Neutral Citation Number: [2008] EWHC 495 (Ch)
Case No: HC07C01249
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 14/03/2008

Before :

MR JUSTICE WARREN
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Between :

	(1) ANTONY CHARLES GEORGE STOW
(2) RICHARD DAVID STOW
(3) ALHAJI MOHAMAD KEBIRU AHMED
(also known as Alhaji Mohamad Kabiru Ahmad)	

Claimants	
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	(1) ZOE STOW
(2) THE COMMISSIONERS FOR HER MAJESTY’S REVENUE & CUSTOMS
(3) THE ESTATE OF EDWARD DAVID STOW
(4) GARETH  EDWARD GEORGE STOW	

Defendants	

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Brian Green QC and David Drake (instructed by Messrs Fladgate Fielder) for the Claimants
Henry Legge (instructed by Messrs Mischcon de Reya) for the First Defendant
Thomas Ivory QC and Michael Green (instructed by The Solicitor for Her Majesty's Revenue & Customs) the Second Defendants

Hearing dates: 14th and 15th February 2008
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Judgment

Mr Justice Warren : 
Introduction

1.	This is an application by the second Defendants, the Commissioners for Her Majesty’s Revenue & Customs (“HMRC”), for an order striking out the claim  against them on the grounds that this court has no jurisdiction to try the claim as against them alternatively that it should not exercise such jurisdiction as it has.  The basis for this contention is that the issues which arise in the present claim are identical to issues raised in certain tax appeals concerning inheritance tax and its predecessor capital transfer tax in which the claimants are involved.  It is said therefore that the Special Commissioners have exclusive jurisdiction, at least so far as HMRC is concerned, in relation to those issues.  Mr Brian Green QC and Mr David Drake appear for the Claimants; Mr Henry Legge appears for the first Defendant and Mr Thomas Ivory QC and Mr Michael Green appear for HMRC.

The background to the claim and the application

2.	In order to deal with the application, it is necessary to give a summary of the facts.  A summary, in its nature, is incomplete and possibly even inaccurate in some respects but I believe that what I am about to set out is sufficient to enable me properly to deal with the application.

3.	The central character in the history is Edward Stow (“Edward”), a successful businessman who died on 30 July 2005.  He had two wives, his second wife and widow, Zoe Stow (“Zoe”), being the first Defendant.  He had two sons by his first marriage, namely the first Claimant (“Antony”) and the second Claimant (“Richard”).  He had two sons by Zoe, of whom one survives namely the fourth Defendant (“Gary”).

4.	There had been a family company, George Stow Company Ltd (“GSCL”) founded in the 1920s and specialising in all aspects of waterworks.  In the early 1970s, after the end of the Nigerian civil war, Edward, according to HMRC, sought to re-establish GSCL’s presence in Nigeria.  He met with the third Claimant (“Mr Kebiru”).  A Nigerian company, George Stow & Co (Nigeria) Ltd (“GSNL”) was formed which was involved in the conduct of the Nigerian business. The shareholders of GSNL were Mr Kebiru and another gentleman.  It is not necessary, for the purposes of this judgment, to go into any detail about the operation of GSNL or of GSCL in relation to the Nigerian business.  

5.	On 27 February 1984, a declaration of trust was entered into between Mr Kebiru (named as settlor) and two trustees.  The trust thereby created was to be known as “The Bompai Settlement”.  According to its terms, Mr Kebiru settled a modest sum of money on discretionary trusts in favour of a class of Beneficiaries comprising Mr Kebiru and any person added to the class pursuant to Clause 9 (excluding persons who are excluded under Clause 8 and persons resident in Jersey).  Three letters of wishes were signed by Mr Kebiru addressed to the trustees.  The first, one assumes, was contemporaneous with the Bompai Settlement itself, the second was dated 28 April 1997 and the third was dated 2 January 2002.  I do not need to go into the details of the letters of wishes save to note that Edward was mentioned as a person to whom the trustees should turn for advice if Mr Kebiru was not available and that Edward’s children might well benefit on Mr Kebiru’s death.  

6.	Further assets were settled into the Bompai Settlement which were or became of considerable value.  Those assets, it seems to be common ground, represented the proceeds of certain Nigerian business interests.  HMRC’s position is that those settled assets were not beneficially owned by Mr Kebiru before becoming settled but were in the beneficial ownership of Edward.  They assert that the settled property was derived from GSCL and GSNL which, in turn, were in the beneficial ownership of Edward.  Further, HMRC may wish to maintain that the Bompai Settlement is a sham, in which case the beneficial ownership remained with Edward.  If it is not a sham, then they maintain that, since Edward was the beneficial owner of the settled property immediately before the creation of the Bompai Settlement, he was the settlor, with all the tax consequences which would flow from that.  None of that is accepted by the Claimants who maintain the property settled by the Bompai Settlement was property beneficially owned by Mr Kebiru.

7.	On 9 June 2002, six settlements were created.  These are known collectively as the Northend Settlements and are numbered 1, 2, 2A, 3, 3A and 4.  Each of them is made between Mr Kebiru who is defined as “the Original Settlor” of the one part and persons defined as “the Original Trustees” of the other part.  The Original Trustees in each case include Mr Kebiru and Edward.  They also include one or more of Edward’s sons.  The present trustees of the Northend Settlements are as follows:

a.	Northend Settlements (No 1 and No 4): Antony, Richard and Gary.

b.	Northend Settlements (No 2, No 2A, No 3 and No 3A): Antony and Richard

8.	Under the Northend Settlement (No 1), there is a wide power of appointment in favour of a class which included Edward when he was alive.  Subject to any exercise of that power, Edward was the life tenant and there was a power to appoint capital to him.  Under the other settlements, there is a power of appointment in favour of the Specified Class.  Edward was not a member of the Specified Class (unless he was an employee or director of George Stow (Nigeria) Ltd) but could be added to the Specified Class pursuant to an overriding power of appointment.  Mr Kebiru is one of the objects of the overriding power of appointment given to the trustees of each settlement.  Property to a value of over £14 million pounds was settled into the Northend Settlements at the time of their creation and subsequently – according to Antony, Richard and Mr Kebiru between June 2002 and March 2003.

