[2010] UKFTT 235 (TC)

TC00534

Appeal number: S.C. 3076/2007 

Capital gains tax (CGT) – enterprise investment scheme (EIS) – reinvestment relief - TCGA 1992, Sch 5B – whether amount received by subscriber in relevant period was repayment  of debt or payment within Sch 5B, para 13(2) – fraud or malfeasance of agent – agent acting without authority – mistake – whether shares issued were “eligible shares”

FIRST-TIER TRIBUNAL

TAX 

	SEGESTA LIMITED	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS (CGT)	Respondents

		TRIBUNAL: 	JUDGE ROGER BERNER
				PHILIP GILLETT FCA (Member)									

Sitting in public at 45 Bedford Square, London WC1 on 12 – 16 April 2010

Michael Sherry, instructed by A I Cherry Limited, for the Appellant

Philip Jones QC, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents

© CROWN COPYRIGHT 2010

DECISION

1.	Segesta Limited (formerly Blackpool Football Club Properties Limited) (“the Appellant”) appeals against the refusal of HMRC to authorise the Appellant to issue Enterprise Investment Scheme (“EIS”) certificates to Mr Owen Oyston in respect of  a subscription by him in December 1999 for shares in the Appellant.
2.	The reason for the refusal to authorise the issue of the certificates was that HMRC contend that in December 1999 a subsidiary of the Appellant, The Blackpool Football Club Limited (“BFC”), was indebted to Mr Oyston and repaid that debt on the date of issue of the shares pursuant to an arrangement for or in connection with the acquisition of those shares within the meaning of paragraphs 13(1) and 13(2) of Schedule 5B to the Taxation of Chargeable Gains Act 1992 (“TCGA”).  Prior to the hearing HMRC also put forward an alternative reason for refusal, namely that the sums paid to Mr Oyston in December 1999 were payments to him, and not qualifying payments, within the meaning of paragraph 13(2).
3.	The Appellant accepts that the money was transferred by it to Mr Oyston on the date the shares were issued to him (in fact the money was transferred shortly before issue, but nothing turns on this) pursuant to an arrangement for or in connection with the issue of shares, but it contends that the money which it transferred was money which it was holding on trust for Mr Oyston and that it was not repaying any debt to Mr Oyston.  These contentions were elaborated further in argument, and the Appellant also contended that what was received by Mr Oyston did not amount to a payment to him by the Appellant within paragraph 13(2).
4.	This appeal is by the Appellant in respect of the refusal of the EIS certificates, but it affects the tax liability of Mr Oyston.  The issue is whether the shares subscribed by him in the Appellant in December 1999 should, or should not, be treated as “eligible shares”.  If they are eligible shares Mr Oyston will be entitled to reinvestment relief enabling him to defer capital gains on certain disposals made by him.  If they are not, then, subject to the normal rules, Mr Oyston will have a liability to capital gains tax on gains arising from those disposals.
5.	Put briefly, the issue centres on the proper characterisation of the amounts which Mr Oyston received from BFC.  The sums received were in respect of liabilities that had, for the most part, been described and accounted for as loans by Mr Oyston to BFC.  However, the circumstances in which those liabilities arose are unusual.  Mr Oyston was arrested in January 1995 and subsequently imprisoned on 23 May 1996.  While Mr Oyston was in prison he was the victim of a fraud or malfeasance perpetrated on him by a hitherto trusted employee, Robin Oakley, who himself was arrested in April 1998, and sentenced to three years imprisonment having pleaded guilty to eight counts of theft from Mr Oyston.  The essence of the Appellant’s case is that, firstly, Mr Oakley acted fraudulently or outside his authority in making loans to BFC on behalf of Mr Oyston, or those loans were made by mistake, and that after Mr Oakley’s arrest, Mrs Oyston, acting as attorney for her husband continued with the same pattern of making loans and thus perpetuated the mistake.  In those events, the Appellant says that the sums received were due to Mr Oyston by way of restitution, and that as such they were not repayments of debt, or payments at all within the meaning of paragraph 13 of Schedule 5B, TCGA.  On that basis the shares subscribed by Mr Oyston in the Appellant would be eligible shares and he would be entitled to reinvestment relief under the EIS.
6.	Michael Sherry appeared for the Appellant.  HMRC were represented by Philip Jones QC.
The facts
7.	We heard evidence from a number of witnesses for the Appellant: 
(1)	Mr Oyston, who was the controlling shareholder of a number of companies (loosely referred to as the “Oyston group of companies”) including the Appellant, a subsidiary of the Appellant, BFC, and Zabaxe Limited (“Zabaxe”) which held shares in the Appellant.
(2)	Ian Cherry, a chartered accountant and the auditor of the Oyston group of companies.
(3)	Carol Barrie, a chartered accountant specialising in taxation matters.  In 1994 and up to 1997 Mrs Barrie was a partner in KPMG and acted for Mr Oyston.  Along with Mr Belton (see below) she dealt with Mr Oyston’s personal tax returns and financial matters, and had done so since the 1980s.
(4)	Howard Belton, a tax consultant, who was with KPMG from 1985 to 2000 and from 2000 to 2008 was with Baker Tilly, dealing solely with taxation matters.  Whilst at KPMG Mr Belton assisted Mrs Barrie in dealing with Mr Oyston’s tax affairs until Mrs Barrie left KPMG in 1997.  Mr Oyston transferred his personal tax affairs and the completion of his personal tax returns to Baker Tilly in 2000, and Mr Belton continued to advise Mr Oyston on these matters, assisting the tax partner, David Bradshaw.
(5)	Vicki Oyston, Mr Oyston’s wife, who was at the relevant times a director of various companies in the group, and who took over as chairman of all of the group companies when Mr Oyston was imprisoned on 22 May 1996.  At that time Mrs Oyston also had a power of attorney in respect of Mr Oyston’s affairs.
(6)	Karl Oyston, the eldest son of Mr and Mrs Oyston, who was engaged in the management and day to day running of two farming companies in the Oyston group of companies, Netfarm Limited and Oyston Estates Limited.  At some stage Mr Karl Oyston had a joint power of attorney with Mrs Oyston over his father’s personal affairs.  In this decision when we refer to Mr Oyston it is to Owen Oyston and not to Karl Oyston.
All these witnesses gave evidence before us and were cross-examined by Mr Jones.  We also received in evidence a witness statement of Rosemary Conlon, who has worked for Mr Oyston and the Oyston group of companies since April 1989.  She was first Mr Oyston’s personal assistant, then corporate affairs manager for the group, and finally company secretary to most of the group companies.  Mrs Conlon’s witness statement was not challenged, and we accept it.
8.	As well as the witness evidence we had a number of bundles of documents.
9.	The parties produced an agreed statement of facts not in dispute, which we reproduce below:
1.	The Appellant is a company incorporated in 1985 with objects including (1) to acquire not less than 90% of the issued shares of The Blackpool Football Club Limited (“BFC”), and (2) to carry on the business of a holding company.
2.	At 31 May 1993 the Appellant held more than 94% and at all times between 31 May 1994 and 31 May 2000 at least 95% of the issued share capital of BFC, a company incorporated in England and Wales whose principal activity throughout that period was that of a professional football club.
3.	Owen John Oyston (“Oyston”) was the Appellant’s principal shareholder throughout the period 31 May 1993 to 31 May 2000.  Oyston was also a director of the Appellant throughout that period.
4.	As at 31 May 1993 Oyston held 1,328,500 of the Appellant’s 1,374,005 issued shares (96%).  As at 31 May 1999 Oyston held 1,328,200 of the Appellant’s 1,374,124 issued shares (96%).  Other than the reduction by 300 shares of Oyston’s holding and the increase by 119 shares of the Appellant’s issued share capital, there were no changes either to Oyston’s shareholding or the Appellant’s issued share capital during that period.
5.	Zabaxe Limited (“Zabaxe”) is a company incorporated in 1987 whose principal activity at all relevant times until 29 June 2000 was the provision of administration and management services.  During the year ended 31 December 2000 Zabaxe acquired 62,976 shares in the Appellant in return for releasing an unsecured loan to the Appellant of £944,652.  On 29 June 2000 Zabaxe ceased to act as a management company and began acting as an investment holding company.
