise, fairly, is that the delay in drafting the proposed revisions is a factor because the Tribunal’s memory would inevitably be dimmed by the passage of time.

Barnes Roffe suggest that the changes are not made and the original application for leave to appeal be granted unless the Tribunal was minded to allow the appeals in light of the arguments advanced in relation to the proposed revisions or if the Tribunal accepts that there are flaws in the original reasoning that are adverse to the appellants, that should be highlighted.

I do not accept that the appeals are to be allowed. Mr Bell and I decided that the appeals were dismissed and we stand by the Decision.

As I indicated in the review decision, when I considered in accordance with Rule 40 of the Rules whether to review the Decision I decided that if there was a perceived lack of clarity, which would be an error of law, then I should undertake a review. The review was not undertaken because I (or Mr Bell) accepted that the Decision was flawed and unreasonable as averred by the appellants.

Since I did find that there was a possible error in law in that there was a perceived lack of clarity, then the appellant’s original application for leave to appeal should be granted. Accordingly the proposed revisions will not be made.”

“Please find enclosed decision notice which has been amended under Rule 37 (clerical errors and accidental slips or omissions)

Please note that the release date of the decision to you remains 21 July 2021 and the time limit in which you may exercise your right of appeal is unchanged.”

Ground 1 – The Revised Decision is inadequately reasoned, failing to provide a clear explanation for why the FTT rejected the arguments that the Appellants had a bona fide belief that they were entitled to make the claims for loss relief because they were told the arrangements were backed by counsel and also because it was never suggested by Montpelier or BR that the making of the claims was inappropriate.

Ground 2 – The changes that were made to the Original Decision in the Revised Decision are too extensive and significant to be justified under the slip rule in Rule 37 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “FTT Rules”) and are of a nature that should not be made under the review power in Rule 41 of the FTT Rules.

Ground 3 – The FTT used flawed objective reasoning when deciding that the conduct of the Appellants was deliberate.

Ground 4 – The basis on which the FTT found that the Appellants were guilty of deliberate conduct discloses an error of law and aspects of the reasoning appear unreasonable and suggest that there has been a failure to pay proper regard to material considerations.

“Where the First-tier Tribunal has under subsection (1) reviewed a decision, the First-tier Tribunal may in the light of the review do any of the following –

correct accidental errors in the decision or in a record of the decision;

amend reasons given for the decision;

set the decision aside.”

Clerical mistakes and accidental slips or omissions

The Tribunal may at any time correct any clerical mistake or other accidental slip or omission in a decision, direction or any document produced by it, by -

sending notification of the amended decision or direction, or a copy of the amended document, to all parties; and

making any necessary amendment to any information published in relation to the decision, direction or document.”

Review of a decision

The Tribunal may only undertake a review of a decision –

pursuant to rule 40(1) (review on an application for permission to appeal); and

if it is satisfied that there was an error of law in the decision.

The Tribunal must notify the parties in writing of the outcome of any review, unless the Tribunal decides to take no action following the review.

The Tribunal may not take any action in relation to a decision following a review without first giving every party an opportunity to make representations in relation to the proposed action.”

the letter of 25 September 2023 enclosing the Revised Decision referred to it as having been amended under Rule 37;

the PTA Decision of the same date says at [17] “the proposed revisions will not be made”, whereas many were, submitting that the inclusion of the changes may itself have been an accidental slip by the FTT; and

the end of the Revised Decision refers to Rule 41, and the release date of the Revised Decision had been updated.

[116] – The FTT had described parts of the Montpelier Materials, the need for a trade and that a loan is advanced:

[143] – At [142] the FTT had set out that the Montpelier Materials focused on a two-stage process, establishing a trade and then incurring losses:

[149] – The FTT had referred to the timing of entry into the Pendulum Contracts, made findings as to whether the Appellants had entered into other transactions, and concluded at [148] that they did not accept that either Appellant was trading in CFDs. This was then followed by:

the change in [143] is not appropriate to be made two years after a hearing, and was made in consequence of contentions in the PTA Application that the FTT was using objective reasoning; and

the change in [149] was trying to change the FTT’s reasoning retrospectively, seeking to defeat a challenge based on an error of law.