9.	There is also a single associated letter of wishes  relating to all six settlements.  It is unsigned but Mr Kebiru’s name (spelt in its alternative as Kabiru) appears at the end in the same typescript as the letter itself.  The letter states: 

“The source of the funds that I have used to make all these Settlements has been owned by me for many years and are all outside of Nigeria managed by my banks and legal adviser.  I have tried to keep separate my funds outside Nigeria from those inside Nigeria, where successive governments have made wealth creation very difficult.  If I or any member of my family wish to live outside Nigeria, these monies would then be available up to the whole amount of all the Settlements and I hope the Trustees will make my family’s needs paramount over all other beneficiaries.”
10.	Later, the following appears:

“During my lifetime I hope that my Trustees will accept my advice on all matters, in particular distribution.  After my death and at any time that I am in Nigeria and in particular on investments and all other matters, I hope that my Trustees will accept the advice of Edward Stow.  It was Edward and his father who guided my earlier business career and greatly assisted the people of Northern Nigeria with matter supplies and as a result have generated the great hand of friendship between many people.”
11.	Consistently with the appearance of the Northend Settlements and the letter of wishes, the Claimants’ case is that the assets of the Northend Settlements were, or were the proceeds of, investment of money and assets earned or acquired by Mr Kebiru by virtue of his commercial activities in Nigeria and were not provided, either directly or indirectly, by Edward.  

12.	HMRC’s case, in relation to the assets of the Northend Settlements, is that they were provided, either directly or indirectly, by Edward.  It seems to be common ground that the assets of the Bompai Settlement were appointed to Mr Kebiru sometime in 2002 and it was these assets which were settled into the Northend Settlements.

13.	In contrast with their (undecided) position in relation to the Bompai Settlement, HMRC do not seek to argue that the Northend Settlements are shams.  What they say is that Edward was the settlor of them for tax purposes.  The possibilities are therefore as follows:

14.	The first possibility is that Mr Kebiru was the beneficial owner of the assets settled into the Bompai Settlement.  In that case there is no reason to doubt that he was also the beneficial owner of the assets which were appointed out to him in 2002.  If the Bompai Settlement was a sham, the same position would obtain.  It is not easy to see how HMRC could maintain, on this hypothesis, that Edward was the settlor (either in fact or for tax purposes) of the Northend Settlements or that he made a transfer of value when assets were settled into the Northend Settlements.

15.	The second possibility is that Edward, rather than Mr Kebiru, was the beneficial owner of the assets settled into the Bompai Settlement.  There are then two possibilities: the Bompai Settlement was a sham and the Bompai Settlement was genuine.

16.	If the Bompai Settlement was a sham, Edward remained the beneficial owner of the settled assets.  If it was not a sham, he ceased to be the beneficial owner of the settled assets, but was clearly the settlor of the Bompai Settlement.

17.	Whether or not the Bompai Settlement was a sham, the settled assets were transferred to Mr Kebiru in 2002.  He either took them beneficially or he did not.  It may well be harder (but not logically impossible) for the Claimants to argue that he took them beneficially if the Bompai Settlement was a sham than if it was not.  HMRC say that, in either case, Edward was the beneficial owner: if that is right, he was clearly the settlor of the Northend Settlements.

18.	The relevant consequences so far as concerns capital transfer tax and inheritance tax of these possibilities are as follows:

a.	If Mr Kebiru was the beneficial owner of the assets settled (or purportedly settled) into the Bompai Settlement, then no tax charge arose on Edward when the assets were settled; nor is his estate now liable.

b.	If Edward was the beneficial owner of those assets then, if the Bompai Settlement was a sham and he remained the beneficial owner, the transfer of assets to the trustees of the Bompai Settlement gave rise to no charge to capital transfer tax.

c.	In contrast, if the Bompai Settlement was not a sham, the transfer was a transfer of value by Edward giving rise to a charge to capital transfer tax.
 
d.	If Mr Kebiru was or became the beneficial owner of the assets transferred to him in 2002, it is not easy to see how HMRC could argue either that Edward was the settlor for tax purposes of the Northend Settlements or that he made a transfer of value when assets were settled into them.

e.	In contrast, if Edward was, or became, the beneficial owner of the assets transferred to Mr Kebiru in 2002, he was clearly the settlor of the Northend Settlements.  He would have made a transfer of value in relation to the assets transferred to the Northend Settlements other than the No 1 Settlement where he took an interest in possession.

19.	It can be seen, therefore, that Edward’s liability to income tax, capital transfer tax and inheritance tax in relation to the transactions described above is critically dependent on two factual issues: first, the beneficial ownership of the assets settled into the Bompai Settlement and secondly, the beneficial ownership of the assets settled into the Northend Settlements, in each case immediately before the transfers to the relevant trustees.  I will call these “the first beneficial ownership issue” and “the second beneficial ownership issue”.

