Spc00684
Retirement relief – Completion of contract for sale of shares – Time of disposal – Equitable assignment – Whether English or Scots appeal

THE SPECIAL COMMISSIONERS

	JOHN GEORGE BURT	Appellant

-	and –

	THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS 	 Respondents

		

				Special Commissioner:  JULIAN GHOSH QC

Sitting in Edinburgh on 26 September 2007

Mr Richard C Wilson, counsel, instructed by Charles R B Anderson W.S, for the Appellant 

Mrs S Alexander, HMIT, Appeals Unit, and Mr D Wishart, Solicitors Office (Edinburgh) on behalf of the Respondents

© CROWN COPYRIGHT 2008

DECISION

1.	This is an appeal by Mr John George Burt (‘the Appellant’) against a closure notice dated 20 May 2004 and issued under section 28A of the Taxes Management Act 1970 following the completion of an enquiry under section 9A of that Act into his self-assessment return for the year ended 5 April 2000. The effect of the closure notice was to incorporate a chargeable gain of £85,260 on the disposal by the Appellant of twenty £1 ordinary shares (‘the Shares’) in Birks Sinclair and Associates Limited (‘the Company’) to the trustees of the Birks Sinclair and Associates Limited Employee Benefit Trust (‘the EBT’), giving rise to an additional liability to capital gains tax (‘CGT’) in the sum of £32,340. The gross amount of the gain on the disposal of the Shares is not in dispute. The appeal turns on the question of whether or not the gain qualifies for retirement relief within the meaning of section 163 of the Taxation of Chargeable Gains Act 1992 (‘TCGA 1992’). 

2.	The matter came before me at a hearing in Edinburgh on 26 September 2007. The Appellant was represented by Mr Richard Wilson, who practices at the Bar of England and Wales; the Respondents were represented by Mrs Sue Alexander, who is one of Her Majesty’s Inspectors of Taxes.  I heard brief but most helpful submissions from Mr Wishart, solicitor, on behalf of HMRC, on the question of jurisdiction.

THE ISSUES

3.	The parties agreed in advance of the hearing the following statement of the point at issue:

1.	Whether Mr Burt’s disposal of shares to the Birks Sinclair & Associates Ltd Employee Benefit Trust on 25 August 1999 was the completion of a contract for the sale of shares to the limited company Birks Sinclair & Associates Ltd entered into on 13 June 1997.

2.	Alternatively, whether the 13 June 1997 contract had been replaced by one or more new contracts such that the contract actually giving rise to the disposal of shares was made during 1999/2000.

3.	Whether the disposal of shares falls to be taken into account for tax purposes in 1997/1998 and is thus wholly covered by retirement relief or in 1999/2000 in which year retirement relief was no longer available.

It is not in dispute that if (as the Appellant contends) the disposal occurred in 1997, then retirement relief is available and no additional tax is due. The Appellant accepts, however, that if the date of the disposal was in 1999 then no retirement relief is available and the amended return correctly shows a total of £29,621.94 tax due.

4.	Two further issues were raised during the course of the hearing, namely (1) the possibility of an equitable assignment of the Company’s rights to the trustees of the EBT; and (2) the question of whether the matter is being dealt with in procedural terms as an English appeal or as a Scots appeal. I invited the parties to make further written submissions on these two issues, which I shall consider later in this decision.

THE LEGISLATION

5.	As I have indicated above, there is no substantive dispute between the parties as to the effect of the relevant legislation. It will suffice, therefore, for me merely to summarise briefly the relevant provisions.

6.	The charge to CGT is imposed by section 1(1) of the TCGA 1992 in respect of ‘chargeable gains computed in accordance with this Act and accruing to a person on the disposal of assets’. The time at which a disposal under a contract take effect for the purposes of CGT is dealt with in section 28 of the Act, which provides as follows:

(1)	Subject to section 22(2), and subsection (2) below, where an asset is disposed of and acquired under a contract the time at which the disposal and acquisition is made is the time the contract is made (and not, if different, the time at which the asset is conveyed or transferred).

(2)	If the contract is conditional (and in particular if it is conditional on the exercise of an option) the time at which the disposal and acquisition is made is the time when the condition is satisfied.

Neither party contended that the contract in question was conditional. Therefore, subsection (2) above is not relevant to the present appeal. Similarly, section 22(2) of the TCGA 1992 is irrelevant for present purposes.

7.	Section 163(1) of the TCGA 1992, which has been repealed with effect for disposals in 2003-04 and subsequent years, gave relief from CGT, subject to and in accordance with Schedule 6 to the Act, in any case where a material disposal of business assets was made by an individual who, at the time of the disposal, had attained the age of fifty or had retired on ill-health grounds below the age of fifty. For these purposes, section 163(2)(c) of the Act provided that a disposal of business assets included a disposal of shares or securities of a company. 

8.	Insofar as is relevant to the present appeal, subsection (5) of section 163 of the TCGA 1992 was in the following terms:

A disposal of shares or securities of a company…is a material disposal if, throughout a period of at least one year ending with the operative date, the relevant conditions are fulfilled and, in relation to such a disposal, those conditions are fulfilled at any time if at that time—
(a)	…; or
(b)	the company is the individual’s personal company and is either a trading company or the holding company of a trading group and the individual is a full-time working officer or employee of the company…;
and…the operative date for the purposes of this subsection is the date of the disposal.