[116] – similar reasoning was already present in [156];

[143] – this cannot be regarded as anything more than a correction. There was evidence of the Appellants’ actions (or lack of action) in relation to establishing a trade before entering into the Pendulum Contract as noted in [143], and expanded on by reference to each Appellant in [144] and [145]. There was no direct evidence of their knowledge of the requirement to establish a trade given their inability to recall what, if any, advice was given to them by Montpelier; and

[149] – the FTT may have considered that the inclusion of the final sentence was confusing as it would require further explanation and therefore decided simply to omit it. The omission falls far short of an attempt to go beyond clarification. Moreover, a similar statement can still be found in the Revised Decision at [171].

There is no restriction on when the FTT can exercise the power under Rule 37. The FTT can amend a decision under Rule 37 of its own initiative or following application or notice by the parties. Rule 37 is not limited to cases where there has been an application for permission to appeal and the FTT is satisfied that the decision contains an error of law. There is no procedural requirement as to giving notice to the parties before making any changes. The restriction on the FTT’s power to amend a decision under Rule 37 is one of substance – the power is to “correct any clerical mistake or other accidental slip or omission”.

A review under Rule 41 may only be undertaken following an application for permission to appeal and if the FTT is satisfied that there was an error of law in the decision. Where the FTT undertakes a review of a decision, it may not take any action in relation to that decision without first giving every party an opportunity to make representations in relation to the proposed action. Where Rule 41 applies, the FTT has broad powers as set out in s9(4) TCEA 2007.

whether the Revised Decision was the result of a review of the Original Decision under Rule 41 or correction of accidental slips under Rule 37; and

whether the changes made were ones that the FTT was entitled to make under the relevant process.

“His argument was that that could be relied upon to evidence the fact that there must have been some sort of verbal loan. There is absolutely no evidence to that effect. As can be seen from paragraphs 83 to 87 above, both appellants signed loan agreements copies of which were produced to HMRC but it was only when HMRC instigated enquiries in 2014 that it transpired that Mandaconsult AG had never signed the agreements. The witness statements of both appellants refer to the loans and both said that they assumed that Mandaconsult AG had executed the loan agreements. There is absolutely no reference to any verbal loan; indeed both state that they proceeded on the basis that the loan agreements were key to the arrangements and existed. In oral evidence Anthony Outram said that he would not have entered into the Pendulum Contract without the loan and Ross Outram said that it was the existence of the loan that made it attractive and the existence of the loan was the “deciding factor”.”

the contents of the letter of 25 September 2023 are inexplicable, including the reference not only to Rule 37 but to the release date of the decision remaining as 21 July 2021 – the Original Decision was released on 27 April 2021, and the release date of the Revised Decision, which was attached to the letter, had been changed on the final page to 25 September 2023; and

the PTA Decision, having recounted the background and in particular the submissions received from BR on behalf of the Appellants, stated at [17] thereof that the Appellants’ original application for leave to appeal should be granted and ended with “Accordingly the proposed revisions will not be made.” Yet the version of the Revised Decision which was released to the parties did include some, but not all, of the revisions which had been proposed in the May 2023 Draft.

The change of language in [143] from the message (from Montpelier) about trading “does not appear to have been understood by them” to “does not appear to have been acted upon by them” is significant. It is part of the FTT’s findings as to what the Appellants did or did not do, and is relied upon by the FTT (albeit without express cross-reference) in its reasons for concluding that the conduct was deliberate.

The deletion in [149] of “In any event, the losses could only be created if there was a loan” initially appears very significant, particularly in the light of the Appellants’ submissions on Grounds 1 and 4 which included that the FTT’s findings in relation to the loans revealed, in the Appellants’ submission, that the FTT had failed to understand the arrangements and the basis on which the losses were expected to be claimed. However, we recognise that at [171] of the Revised Decision the FTT states “Crucially the appellants do not and never did have any liability to repay a purported loan. Therefore they did not incur expenditure and they incurred no losses that were capable of being relieved.” This makes substantially the same point as that which had been made by the deleted language and we consider that this reduces the significance of the deletion in [149].

The appeal was heard by a single judge whereas the relevant Practice Statement of the Senior President of Tribunals on the Composition of Tribunals provides that a disability living allowance appeal must be decided by a panel consisting of a judge and two members, and one member must be a medical practitioner and the other must have a disability qualification.

