HOUSE OF LORDS

FURNISS (INSPECTOR OF TAXES) v DAWSON

LORD Fraser of Tullybelton, Lord SCARMAN, Lord roskill, Lord Bridge of HARWICH and Lord Brightman

9 February 1984 -

Lord Fraser of Tullybelton My Lords, I have had the advantage of reading in draft the speech prepared by my noble and learned friend, Lord Brightman, in these consolidated appeals and I entirely agree with his conclusion and his reasoning. The facts are fully stated in his speech and I do not repeat them. I wish to add only a few comments.

The importance of this case is, in my opinion, in enabling your Lordships ' House to explain the effect of the decision in W T Ramsay v IRC; Eilbeck (Insp of Taxes) v Rawling (1981) 11 ATR 752 ; [1982] AC 300 and to dispose of what are, I think, the misunderstandings about the scope of that decision which have prevailed in the Court of Appeal. In Ramsay the House had to consider an elaborate and entirely artificial scheme for avoiding liability to tax. Viewed as a whole, it was self-cancelling. In the present case the scheme was much simpler, and it was not self-cancelling; on the contrary, it had what Vinelott J described as " enduring legal consequences " . But while the cases differ in that respect, it is not a sufficient ground for distinguishing the present case from Ramsay. The true principle of the decision in Ramsay was that the fiscal consequences of a preordained series of transactions, intended to operate as such, are generally to be ascertained by considering the result of the series as a whole, and not by dissecting the scheme and considering each individual transaction separately. The principle was stated in the speech of Lord Wilberforce in Ramsay at (ATR) 756; (AC) 324, especially between where his Lordships said this:

" For the commissioners considering a particular case it is wrong, and an unnecessary self limitation, to regard themselves as precluded by their own finding that documents or transactions are not ' shams ' , from considering what, as evidenced by the documents themselves or by the manifested intentions of the parties, the relevant transaction is. They are not, under the Westminster doctrine or any other authority, bound to consider individually each separate step in a composite transaction intended to be carried through as a whole. "

(emphasis added)

It was by applying that principle that Lord Wilberforce in the next paragraph of his speech in Ramsay approved of the approach by Eveleigh LJ to the first stage of the transaction in Floor v Davis [1978] 1 Ch 295 . I also attempted to apply the same principle when I expressed the opinion (Ramsay at (ATR) 769; (AC) 339) that " it could, in my opinion, have been the ground of decision in Floor v Davis (Insp of Taxes) [1978] 1 Ch 295(CA) ; [1980] AC 695 (HL) … in accordance with the dissenting opinion of Eveleigh LJ in the Court of Appeal … with which I respectfully agree " . Eveleigh LJ and Lord Wilberforce and I all referred only to the first stage of the transaction in Floor v Davis, and we did not rely to any extent upon the existence of the second stage, as the Court of Appeal in the present case appear to have thought. The first stage, viewed by itself, was clearly more favourable to the argument for the taxpayer than the two stages taken together; if the argument for the taxpayer failed even at the first stage, that would simply be an additional reason for reaching the decision against him. As it happens, the whole transaction in the present case is very similar to the first stage in Floor v Davis (the only material difference being that Greenjacket has more enduring functions than FMW had).

The series of two transactions in the present case was planned as a single scheme, and I am clearly of opinion that it should be viewed as a whole. The relevant transaction, if I may borrow the expression used by Lord Wilberforce, consists of the two transactions or stages taken together. It was a disposal by the respondents of the shares in the operating company for cash to Wood Bastow.

I would allow the appeal.