6.	Throughout the period 1 January 1995 to 31 December 2000 Oyston was a director and the sole shareholder of Zabaxe.
7.	The published consolidated accounts of the Appellant disclose the following:
(1)	As at 31 May 1996, the Group owed £2,091,949 to Zabaxe and £875,045 to Oyston, i.e. a total of £2,996,994.
(2)	As at 31 May 1997, the Group owed £3,233,045 to Zabaxe and £1,025,045 to Oyston, i.e. a total of £4,258,090.
(3)	As at 31 May 1998, the Group owed £2,504,347 to Zabaxe and £1,645,332 to Oyston, i.e. a total of £4,149,679.
(4)	As at 31 May 1999, the Group owed £3,276,650 to Zabaxe and £2,055,650 to Oyston, i.e. a total of £5,332,300.
(5)	As at 31 May 2000, the Group owed £944,652 to Zabaxe and £817,790 to Oyston, i.e. a total of £1,762,442 (that is, £3,569,858 less than at 31 May 1999).
The published consolidated accounts disclose that, for each period described, the majority of the sums owed to Zabaxe and to Oyston were owed by BFC rather than the Appellant.
8.	In addition, the published accounts of Zabaxe disclose that:
(1)	As at 31 December 1994, BFC owed £756,881 to Zabaxe.
(2)	As at 31 December 1995, BFC owed £1,956,768 to Zabaxe.
9.	Allan Robin Oakley (“Oakley”) was the Company Secretary of BFC and of Zabaxe throughout the period 1 January 1995 to 17 April 1998.  He was appointed as a director of BFC on 25 May 1996 and as a director of Zabaxe on 16 August 1996.  On 17 April 1998 Oakley was arrested and, on that date, he resigned from his positions as, inter alia, company secretary and director of BFC and of Zabaxe.  Oakley was never a director of the Appellant.
10.	Oyston was in prison from 23 May 1996 until December 1999.  
11.	During his imprisonment, Oyston gave a general power of attorney to his wife (“Vicki”) and subsequently his son Karl (jointly with Vicki).  Vicki was a director of the Appellant and of BFC at all times throughout the period 31 May 1993 to 31 May 2000.  She was also appointed as a director of Zabaxe on 17 April 1998 and remained a director of that company at all relevant times thereafter.  Karl was appointed as a director of Zabaxe on 17 April 1998 and as a director of each of BFC and the Appellant on 7 July 1999.  He remained a director of all three companies at all material times thereafter.
12.	Oakley pleaded guilty to eight counts of theft from Oyston and companies owned or controlled by Oyston, and on 9 August 1999 was sentenced to three years imprisonment on each count to run concurrently.
13.	On 16 December 1999:
-	the Appellant borrowed £4,147,413 from National Westminster Bank Plc which was transferred into the bank account of BFC;
-	BFC paid £4,147,413 into Oyston’s personal bank account;
-	Oyston then transferred £4,147,413 to the Appellant to subscribe for 276,494 ordinary £1 shares in the Appellant at £15 per share;
-	the Appellant reduced its loan from National Westminster Bank Plc by £4,147,413.
14.	On 21 December 1999 the Appellant issued to Oyston 276,494 ordinary £1 shares in the Appellant at £15 per share (i.e. a total subscription of £4,147,410).
15.	Under cover of a letter dated 27 March 2002 the Appellant applied to the Respondents for authority under section 306(2) Income and Corporation Taxes Act 1988 to issue to Oyston a certificate enabling him to apply for Reinvestment Relief in respect of a subscription for shares of £4,147,410.
16.	By letter dated 27 August 2002 the Respondents refused to give the Appellant the authority to issue a certificate to Oyston as requested. 
Further findings of fact
10.	Mr Oakley was a chartered accountant and the financial adviser of the Oyston group of companies, including the Appellant, its subsidiary BFC and Zabaxe.  He had worked for companies owned by Mr Oyston since the 1980s.  Mr Oyston and his wife and family regarded Mr Oakley as hard working, loyal, conscientious and trustworthy.  They had complete trust in him.  He was a family friend.  His integrity was never questioned.  This view of Mr Oakley was shared by Mr Cherry, the group’s auditor, who said in evidence that Mr Oakley was a person whom he trusted implicitly.
The December 1994 meeting
11.	On 1 December 1994 there was a meeting at the Birmingham offices of KPMG.  This was a planning meeting to review the tax implications of recent tax legislation on Mr Oyston and his companies with respect to both capital gains tax and inheritance tax.  Of particular interest were the new rules on reinvestment relief which had recently been extended to enable deferral of capital gains on the disposal of any asset (and not just a limited asset class).  The meeting was attended by Mr Oyston, Mr Oakley, Mrs Barrie and Mr Cherry, and by leading counsel, two consultants to the group and (for part of the meeting) two bankers from Adam & Co, the merchant banking arm of the Royal Bank of Scotland.
12.	The Appellant placed considerable reliance on the December 1994 meeting.  It was said that from the time of this meeting Mr Oakley could have been in no doubt but that all monies to be introduced into group companies, including the Appellant in relation to funds to be provided to BFC, would be by way of share investments qualifying for reinvestment relief.  Mr Oyston’s evidence was that the relationship with Mr Oakley was such that Mr Oakley would automatically know that it was his duty to implement, in the day to day running of the financial affairs of Mr Oyston and the companies, the decisions that were made.
13.	We were shown a manuscript note, agreed to have been prepared by Mr Oakley, of various points arising out of the meeting.  The meeting lasted the whole day, and the note does not purport to be full minutes.  They are in draft form only, and we were shown no final document.  The draft had evidently been circulated (on a restricted basis) to Mr Oyston, Mr Cherry and to Mr Foley (one of the group’s consultants who had attended).
14.	The first section of the note refers to a statement of Mr Oyston’s assets and liabilities.  The assets are in each case listed with an annotation as to whether the asset qualifies for relief for either “CGT or IT”.  We find that these references are to whether a particular company was a “qualifying company” for reinvestment relief purposes, or the asset was business property for inheritance tax.  In Section 1 there is a reference to BFC as follows:
“Although the accounts currently show a £NIL asset value if the land and players are revalued the potential asset value is £10 – 25 million.  There is relief for CGT and IT purposes.”
On the version of the note we saw there had been a manuscript amendment to increase the assumed value to £25 – 30 million “min”, but nothing turns on this.  The summary of Section 1 showed that assets subject to capital gains amounted to approximately £25 million (before the amendment).
15.	Section 2 of the note sets out Mr Oyston’s objectives.  These included:
“To realise some assets in the most tax-efficient way.”
“To invest in assets which are, or can be protected from future potential tax liabilities, subject, of course, to future tax law changes.”
“To strengthen Balance Sheets and P&L statements in a tax efficient way.”
“To ensure OJO receives tax relief on borrowings wherever possible.”
16.	Section 4 of the note refers to Loan Notes, which were issued by EMAP in respect of the sale of shares by Mr Oyston to EMAP and into which gains on the sale of those shares had been rolled-over.  The note describes the potential capital gain on the repayment of the loan notes as being £10.9 million.  The timing of this gain was September 1997 at the latest.  In that section, after setting out the putative gain on the loan notes, the following appears:
“Any future investments within the period of one year before and three years after must be such as will allow relief under the Re-investment Relief given under section 164L [TCGA].  The purchase of an estate or farm is acceptable.”
A manuscript note here makes the point that property companies would not be suitable.
17.	Section 5 of the note is headed “Blackpool Football Club”.  It contains the following:
“(i) OJO’s objective with regard to the re-development is to retain control and, if possible, sell a proportion of his shares for a sum of between £[9] and 10 million.  If a Capital Gain is achieved through a sale it must be covered wherever possible using the Re-investment relief available.”
18.	Along with Mr Oakley’s note we were shown a typed summary of Mr Oyston’s assets in a table with columns headed “CGT reliefs” and “Inheritance Tax Relief” with a Yes or No marked in each column against each asset description.  Against the entry for BFC and the Appellant the CGT Reliefs column is marked Yes.
19.	We heard evidence that up to the December 1994 meeting the previous practice, which had been administered by Mr Oakley, had been for BFC to be funded by debt.  In a letter dated 2 September 1996 from Mr Cherry to Mr Riley at HMIT Blackpool 2, Mr Cherry explained that Mr Oyston had regularly lent money through Zabaxe to finance the day to day operation of BFC.  Mr Oyston would introduce funds into Zabaxe, and Zabaxe would then lend those funds to the Appellant, from which the funds would be on-lent to BFC.  There was a restriction on Mr Oyston being repaid loans made directly by him to BFC without the consent of the auditors, but that restriction did not apply to loans introduced through Zabaxe.