It is not in dispute that the Appellant had attained the age of fifty prior to the earliest possible date for the disposal, nor that that the Company was his ‘personal company’ within the meaning of section 163(5)(b) of the TCGA 1992. It is also not in dispute that the Company was a trading company at all material times. Furthermore, it was agreed between the parties (see paragraph 13 below) that the Appellant resigned as a director of the Company with effect from 1 July 1997 and that he resigned as an employee of the Company with effect from 31 August 1997. It follows, therefore, that the Appellant would have satisfied the relevant conditions throughout the operative period if the date of the disposal was (as he contends) in 1997 but that he would not have satisfied those conditions throughout that period if the date of the disposal was (as the Respondents contend) in 1999.

THE FACTS NOT IN DISPUTE

9.	The parties agreed in advance of the hearing a brief statement of facts not in dispute.

10.	The Company, which was formerly known as Birks and Sinclair Limited, was incorporated in England on 23 August 1985. Its registered office was situate in Durham (or, at least, was so situate in June 2007, when the statement of facts not in dispute was agreed between the parties).

11.	The Appellant, who was born on 14 July 1940, was appointed a director of the Company on 1 May 1992. In August 1992, he entered into an agreement with the then two other directors of the Company to purchase the Shares for £40,000. 

12.	A note of a directors’ meeting on 24 April 1997 records that the directors agreed that there were profound differences between them. They agreed to meet on 20 May to discuss proposals for resolving these differences. A board meeting of the Company was held on 13 June 1997 and attended by all four directors. 

13.	As I have noted above, it is agreed that the Appellant resigned as a director with effect from 1 July 1997 and that he resigned as an employee with effect from 31 August 1997. In August 1999, a payment of £139,000 was made by cheque dated 17 August 1999 and drawn on the account of the EBT in favour of the Appellant.

THE EVIDENCE

14.	The Respondents did not rely on the evidence of any witnesses of fact (although, for reasons that I shall address later in this decision, Mrs Alexander’s supplementary skeleton argument invited me to treat the submissions of the two advocates appearing before me as admissible evidence of fact as to the law of England and Wales).

15.	The Appellant relied on a witness statement made by him on 24 September 2007. He explained in that statement his involvement with the Company, which he joined in 1991. Its business was the provision of economic expertise and he was appointed as an international consultant in the field of government restructuring. From 1992 (when, as is agreed between the parties, he was appointed a director of the Company), he was responsible for the management of its contracts with the European Union; from about 1995, he was responsible for overseeing its finances. The Appellant’s statement confirms that there were certain tensions between him and his fellow directors relating to the management of the Company and that these led to the agreement (to which I have already made reference) that there were profound differences between them. In my judgment, it is not necessary for me to make any findings of fact in relation to the Appellant’s evidence regarding his involvement with the Company in this regard and I merely observe that I have no reason to doubt the veracity or accuracy of his evidence on these issues.

16.	The Appellant deals in detail at paragraphs 6 to 15 of his witness statement with the sale of the Shares. He states that he presented to the directors’ meeting in May 1997 a proposal that included his resignation from the Company and the sale by him of the Shares. He states that he subsequently held discussions with a Mr Clive Sinclair, who was a director of the Company, concerning the value of the Shares. He continues:

Eventually we managed to reach an agreement as to the total amount that I would be paid upon my departure from the Company. The total amount agreed was £245,000, which consisted of three elements: (i) £139,000 for the Shares, (ii) £39,000 for unpaid remuneration (money I felt was due to me in that financial year, but which had not been taken due to the Company’s cash flow situation and large overdraft) and (iii) £67,000 for payments that had been foregone by me in the previous years (money which I, and the other directors had not taken out of the Company, on the basis of a target salary, in order to build it up). This total figure of £245,000 was referred to in the board minute of 13th June 1997 [F10] as the purchase price for my shares, however, as I have explained (and as is shown by the documents at [F11], [F24] and [F33]) the price payable for the shares was actually £139,000.
Draft heads of agreement were prepared by Mr Sinclair, and these showed that the Shares would be acquired by the Company or by some other party at its nomination [F3].

The references in square brackets refer to pages in the agreed bundle of documents. The minute of the meeting held on 13 June 1997 [F10] is in the following terms:

It was agreed that George Burt would: resign as a Director from the 1st of July 1997; resign as an employee from the 31st of August, 1997.
The terms of this transaction are:

a)	the Company should purchase his shares for £245,000;
b)	a pension payment of £35,000;
c)	the company might consider using his services as a consultant although no formal agreement was reached;
d)	Companies House should be advised of the resignation of Mr Burt as a Director

There were no further points discussed and the meeting was closed.

The minute was signed by all four directors. 