The amended reasons were provided by the fee-paid judge who heard the appeal. That Practice Statement provides that the exercise of the power of review under s9 must be carried out by a salaried tribunal judge. The Upper Tribunal considered that amended reasons could not properly be written by a salaried judge who was not a member of the original panel, with the result that power is given to a salaried judge who may not be in a position to implement it. The Upper Tribunal considered that the solution to this is that if the salaried judge considers it may be appropriate to amend the reasons, the proper course is to invite the hearing judge to prepare such reasons as are consistent with the tribunal’s reasoning at the time of its decision, and the salaried judge must then decide whether they satisfy the criterion of being amended reasons.

The powers under the rules of procedure must be exercised fairly and justly; this means that they must be exercised transparently. Here, the district tribunal judge did not give the parties an opportunity to make representations – this was said to be inappropriate and unfortunate (at JS[9]). The Upper Tribunal did not comment on the hearing judge’s failure to provide the parties with the opportunity to comment on the amended reasons.

At JS[28] the Upper Tribunal referred to the decision of the Supreme Court in In the matter of L and B (Children) [2013] UKSC 8 (“L and B”) at L and B[17] and [19], stating that “the Supreme Court has recently emphasised that the integrity of the appeal process should not be subverted by diverting matters to an alternative process”.

In L and B, Baroness Hale, in a judgment with which the other members of the court agreed, identified the issue in that case as being whether and in what circumstances a judge who has announced her decision is entitled to change her mind. In an oral judgement on 15 December 2011, the “preliminary outline judgment approved by the court” had concluded that the father was the perpetrator of non-accidental injuries to a child. In a written “perfected judgment” on 15 February 2012 she expanded upon the earlier judgment but reached a different conclusion, stating “I am unable to find to the requisite standard which of the parents it was…It could have been either of them who injured [child] and that is my finding”.

Baroness Hale said a judge is entitled to reverse his decision at any time before his order is drawn up and perfected. There is no jurisdiction to change one’s mind thereafter unless the court has an express power to vary its own previous order. The proper route of challenge is by appeal. The judge did have power to change her mind, and the question was whether she should have exercised it. Baroness Hale set out at L and B[27] that the judge’s overriding objective must be to deal with the case justly, and a relevant factor must be whether any party has acted upon the decision to his detriment. Referring to examples of cases where it might be just to revisit, these were said to be only examples, and a carefully considered change of mind can be sufficient; every case is going to depend upon its particular circumstances. The court ordered that the father’s appeal be allowed; the welfare hearing should proceed on the basis of the findings in the judgement of 15 February 2012.

However, L and B is a case in which there was no separate review process. Baroness Hale expressly allowed for cases where the court (or tribunal) has an express power to vary its order. The review procedure under Rule 41 is a part of such a process, and ordinarily the FTT is not subverting the appeals process by exercising this power (as it is designed to avoid unnecessary appeals). In any event, the FTT has to exercise the power to undertake a review of a decision in the light of the overriding objective and should be mindful of circumstances in which exercise of the power might disrupt the progress of an appeal.

At JS[34] the Upper Tribunal stated that the common law or inherent power and the decisions on its exercise form part of the background against which, and by analogy provide guidance on how, s9 TCEA 2007 is to be interpreted and applied. Those decisions “make clear that the power to give additional reasons is only to be exercised exceptionally and with safeguards”. They referred to Mummery LJ’s speech in Woodhouse School v Webster [2009] ICR 818 (“Woodhouse”) (in particular Woodhouse[26] to [28] of that speech).

The Employment Tribunal (“ET”) had been divided as to why an employee had resigned. One lay member thought there was no constructive dismissal; the majority took a different view of the evidence. The Employment Appeal Tribunal (“EAT”) made an order that the ET be asked to answer certain questions in relation to its written reasons, and was asked to give its answers by reference to its notes of evidence.