20.	Mr Oyston’s evidence was that, as a result of the December 1994 meeting, Mr Oakley was instructed by him to introduce all monies into qualifying companies by way of share capital in order to obtain reinvestment relief.  He referred to Mr Oakley’s notes of that meeting in support of this, in particular Sections 2, 4 and 5, to which we have referred above.  Mr Oyston suggested that the notes show that the object of future introduction of capital was to enable him to claim reinvestment relief and that therefore it followed that such capital had to be introduced by way of share subscription.
21.	Mr Cherry and Mrs Barrie were present at the December 1994 meeting.  Mr Cherry said that the advice given by leading counsel and Mrs Barrie at the meeting had been that, wherever possible, all of Mr Oyston’s investments should be such as to qualify for reinvestment relief.  He said that the consensus at the end of the meeting was that Mr Oyston had accepted that advice and that Mr Oakley would implement it.  In cross-examination, his evidence was that this was a matter of general impression that cash should go in by way of shares as far as possible.  Mrs Barrie said that she considered that the instructions to Mr Oakley to ensure that all investments were made by way of share subscription were implied in the matters recorded in the note of the December meeting.  She said that Mr Oyston’s businesses were absorbing all the proceeds of the sales of assets and that it was absolutely crucial that, wherever possible, monies were put in by way of subscriptions for shares.  Mr Oakley was the person who did the physical work of implementation.  Mrs Barrie explained that Mr Oakley would have been in no doubt whatsoever that money should have been put in for shares.  She referred to the proposed redevelopment of the football club stadium.  This was going to require considerable, and ongoing, investment.  Cross-examined by Mr Jones on whether she considered that day to day expenses should be financed by share subscription, she said that Mr Oakley knew, from discussions she had with him, that he had to put the funds in by way of share capital.
22.	We do not consider that the notes of the December 1994 meeting support a conclusion that Mr Oakley had been instructed by Mr Oyston to introduce all monies into BFC or the Appellant by way of share subscription.  There is no evidence of such an instruction, apart from Mr Oyston’s own assertions.  The notes of the December 1994 meeting summarise which companies under Mr Oyston’s control would be qualifying companies for the purpose of reinvestment relief, and there are references to reinvestment relief being claimed in respect of certain anticipated gains, but there is no reference to all monies being channelled, as a general matter, into BFC, the Appellant or any other group company, solely for share capital and not by way of loan.  If that had been the instruction to Mr Oakley, we would have expected his notes, which were very much his own aide-memoire, to have recorded that, especially given the previous practice regarding loan finance in BFC.  Far from recording a general instruction, or even understanding, that all monies should be introduced by way of subscriptions for shares, including to meet day to day working capital requirements, the tenor of the note, and the specific reference in it to BFC, is that investment into qualifying companies should be organised so as to enable actual gains, or anticipated gains, to be deferred (a matching exercise, rather than a single strategy approach), and that that the strategy is one relating to investment.  If the instruction, or understanding, had been that this encompassed day to day financing as well as capital investment, we would have expected this to have been specifically referred to.  Instead, Section 4 of the note, which refers to future investments to allow reinvestment relief in respect of anticipated gains on the EMAP loan notes, mentions the purchase of an estate or farm.  There is no reference to BFC here, either in Mr Oakley’s own draft or in the handwritten annotations made by Mr Oyston.  We regard this omission as evidence that day to day financing of BFC was not, at the December 1994 meeting, regarded as included in this policy.
23.	 We have asked ourselves the following questions.  Having regard to the burden of proof, which is on the Appellant to the standard of the balance of probabilities, does the evidence support a finding of fact that, as a consequence of the 1 December 1994 meeting:
(1)	Mr Oyston had the intention that all monies introduced into BFC/the Appellant from that date would be introduced by way of subscriptions for shares, and not by way of loans?
(2)	Mr Oakley understood that all monies must from that date be introduced into BFC/the Appellant by way of subscriptions for shares and not by way of loans?
(3)	Mr Oakley was from that date instructed by Mr Oyston to introduce all monies into BFC/the Appellant by way of subscriptions for shares, and not by way of loans, or was from that date otherwise subject to restrictions on the way in which those funds were to be so introduced?
Mr Oyston’s intentions
24.	Mr Oyston’s evidence was to the effect that he had clearly formed the intention that all monies should be invested by way of share capital.  He explained that as he had millions of pounds of capital gains to shelter it would have been commercially stupid on his part to introduce money into qualifying companies as loans and leave himself liable to pay millions of pounds of capital gains tax.  He also said that it would have been equally stupid for him to make loans to BFC as that company had habitually traded at a loss and regularly needed an injection of funds to continue trading.  
25.	We accept that the advice given to Mr Oyston at the December meeting was to seek to maximise reinvestment relief having regard to the anticipated capital gains he would make.  We also accept that Mrs Barrie’s advice was that funds had to be injected by way of share capital in order to qualify for reinvestment relief.  We understand Mr Oyston’s logic, especially after the benefit of reinvestment relief had been brought into the equation and confirmed at the December 1994 meeting: given a choice between investing in a way that would enable gains to be deferred and investing in a way that would not, we accept that Mr Oyston’s intention was to do the former.  However, we do not accept that this evidence shows that it was his intention, from 1 December 1994, that all monies, including those for day to day operations, had to be invested by way of subscriptions for shares.  The need for funds to be injected into BFC to enable it to continue trading existed before the December 1994 meeting, and had been met by way of loan finance, and not as a matter of course by way of share capital injections.  The availability of reinvestment relief made it possible to obtain a tax benefit if share subscriptions into qualifying companies were made to the extent required to defer gains made, or to be made, by Mr Oyston, but BFC was by no means the only qualifying company controlled by Mr Oyston, and it did not follow that all sums introduced into BFC should be for shares, regardless of the actual position regarding the timing of the triggering of capital gains.  Accordingly, on the balance of probability, we find that it was not Mr Oyston’s intention, following the December 1994 meeting, that all monies introduced into BFC/the Appellant would be by way of subscriptions for shares and not by way of loans.
26.	The evidence shows that moneys were in fact, from that time and up until Mr Oyston’s imprisonment, regularly paid into BFC by way of loan, both on Mr Oyston’s loan account and that of Zabaxe.  Mr Oyston explained that this process involved him simply signing cheques presented to him by Mr Oakley, whom he trusted to complete the transactions as appropriate.  If Mr Oyston had formed the intention that, contrary to established practice over many years, such loans should not be made at all, it might reasonably be expected that he would himself have taken steps to check that this was being done.  As BFC was a subsidiary of the Appellant, the expectation would have been that if share capital was to be issued, this would have been in the Appellant and not in BFC itself.  The fact that this was not the case, we can infer, would have been evident on the face of the cheques, but appears not to have given Mr Oyston any cause for enquiry.  The evidence that things continued in the same way as before does not support his assertion that his intention was in fact to introduce new funds by way of shares, but suggests that the contrary is the more likely conclusion.  That is the conclusion we have drawn.
Mr Oakley’s understanding
27.	We have found that Mr Oakley’s note of the December 1994 meeting do not demonstrate that he must have understood that from that time all monies should be introduced into BFC by way of share capital.  Mrs Barrie’s evidence was that Mr Oakley must have known, and that she had discussed the requirement with him.  We do not regard this as conclusive of Mr Oakley’s state of mind at this time.  We need to test this by reference to objective evidence.
28.	We have referred above to the fact that after the December meeting and prior to Mr Oyston’s imprisonment, considerable sums were paid into Mr Oyston’s and Zabaxe’s loan accounts with BFC.  This was very much in accordance with the established pattern of funding of BFC.  In our view, for the period when Mr Oyston was not in prison, this indicates that Mr Oakley did not understand that he must only put funds into BFC by way of share capital.  The alternative explanation is that he did know, but was deliberately and openly failing to do so.  On the balance of probability we find that at this stage Mr Oakley did not have the understanding that monies should be put into BFC only by way of subscriptions for shares in BFC/the Appellant.