17.	The other documents to which the Appellant refers in the passage from his witness statement quoted above are:
17.1	a memorandum dated 2 September 1997 and headed ‘Sale of Shares to Company’ [F11], which states that the agreed sum of £245,000 is made up of three constituent elements in the manner described by the Appellant in his witness statement;
17.2	a memorandum dated 12 August 1998 and headed ‘Purchase of Shares’ [F24], which states:

In July 1997, BSAL agreed to purchase my 20 shares in the company. The price was worked out as follows:

Share value		£139,000
Unpaid Profit		£39,000
Unpaid income	£67,000
Total			£245,000

and,

17.3	a letter from the Appellant addressed to Mr Sinclair and dated 8 February 1999 [F33], which recognises that the Company’s financial positions is such that ‘you are unable to pay me all the amounts which had been agreed in July 1997’ and that ‘you cannot guarantee payment until the next financial year’ and in which the Appellant states: 

Whilst I still feel that an agreement made should be kept, I have to recognise reality.
Accordingly, I am willing to settle for the payment for my shares of £139,000 which we agreed in July 1997. If, and only if, this amount is paid on the due date, then I confirm that this would be a final settlement and I would not be paid any other sums, excepting those which relate to the existing or future consultancy agreements I may have with your company. 
The shares would be purchased by the company and payment as above would be on 1st September 1999.

The Appellant refers at paragraphs 10 and 11 of his witness statement to this inability of the Company to pay for the Shares immediately and to the proposal put to the Company by him in his letter dated 8 February 1999. His evidence is that, in his mind, he was agreeing to accept the sum that had already been agreed in respect of the Shares, rather than renegotiating the whole deal, and that he was merely foregoing his right to receive the other payments.

18.	The Appellant states (at paragraphs 12 and 13 of his witness statement) that his proposal was accepted by a letter dated 22 March 1999, which indicated that the Company accepted ‘your offer’ and that it might ‘establish a Trust to purchase your Shares’. The trust referred to in this letter – that is to say, the EBT – was created on 7 July 1999. The Appellant’s evidence is that there were no discussions concerning any contract for the sale of the Shares being entered into between him and the EBT. 

19.	The Appellant deals at paragraph 14 of his witness statement with the circumstances surrounding the payment to him of £139,000 in August 1999. He states that he was contacted by Mr Sinclair by telephone sometime in that month and that he was told that he would be receiving a cheque for £139,000. The Appellant cannot recall whether Mr Sinclair specifically mentioned that this cheque would be coming from the trustees of the EBT but he accepts that Mr Sinclair may have done so. It was agreed that the Appellant would travel to the Company’s offices in Durham. He believes (based on the contents of his diary) that he attended these offices on 25 August 1999. He states that he received a cheque drawn on an account with the Newcastle Grey Street branch of Lloyds TSB in the name of ‘Birks Sinclair & Assoc Ltd – Employee Benefit’. He observes that the Company’s bank account is at the same branch of Lloyds TSB.

20.	The Appellant states that he signed a receipt dated 25 August 1999 on the Company’s headed notepaper. A copy of the receipt was included in the agreed bundle of documents. It is in the following terms: ‘I acknowledge receipt of the sum of £139,000 from the Birks Sinclair & Associates Ltd Employee Benefit Trust’. He also signed a letter dated 25 August 1999 and addressed jointly to the Trust and the Company. The letter was in the following terms:

Dear Sirs

In consideration of the Birks Sinclair and Associates Ltd Employee benefit [sic] Trust agreeing to pay me the sum of £139,000 (one hundred and thirty nine thousand pounds), in full and final settlement for the purchase of my shares in Birks Sinclair and Associates Ltd (“the Company”) I warrant and undertake that my shares in the Company are in my sole beneficial ownership and not it any way encumbered.

The Appellant thinks that he would also have signed the share transfer form on that occasion but he now has no copy of the form (and none was included in the agreed bundle of documents).

21.	The Appellant’s evidence is that he ‘did not perceive this transaction to be of any real significance as far as [he] was concerned’. He thought that he was ‘merely transferring the Shares to an entity that was essentially part of the Company’. His only dealings were with Mr Sinclair and he ‘certainly had no direct dealings with the trustees of the EBT concerning the sale of the Shares’. Paragraph 15 of his witness statement is in the following terms:

As far as I was concerned, there was no new contract entered into between the trustees of the EBT and me: I was simply selling my Shares in accordance with the original agreement made in 1997. If I did not receive payment for my Shares, I expected that I would have to look to the Company for redress under the 1997 agreement. It simply never entered my contemplation that I would have to pursue the trustees of the EBT with whom I had had no substantive dealings (in fact, as I state above, I had dealings only with Birks Sinclair and Associates Ltd).

22.	I have no reason to doubt the veracity of the Appellant’s witness statement and, insofar as is necessary for the determination of this appeal, I accept the contents of that statement. I am minded, however, that the Appellant’s evidence relates to his own subjective understanding of the nature of the transactions into which he entered, whereas I am required to identify the effect in law of those transactions. Accordingly, I turn now to the submissions made on behalf of the parties.

THE APPELLANT’S SUBMISSIONS

23.	Mr Wilson contended (on behalf of the Appellant) that the contract pursuant to which the Shares were disposed was made between the Appellant and the Company at the board meeting held on 13 June 1997. He submitted that, whilst the minute of that meeting states that ‘the Company should purchase his shares for £245,000’, the surrounding documentary evidence makes clear that the price to be paid for the Shares was always £139,000 and that the other sums were to be paid as part of the agreement in respect of remuneration. In that respect, he submitted that the minute is plainly inaccurate. 

24.	Mr Wilson submitted that there is no evidence to support either an argument that there was a novation of the original contract or an argument that there was a rescission and replacement of that contract.