Mummery LJ had emphasised at Woodhouse[25] the importance of taking care to observe the limits of the exceptional Burns/Barke procedure, which is available where the EAT considers that there is possibly an inadequacy in the ET’s reasons for its decision. The EAT may, before it finally decides the appeal, refer specific questions to the ET at the preliminary hearing of the appeal, requesting it to clarify or supplement its reasons where no reasons were given or where the reasons were inadequate. He said it is not desirable for the ET to do more than answer the request – it should not, eg, advance arguments in defence of its decision. Mummery LJ’s concerns were twofold: the EAT should identify correctly the point on which the ET’s reasons may be inadequate; and having been asked questions, the ET chairman went further than the questions required and further than was justified.

We note that in JS the Upper Tribunal said at JS[35] this reasoning is equally applicable to the review power under s9. However, the reasoning in Woodhouse was based on common law principles, whereas the power of review is granted by statute, and is embodied in the relevant Tribunal rules.

At JS[36] the Upper Tribunal recorded that one of the limits on the power to supplement reasons is that it must not be used to correct defective reasoning or to provide a commentary on the grounds of appeal, and considered this is equally applicable to the review power. They referred to the decision of the Court of Appeal in Brewer v Mann [2012] EWCA Civ 246 (“Brewer”).

In Brewer, the Court of Appeal said at Brewer[31] “where a judge has received no request from the parties to reconsider his judgment or add to his reasons, and has not demonstrated the need in conscience to revisit his judgment, but on the contrary has received grounds of appeal and an application for permission to appeal on the basis of the alleged inadequacies of his judgment, then it would be most unwise for him to rewrite his judgment (other than purely editorially) and it would take the most extraordinary reasons, if any, to justify such a course on his part”.

This guidance, although expressed as provisional, is given in forceful language. But the point remains that this was given against the background that there was no statutory power to review a decision.

At JS[27] and [41] the Upper Tribunal referred to Mummery LJ’s speech in Space Airconditioning plc v Guy [2012] EWCA Civ 1664. Mummery LJ stated that that the judgment should be an accurate record of the judge’s findings and of the reasons for the decision; and before a judge corrected a judgment, the judge should give both sides an opportunity to make submissions on whether there is a valid objection.

The starting-point of Mummery LJ (in a speech with which the other members of the court agreed) was that CPR Part 52.11(3) sets out that the appeal court will allow an appeal where the decision of the lower court was either (a) wrong or (b) unjust because of a serious procedural error or other irregularity in the proceedings in the lower court. In that case, judgment had been given and an order made and the judgment contained what was described as a plainly wrong finding of fact. After the judgment had been handed down the judge had acknowledged that the finding was wrong but declined to correct it as a typographical slip and refused permission to appeal.

The appellant’s submissions included that the erroneous finding meant it had not had a fair trial – the wrong finding gave rise to a real doubt as to whether the judge appreciated the importance of the confidentiality factor central to its claim. The judge misunderstood much of the crucial evidence going to the heart of its case, and the error had a knock-on effect as it coloured the judge’s assessment of the evidence on other issues.

Mummery LJ did not accept the respondent’s suggestion that the error was typographical only. One reason given was that the judge herself had acknowledged the error but did not say it was typographical. He allowed the appeal on the ground that the decision appealed was either wrong or it was unjust as a result of an irregularity. The retention of the erroneous finding was an “irregularity in the proceedings” which makes the decision an unjust one.

We note that Mummery LJ had said that before the correction is made the judge should obviously give both sides an opportunity to make submission on whether there is a valid objection to a proposed amendment. That requirement is embedded in Rule 41(3).

We have already established that we find that:-

The appellants had knowingly taken part in a tax avoidance scheme;

They knew that that scheme involved the need to have a trade and thereafter create losses, whereas the reality was that there was no trade;

They knew that the losses would be created by a purported loan on uncommercial terms and that that loan would not be repayable on the elapse of 50 years;

They knew that their other CFD contracts were not even modest but were in fact minimal in size and occurred within a very short period and after the meeting on 3 March 2006;

The only information given to BR was the extent of the alleged trade;

They did not seek tax advice from BR at any stage in relation to the Pendulum Contract.

Therefore we find that each of the appellants knew at the time of filing their respective SATRs that they were not carrying on a trade which entitled them to make a claim for loss relief.