29.	During this period Mr Oakley was clearly aware of the benefits of reinvestment relief, and the way in which this could be achieved.  Mr Oyston regularly made asset disposals on which substantial gains were realised, and those gains were capable of being deferred by means of reinvestment relief, provided that a share subscription was made into a qualifying company within the relevant period.  In 1995 and early 1996 Mr Oakley was responsible for implementing a number of share investments in other companies within the Oyston group.  This was consistent with the tenor of the notes of the December 1994 meeting.  It was not inconsistent with that meeting for funds to continue to be introduced into BFC by way of loan (although we recognise, as we shall describe in more detail later, that the reinvestment relief rules would have imposed restrictions on the repayment of those loans at certain times) and we regard it as unlikely that in this period Mr Oakley was procuring Mr Oyston’s signature on cheques which he knew were intended for share subscription but which he instead put in by way of loan.  We shall refer later to Mr Oakley’s forgery, in January 1996, of a bank instruction in relation to the Royline facility operated by the Royal Bank of Scotland.  This has an effect in relations to unauthorised payments made by Mr Oakley from Mr Oyston’s Gold Account, but does not in our view provide any evidence as to Mr Oakley’s own understanding of the funding requirements in relation to BFC.
30.	We were shown in evidence a letter dated 27 November 1995 from Mr Belton to Mr Oakley responding to certain questions Mr Oakley had raised regarding reinvestment relief in a letter of 10 November 1995 (which we did not see).  Question 5 and Mr Belton’s reply were as follows:
“Can existing loans to an unquoted company be capitalised and reinvestment relief obtained on that amount?
No.  Such a transaction falls within the anti-avoidance provisions and is regarded as a return of the investment.”
This correspondence tends to suggest that Mr Oakley had it in mind that loan financing for group companies remained a possibility, and that he had not been aware, up to that time, of the restrictions on capitalisation or the repayment of debt.  It is of some note that, in answering this question, KPMG did not take the opportunity, in the light of what Mrs Barrie regarded as the clear understanding of the December 1994 meeting, to remind Mr Oakley that no loans should be made at all.  We find that this correspondence points to Mr Oakley not being aware at this stage of the requirement only to introduce funds into BFC by way of share subscriptions and that, although Mr Belton’s reply might have been expected to raise further enquiry in the mind of Mr Oakley as to the continued use of loan finance, there is no evidence that it did so.
Instructions to Mr Oakley
31.	We find that Mr Oakley was not instructed by Mr Oyston at the time of the December 1994 meeting, or thereafter up to early 1997, to introduce funds into BFC only by way of share subscriptions into BFC or the Appellant.  For the reasons we have given above, we do not regard Mr Oakley’s note of the December 1994 meeting as in any way supportive of such an instruction.  We accept that Mrs Barrie believed that no-one could have been in any doubt that this was the conclusion of the meeting, but we take account of the fact that she viewed the meeting from the perspective of a tax adviser.  Mr Cherry’s evidence, from the perspective of a recipient of the advice, was only to the effect that this was the general impression of the meeting.  Even if this had been clear advice, it does not in our view amount to anything approaching an instruction to Mr Oakley.  On the evidence before us we are unable to accept that Mr Oyston, or anyone else, gave Mr Oakley an instruction as regards the manner of the introduction of funds into BFC.  Given the clear policy that had been adopted previously in relation to the loan financing of BFC, it would in our view have demanded a clear and express instruction to Mr Oakley to cease using loans.  What we find is that Mr Oyston relied on the assumption that Mr Oakley would do what was best according to the advice received.  On our findings, Mr Oyston himself did not intend share subscriptions to be the only means of financing, so it is not surprising that there is no evidence, aside from that of Mr Oyston, that he gave instructions to Mr Oakley to this effect.  Merely relying on Mr Oakley to follow the advice from the December 1994 meeting would not, on our analysis of that meeting from the available evidence, have amounted to any instruction to Mr Oakley to cease to make loans to BFC.
32.	We have reached this conclusion having taken account of the evidence of Mr Cherry regarding certain discussions he had with Mr Oakley after Mr Oyston had been imprisoned.  Mr Cherry’s evidence was that during the course of his audit of BFC and the Appellant in the summer of 1997, it had become clear to him that Mr Oakley was introducing funds into BFC by way of loan account, rather than by way of share subscription.  He queried this with Mr Oakley.  Mr Oakley had offered the explanation that there was a prospect of a sale of a player by the football club at a substantial profit and certain development proposals that would give rise to a substantial cash flow, and that accordingly it was the new policy to introduce monies as loans which could be repaid easily when cash became available.  Mr Cherry had accepted this explanation.
33.	It was argued on behalf of the Appellant that Mr Oakley’s reference here to a “new policy” confirmed that he must have been aware of a prior policy of share investment, and that he had been instructed to procure that all cash was paid into BFC by way of share subscription.  We accept Mr Cherry’s evidence of this conversation, but we are not persuaded that it provides evidence of Mr Oakley having been instructed to inject funds into BFC only in return for shares, and not debt, nor that he had understood this to be the case prior to 1997.  It is in our view more likely that, having been challenged in this way by Mr Cherry, at a time when Mr Oakley was already, to use Mr Sherry’s expression,  “deep in deceit” and would have needed to cover his tracks, Mr Oakley would have said anything to deflect further enquiry by Mr Cherry.  We also regard it as instructive that this apparent change was not considered so surprising to Mr Cherry, given his own understanding of the outcome of the December 1994 meeting, to have taken further action.
The Royline facility
34.	We heard from Mr Oyston that Mr Oakley was responsible for cash flow throughout the Oyston group, and that he controlled this through his role as cheque signatory and through the Royline facility, the online banking system operated by the Royal Bank of Scotland (“RBS”).  Mr Oakley was the sole authorised operator of this facility.  Mr Oyston’s evidence was that, as well as dealing with the companies, Mr Oakley was also responsible for Mr Oyston’s personal finances.
35.	Between January 1995 and January 1996, Mr Oyston said that RBS and Mr Oakley had been anxious to persuade him to adopt the Royline system for the companies’ bank accounts and his personal current account.  This would give online access  to those accounts and enable payments, including payments to third parties, to be authorised.  Mr Oyston had been reluctant to introduce Royline, but had been assured by Mr Oakley and RBS that it would make the banking more efficient.  On 26 January 1996 (around the time of his own arrest) Mr Oyston signed an agreement with RBS in this respect setting out a number of corporate bank accounts, including Zabaxe, and his personal current account (known as “the 682 account”).  The agreement as signed did not include Mr Oyston’s Gold Deposit Account (“the 674 account” or “Gold Account”).  This account at that time contained over £2 million.  Mr Oyston had never given Mr Oakley any authority over this account and he had no intention of including it in the Royline system.
36.	We heard in evidence, and we accept, that after Mr Oyston had signed the Royline agreement, and before that agreement had been returned to RBS, Mr Oakley fraudulently changed the number of the 682 account to the 674 account, thus giving Mr Oakley direct access to Mr Oyston’s Gold Account.
Mr Oyston’s imprisonment
37.	 On 23 May 1996 Mr Oyston was sentenced to a term of six years’ imprisonment.  While in prison Mr Oyston was not permitted to run his businesses.  He was subject to stringent restrictions in this respect.  His visits were closely monitored and visitors were not allowed to bring in writing materials or to take notes.
38.	We were shown a number of items of correspondence between Mr Oakley and Mr Oyston generated while Mr Oyston was in prison.  In May 1996 (which may have been just prior to Mr Oyston’s imprisonment), Mr Oakley had prepared a report for the week ended 10 May 1996 in which he had said:
“Re-investment Relief etc
I am meeting with Ian Cherry next week to document the relief available to date and to plan for the first date for potential repayment of the EMAP Loan Notes.  This will include proposals for utilising the proceeds of any share/Loan Note sales.”
39.	We find that this demonstrates Mr Oakley’s awareness of the benefits of reinvestment relief, but it does not show that investments were contemplated into any particular company, including the Appellant or BFC.  As we have described, there were a number of companies controlled by Mr Oyston that were qualifying companies for reinvestment relief purposes, and share investments were in this period being made into those companies.  What this report does suggest is that Mr Oakley’s focus was on  dealing with reinvestment relief in a bespoke fashion, planning on the basis of capital gains expected to arise, rather than a strategy based on every cash injection being made by way of share subscription, and not by way of loan.
40.	Mr Oakley wrote to Mr Oyston at HMP Garth on 9 January 1997 as follows:
“I have re-worked the re-investment relief calculations and am currently preparing all the paperwork.  As soon as I have agreed it with Ian Cherry I’ll send it to you.  Next week at the latest.  I have confirmed that the original investment into Sunday Business has been used to offset against CGT profits.”