25.	In relation the question of novation, I was referred to relevant extracts from the twenty-ninth edition of Chitty on Contracts and, in particular, to the following passage from paragraph 19-085 of that work:

There is no doubt that with the consent of both contracting parties all contracts of any kind may be transferred, and the term “novation” has been introduced from Roman law to describe this species of transfer. Novation takes place where the two contracting parties agree that a third, who also agrees, shall stand in the relation of either of them to the other. There is a new contract and it is therefore essential that the consent of all parties shall be obtained: in this necessity for consent lies the most important difference between novation and assignment. [Original emphasis.]

Mr Wilson submitted that there is no evidence available to suggest that there was ever the requisite tripartite agreement between the Appellant, the Company and the trustees of the EBT to give rise to a novation.

26.	In relation to the question of rescission and replacement, I was referred to paragraph 22-028 of Chitty on Contacts, which, given that I have to make findings of fact in relation to the law of England and Wales (see below), I shall quote in full:

A rescission of the contract will also be implied where the parties have effected such an alteration of its terms as to substitute a new contract in its place. The question whether a rescission has been effected is frequently one of considerable difficulty, for it is necessary to distinguish a rescission of the contract from a variation which merely qualifies the existing rights and obligations. If a rescission is effected the contract is extinguished; if only a variation, it continues to exist in an altered form. The decision on this point will depend on the intention of the parties to be gathered from an examination of the terms of the subsequent agreement and from all the surrounding circumstances. Rescission will be presumed when the parties enter into a new agreement which is entirely inconsistent with the old, or, if not entirely inconsistent with it, inconsistent with it to an extent that goes to the very root of it. The change must be fundamental and “the question is whether the common intention of the parties was to ‘abrogate,’ ‘rescind,’ ‘supersede’ or ‘extinguish’ the old contract by a ‘substitution’ of a ‘completely new’ or ‘self-subsisting’ agreement.” It is not necessary to create a scintilla temporis between the old and the new agreement for there to be a rescission and replacement; it can be achieved concurrently in the same document.

Mr Wilson submitted that the evidence is entirely consistent with the completion in 1999 of the original executory contract by the Appellant and the Company rather than a rescission and replacement of that contract. In particular, he submits (1) that the material terms of the original agreement (notably the number of shares sold and the price paid for those shares) was as agreed in 1997; (2) that, whilst the contract was completed by the transfer of the Shares to (and payment by) the trustees of the EBT, that fact is not inconsistent with the completion of the original agreement; and (3) that there is no evidence whatsoever that the parties intended to create any enforceable contractual rights directly as between the Appellant and the EBT.

27.	The offer made by the Appellant in his letter dated 8 February 1999 and accepted by the Company in its letter dated 22 March 1999 was analysed by Mr Wilson in the following manner. Mr Wilson focused on the sentence ‘I am willing to settle for the payment for my shares of £139,000 which we agreed in July 1997’ (his emphasis). He submitted that the use of the word ‘the’ shows that what the Appellant was prepared to do was to accept the agreed payment in respect of the Shares but to forego the remaining amounts owed to him in respect of ‘previous year’s payment’ and unpaid remuneration for 1996/97. Thus, he submitted, the sum that the Appellant indicated that he would accept was not only the same amount as that agreed in 1997 but was, in fact, the payment for the Shares pursuant to the agreement made in 1997. 

28.	Mr Wilson submitted that the correspondence demonstrates that the EBT was considered to be a mere vehicle for receiving the Shares and that there was no separate contract entered into between the Appellant and the trustees of the EBT. In particular, he relies upon the absence of any contractual documentation between these two parties and on the absence of any evidence of there having been any negotiations between these two parties. He submitted that the undertaking provided by the Appellant to the EBT does not support the contention that there was a new contract for the sale of the shares between the Appellant and the trustees of the EBT because (1) the undertaking was given after payment had been made by the trustees; and (2) the contract (if any) evidenced by the document in question was one whereby the Appellant gave the undertaking as to ownership in consideration for the trustees’ making the payment in discharge of the Company’s liabilities.

29.	In summary, Mr Wilson invited me to find that the disposal of the Shares occurred pursuant to the agreement reached between the Appellant and the Company in 1997 and that, therefore, in accordance with section 18 of the TCGA 1992, that disposal must have occurred in the 1997/98 year of assessment.

THE RESPONDENTS’ SUBMISSIONS

30.	Mrs Alexander submitted (on behalf of the Respondents) that the disposal of the Shares took place in August 1999 and not in June 1997. She contended that the circumstances indicate a case of novation or, alternatively, of rescission and replacement. She analysed the 1999 transaction that occurred in 1999 in the following manner. When the Company wrote to the Appellant on 22 March 1999 suggesting that it might establish a trust to purchase the Shares, it was making a counter-offer in that it introduced a change relative to the Appellant’s offer. When on 25 August 1999 the Appellant warranted that the Shares were unencumbered and accepted payment from the EBT, he accepted the Company’s counter-offer. In Mrs Alexander’s submission, these acts gave rise to another agreement (the second agreement) governing the sale by the Appellant of his shares to the trustees of the EBT. Alternatively, she submitted that the facts indicate the existence of a second agreement between the Company and the Appellant that the latter would sell the Shares to the EBT as well as a third agreement under which the EBT purchased those shares.

31.	In relation to the question of novation, Mrs Alexander submitted that, under the 1997 agreement, the Company was obliged to purchase the Shares for the agreed price and the Appellant was obliged to transfer the Shares to the Company. The mutual release of these obligations provided the necessary consideration for the second agreement and novated the first agreement. Furthermore, she submitted, the second agreement altered the purchaser’s obligations by removing the Appellant’s right to receive those sums calculated by reference to his unpaid remuneration and outstanding payments.