20.	By a codicil dated 20 July 2005 to his will dated 14 October 2004, Edward appointed Antony and Richard as his executors.  They have not proved the will and codicil; nor has there been any grant of administration to any other person.  The estate remains unadministered.  The evidence, as far as it goes, suggests that the value of the estate is probably no more than £5 million.  It seems that there are no substantial debts apart from the possible tax liabilities which I deal with later.

21.	At the time of his death, Edward and Zoe were separated and she was suing for divorce.  Before his death, Zoe was contending that, before being settled, the assets of the Northend Settlements belonged to Edward.  She had launched proceedings under section 37 Matrimonial Causes Act 1973.  Although she has not yet issued proceedings, she has, following his death, indicated her intention to make a claim under the Inheritance (Provision for Family and Dependants) Act 1975.  Not only has she indicated a claim against Edward’s estate but has also indicated claims against the trustees of the Northend Settlements under section 10 of that Act.  I do not doubt the genuineness of those claims given the claims made under section 37 of the 1973 Act while Edward was alive.

22.	Under section 10, a person making a claim for financial provision under section 2 may apply to the court for an order under subsection (2).  That in turn provides that where the court is satisfied that certain conditions are fulfilled (essentially that the deceased has made a disposition with a view to defeating an application for financial provision under the Act and full consideration was not given) it can make an order against the person to whom or for whose benefit the disposition was made; that order will be to provide, for the purposes of the making of that financial provision, such sum of money or other property as may be specified in the order.  Zoe considers that, had Edward survived, she would have been entitled to a substantial part of his property, perhaps as much as half; and that following his death, she is entitled to a substantial part of his estate and the property which he settled (on her case) into the Northend Settlements.  There are insufficient assets in the free estate to meet her claim if she is entitled to anything like half of the total assets comprised in the free estate and the Northend Settlements.

23.	HMRC have since December 2004 claimed to be a creditor of Edward and, since his death, his estate in respect of income tax for which it is alleged that he is liable (i) as a sole trader (ii) on income from foreign possessions (iii) on  commission and (iv) under the now-replaced provisions of Chapter III Part XVII Income and Corporation Taxes Act 1988 (transfer of assets abroad).  Estimated income tax assessments have been raised by HMRC in relation to the years of assessment 1984/5 to 2001/2 in amounts which, together with interest, total in excess of £20 million. HMRC therefore has claims against the estate which, if the assessments are upheld on appeal, are far in excess of the value of the estate.  The Claimants are not, on any view, liable under the income tax assessments.

24.	If HMRC are correct in their assertions that the beneficial owner of the assets settled into the Northend Settlements was Edward and not Mr Kebiru, then they could seek to obtain an order for the administration in bankruptcy of Edward’s (insolvent) estate.  The trustee, if appointed, could then claim against the trustees of the Northend Settlements under section 339 Insolvency Act 1986 (as modified by the Administration of Insolvent Estates of Deceased Persons Order 1986 SI 1986/1999: see Article 3(1), Part I of Schedule 1 and paragraph 27 of Part II  of Schedule 1) seeking an order for restoration of the settled assets on the basis that, in settling those assets, Edward entered into a transaction at undervalue within section 339 being made at a time when he already was or would as a result become insolvent (because he owed HMRC £20 million by way of unpaid income tax and interest).

25.	Alternatively,  HMRC could seek themselves to make a claim against the trustees of the Northend Settlements under sections 423 and 424(1)(c) Insolvency Act 1986, although to succeed they would have to show that Edward made those settlements for the purpose of putting assets beyond the reach of or prejudicing the interests of HMRC (or other creditors or potential creditors).

26.	HMRC have not yet made any such claims.  They are not willing to undertake that they will never do so although they do say that it is not their present intention to do so.  But they point out that it is their duty to collect tax properly due.  If they really are entitled to anything like £20 million – which is far in excess of the value of Edward’s free estate – it would be entirely unsurprising to find that either or both of these claims under the 1986 Act were subsequently made.

27.	In the light of the above, it can be seen that the trustees of the Northend Settlements face potential claims by Zoe, under section 10 of the 1975 Act, and by HMRC indirectly under sections 339 and directly under 423 of the 1986 Act.  Given that Zoe had made claims under the Matrimonial Causes Act 1973 when Edward was alive, it seems quite probable that she will make a claim under the 1975 Act.  And, as I have said, it would be unsurprising to me if HMRC were to make claims under the 1986 Act.  

28.	In those circumstances, Antony and Richard, as trustees of the Northend Settlements, want to establish whether or not they are exposed to such claims.  They have accordingly brought these proceedings to determine the second beneficial ownership issue.   The proceedings were issued on 11 May 2007.  They seek declaratory relief to the effect that Mr Kebiru was the beneficial owner of the assets settled into the Northend Settlements, resolving the second beneficial ownership issue in favour of the trustees.  Mr Kebiru is joined as a Claimant as he has an interest, as object of the overriding powers of appointment in each Settlement, in establishing that he, and not Edward, was the beneficial owner of the settled property prior to being settled.

29.	The defendants are Zoe, HMRC, Edward’s Estate and Gary.  Zoe and HMRC have an interest in arguing that the estate is entitled.  Although Gary is also a trustee of certain of the Northend Settlements, he does not wish to become involved in this litigation; he has therefore been joined as a defendant in order that he is bound by the decision of this court.  The estate is also joined pursuant to CPR Part 19.8(2)(b) in order that it should be bound.  Zoe, I should add, has brought a Part 20 claim, in which she seeks declaratory relief concerning the Northend Settlement (No 1).