We do not consider that this demonstrates any more than that Mr Oakley was aware generally of the need to consider reinvestment relief in respect of capital gains.  The specific reference to the investment into Sunday Business being used to offset against “CGT profits” suggests that such an investment was not invariable; otherwise it would have been unlikely to have been of particular note.
41.	On 26 March 1997 Mr Oyston wrote from prison to Rosemary Conlon, his corporate affairs manager, with a number of notes for various members of his team.  The notes included the following:
“(a) Could Robin [Oakley] send me the calculations of the sale of the Loan Notes and his proposals for the money to overcome CAP GAINS – Has he spoken to IAN CHERRY re: putting it into BFC but dealing with it in the way we discussed so I can get Loan monies out which are TAX FREE
(b) ALSO vitally ABOUT the £500,000+ we’ve spent of the original £2.2 mill Loan Notes – Does it qualify for CAP GAINS relief – could you set out which part does and which may not if any.”
42.	This is the first documentary evidence of the use of BFC specifically as a vehicle for obtaining reinvestment relief.  It relates, not to a general requirement for all monies to go into BFC (or the Appellant) for shares, but to obtaining relief in respect of specific gains arising out of the disposals of the EMAP Loan Notes.  The first of those disposals had taken place on 31 December 1996, giving rise to a capital gain of £5,081,220; the second took place on 1 June 1997 with a gain of £2,093,116.
43.	Mr Jones argued that there was nothing in these notes from Mr Oyston that suggested that share subscriptions ought to have been made.  We do not agree.  In our view, and we find as a fact, this was the first time at which it was made clear to Mr Oakley that share investments should be made into BFC or the Appellant in order to obtain reinvestment relief.  Mr Oakley was at this time well aware that reinvestment relief, to which this note can only be referring, was achievable only by means of share subscriptions, and not by way of capitalisation of existing debt.  The reference to “Loan monies out which are tax free” can only be taken as a reference to deferral of tax on the capital gains on the EMAP Loan Notes, and we find that this is what Mr Oakley would have understood by this.
44.	Mr Oakley then wrote to Mr Oyston at HMP Wynott on 18 April 1997.  He said in that letter “I enclose weekly balance report which shows the transfer for BFC and Business Age …”  He went on to say:
“I am discussing the CGT position with Ian [Cherry] at the finance meeting next week and will go through the calculations for the loan note repayment in June and the CGT re-investment relief up to date position.  I will send this in the next week for you to look at.”
45.	By this time Mr Oakley was heavily engaged in stealing from Mr Oyston and group companies.  We will refer to the discovery of Mr Oakley’s wrongdoings, his arrest and imprisonment later.  For present purposes we have regard to the fact that, to once more adopt Mr Sherry’s term, Mr Oakley was by this time deep in deceit.  We consider it likely that at this stage Mr Oakley’s correspondence with Mr Oyston was designed so as not to alert Mr Oyston’s suspicions.  We are clear that by this stage Mr Oakley was aware that monies should be introduced into BFC or the Appellant by way of share subscription.
46.	Mr Oakley wrote again to Mr Oyston on 9 May 1997 as follows:
“The bank in Belfast will consider an advance towards the relocation and re-launch and I will be preparing an outline presentation next week.  I will speak to Ian Cherry about using the Oyston Publications arrangement and get further re-investment relief for BFC and Belfast if necessary.
Looking at the potential capital gain in the farm Company I have an idea on deferring the tax payable which I won’t detail here until I have discussed it with Ian.  It may well enable us to use the gain towards BFC Development.” 
47.	It was argued for the Appellant that the use of the words here “further re-investment relief” had given Mr Oyston the impression that relief had earlier been obtained by way of share subscriptions in BFC, and that this was part of Mr Oakley’s deceit.  We are prepared to accept that, at this time, this letter, along with others, was designed to deceive Mr Oyston.  However, that is not the same as providing evidence that Mr Oakley had at an earlier stage been aware of the need only to make share subscriptions into BFC or the Appellant, or that he had been instructed to do so prior to 26 March 1997.  That cannot be inferred from Mr Oakley’s letter. 
48.	Mr Cherry then wrote to Mr Oyston on 22 August 1997 to report on discussions he had had with Mr Oakley and with KPMG on potential liabilities to capital gains tax and the reinvestment relief that had been secured.  This letter notified Mr Oyston that Mr Cherry estimated that he had realised gains of some £15,420,623, but had invested only £10,896,800, leaving a shortfall of £4,523,823 in capital gains that had not qualified for reinvestment relief.  Mr Cherry goes on to say that there were gains of £2,389,823 for the period 1996/97 and earlier and gains of £2,134,000 for 1997/98.  We were not provided with any details of Mr Cherry’s gain calculations.    From a separate note produced in evidence by the Appellant of capital gains realised by Mr Oyston from February 1994 to June 1997, the latest disposal date before Mr Cherry’s letter, the total capital gains are £13.9 million, of which approximately £7.2 million is represented by the December 1996 and June 1997 disposals of EMAP loan notes.  We infer from this that gains made before December 1996 had been fully invested for reinvestment relief, along with part of the gain arising on the December 1996 loan notes disposal.  We are not sure what the reference in Mr Cherry’s letter to periods prior to 1996/97 can relate to, as the gain on the December 1996 loan note disposal far exceeds the shortfall identified by him before 1997/98, and must therefore have been wholly attributable to that disposal.  Indeed his letter appears to confirm this as it sets out Mr Oyston’s CGT liability for 1996/97, payable on 31 January 1998, as £955,929, which is 40% of the total amount of £2,389,823, which must therefore relate to 1996/97.  In the same way we were not provided with the original schedule (prepared by Mr Oakley) on which the investment amount of £10,896,000 had been based.  A schedule accepted as similar, except for certain later entries, was produced, and this totalled at £10.3 million.  The significance of this is that other investments made in companies other than BFC or the Appellant had fully covered the reinvestment relief requirements up to the December 1996 disposal of the EMAP loan notes.  
49.	It is clear from Mr Oyston’s responses, handwritten on Mr Cherry’s letter, that he was both surprised and disappointed with this news.  His notes refer to “all the money has been re-invested” and “in 3 months – why have you not dealt with it?”  Mr Oyston’s surprise and disappointment is understandable, given the terms of his recent correspondence, in particular his letter of 26 March 1997.  But his concern is consistent with the fact that the gains left without reinvestment relief are only those arising from the EMAP loan note disposals.  This explains his reference to a three-month period in which steps ought to have been taken to deal with obtaining reinvestment relief in respect of those gains.  This supports the conclusion that he had given instructions for investment by way of shares into BFC or the Appellant early in 1997.  It does not support, and strongly suggests to the contrary, the proposition that there had been any requirement to invest in this manner in BFC or the Appellant at any earlier stage.
50.	Following a letter from Mr Oakley to Mr Oyston on 5 September 1997 referring to a meeting with Mr Cherry, Mr Oakley sent Mr Oyston a draft note dated 12 September 1997 setting out a proposed scheme to achieve reinvestment relief.  Mr Cherry’s evidence, which we accept, was that he recognised little of what Mr Oakley reported as having been discussed with Mr Cherry.  He did agree that he had discussed with Mr Oakley the establishment of a new company to build a new stadium for Blackpool FC which would grant BFC a licence to occupy the stadium at a peppercorn rent.  The note says that shares subscribed by Mr Oyston in that company would qualify for reinvestment relief.  We regard Mr Oakley’s note as another attempt to deflect Mr Oyston from making further enquiries as to why reinvestment relief had not already been obtained in respect of the loan note gains.  It provides no evidence in relation to the question of prior investment into BFC or the Appellant.
Jebwill
51.	Jebwill Limited (“Jebwill”) was a joint venture company owned by Mr Oyston and the Derbyshire County Council pension fund.  Mr Oakley was a cheque signatory for Jebwill’s bank account, but he had no authority, either from Derbyshire CC or Mr Oyston, to use the funds in that account.  Mr Cherry’s evidence, which we accept, was that Mr Oakley stole £3,391,350 from Jebwill’s account, in two tranches.  The first tranche of funds was stolen by Mr Oakley and largely introduced into Zabaxe, from where it was transferred elsewhere, partly to BFC.  Mr Oakley repaid these monies, amounting to some £1.6 million, from funds that he took without authority from Mr Oyston out of the proceeds of the EMAP loan notes that were disposed of in December 2006.  Mr Oakley then extracted further funds from Jebwill during 1997, totalling about £1.8 million, most of which went into Zabaxe and was then transferred out elsewhere.