32.	Recognising that novation requires the agreement of the parties to the original agreement as well as the agreement of the third party, Mrs Alexander accepted that there is no evidence that the EBT participated in the second agreement by which (she contends) the Company and the appellant agreed that the EBT should purchase the Shares. She did suggest, however, that it would be reasonable to conclude from the available documents that the EBT adopted this second agreement.

33.	In relation to the question of rescission and replacement, Mrs Alexander submitted that the Appellant’s acceptance on 25 August 1999 of the Company’s counter-offer gave rise to a second agreement that rescinded the agreement of June 1997 and replaced it with another one obliging the Appellant to sell the Shares to the EBT. She submitted that the consideration for this second agreement was the release by each party of the other from its respective obligations under the agreement of June 1997. She relied upon the following factors as indicative that the parties intended to rescind the earlier agreement and replace it with the second agreement: (1) the parties entered into a fresh agreement because the original agreement had failed as a result of the financial constraints under which the Company was operating, which meant that it was unable to discharge its obligations under the original agreement; and (2) the agreement of August 1999 introduced fundamental changes, namely, the amount that the Company was bound to pay to the Appellant and the change in the identity of the person obliged to purchase the Shares.

34.	Mrs Alexander submitted that the transactions that occurred in 1999 cannot be properly analysed as a mere variation (as opposed to a novation or rescission and replacement) of the agreement of June 1997 for two reasons. First, she submitted that the Company did not provide any consideration in support of the alleged agreement to vary. In support of this submission, she relied on the propositions of English law that a promise to perform an existing obligation does not constitute good consideration for a new agreement (Stilk v. Myrick (1809) 2 Camp. 317) and that, where the variation agreed upon enables one party to alter its performance under the existing agreement, for it to amount to consideration it must be of some benefit to the other party, and if the variation is introduced entirely for the benefit of the party otherwise in breach it will not constitute good consideration (Vanbergen v. St Edmunds Properties Limited [1933] 2 KB 223. She submitted that the alleged variation failed on both of these counts. Secondly, she submitted that the doctrine of privity meant that a person cannot be bound by the terms of a contract to which it was not party. Therefore, in her submission, the original agreement could not be varied so as to oblige the trustees of the EBT (who were not party to the original agreement) to purchase the Shares or to pay the agreed purchase price. In this regard, she directed my attention to The Magnavox Electronics Company Limited v. Hall (HM Inspector of Taxes) (1986) 59 TC 610.

SUBMISSIONS ON EQUITABLE ASSIGNMENT

35.	In her original skeleton argument, Mrs Alexander posed the question of whether or not there was an equitable assignment of the benefit of the original contract to a third party rather than an extinguishing of that original contract by novation. She submitted that for there to be a valid assignment in equity there must be an intention of the part of the transferor to assign the chose in action to the transferee and the transferor must have taken steps evidencing such intention. She submitted that there was no evidence to show that the Company intended to assign the benefit of the original contract to the EBT nor that it took any steps to demonstrate such an intention.

36.	I invited the parties to make further written submissions on this question of whether or not there was an equitable assignment. By a letter dated 10 October 2007, Mrs Alexander declined to make further detailed representations on this point: she merely reiterated her previous submission that there is insufficient evidence to conclude that the Company made an equitable assignment of its interest under the contract and noted that, in any event, the point is purely academic. If there were such an assignment, it would be, in her submission, an assignment of the Company’s interest under the contract made during 1999.

37.	Mr Wilson provided further written submissions on behalf of the Appellant in relation to this question. He contended that the available evidence (insofar as it provided any indication on this issue) is entirely consistent with the Company’s having assigned its rights under the original contract to the trustees of the EBT rather than its having been a party to any novation or rescission and replacement of that original contract. He submitted (and this does not appear to be in dispute) that the apparent absence of compliance with the relevant requirements under section 136 of the Law of Property Act 1925 means that no assignment at law occurred. By contrast, an assignment in equity does not require any such compliance, on the grounds that equity looks to the intent rather than to the form. Mr Wilson submitted that all that is needed in equity is a sufficient expression of an intention to assign. I was referred in this regard to paragraph 3-13 of the thirty-first edition of Snell’s Equity. Mr Wilson also noted that, in contrast to a novation or to a rescission and replacement, an equitable assignment of contractual rights does not have to involve the other party to the contract.

38.	Mr Wilson accepted that the available evidence does not show precisely what arrangements were put in place between the Company and the trustees of the EBT but he nevertheless submitted that the evidence indicated that the Appellant had no direct dealings with those trustees. In view of what he describes as the absence of any evidence to support the contention that there was a contractual arrangement between the Appellant and the trustees, he invited me to find that an equitable assignment by the Company to the trustees of its contractual rights was a more appropriate analysis of the transaction. He also submitted that the involvement of the Company in August 1999 is strongly indicative of a situation where there had been an assignment and an agreement between the Company and the trustees of the EBT (but not the Appellant) whereby the right to receive the Shares was assigned and the trustees met the Company’s liability under the agreement with the Appellant. In his submission, if there had been an agreement between the Appellant and the trustees of the EBT, there would have been no need for any further involvement by the Company. In summary, therefore, he submitted that far from being a conclusion that is not supported by the evidence, an equitable assignment is, in fact, precisely the type of transaction that is most likely to have occurred between the Company and the trustees of the EBT, with the result that the trustees of the EBT took the benefit of the Company’s rights under the original agreement and complied with the Company’s obligations (without having any direct contractual obligation vis-à-vis the Appellant to do so).