30.	Resolution of the second beneficial ownership issue in favour of the trustees will be determinative of any claim which Zoe or HMRC (at least so far as concerns capital transfer tax arising in relation to the Northend Settlements) might make against the trustees of the Northend Settlements or the settled assets which it is their duty to administer.  More usually, one might expect such an issue to be determined in the substantive action which would otherwise take place.  Thus, the second beneficial ownership issue would ordinarily arise in the context of an application by Zoe under section 10 of the 1975 Act or in the context of an actual application by HMRC in the course of recovering the tax liability of Edward and his estate.  

31.	Were it not for the Notices of Determination and the related appeals which I come to in a moment, I would see no reason as a matter of jurisdiction why the second beneficial ownership issue should not be determined not only as against Zoe but also as against HMRC in proceedings seeking declaratory relief.   In relation to the section 339 claim there is the complication that the actual claim against the trustees would be made by the trustee administrator of Edward’s estate who, of course, has not yet been appointed (and, I accept may never be).  It might then be said that it is not the creditors of the estate (including HMRC) who should be joined to this action, but the trustee administrator if and when he is appointed and that, until he is appointed, the trustees cannot make a claim for declaratory relief at all.  Alternatively, it might be said that the joinder of the estate as a defendant is enough on the footing that, if the estate is bound, so too will be the creditors.  

32.	I would reject those suggestions.  It must, in principle, be possible for the trustees to obtain the declaratory relief which they seek in a way which is binding on all those who could, at any time, make a claim against them under section 339.  In that context, executors or ordinary administrators could not assert a claim under section 339; it is only if the estate is being administered in bankruptcy that such a claim could be made.  I rather doubt that the trustee of an estate being administered in bankruptcy and the creditors would be bound by a decision if only the estate were joined as a defendant.  The sensible and proportionate course is to join the persons with the real interest in the issue namely the creditors of the estate.  

33.	Further, I would see no reason why, as a matter of discretion, the trustees’ claim should be stayed either as against Zoe or HMRC until she or they actually make their respective claims against the trustees.  The second beneficial ownership issue is clearly not a hypothetical issue so far as the trustees are concerned: the potential claims by both Zoe and HMRC are not hypothetical ones either but are ones which may well be made.  The trustees seek declaratory relief with a view, as it is put on their behalf, “to freeing the Northend Settlements of potential claims which threaten the assets of those trusts and paralyse their administration”.  I consider (subject to the impact of the Notices of Determination and related appeals) that they are entitled to do so.  Thus if one takes the Notices of Determination out of the equation, for instance by supposing that Edward had taken an immediate interest in possession in each of the Northend Settlements so there would have been no inheritance tax charge on any transfer of assets by Edward to those Settlements, there would, it seems to me, nonetheless remain an issue between the trustees and HMRC about the beneficial ownership of the settled assets immediately prior to their being settled; and that is an issue which, in my view, the trustees ought to be entitled to bring to this court by an action seeking declaratory relief.

34.	I turn now to various Notices of Determination.  Notices of Determination in respect of inheritance tax were issued on 3 November 2006 and served on Antony and Richard as trustees of the Northend Settlements.  Gary was not served with any Notice even though he was a trustee of certain of the Settlements.  The Notices of Determination assert that Edward was the settlor of each Settlement within the meaning of section 44 Inheritance Tax Act 1984.  The consequence of that, if it is correct, is that the trustees will be liable, under section 199(1)(c), in relation to the chargeable transfer which Edward made when he settled his property into the Settlements.  HMRC have accepted that the Notice of Determination in relation to Northend Settlement (No 1) cannot be sustained because Edward himself was the first life tenant so that no chargeable transfer took place.  So far as concerns the other Notices of Determination, the trustees issued appeals on 14 November 2006.  They had to do so within the 30 day time limit provided in section 222(1) in order to protect their position.  This was so notwithstanding that they had been in discussion with HMRC for some months about the income tax liability and had written a letter before action.  I do not propose to go into the spat between the trustees and HMRC about the procedures and tactics which have been adopted. 

35.	Notices of Determination in respect of capital transfer tax have also been issued.  These relate to the making of the Bompai Settlement, again on the basis that Edward was the beneficial owner of the settled assets.  Of course, if the Bompai Settlement was a sham, then there was no transfer of value by Edward even if he was the beneficial owner and the Notices must surely fall.  HMRC will have to come off the fence on the issue of sham at some stage.  HMRC’s case, assuming the genuineness of the Bompai Settlement, is that a transfer of value was made by Edward when his property was settled into the Settlement giving rise to a liability to capital transfer tax.  Further, a periodic 10-year anniversary charge arose in 1994 and an exit charge in 2002.  It is asserted in the Notices of Determination which have been issued to and served on Mr Kebiru, Zoe, Antony, Richard, Gary, and Dexia Trustees Jersey Ltd (the trustees of the Bompai Settlement) so that they are each liable for capital transfer tax as trustees of or as beneficiaries of one or more of the Northend Settlements.  Notices were originally issued on 7 December 2007 under the Inheritance Tax Act 1984.  These should have been issued under the provisions of Finance Act 1975 and so were re-issued on 11 January 2008.  They were thus issued many months after the commencement of the present action.  These Notices of Determination were appealed by Fladgate Fielder on behalf of Mr Kebiru, Antony and Richard on 2 January 2008, and by Zoe on 6th February 2008 and Gary on 4th February 2008.  