We were wholly unconvinced by the appellants’ argument that they were entitled to rely on Montpelier for everything and that they needed to check almost nothing because Montpelier was FSA registered and had a Counsel’s Opinion which they had not seen. Had they asked to see it, as they were entitled to do, as Judge Richards says at paragraph 48 of Thomson (which is quoted with approval by Judge Sinfield at para 56 of Sherrington) that Opinion made it clear that Counsel was not endorsing the scheme. We have underlined the key words.

“He also sought tax advice from UK tax counsel, Mr Shipwright, on the tax consequences for investors. Mr Shipwright’s advice included an analysis of the general law, and HMRC practice on what amounted to the carrying on of a trade on a commercial basis with a view to profit. However, that analysis was generic: Mr Shipwright was not purporting to advise as to whether any particular taxpayer met this requirement and he noted that the question was ultimately a question of fact that depended on what a taxpayer actually did.”

As can be seen their primary dealings were in fact with Andrew Simpson of City and their Professional Services Agreements were with MTP, neither of which were FSA registered. The documentation made it abundantly clear that there was no FSA protection and nor was there protection in the Seychelles. They had both requested a sophisticated investors certificate, which was provided by Montpelier and which took them out of FSA protection.

Their glib assertions that they were not men with an eye for detail and that they had therefore not read the documents in detail, do not assist them. By any standard, purported indebtedness of £185,000 and £465,000 is not insignificant for individuals of relatively limited means.

The fact that neither of them knew whether they had accepted Pendulum’s offer to re-purchase the CFDs and their failure to check what had happened in subsequent years, points to a disregard of anything other than the losses which they had set out to achieve.

This is a self-assessment system. The taxpayer is ultimately responsible for submitting an accurate SATR.

This was not a question of the appellants turning a blind eye. They did not ask questions or read documents because they knew precisely what they were doing. They were trying to create a significant loss and thereafter make substantial claims for repayment of tax. Crucially the appellants do not and never did have any liability to repay a purported loan. Therefore they did not incur expenditure and they incurred no losses that were capable of being relieved. Furthermore they had not been carrying on a trade on a commercial basis with a view to making a profit.

In submitting their SATRs we find that they acted deliberately with a view to claiming non-existent losses. Their intention was to mislead HMRC and obtain repayments of tax.

For all these reasons the appeals are dismissed.”

[164] simply recites the underlying facts which are not a matter of dispute, and, at [164(b)] the FTT imputed to the Appellants its own conclusion (which it had reached at [148]) that there was no trade;

the finding at [165] that the Appellants knew they were not carrying on a trade which entitled them to make a claim for loss relief does not follow from the findings in [164]. The FTT had referred to the Montpelier Materials but then glossed over significant comments made therein about what amounts to a trade that would have made it understandable that the Appellants should consider they were entitled to relief. The relevant consideration was what the Appellants appreciated amounted to a trade giving them an entitlement to a deduction;

the Appellants’ reliance (referred to at [166]) on Montpelier must be assessed by reference to the advice from Montpelier, which included that the scheme was backed by counsel, and the Montpelier Materials. Any lack of diligence, eg not asking for a copy of counsel’s opinion, may be an indicator of carelessness but not actual knowledge. The reference to the contents of that opinion, which the Appellants had not seen, does not explain why the FTT concluded they had actual knowledge;

the findings in [168], which referred to “glib assertions that they were not men with an eye for detail”, may similarly be indicators of carelessness but not knowledge;

the findings at [168] and [169] are consistent with the Appellants being prepared to bear any losses because of the hoped-for tax reliefs, and are consistent with them knowing that they were engaging in a tax avoidance scheme;

the language of [171] echoes the decision of the FTT in Sacutia Healthcare Ltd v HMRC [2018] UKFTT 699 (TC) (“Sacutia”). The FTT had drawn this case to the parties’ attention during the hearing. Mr Woolf submitted that Sacutia had incorrectly taken an objective approach to determining knowledge; and

the FTT said at [171] that the Appellants were trying to create a loss and “crucially” do not and never did have any liability to repay a purported loan. This does not address the fact that the Appellants signed loan agreements and thought there was a loan. Mandaconsult did not execute the loan agreements and claimed to have no knowledge of the agreements, but Montpelier did not tell the Appellants of this. There is no explanation for why the finding on the absence of a loan justifies concluding that the conduct was deliberate. The only possible explanation might be if the FTT had thought that there could be no tax loss in the absence of a loan, but that is incorrect in law.