52.	On discovery of this particular fraud, understandably vigorous action was taken on behalf of the Derbyshire CC pension fund to recover what had been lost.  We heard that there was a prospect of the Oyston group of companies being put into receivership.  Mr Oyston reached a compromise agreement with Derbyshire CC in this respect.  He personally assumed liability to Jebwill for the sums lost and acquired a right to repayment from Zabaxe.  We were shown no documentation in respect of this arrangement, but Mr Cherry told us that it had been fully documented.  From the evidence before us we find that this arrangement was essentially a novation; the consideration that Zabaxe provided for being released from its obligation to pay Jebwill was its agreement to pay Mr Oyston.  That, in our view, at that time created a new debt due from Zabaxe to Mr Oyston.
53.	The amount so payable by Zabaxe to Mr Oyston by virtue of these arrangements was effectively paid to him as part of the £4,147,413 that Mr Oyston received from BFC on 16 December 1999.  Zabaxe was entitled to receive payment from BFC, and directed BFC to pay Mr Oyston directly.
Discovery of Mr Oakley’s frauds
54.	Mr Oakley’s fraudulent activity was first discovered in April 1998, although the full extent of his frauds took some time after that to unravel.  In April 1998 Mrs Conlon had alerted Mrs Oyston to the fact that six cheques paid into various company accounts had been dishonoured.  Four of those cheques had been drawn on Mr Oyston’s personal account or his joint account with Mrs Oyston.  At a meeting between Mr Cherry and Mr Oakley on 17 April 1998, Mr Oakley admitted to Mr Cherry that he had stolen approximately £750,000 from Mr Oyston’s bank accounts and had repaid £250,000, leaving a shortfall of £500,000.   Mr Oakley was arrested that day.  Subsequently, on 5 July 1999, Mr Oakley, having pleaded guilty to eight counts of theft on his indictment, was sentenced to three years imprisonment.
55.	As a result of Mr Oakley’s arrest, Mrs Oyston instructed Mr Cherry to carry out a full investigation of all group companies.  This involved Mr Cherry full time for about one month, and part time for a further three months.  His assistant, Michael Barker, was involved for the whole of this period on site at the group’s premises at Oyston Mill.
Mrs Oyston’s management period
56.	The group’s financial position was found to be parlous.  It proved impossible to raise short-term borrowing facilities.  As a consequence the Oyston family was forced to sell liquid assets to inject immediate funds into the group companies.  Money had to be moved around at short notice.  Mr Barker, at Mrs Oyston’s request, drew up on a daily basis a list of bank account balances and discussed with her potential movements of funds throughout the group.
57.	BFC in particular was running at a deficit and required injections of short term cash, especially (having regard to the requirements of The Football League) in relation to the players’ payroll.  This was an especially difficult and stressful time for Mrs Oyston.  Both she and Mr Cherry candidly stated in evidence that their sole concern was to protect the business; they did not give any thought to reinvestment relief at this time, nor to subscriptions for shares being a means of introducing funds into the various companies, including BFC.
58.	From the schedules produced by Mr Cherry it can be seen that from 20 April 1998 (when £100,000 was injected into BFC) to August 1999 Mrs Oyston paid substantial sums into BFC by way of loan, although there were also significant repayments of some of those monies from BFC during this period.  The balances remaining were part of the amount of £4,147,413 paid to Mr Oyston by BFC on 16 December 1999.
The law
59.	The capital gains tax rules have, over their history, made a number of provisions allowing deferral or “rollover” relief for gains made on disposals of assets, or certain classes of asset, if funds are invested, or re-invested, in certain other, typically business-related, assets.  One such rollover relief was reinvestment relief, introduced by the Finance Act 1993, which inserted sections 164A to 164N into the TCGA, and was aimed at investments into small- and medium-sized unquoted trading companies.  The essence of the relief was that the disposal proceeds giving rise to the gain were treated as reduced by the amount of the claim (up to the amount of the reinvestment) and treating the cost of the new investment as reduced by the amount of the gain.
60.	Originally the relief was available for gains on disposals after 15 March 1993 only of shares or securities in a company of which the claimant was a full-time working officer or employee.  However, very soon thereafter, from 29 November 1993, relief became available for gains on the disposal of a wider range of assets, thus considerably extending the scope of the relief.
61.	Reinvestment relief applied for qualifying investments made up to 5 April 1998.  After that date, the enterprise investment scheme for deferral relief from capital gains was itself modified, and the Finance Act 1998 made substantial amendments to Schedule 5B TCGA, which had itself been introduced by the Finance Act 1995.  It is with the provisions of Schedule 5B, as in force in December 1999, that we are concerned in this appeal.
Schedule 5B, TCGA
62.	Schedule 5B, TCGA essentially provides for a deferral of the capital gain on the disposal of an asset where a qualifying investment is made.  It does so, not by reducing the base cost of the qualifying investment, but by holding over an amount of gain equal to the qualifying expenditure.  This is a form of “holdover relief”, as opposed to the original rollover relief.  The deferred gain is then treated as accruing on the occurrence of a chargeable event in relation to the relevant shares comprising the qualifying investment.
63.	Paragraph 1(2) of Schedule 5B sets out the criteria for an investment being a “qualifying investment”.  At the material time sub-paragraph (a) provided that one of the conditions for the investor making a qualifying investment was that:
“eligible shares in a company for which he has subscribed wholly in cash are issued to him at a qualifying time and, where that time is before the accrual time, the shares are still held by the investor at the accrual time.”
64.	In this case the shares in the Appellant were issued for cash, and there is no dispute on that aspect.  What this provision shows, however, is that one of the essential conditions of the scheme is that new cash investment be made into a company so as to increase its share capital.  It is evidently not the intention to provide relief where existing resources of the company are merely capitalised.
65.	If matters were to have been left there it would be a relatively straightforward matter for taxpayers to engineer the extraction of cash from a company and then to re-invest that cash into shares in the company so as to satisfy the condition in paragraph 1(2)(a).  Paragraph 13 of Schedule 5B is designed to prevent that simple expedient.  Paragraph 13(1) provides:
“Where an individual who subscribes for eligible shares (“the shares”) in a company receives any value from the company at any time in the seven year period, the shares shall be treated as follows for the purposes of this Schedule-
(a) if the individual receives the value on or before the date of the issue of the shares, as never having been eligible shares; and
(b) if the individual receives the value after that date, as ceasing to be eligible shares on the date when the value is received.”
66.	The “seven year period” referred to was defined in paragraph 19(1) of Schedule 5B by reference to section 291(6) of the Income and Corporation Taxes Act 1988 (“the Taxes Act”) which at the material time read as follows:
“… ‘the seven year period’ in relation to relief in respect of any eligible shares issued by a company, means the period beginning two years before, and ending five years after, the issue of the shares.”
Paragraph 13(1) operates by reference to value received at any time within the seven year period so defined.  If value is received at any time in that period, potentially eligible shares subscribed for within two years after that time, or eligible shares already subscribed up to five years before that time are affected.
67.	There is in paragraph 13(2) an exhaustive definition of what constitutes an individual receiving value.  So far as is material to this appeal, paragraph 13(2) provides:
“For the purposes of this paragraph an individual receives value from the company if the company-
…
(b) repays, in pursuance of any arrangements for or in connection with the acquisition of the shares, any debt owed to the individual other than a debt which was incurred by the company-
(i) on or after the date on which he subscribed for the shares; and
(ii) otherwise than in consideration of the extinguishment of a debt incurred before that date.
…
(i) makes any payment to the individual other than a qualifying payment.” 
68.	Paragraph 1(7) sets out what is meant by “qualifying payment”.  It includes:
“ (f) any payment for the acquisition of an asset which does not exceed its market value;
…
(i) a payment in discharge of an ordinary trade debt.”
69.	Paragraph 13(9)(a) provides:
“In this paragraph-
(a) references to a debt or liability do not, in relation to a company, include references to any debt or liability which would be discharged by the making by that company of a qualifying payment…”
70.	Finally, paragraph 13(10)(c) provides that:
“any reference to a company includes a reference to a person who at any time in the relevant period is connected with the company, whether or not he is so connected at the material time.”