36.	The Notices of Determination in respect of the Bompai Settlement depend on the resolution of the first beneficial ownership issue.  I do not know whether that is the only issue which will arise in the appeals against the Notices; but a finding that Mr Kebiru, and not Edward, was the beneficial owner of the assets settled will determine the appeals against HMRC.  Even if Edward was the beneficial owner of the settled property, it is at least logically possible that Mr Kebiru became the beneficial owner of the assets comprised in the Bompai Settlement when they were appointed out to him in 2002.  If he was the beneficial owner at that time, then again HMRC’s claim that the trustees and beneficiaries of the Northend Settlements should be liable for the capital transfer tax and inheritance tax charges in relation to the Bompai Settlement should fail.

37.	The Notices of Determination in respect of the Northend Settlements depend on resolution of the second beneficial ownership issue.  In resolving that issue, it will doubtless be necessary to go into, and quite probably to decide, the first beneficial ownership issue.  Again, I do not know if the first and second beneficial ownership issues are the only issues which will arise on the appeals against these Notices; but a finding that Mr Kebiru, and not Edward, was the beneficial owner of the assets immediately before being settled into the Northend Settlements will likewise determine the appeals against HMRC.  

38.	All parties are, I believe, of the view that the issue raised in this action – that is to say the second beneficial ownership issue – ought to be decided once and once only.  Mr Brian Green says that this issue should be determined in the High Court: the court has jurisdiction and should exercise its jurisdiction against ordering a stay.  Mr Ivory says that this is a case which is governed by the statutory appeals provisions and that this court does not have jurisdiction to decide, as between the Claimants and HMRC, the second beneficial ownership issue or, if it has jurisdiction, it is one which should not be exercised in this case.  He relies on the line of authority which demonstrate that tax disputes should be resolved using the appeal machinery laid down by statute and that it is not permissible to seek relief in the High Court – in particular declaratory relief – the practical effect of which, if it were allowed, would be to sidestep that procedure.  

39.	It is necessary now to turn to the statutory provisions and authorities to which I have been referred.  In doing so, it must always be remembered (i) that the first and second beneficial ownership issues are relevant not only to the appeals against the various Notices of Determination but also in relation to HMRC’s ability to recover from the trustees of the Northend Settlements the income tax liability, as eventually established, pursuant to the estimated assessments, a matter which has nothing to do with inheritance tax or capital transfer tax and (ii) that I have already concluded that, absent the Notices of Determination and the related appeals, the Claimants would be perfectly entitled to bring this action against HMRC as well as against Zoe.  

40.	The Inheritance Tax Act 1984 confers on the taxpayer a right to appeal against a Notice of Determination: section 222.  The appeal will normally be to the Special Commissioners pursuant to section 222(1) but an appeal may be made to the High Court where either (a) it is so agreed between the appellant and HMRC or (b) the High Court is satisfied that the appeal is likely to be substantially confined to questions of law.  HMRC has a perfectly sensible policy of agreeing to appeals proceeding in the High Court only if they are substantially confined to issues of law; but Mr Ivory accepts that it would be open to HMRC, if they thought it right to do so in a particular case, to agree to an appeal proceeding in the High Court even if it raises serious issues of fact and perhaps no real question of law at all.  It would be open to HMRC to agree to the appeals in the present case being heard in the High Court.  However, they do not in fact agree to that course; further, the appeals are clearly not substantially confined to questions of law.  Accordingly, the statutory appellate jurisdiction in relation to the Notices of Determination must be exercised by the Special Commissioners and not by the High Court. 

41.	The  authorities before 1995 were helpfully considered by Robert Walker J in Glaxo Group Ltd v IRC [1995] 1075.  It would be a pointless exercise to carry out a further review of those authorities, although I will need to say something about Vandervell Trustees Ltd v White [1971] AC 1075.   But I mention Barraclough v Brown [1897] AC 615 and Argosam Finance CO Ltd v Oxby [1965] Ch 390.  

42.	Barraclough is an early case (not concerned with tax) demonstrating the principle that, where Parliament has assigned the resolution of a particular class of dispute to a particular tribunal, that tribunal has exclusive jurisdiction in relation to the dispute.  That was a case where the plaintiff sought a declaration as to his rights which were precisely the rights conferred by statute, there being no common law right, and where the statute provided for recovery only in a court of summary jurisdiction.

43.	Argosam was considered by Robert Walker J in Glaxo.  As he says, it raised two questions one as to the construction of section 341 Income Tax Act 1952 and the other a consequential question about the recovery of  tax.  The first question was held to be one clearly within the exclusive jurisdiction of the commissioners and the second was hypothetical.  Robert Walker J summarised the decision in this way:

“The judgments as a whole confirms the general proposition that since Parliament has prescribed the procedure of assessment and appeal for determining liabilities to income tax and corporation tax, that procedure is to be followed to the exclusion of other possible means of determination.  I will call this the ‘exclusive jurisdiction principle.’”
I will adopt the same use.  Argosam is, I think, an obvious application of the exclusive jurisdiction principle.  

