MacNiven v Westmoreland Investments Ltd [1998] BTC 422

• Judges lacked the constitutional authority to develop an overriding legal principle. Instead, if the new approach is to be justified, it needs to be shown in each case precisely why it is that statutory construction yields the particular result sought by the Crown. 

Lord Hoffmann

• There is ultimately only one principle of construction, namely to ascertain what Parliament meat by using the language of the statute… the innovation in Ramsay was to give the statutory concepts of ‘loss’ and ‘disposal’ a commercial meaning.

• The new principle of construction was a recognition that the statutory language was intended to refer to commercial concepts, so that in the case of a concept such as a ‘disposal’, the court was required to take a view of the facts which transcended the juristic individuality of the various parts of a preplanned series of transactions.

McFarlane and Simpson

• Lord Hoffmann concludes that the existing decisions can only be justified if it is accepted that Parliament may not always intend statutory language to bear a purely legal meaning.

  • Instead, if the context so requires, Parliament may intend the words it uses to have a commercial meaning.

• Lord Brightman’s approach had been misunderstood, and could not be said to be a principle of construction.

  • It was instead a statement of the consequences of giving a commercial construction to a fiscal concept, and must logically be preceded by an analysis of the stat language.

  • Only by doing so could it be determined whether Parliament intended a particular term to be given a commercial meaning ‘capable of transcending the juristic individuality of the component parts’ of the transaction concerned.

• Where Parliament does intend a term to have a commercial meaning, then ‘to have regard to the business “substance” of the matter is not to ignore the legal position but to give effect to it. 

• Burmah Oil: ‘loss’ in the capital gains tax legislation was again to be taken to mean a loss in commercial terms and not a series of pre-planned transactions which had no business purpose. 

• In Furniss the question ‘was whether the disposal had been to one person rather than another’, and the answer was that ‘commercially’ the transaction was a transfer by the Dawsons to WB in exchange for a payment to GJ. 

  • Such an approach need not always drive one to conclude that a term is meant commercially.

• Lord H accepts that there are equally terms in tax legislation that cannot be construed in that way. So far as the facts of MacNiven were concerned, it was in fact such a case.

  • The word ‘payment’ was not capable of bearing a commercial meaning wider than the legal one of an act, such as the transfer of money, which discharges a debt.

  • The term must therefore be understood juristically, and the taxpayer was entitled to his deduction.

  • The interest had been ‘paid’ within the meaning of the legislation. 

Where the relevant stat term has a legal meaning

• The courts will no longer be able to rely on the Ramsay principle to tackle avoidance - the decision in MacNiven conclusively rejects any attempt to argue that the Ramsay principle reflects a general judicial power to disregard or recharacterised a particular form of transaction.

  • Inevitably, the focus will then shift to other judicially-established techniques of tackling avoidance.

• First, the courts can confidently assert that the legal characterisation of acts is a matter for them and not for the parties, so that the label attached to a transaction by the parties will not be decisive.

• Equally, the courts are entitled to look at all the circumstances of a transaction in order to determine its legal nature, and need not assent to the manner in which the parties have recorded their dealings, nor any attempt by the parties to present elements of a transaction as discrete steps when those elements are, in truth, factually interdependent.

• However, given the evident weakness of these powers in the face of avoidance, the crucial question will be the true extent of the courts’ jurisdiction to disregard sham terms or transactions. 

RELATED CASES

• Barcays Mercantile Business Finance v Mawson

• Ramsay v IRC

• Furniss v Dawson

• IRC v Burmah Oil