It was common ground that at all material times BFC, Zabaxe and the Appellant were connected for these purposes.
Discussion
71.	Mr Jones placed reliance on both paragraph 13(2)(b) (repayment of debt) and paragraph 13(2)(i) (any payment) as provisions under which value should be treated as having been received by Mr Oyston that prevented the shares in the Appellant that he subscribed for on 16 December 1999 being “eligible shares”.  In this connection he argued that a repayment of a debt would itself constitute a payment within paragraph 13(2)(i).  It is not necessary for the purposes of this appeal for us to decide that question, as it is not in doubt that if there were repayments of debt those repayments would fall within paragraph 13(2)(b), and no recourse to paragraph 13(2)(i) would be necessary.  However, in view of Mr Jones’ submission, we ought to express our own view.
72.	In ordinary terms it must be correct that for something to constitute a repayment it must necessarily involve a payment.  If that was all that was necessary as a matter of construction, then that would seem to dispose of the matter in favour of Mr Jones’ argument.  Furthermore, there are excluded from paragraph 13(2)(i) “qualifying payments”, one of which is the payment in discharge of an ordinary trade debt.  Subject to what we say below, viewed on its own that too might indicate that a repayment of a debt would ordinarily be included within the scope of “any payment” in paragraph 13(2)(i).
73.	We consider that, in the context of paragraph 13(2), there is a distinction to be drawn between something that is a payment, and something that is a repayment.  Payment is appropriate in the case of an ordinary trade debt, where for example the debt is incurred for the provision of goods or services.  Repayment, on the other hand, connotes a return of something, and is a term more apposite to a loan on which the debt incurred is in the nature of an obligation to repay that loan.  Accordingly, we do not consider that the inclusion of the payment of an ordinary trade debt as one of the qualifying payments is indicative of a wider construction of paragraph 13(2)(i) so as to include all repayments of debt, and not simply payments of ordinary trade debts.
74.	If Mr Jones were correct in his submission, paragraph 13(2)(b) would be otiose.  Any repayment of a debt (whether owed by the company or a third party) other than an ordinary trade debt would be a payment to an individual, and thus within paragraph 13(2)(i).  We do not consider that it would be correct to construe paragraph 13(2) so as to deprive one part of it of all meaning.  In our view, paragraph 13(2)(i) must be construed so as not to encompass payments that are specifically and restrictively provided for elsewhere.  Paragraph 13(2)(b) applies only where the repayment is in pursuance of arrangements for or in connection with the acquisition of the shares; furthermore it does not apply to debts incurred after the share issue in question, unless that debt replaces another debt incurred before that time.  These restrictions on a repayment of a debt would have no practical effect if repayments of debt were in any event payments within paragraph 13(2)(i); loan repayments would be caught whether they were in pursuance of relevant arrangements or not.  For these reasons, therefore, we do not agree with Mr Jones in this respect.  In our view paragraph 13(2)(i) does not apply to repayments of loans.
75.	What is material in this case is whether the sums received by Mr Oyston on 16 December 1999 were either (a) repayments of debt within paragraph 13(2)(b), or (b) payments within paragraph 13(2)(i).  Mr Sherry argued that all the sums that Mr Oyston received were in respect of amounts that were due to him by way of restitution on the grounds of the wrongful acts of Mr Oakley or mistakes (on the part of both Mr Oakley and, after Mr Oakley’s arrest, Mrs Oyston) or pursuant to a constructive trust.  He submitted that paragraph 13(2)(b) is inapt to apply to such circumstances.  He referred us to Kerr’s Blackstone’s Commentaries (4th Ed, John Murray, 1876, p 144) and the traditional legal meaning of debt as “a sum of money due by certain and express agreement.”
76.	In this connection Mr Jones referred us to The Metropolitan Bank v Heiron (1880) 5 Ex D 319, in the Court of Appeal.  The action concerned money received by way of a bribe for misconduct against a company to which the recipient stood in a fiduciary position.  Lord Justice James said (at page 323):
“The ground of this suit is concealed fraud.  If a man receives money by way of a bribe for misconduct against a company or cestui que trust, or a person or body towards whom he stands in a fiduciary position, he is liable to have that money taken from him by his principal or cestui que trust.  But it must be borne in mind that that liability is a debt only differing from ordinary debts in the fact that it is merely equitable, and in dealing with equitable debts of such a nature Courts of Equity have always followed by analogy the provisions of the Statute of Limitations, in cases where there is the same reason for making a length of time a bar as in the case of ordinary legal demands.”
Mr Jones’ argument, therefore, was that amounts due in equity to Mr Oyston would in any event represent equitable debts and thus debts repayable to him within paragraph 13(2)(b).
77.	We do not agree with Mr Jones.  There is, as James LJ pointed out, a difference between an equitable debt and an ordinary debt.  There is, in our view, a difference between a case where an action is taken by a beneficiary against a trustee for breach of trust, where the money sought to be recovered was that of the beneficiary before the breach, and a case where a claim to money not previously belonging to a person is made on the basis of receipt of that money in breach of duty or by reason of fraud.  In the former case the money is regarded as in the possession of the trustee for the benefit of the beneficiary; in the latter case title is established only by the action itself (see Metropolitan Bank per Cotton LJ at page 325).  Where the money is the beneficiary’s own money, the obligation of the trustee to pay that money to the beneficiary cannot, in our view, be regarded as a debt for the purpose of paragraph 13(2)(b).  We do not regard paragraph 13(2)(b)  as referring to a debt, whether legal or equitable, that arises purely because a legal obligation to pay has arisen.  If that were to be the case, then paragraph 13(2)(b) could apply at the stage when, for example, a company becomes liable to redeem or repurchase its shares, or becomes liable to pay an amount in extinguishment of a debt, each of which is itself a separate category of the definition of value received in paragraph 13(2).  In our view, paragraph 13(2)(b) is confined to repayments of debt pursuant to certain and express agreement, such as debts incurred by way of loan, and does not extend to a mere payment of money that has fallen due absent such certain or express agreement, including monies that a trustee is liable to pay to a beneficiary on account of the beneficiary’s own beneficial ownership of those monies.
78.	Mr Sherry argued that both repayment in paragraph 13(2)(b) and payment in paragraph 13(2)(i) were inapt to encompass the case where BFC had acquired no beneficial interest in the moneys it received as a consequence of wrongdoing, breach of authority or mistake.  He referred us to Hillsdown Holdings plc and another v Inland Revenue Commissioners [1999] STC 561.  The H plc pension scheme was found to be in surplus and the Revenue approved payments to the employer.  Surplus assets were paid to H plc subject to tax under section 601 of the Taxes Act.  A complaint of breach of trust in the making of the payment was upheld and H plc was directed to return the net amount, plus any tax recovered from the Revenue, to the trustee.  The Revenue refused to repay the tax, arguing that “payment” in section 601 was clear and unambiguous and included any payment, whether or not it passed a beneficial interest.  It was held in the High Court that the proper approach was to consider the context and the purpose of the statutory provision.  No beneficial interest had passed in the amounts paid by the trustee to H plc and accordingly, as a matter of the ordinary use of language, H plc had not received “payment” from the funds of the pension scheme and the payments were not really payments at all in the eyes of the law.
79.	Mr Jones sought to distinguish Hillsdown Holdings from the present case on the ground that section 601 was itself a taxing provision.  Here, he argued, there was no tax on a payment, but the payment was a circumstance in which shares issues were no longer eligible shares.  The satisfaction of a restitutionary liability is, he submitted, a payment in the literal sense.  The individual receives value as the money could otherwise be left in the company.  This he argued was intentionally within the scope of paragraph 13(2).
80.	In Hillsdown Holdings the relevant “payment” was that from the pension fund to H plc.  That was held not to be a payment in the sense of section 601, because it was never beneficially owned by H plc, and had to be returned.  In this case the position is the converse.  The relevant “payment” is that received by Mr Oyston, to the extent that, on the facts, that can be regarded as having been received by him by virtue of a restitutionary right.  However, we do not regard that as a material difference.  Nor do we agree with Mr Jones that Hillsdown Holdings can be distinguished on the footing that section 601 is a taxing provision.  As Mr Sherry correctly pointed out, the effect of the application of paragraph 13 can be that shares cease to be eligible shares, as a consequence of which a tax liability can arise.  In any event, even if that were not the case, we do not think that it would be proper to distinguish Hillsdown Holdings on that basis.