44.	Robert Walker J then considered the decision of the House of Lords in Vandervell, a decision which has featured large in the argument before me.  The actual decision in the case related to the meaning and effect of the old RSC Ord 15 r 6(2) concerning joinder to proceedings.  The speeches show, as the Judge says, some differences of approach although the actual decision was unanimous.  The facts in that case appear sufficiently from the headnote.  Mr Vandervell had made a settlement in 1949.  The trustees exercised, in 1961, an option to acquire from the Royal College of Surgeons some shares in a company in which Mr Vandervell was concerned which he had transferred to the College in 1958.  Between 1961 and 1965, the trustees received dividends in excess of £750,000.  In 1965, during the course of proceedings in which the revenue claimed surtax from Mr Vandervell on dividends paid whilst the College held the shares (on the basis that he had not fully divested himself of his beneficial interest) Mr Vandervell executed a deed intended to transfer to the trustees such interest as he might have retained.  In an appeal to the House of Lords (reported at [1967] 2 AC 291) the assessment in respect of dividends paid up to 1961 was upheld.  Mr Vandervell died in 1967 and the revenue, relying on the House of Lords decision, made an assessment on his estate for surtax in respect of dividends paid from 1961 to 1965.  The executors gave notice of appeal against the assessment, which appeal was stood over pending the determination of proceedings commenced by originating summons by the executors in which they claimed as against the trustees that the estate was entitled to the dividends received by the trustees since, if liable for the tax, they wished to have the dividends out of which to pay it.  The executors obtained the leave of the court to join the revenue (who did not object) in order to ensure that they would be bound by the decision of the court when it came to the tax appeal.  The trustees objected to the joinder.  The House of Lords upheld the objection on the basis that the case did not fall within RSC Ord 15 r 6(2). 

45.	Robert Walker J considered some other authorities summarising their effect as follows:

“From these authorities I conclude that the general principle which I have termed the exclusive jurisdiction principle is not open to doubt, subject perhaps to some erosion under the impact of judicial review.  Moreover the exclusive jurisdiction principle cannot be circumvented simply by dressing up proceedings in the High Court as an application for a declaration, if the substantial effect of a declaration would be to determine a liability which ought to be determined by the commissioners.  But the principle is not to be pushed too far so as to exclude any proceedings which might conveniently and usefully be heard in the High Court, ‘just because those questions arise between taxpayer and Crown and form a basis, even a necessary basis, for an income tax assessment’ (as Lord Wilberforce said in Vandervell…)………..
It is not easy to discern any clear dividing-line between High Court proceedings which are, and those which are not, objectionable as attempts to circumvent the exclusive jurisdiction principle.  Possibly the correct view is that there is an absolute exclusion of the High Court’s jurisdiction only when the proceedings seek relief which is more or less co-extensive with adjudicating on an existing open assessment; but that the more closely the High Court proceedings approximate to that in their substantial effect, the more ready the High Court will be, as a matter of discretion, to decline jurisdiction.”

46.	Glaxo  concerned section 485 Income and Corporation Tax Act 1970 relating to transfer pricing.  It allowed the revenue to make a direction where transfer pricing had taken place, with the result that 

“all such adjustments shall be made, whether by assessment, repayment of tax or otherwise, as are necessary to give effect to the direction.”
47.	The plaintiff sought declarations to the effect that a direction under section 485 was ineffective unless followed by a new assessment within the relevant time limit.  The decision demonstrates a fairly benign approach to the exercise of the court’s discretion.  Robert Walker J actually allowed the High Court proceedings to continue (although it is to be noted that the revenue did not urge him to decline jurisdiction) in a situation where one can see that the discretion might well have been exercised in the other sense (the Judge himself saying that he did not find the question of jurisdiction easy).

48.	The only other case to which I wish to refer at this stage is another decision of the House of Lords, Autologic Holdings plc v IRC [2006] 1 AC 118.  The claimants were companies which had made payments of advance corporation tax in accordance with domestic UK legislation.  Following decisions of the ECJ, the claimants commenced proceedings against HMRC in the High Court for restitution and damages on the basis that the legislation relating to group relief deprived them of a benefit to which they were entitled.  There were several classes of claimant but they fell into two broad classes.  The first class comprised those where, assuming the claimants’ contentions on community law were correct,  it was still open to claim in full the group relief to which they would be entitled under community law.   The second class comprised those where that course was not open for various procedural reasons such as statutory time-bars.  HMRC applied to strike out the claim essentially on the basis of the exclusive jurisdiction principle.  The debate in the House of Lords focused on the first class.  The majority (Lords Nicholls, Steyn and Millett, Lords Hope and Walker dissenting) held that the High Court proceedings by claimants in the first class should be stayed.  

49.	There was, however, no real dispute between the majority and the minority about the principles to be applied and the effect of the earlier case law.  Indeed, Lord Nicholls (with whom both Lords Steyn and Millett expressly agreed) cited the passage from the judgment of Robert Walker J (the dissenting Lord Walker) in Glaxo being the second paragraph which I have quoted above. Rather, the disagreement arose in relation to the application of those principles to the facts of the case.   

50.	In relation to the first class, the majority considered that the claims in the High Court were misconceived.  As Lord Nicholls put it at paragraphs 20, 21 and 23 at pp127-8:

“20.	……Where a claimant company can obtain through the statutory procedures the very tax relief of whose non-availability it is complaining, I can see no justification for the company by-passing the statutory route and, instead, going to the High Court and claiming damages or a restitutionary remedy based on the proposition that the company has been wrongly refused the tax relief to which it is entitled under community law.
 20.	Take a case where an inspector disallowed a claim for group relief and an appeal to the special commissioners is pending. If that appeal proceeds the special commissioners will give effect to all relevant directly applicable provisions of Community law. The special commissioners can refer any necessary questions to the European Court just as readily as the High Court. They can resolve any questions of fact which may arise on issues such as the amount of the losses claimed. They can inquire into the group structure to see if it meets the statutory requirements. Indeed, detailed questions of this character are more suited for determination by the special commissioners than the High Court, especially where large numbers of companies are involved. In short, in this example the claimant is still able to obtain the tax relief it seeks despite its claim having been refused by an inspector.
 23. 	In my view these claims in the High Court are prima facie a misuse of the court's process. These claims cover the same ground in all respects as the appeals pending before the appeal commissioners. The remedy sought is co-extensive with adjudicating upon existing, open assessments. The essence of the High Court claims is that these assessments were wrong, that the court should so hold, and that the court should itself calculate the amounts which ought to have been assessed and order repayment of the overpaid excess. There could hardly be a more obvious example of seeking to sidestep the statutory procedure.”
51.	The minority took a rather different view, clearly regarding the impact of “the superior order constituted by EU law” (to use Lord Walker’s words) as going, in that case, beyond merely treating the relief to which the claimants ought to have been entitled under community law as if it were, in effect, part of the overall tax regime which fell within the exclusive jurisdiction of the Special Commissioners to adjudicate on.  As Lord Walker put it at paragraph 127:

“[The claimants’] complaints (seeking a restitutionary remedy and/or damages, interest and costs) are that their non-entitlement to group loss relief is a serious breach of EU laws (in the sense that it is impossible to look at the matter in an entirely domestic context, since but for EU law, there would no complaint).  These claims are in my view within the jurisdiction of the High Court, in line with Lord Wilberforce’s observations in Vandervell’s case… They are miles away from the sort of artificial expedient which was adopted in Argosam…and was rightly held to be an abuse of process.”
52.	All of the authorities which I have considered are dealing with situations where the issue which one party or another wished to have dealt with in the High Court was the same, or virtually the same, issue as would arise in the tax appeal and where that issue was not relevant to any other dispute or potential dispute between the plaintiff or claimant and HMRC.  

53.	Thus, in Argosam, the issue of construction of section 341 went only to the plaintiff’s tax liability; there was no factual issue, in contrast with the present case, which went to both a tax liability and a different aspect of the relationship between the plaintiff and the Crown. 

54.	In Vandervell, the actual decision turned on the meaning of RSC Ord 15 r 6(2).  But looking beyond that narrow aspect, there was a dispute between the trustees and the executors about entitlement to the dividends; however, as between the executors and the Crown, the resolution of that dispute was relevant only to the executors’ liability to surtax.  There was no separate dispute or potential dispute between the executors and the Crown which required resolution of that issue of entitlement.  And, in contrast with the present case, it is not easy to see how the Crown would have been able to assert any rights pursuant to the predecessor provisions of section 339 and 423 Insolvency Act 1986 and certainly no argument to that effect is recorded in the report.

55.	In Glaxo, the issue requiring resolution went to, and only went to, the effect of section 485.  There was no other issue between the plaintiffs and HMRC and it was an issue which went only to tax liability.  And in Autologic the majority saw the issue of community law, so far as concerned the first class, as being no more and no less an issue of the right to group relief.  That issue was seen by the majority as relevant to, and only to, the plaintiffs’ tax liability; there was no other dispute or potential dispute between the plaintiffs and HMRC which might turn on the same issue.

56.	In the present case, the situation is entirely different.  The second beneficial ownership issue goes not only to the trustees’ liabilities to inheritance tax but also to whether HMRC can obtain effective enforcement for a completely different liability – the liability of Edward and his estate for income tax - which has nothing at all to do with the possible inheritance tax liability of the trustees.  In my judgment, nothing which has been said, if taken in the context in which it was said, in the cases to which I have referred, supports the application of the exclusive jurisdiction principle to a case such as the present.   If a dispute or potential dispute arises between a person and HMRC which is independent of the tax appeal under consideration, the exclusive jurisdiction principle does not render that dispute or potential dispute non-justiciable in the High Court simply because the same, or a very similar, issue will be relevant to, or perhaps even determinative, of both that dispute and the tax appeal.

57.	Take an example – perhaps fanciful but it illustrates the point.  Suppose a taxpayer company, T, is carrying out office improvement works for HMRC.  As the result of the negligence of an employee of HMRC, a valuable piece of equipment, E, in the possession of T is damaged.  T is claiming a capital allowance in respect of its acquisition of E.  T also asserts that HMRC are liable for the damage caused to E by their employee.  There is a dispute, however, about the ownership of E.  T says it belongs to T.  HMRC maintain that E was never purchased by T at all so that T is not entitled to a capital allowance nor is T entitled to claim damages since E did not belong to it.   The acquisition cost is disallowed by the Inspector and an assessment is made on that basis.  T appeals the assessment and also brings a damages action.  The same issue – namely the ownership of E – arises in relation to the tax appeal and the damages claim.  It may well be sensible for there to be one set of proceedings in which that issue is determined; and ordinary case management principles can be applied to determine where that should be done.  But in my judgment, the exclusive jurisdiction principle is not relevant to the application of those principles.

58.	The present case is no different.  For reasons already given, it would be perfectly proper for the Claimants to seek declaratory relief against HMRC in the High Court absent the appeals against the Notices of Determination.   That relief is sought in relation to a claim or potential claim between the trustees and HMRC – ie in relation to section 339 and 423 – which has nothing to do with the Notices of Determination and the underlying capital transfer tax and inheritance tax liabilities.  The exclusive jurisdiction principle is not applicable in deciding whether or not the High Court proceedings should be stayed.

59.	The question then is whether the High Court proceedings should, as a matter of this court’s discretion, be stayed as against HMRC pending resolution of the second beneficial ownership issue by the Special Commissioners; this is essentially a question of case management.