THE JURISDICTIONAL ISSUES

39.	The present appeal was originally made to the General Commissioners for the Division of Roxburgh. The parties were in agreement that the contract (or, as the Respondents contend, contracts) in question was (or were) governed by the law of England and Wales. In view of this fact, a suggestion was made by the Respondents in a letter dated 6 June 2006 that the General Commissioners might consider it to be more appropriate for the matter to be heard by the Special Commissioners under the law of England and Wales, that being the law that both parties agreed was applicable. The General Commissioners agreed and the matter was listed before the Special Commissioners. In a letter dated 30 January 2007 and addressed to the Office of the Special Commissioners in London, the Respondents raised the question of whether the matter should be heard under English or Scots law. In a letter dated 13 February 2007, the Clerk to the Special Commissioners indicated that the Special Commissioner ‘has now confirmed that this appeal will be heard under English Law but, as previously stated, in Edinburgh to assist Mr Burt.’

40.	I invited the parties to make further submissions to me on the question of whether, in procedural terms, the matter was being heard as an English appeal (albeit that the location of the hearing was in Scotland) or as a Scots appeal (albeit one in which the material transactions were governed by the law of England and Wales). The issue is relevant not least because it will determine whether or not the law of England and Wales, which I am being asked to consider, must be proved as a matter of fact (which will be the case if the matter is properly treated as a Scottish appeal). It is also relevant in that it will determine to which tribunal any appeal from my decision should be made.

41.	In his written submissions on this point, Mr Wilson states that the parties have proceeded on the basis that the matter was being heard as an English appeal. However, both his submissions and the supplementary skeleton argument on jurisdictional issues prepared by Mrs Alexander assert that, in fact, the present proceedings are a Scots appeal on the basis that my jurisdiction as a Special Commissioner is substituted for, or derives from, the jurisdiction of the General Commissioners for the Division of Roxburgh (which is, of course, a Scots jurisdiction). There has been no application at any stage for any transfer of jurisdiction from the Division of Roxburgh to any other Division of the General Commissioners, before the transfer of jurisdiction to the Special Commissioners.  So I would myself have thought that the substitutionary jurisdiction of the Special Commissioners in this matter assumed jurisdiction over a Scots appeal.  The parties before me agreed, when I asked for submissions on whether this matter was a Scots appeal or an English appeal.  Both parties agreed that this appeal is a Scots appeal.  Both parties rely in this regard on the decision in Spring Salmon and Seafood Limited v. Commissioners for Her Majesty’s Revenue and Customs [2005] UK SpC 00503, [2005] STC (SCD) 830. I heard brief but cogent and helpful submissions from Mr Wishart, who appeared on this issue only, who agreed that since the taxpayer in this case (Mr Burt) was governed by Scots law, is resident in only Scotland, and is Scots domiciled, any appeal must lie to the Inner House of the Court of Session and not to the English High Court, albeit that the relevant contracts are governed by English law.  Both parties agree that it follows that any appeal under section 56A of the Taxes Management Act 1970 would lie to the Court of Session (sitting as the Court of Exchequer in Scotland) rather than to the High Court of Justice of England and Wales.

42.	I agree with the parties on this point: it appears to me that, for the reasons stated above, the present proceedings should properly be treated as a Scots appeal. In those circumstances, Mrs Alexander submits (and I agree) that it must follow that where I am required to apply the law of a jurisdiction other than Scotland, such non-Scots law (here English Law) must be proved as a matter of fact. 

43.	I was referred to regulation 17 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 (SI 1994/1811). Regulation 17(2) provides that:

The Tribunal shall conduct the hearing in such manner as it considers most suitable to the clarification and determination of the issues before it and generally to the just handling of the proceedings, and, so far as appears to it appropriate, shall seek to avoid formality in its procedure.

Further, regulation 17(6) states that the Tribunal may receive evidence of any fact relevant to the subject matter of the proceedings:

…notwithstanding that such evidence would be inadmissible in proceedings before a court of law in that part of the United Kingdom by reference to which the law of the proceedings before the Tribunal are to be determined.

In view of these provisions, it is suggested to me on behalf of the Respondents that I can and should treat the submissions of the advocates appearing before me as admissible evidence of the law of England and Wales analogous to submissions made by the advocates on questions of fact. I am invited to find that this would be a convenient way of dealing with the case and that the alternative would be to inflate unnecessarily the costs of determining the appeal. Mr Wilson, in his written submissions on behalf of the Appellant, does not specifically address this point but does state that the Appellant ‘has also had the benefit of reading the Respondent’s submissions on the issue of jurisdiction, and concurs with them’.