The findings in [164] and [165] are sufficient. In particular, the Appellants had experience of trading in oil futures. There is no basis on which the Appellants could have said they were trading; this is not credible.

The Appellants’ criticisms of these findings are based on evidence which was not before the FTT (eg, the advice Montpelier was said to have given regarding the need to establish a trade beforehand); evidence which is cherry-picked (eg, one statement in the notes for one slide out of the complete set of notes and slides before the FTT); or evidence which was specifically rejected by the FTT (they expected a tax loss but would have been happy to generate a profit).

As to [166], there was no evidence of what tax advice was given by MTP, why the Appellants chose not to look at the counsel’s opinion or what they had been told about it. HMRC submitted the FTT was entitled to take into account, when determining knowledge, that the Appellants had not seen the opinion even though they could have asked for a copy, and, if they had seen the opinion, it would have been clear that the scheme was not backed by counsel.

At [168] the FTT rejected the argument that not having an eye for detail was a sufficient reason for not asking questions or reading documents.

“In our view, where a taxpayer suspects that a document contained an inaccuracy but deliberately and without good reason chooses not to confirm the true position before submitting the document to HMRC then the inaccuracy is deliberate on the part of the taxpayer. If it were otherwise then a person who believed there was a high probability that their return contained errors but chose not to investigate would never be subject to a deliberate penalty. However, the suspicion must be more than merely fanciful. …”

“In our view, a deliberate inaccuracy occurs when a taxpayer knowingly provides HMRC with a document that contains an error with the intention that HMRC should rely upon it as an accurate document. This is a subjective test. The question is not whether a reasonable taxpayer might have made the same error or even whether this taxpayer failed to take all reasonable steps to ensure that the return was accurate. It is a question of the knowledge and intention of the particular taxpayer at the time.”

the decision “must be read fairly and as a whole, without focusing merely on individual phrases or passages in isolation, and without being hypercritical”;

a tribunal “is not required to identify all the evidence relied on in reaching its conclusions of fact…Nor is it required to express every step of its reasoning in any greater degree of detail than that necessary to be Meek-compliant”; and

it is not legitimate for an appellate court or tribunal to reason that a failure by an employment tribunal to refer to evidence means that it did not exist, or that a failure to refer to it means that it was not taken into account in reaching the conclusions expressed in the decision. What is out of sight in the language of the decision is not to be presumed to be non-existent or out of mind.

“It has on a number of occasions been made plain that the decision of [a Tribunal] is not required to be an elaborate formalistic product of refined legal draftsmanship, but it must contain an outline of the story which has given rise to the complaint and a summary of the Tribunal's basic factual conclusions and a statement of the reasons which have led them to reach the conclusion which they do on those basic facts. The parties are entitled to be told why they have won or lost. There should be sufficient account of the facts and of the reasoning to enable [an appellate tribunal] or, on further appeal, this court to see whether any question of law arises…”.

Moreover, where a tribunal has correctly stated the legal principles to be applied, an appellate tribunal or court should, in my view, be slow to conclude that it has not applied those principles, and should generally do so only where it is clear from the language used that a different principle has been applied to the facts found. Tribunals sometimes make errors, having stated the principles correctly but slipping up in their application, as the case law demonstrates; but if the correct principles were in the tribunal’s mind, as demonstrated by their being identified in the express terms of the decision, the tribunal can be expected to have been seeking faithfully to apply them, and to have done so unless the contrary is clear from the language of its decision. This presumption ought to be all the stronger where, as in the present case, the decision is by an experienced specialist tribunal applying very familiar principles whose application forms a significant part of its day to day judicial workload.”

For the Montpelier Arrangements to deliver the intended tax benefits, participants needed to be trading. This is clear from the summary in Thomson at [65(1)]. It was emphasised by the FTT in the Revised Decision, and the summary of the Montpelier Materials at [142] makes clear that the marketing focused on a two-stage process – establishing a trade and then incurring losses. As a matter of law, there would be no need for the trade to be established first, but this is not how the scheme was marketed.