60.	In my judgment, the balance is clearly in favour of allowing these High Court proceedings to continue.  All relevant persons are already parties to the claim.  Zoe’s claim under section 10 of the 1975 Act would be brought in the High Court (albeit probably in the Family Division rather than in the Chancery Division) so that what is in effect a preliminary point in her claim will be decided in the present action by a High Court Judge.  The factual dispute is entirely suitable for resolution by a High Court judge (although I do not suggest that the Special Commissioners would not also be perfectly capable of satisfactorily deciding the issue).  HMRC will be bound by the result and, whatever the theoretical arguments that the Special Commissioners will not strictly be bound, the reality is that, if the High Court decides the second beneficial ownership point in favour of the trustees, HMRC will not be able to assert to the contrary before the Special Commissioners who, in turn, are almost certain to follow the High Court decision.

61.	In contrast, Zoe and Mr Kebiru are not parties to the trustees’ inheritance tax appeals in relation to the transfer of assets to the Northend Settlements. Mr Ivory suggests that they could be joined as parties to those appeals pursuant to Regulation 8 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 which provides as follows:

“If it appears to a Special Commissioner, whether on the application of a party or otherwise, that it is desirable that any person other that the Respondent be made a party to any proceedings, he may direct that such person be joined as a party in the proceedings and may give such further directions for giving effect to, or in connection with the direction as he thinks fit.”
62.	I very much doubt that that provision can be used in order to join a person who has absolutely no interest in the outcome of the tax appeal other than in relation to a finding of fact which the Special Commissioners might make and which would be of relevance to an issue in unrelated proceedings between that person and HMRC.  Even if that is putting the matter too high, it would only be in exceptional circumstances that the power should be used for such a purpose and, were the matter for me, I would not exercise the power in the present case where there are subsisting High Court proceedings: I would not think it desirable to do so in order, in practice, to enable the Special Commissioners to exercise jurisdiction in a case which would otherwise be dealt with perfectly satisfactorily in the High Court.  

63.	However, Mr Ivory also points out that Zoe and Mr Kebiru are parties to the appeals against the Notices of Determination in relation to the Bompai Settlement.  Those appeals will turn principally if not wholly on the first beneficial ownership issue, an issue which will almost certainly have to be decided in resolving the second beneficial ownership issue.  Those appeals, he says, can be brought on together with the appeals against the Notices of Determination in relation to the Northend Settlements so that, in practice, all the interested persons will be parties to a set of appeals heard by the same Special Commissioners at the time in which all relevant factual issues will be decided.

64.	As to that, the appeals against the Notices of Determination in relation to the Bompai Settlement do not raise all aspects of the second beneficial ownership issue; Zoe and Mr Kebiru are not, as recipients of the Notices of Determination addressed to them, concerned with all aspects of the second beneficial ownership issue whereas they are so concerned as persons interested or potentially interested in the assets of the Northend Settlements. It seems to me that Mr Ivory’s submission has to rely on the proposition that, by bringing on the two sets of appeals together, the Special Commissioners can be given a jurisdiction to decide a factual issue – viz the second beneficial ownership issue – as against Zoe and Mr Kebiru  which does not arise in the tax appeal to which they are properly parties (ie the appeals against the Notices of Determination in relation to the Bompai Settlement).  I doubt that that can be done.  But even if it can be, this is not a case, in my judgment, where that possibility is enough to persuade me that my discretion should be exercised in favour of staying the High Court proceedings.

65.	That is enough to dispose of  HMRC’s application in relation to the trustees’ claim.  I have not, however, mentioned Zoe’s position in all of this.  In his skeleton argument, Mr Legge said that Zoe was not concerned to argue whether HMRC’s application should or should not be granted. As to venue by the time of the hearing, he indicated a definite preference for the High Court dealing with the issue.  In the course of his submissions he took me to a number of authorities which suggest that a decision of the Special Commissioners would not be binding on the parties in a subsequent High Court claim by Zoe under section 10.  In other words, the trustees might lose the second beneficial ownership issue (so that Edward would be held to be the beneficial owner of the assets settled into the Northend Settlements) and thus be vulnerable to a claim by Zoe under section 10 of the 1975 Act.  But when she actually makes that claim, it would be open to the trustees to argue that Edward was not, after all, the beneficial owner of the assets settled into the Northend Settlements.  

66.	It might come as a surprise to find that, in 2008, a decision of the Special Commissioners might not give rise to a binding res judicata  or issue estoppel.  It certainly came as a surprise to me as much as it did to Jacob J in King v Walden [2001] EWHC Ch 419.  He carried out an exhaustive review of the authorities in the context of the income tax appeals before him: he decided that the weight of authority forced him to the conclusion that findings in relation to an appeal against one year’s assessment to income tax were not binding in relation to later years.  Whether a similar approach applies to inheritance tax appeals is not clear.  There is no material distinction in the wording of the relevant provisions of section 50(6) Taxes Management Act 1970 and section 224(5) Inheritance Tax Act 1984.  However, the income tax decisions reflect the historical position of the Special Commissioners exercising administrative, rather than judicial, functions.  That can hardly be said to be the case today and even if it is not possible, short of the House of Lords, to reflect the reality of their position as a judicial tribunal in the context of income tax, it does not follow that the same cannot be done in the context of inheritance tax.  Indeed, given that section 222 envisages the High Court exercising an appellate jurisdiction in some cases, it would be odd if decisions of the High Court were to be treated differently from decisions of the Special Commissioners when exercising an identical jurisdiction.  It is hardly likely, I think, that the necessary consistency of approach would result in decisions of the High Court, uniquely in tax appeals, being ones which gave rise to no res judicata or issue estoppel.

67.	It is not, however, necessary for me to decide the point and I decline to do so since, quite apart from that point, the claim for declaratory relief by the trustees against HMRC should not, in my judgment, be stayed.

68.	My conclusion, therefore, is that HMRC’s application against the trustees fails and the trustees’ claim should be allowed to continue.