44.	In my judgment, the submissions made by the parties on the substantive law of England and Wales do not reveal any material disputes as to the content of that substantive law. All that is in dispute is how I should apply those agreed principles to the facts before me. If there were any material dispute as to the content of any non-Scots law that I was being invited to apply, I would have had no option but to invite the parties to adduce expert evidence on the matters in dispute (or, in the absence of such evidence, to assume that the relevant foreign law was the same as Scots law). Given that there is no such material dispute, however, I agree that the most appropriate and convenient course of conduct would be for me to treat the submissions of Mr Wilson and Mrs Alexander in relation to the law of England and Wales as admissible evidence of the law of that jurisdiction analogous to an agreed Statement of Facts.  I am only able to do this on the basis that the parties are agreed as to the content and scope of the relevant principles of English law (and the relevant English authorities) and disagree only as to the effect of their application.  Furthermore, insofar as I am required to do so for the purposes of determining this appeal, I find as a matter of fact that the law of England and Wales is as Mr Wilson and Mrs Alexander have submitted it to be.  I give the parties 30 days from the date of the release of this decision to notify the Special Commissioners if they disagree between themselves as to the content and scope of the relevant provisions of English law (in which case I shall direct a further hearing to determine the dispute). I have deferred releasing this decision until the Court of Appeal issued its decision in Collier v PLMJ Wright (Holdings) Ltd  [2008] 1 WLR 643. Collier confirms that the English law principles governing the acceptance of a reduced sum by a creditor from a debtor, in extinction of all of the debtor’s obligations are as I have found them to be in this decision. I give the parties 30 days from the date of release of this decision to make further submissions on Collier but only if either party so wishes. 

45.	I should say that it would have been more appropriate for the parties to have identified the relevant appellate jurisdiction well before this substantive hearing.

ANALYSIS

46.	It is clear that an agreement was reached between the Appellant and the Company in June 1997, although the Appellant disputes the accuracy of the minute recording that agreement. It appears from the Appellant’s evidence and from the documents referred to in his witness statement – and I find as a fact – that a global agreement was reached at the board meeting in June 1997 in relation to the severance of the Appellant’s connexions with the Company. In consideration of the Appellant’s agreeing to resign as a director and employee of the Company and his agreeing to transfer the Shares to the Company or to some other party at its nomination, the Company agreed to pay to him the sum of £245,000. I accept that this figure was calculated by reference to three factors, only one of which was the value of the Shares themselves. That does not, however, mean that the sale of the Shares for a sum equal to their value (£139,000) was a separate and severable contract distinct from the other elements of the agreement: there was but one contract, whereby the Appellant agreed to end his links with the Company – be they links deriving from his employment, directorship or share ownership – in consideration of the payment to him of the sum of £245,000. 

47.	In this regard, I draw particular assistance from the memorandum dated 22 September 1997 and headed ‘Sale of Shares to Company’. In my judgment, although this memorandum confirms that the value of the Shares was treated as £139,000, that was just one of three factors used to determine (in the words of the memorandum) the ‘[m]ake up of the amount’ payable in respect of the sale of the Shares. I also draw assistance from the subsequent memorandum dated 12 August 1998 and headed ‘Purchase of Shares’. In my judgment, whilst this memorandum similarly confirms the Appellant’s submission that the figure of £139,000 was calculated by reference to the value of the Shares, it does not support the contention that there was a severable contract for the sale of those Shares at that price. On the contrary, the memorandum indicates that the Company agreed to purchase the Shares and that the purchase price was calculated by way of an aggregation of three figures, only one of which was the value of the Shares. In other words, it was agreed that the Shares should be sold at a premium to their value.

48.	I am, therefore, unable to accept Mr Wilson’s submission that the minute of the meeting held on 13 June 1997 is an inaccurate record of the terms of the executory contract agreed at that meeting between the Appellant and the Company.

49.	I do agree, however, with Mr Wilson’s submissions in relation to the issue of novation. I accept as a matter of fact that for novation to occur there must be a tripartite agreement involving the two original contracting parties and the third party. I agree with Mr Wilson that there is insufficient evidence of any negotiations or direct dealings between the Appellant and the trustees of the EBT to enable me to find that there was such a tripartite agreement. I accept the Appellant’s evidence on this point that all of his dealings in this regard were with Mr Sinclair (acting on behalf of the Company). In my judgment, the mere fact that the Appellant accepted payment from the trustees of the EBT does not mean that he was involved in a tripartite agreement with them giving rise to a novation. Similarly, even if I accept Mrs Alexander’s submission that the trustees of the EBT should be treated as having ‘adopted’ the agreement between the Appellant and the Company, that does not, in my view, amount to the necessary tripartite agreement involving the Appellant. On the contrary, I agree with Mr Wilson that the evidence is more consistent with an equitable assignment of the Company’s benefits under the contract to the trustees of the EBT than it is with a novation of that contract. In my judgment, it is perfectly reasonable to infer from the payment by the trustees to the Appellant that they had agreed with the Company to discharge its obligations under the contract vis-à-vis the Appellant in return for the Company’s assigning to them its benefits under that contract. The Company would not have stood by and allowed the Shares to be transferred to the trustees if it did not intend to assign its benefits under the contract to those trustees.

50.	I find, therefore, that there was no novation of the original contract agreed between the Company and the Appellant in June 1997. It remains necessary, however, to consider what (if anything) was the effect of the exchange of letters between the Appellant and the Company in February and March 1999. In his letter dated 8 February 1999, the Appellant refers to the fact that the Company is ‘unable to pay me all the amounts which had been agreed in July 1997’. He goes on to say: ‘Whilst I still feel that an agreement made should be kept, I have to recognise reality.’ This comment, together with his subsequent proposal to accept £139,000 as ‘a final settlement’ indicates, in my judgment, a recognition that effect would not be given to the original agreement, i.e. that the issues between him and the Company would be concluded not on the terms of what was originally agreed but upon the new terms now proposed by him (and accepted by the Company in its letter dated 22 March 1999). 