The Montpelier Arrangements had to produce a tax loss without an economic loss. This is explained in Thomson at [65(5)], and was achieved by the Margin Call Balance being funded by a loan (there, from Bayridge, for the Appellants, intended to be from Mandaconsult). The FTT found that there was no loan to the Appellants. This raises a question of fact as to the outstanding amount apparently due under the Pendulum Contracts, but we recognise that the absence of the loan would not of itself necessarily render the scheme ineffective – a trader would be claiming a loss arising from the fall in value of the Pendulum Contract, relying on the value implied by the amount of the repurchase offer.

As already identified, the FTT had expressed its agreement with the subjective test for a deliberate inaccuracy as set out in Auxilium. That appears at [163] of the Revised Decision, and includes the relevant paragraph from the decision in Auxilium. It appears immediately before the FTT’s consideration of the application of that test.

The finding which the FTT reaches at [165], namely “Therefore we find that each of the appellants knew at the time of filing their respective SATRs that they were not carrying on a trade which entitled them to make a claim for loss relief”, is absolutely clear.

made findings as to the transactions which had been entered into, including that the terms of the proposed loan were wholly uncommercial but that in the event there were no loans (at [88]);

assessed the evidence which was before it – this included not only observations on the documentary evidence (including at [49] that one of the “major problems” was that neither Appellant had been able to produce anything remotely like a complete set of signed documents), but also an assessment of the Appellants as witnesses (describing them as “less than compelling witnesses” at [126]);

described their contact with both BR and the various Montpelier entities, including that any tax advice they obtained was from MTP, and the Appellants’ recollections of what they had been told (at [63]);

reached conclusions as to the “true objective” of the Appellants in entering into the Pendulum Contracts being to lose at the end of Phase One so as to create a loss in respect of which they did not bear the full economic cost but which reduced their liability to tax (at [137]);

described and made findings in relation to the Montpelier Materials, concluding that they accurately represent how Montpelier marketed the arrangements (at [138]); and

reached the conclusion that the Appellants did not commence any trade before entering the Pendulum Contracts, and that the CFD contracts other than the Pendulum Contracts were “mere window dressing to give the impression of trading” (at [147]), that very few, if any, of the badges of trade were present and that if you do not have a trade, as Montpelier made very clear, you cannot relieve any losses (at [149]).

the FTT appears to rely on its own conclusions as to the absence of a trade when concluding that the Appellants had actual subjective knowledge of the same; and

the FTT’s emphasis on the Appellants having failed to check anything is reminiscent of an approach to carelessness rather than deliberate, or perhaps blind-eye knowledge (which had not been pleaded before the FTT).

We did consider whether this part of the Revised Decision could be read in a way which does not prejudice any earlier conclusions reached, potentially by reading the FTT as having effectively reached its conclusion at [164] and [165] (although we have already identified an error in that approach) and having then moved on to consider and dismiss other factors which might otherwise be used to explain the Appellants’ conduct, eg that they failed to take reasonable care, did not ask to see and therefore did not read counsel’s opinion, and did not read the documents. The difficulty is that the Revised Decision itself does not support such an approach, and Ms Choudhury did not seek to persuade us that it should be read in this way even when invited to do so by the panel at the hearing.

[171] has echoes of a more subjective approach, addressing the FTT’s conclusions as to why the Appellants did not ask questions or read documents. However, the answer given by the FTT is that this was because “they knew precisely what they were doing. They were trying to create a significant loss and thereafter make substantial claims for repayment of tax.” This reference to the Appellants’ knowledge is thus confined to their knowledge that the Montpelier Arrangements were a marketed tax avoidance scheme; it does not address their knowledge as to the lack of a trade.

we reject HMRC’s submission that we could decide the appeal on the basis of blind-eye knowledge – this had not been pleaded by HMRC in their Statement of Case before the FTT and appears to have been first raised by HMRC in their written submissions before this hearing. It would in this situation be completely unfair to the Appellants to make any such decision; and

we are not able to re-make the decision ourselves – we are not able to re-make the decision on the basis of the facts as found by the FTT and, having not heard the evidence or indeed been taken to any transcripts of the hearing before the FTT (if indeed such transcripts exist), we are not in a position to make any additional findings of fact.