51.	Can this, as Mr Wilson contends, be treated as the completion of an executory contract made in 1997 relating only to the sale of the Shares for £139,000? For the reasons that I have already given, the original agreement cannot be severed in this manner and, accordingly, I cannot accept Mr Wilson’s submission that the transaction in 1999 merely represented the completion of a contract for the sale of the Shares for £139,000 made in 1997 because there never was a contract in these terms. The use of the word ‘the’ in the expression ‘the payment for my shares of £139,000’, which Mr Wilson sought to emphasise, does not and cannot alter the substance of what was actually agreed between the parties in 1997.

52.	Can the exchange of letters in February and March 1999 be properly analysed as a mere variation of the original contract or was it more fundamental than that? Did it result in the rescission and replacement of the original agreement? 

53.	In my judgment, the exchange of letters cannot properly be analysed as a mere variation. The substance of the transaction did not involve the provision of any consideration by the Company: the alleged ‘variation’ was entirely for the benefit of the party otherwise in breach (i.e. the Company) and, accordingly, cannot constitute good consideration by that party. As Mrs Alexander submitted, the 1999 arrangement was entirely one-sided and, if enforceable, it would have enabled the Company to avoid the obligations that it had undertaken under the original agreement of June 1997. Therefore, it cannot have involved the provision of good consideration by the Company and, accordingly, cannot have amounted to an enforceable variation of the original contract.

54.	This absence of consideration also means, however, that the exchange of letters cannot have amounted to a rescission of the original contract. The consideration for the agreement effecting a rescission is the release by each party from its obligations under the original agreement. In the present case, the Appellant’s obligations under the original agreement were to resign as a director and as an employee and to transfer his shares; he remained obliged to do all of these things after the exchange of letters. In my judgment, therefore, he was not released from any of his obligations under the original agreement and, accordingly, no consideration was provided by the Company for the rescission of the original contract. In short, the Appellant appears to have given a gratuitous and, hence, unenforceable – at least as a matter of the English law of contract – undertaking to forego the difference between the originally agreed sum of £245,000 and the sum of £139,000 that he eventually received. That did not mean, however, that the original agreement no longer subsisted. It may well be that, notwithstanding the exchange of letters, the Appellant could still have enforced at law his contractual rights against the Company but it is not necessary for me to decide that question in order to determine the present appeal. It suffices for me to find – and I do so find – that no consideration was given by the Company for the rescission of the original contract and, hence, no rescission can have taken place.

55.	Mrs Alexander’s argument relied upon the submission that the exchange of letters released the Appellant from his obligation to transfer the Shares to the Company and replaced it with a new obligation to transfer them to the trustees of the EBT. If correct, I agree that such a release would have amounted to the provision of good consideration by the Company and, hence, would have enabled me to find that the original contract has been rescinded. However, I do not accept Mrs Alexander’s submission that there was such a change in the Appellant’s obligations. I accept the Appellant’s evidence that the terms of the original agreement required him to transfer the Shares to the Company or some other party at its nomination. His evidence on this point is supported by the heads of agreement referred to at paragraph 8 of his witness statement. His obligation in this regard remained the same after the exchange of letters. Furthermore, I do not accept Mrs Alexander’s submission that the Company’s letter of 22 March 1999 amounted to a counter-offer involving a sale of the Shares to the trustees of the EBT, which counter-offer was accepted by the Appellant’s subsequent conduct. On the contrary, it appears to me from the terms of that letter – and I find as a fact – that the Company purported to accept the Appellant’s offer (albeit that the lack of consideration meant that this acceptance did not give rise to a contract) and did not seek to make a counter-offer refining the Appellant’s original offer. The March letter clearly states: ‘We accept your offer as stated in your letter’ (my emphasis). The reference in the March letter to the possibility that ‘we may establish a Trust’ is not, in my judgment, sufficiently certain to constitute a counter-offer, particularly in the light of the unambiguous and express acceptance of the offer ‘as stated in your letter’ and in the light of the fact that it had always been envisaged that the Shares might be transferred to a third party at the nomination of the Company in any event.

56.	To summarise, therefore, I find that neither the exchange of letters in February and March 1999 nor the conduct of the parties subsequent to that exchange could have amounted to a rescission and replacement of the original contract.

CONCLUSION

57.	For the reasons given above, I find that the original agreement reached between the Appellant and the Company in June 1997 was neither novated nor rescinded and replaced, either by the exchange of letters in February and March 1999 or by the conduct of the parties subsequent to that exchange. The original contract continued to subsist and it was in pursuance of this original contract that the Shares were eventually disposed. The contract was made in 1997 and, accordingly, section 28 of the TCGA 1992 dictates that the disposal must also be treated for the purposes of CGT as having occurred in that year. It must follow, therefore, that the Appellant is entitled to claim retirement relief against the chargeable gain that accrued to him upon his disposal of the Shares in 1997.

58.	I allow the appeal and I set aside the closure notice issued on 20 May 2004.

JULIAN GHOSH QC
SPECIAL COMMISSIONER

RELEASED: 19 May 2008

SC 3185/2006