81.	We turn now to consider the context and purpose of paragraph 13.  It was common ground that, in construing paragraph 13, we should adopt a purposive construction and apply its provisions to the facts viewed realistically (see Barclays Mercantile v Mawson [2005] STC 1 at [32] and Collector of Stamp Revenue v Arrowtown Assets Ltd (2004) ITLR 454 per Ribeiro PJ at [35]).
82.	Reinvestment relief is designed to encourage, and provide relief for, the introduction of new capital into a qualifying company.  That new capital must be introduced in the form of cash.  The aim of paragraph 13 therefore is to prevent the company’s own cash or resources being used either to provide the cash for the share subscription or to provide some corresponding advantage to the subscriber for the shares such that the company itself does not fully benefit from the injection of capital.  This involves the concept of value being received, a term that is exhaustively defined by paragraph 13(2).  Although therefore the actual receipt of value is not itself a condition, we regard the use of that phrase as indicative of the scope and intendment of paragraph 13(2).  The company must have assisted the share acquisition by using its own resources, whether in the form of cash or a benefit to the individual.
83.	It is clear that it is not necessary in all cases for value as such to have passed from the company to the individual.  Thus, the mere making of a loan or advance is treated as the receipt of value notwithstanding that this will be accompanied by a right to receive repayment and will, therefore, not necessarily transfer value.  But it will involve the company assisting the share subscription out of its own resources.  The test is not a balance sheet test, as the mere repayment of a loan would not normally result in a reduction of the assets or value of the company in question.  But such a repayment would constitute assistance out of the resources of the company.  Where BFC had no beneficial interest in amounts paid to it, ostensibly by way of loan, we consider that, by analogy with Hillsdown Holdings, the mere return of equivalent amounts does not constitute a payment or repayment within either paragraph 13(2)(b) or (i), as such a return does not involve any transfer out of the resources of the company.
Application to the facts
84.	We shall now apply our construction of paragraph 13 to the facts we have found.  We start by considering the period from the adviser’s meeting on 1 December 1994 up to the imprisonment of Mr Oyston on 23 May 1996.  We shall then review the period from May 1996 to the arrest of Mr Oakley on 17 April 1998.  Finally we shall consider the period from Mr Oakley’s arrest up to the time of the subscription for shares in the Appellant on 16 December 1999.
1 December 1994 to 23 May 1996
85.	We have found that, until early 1997, no instruction was given by Mr Oyston to Mr Oakley that funds were only to be introduced into BFC by way of share subscriptions in BFC or the Appellant.  According to the evidence of Mr Oyston, up to the December 1994 meeting Mr Oakley had a general authority to act on Mr Oyston’s behalf in respect of the cash flows within the Oyston group of companies.  On the facts we have found, Mr Oakley’s authority was not restricted by the meeting on 1 December 1994, or by any instruction by Mr Oyston.  In the absence of such an instruction we find that, until the early part of 1997, Mr Oakley retained his general authority, including the authority to make loans to BFC, and that accordingly such loans were not unauthorised dispositions not binding on Mr Oyston.
86.	Mr Sherry argued that before Mr Oyston was imprisoned Mr Oakley did not have a general authority, but merely executed decisions of Mr Oyston, bringing him cheques to sign in order to complete the administrative implementation of those decisions.  We do not accept that submission.  We consider that it runs contrary to the evidence of Mr Oyston who said that Mr Oakley controlled the transfers of funds throughout the group, and dealt also with Mr Oyston’s personal finances.  In any event, we have found on the evidence that Mr Oyston had not, up to early 1997, himself formed the intention that all monies had to be introduced into BFC by way of shares and that no loans should be made to BFC.  On this basis, even if Mr Oakley’s authority was restricted to the implementation of Mr Oyston’s decisions, we do not consider that there was any decision that would have prevented Mr Oakley from making loans to BFC.
87.	It follows from this that, on the basis of the authority that Mr Oakley had in this respect, amounts of loans made by Mr Oyston, through Mr Oakley, in the period 1 December 1994 to 23 May 1996 were binding as loans on Mr Oyston.  The repayment of those loans on 16 December 1999 was the repayment of debt falling within paragraph 13(2)(b).
88.	 Separately from the question of Mr Oakley’s authority, Mr Sherry also argued that in this period any amount that was paid to BFC by way of loan was a mistake.  He referred us to Halsbury, 4th ed re-issue, Vol 9(1), paras 707-8, which summarise the law on mistake as to subject matter and mistake as to terms.  At common law, if mistake operates at all, it operates so as to negative, or in some cases to nullify, consent.  It does this when it prevents the parties from reaching agreement, or when the agreement reached has no legal effect because it is based on a fundamental mistaken assumption.  To negative consent it is necessary for the mistake to be material to the formation of the contract in the sense that, if the party mistaken had realised his mistake, he would not have entered into the agreement (Halsbury, para 703).  Mr Sherry argued that BFC thought it was borrowing money, but Mr Oyston never intended to invest by way of loan.  On this basis there was no agreement for the loans.
89.	As a matter of fact we have not accepted Mr Sherry’s premise that, in this period, Mr Oyston did not intend to introduce monies into BFC by way of loan.  For the period in question we have found that Mr Oakley was acting as Mr Oyston’s agent, and without any relevant restriction on his authority as regards the making of loans to BFC.  Mr Oakley knew that the sums were paid into BFC by way of loan, and BFC also knew that to be the case.  In considering whether there has been a mistake, the general test is an objective one, although if one party is, to the knowledge of the other, mistaken as to the terms of the offer, evidence of subjective intention may be admitted (Halsbury, para 708).  We do not consider that in this case BFC can be regarded as knowing that Mr Oyston, through Mr Oakley, was mistaken as to such terms.  Viewed objectively, there was no mistake either as to the subject matter of the contract between BFC and Mr Oyston as one of loan, or as to the terms of that contract.
90.	Mr Sherry referred us to Blackburn and anor v Revenue and Customs Commissioners [2009] STC 188.  In that case Mr Blackburn had on a number of occasions injected cash into a company and on each occasion a £1 share had been issued to him for each £1 he had paid to the company.  Sometimes the resolution to allot the shares occurred after Mr Blackburn had paid the money (or some of it) to the company, and other times it occurred before.  The Special Commissioner at first instance dismissed Mr Blackburn’s appeal for EIS relief where the payment of money was made (in whole or in part) before the application for the shares or the resolution to allot them.  In the High Court Mr Blackburn’s appeal was allowed.  HMRC appealed further arguing, amongst other things, that in the absence of any application, resolution or agreement as to the allotment of shares the money paid represented a loan from Mr Blackburn to the company, that the allotment of shares was a redemption of the loan and that accordingly Mr Blackburn did not subscribe wholly in cash for the shares and that paragraph 13(2)(b) applied as there had been a repayment of a debt owed to Mr Blackburn.
91.	In the Court of Appeal it was held that the payments, otherwise than in respect of the initial allotment of shares, could not be treated as giving rise to a debt in the normal sense of that word.  Those payments were made against the background of a consistent previous course of dealing between Mr Blackburn and the company, namely that cash was subscribed for allotment of shares.  It was held that in these circumstances, when Mr Blackburn made the payments he, both in his individual capacity and as a director and effective controller of the company, appreciated and intended that the payments would be reflected by an allotment of shares in the company.  The money was a payment into the capital account of the company, but in addition it was made conditionally on shares being allotted to Mr Blackburn.  Such payments did not give rise to a debt.
92.	In Blackburn the Court of Appeal decided that the position was different in relation to the initial allotment of shares where there had been no prior course of dealing.  There was no evidence of discussion of the allocation of shares prior to the payment made to the company.  In those circumstances the court held that it was not possible to characterise the payment in the same way as for the late payments where there had been a course of dealing involving the allotment of shares.
93.	We do not consider that on the facts of this appeal Blackburn can assist the Appellant.  The prior course of dealing in relation to BFC had predominantly been the making of loans.  This was a clear policy in respect of the financing of BFC.  The prior course of dealing must be in relation to the company concerned, and it is not relevant that share investments had been made into other companies controlled by Mr Oyston.  There must be a clear mutual understanding (or implied agreement) between the individual and the company itself; this cannot be inferred from dealings with other companies.  Even if, contrary to our findings, we had determined that Mr Oyston did himself intend to make share subscriptions in respect of the BFC financing from December 1994, mere intention is not enough.  There is no evidence, either from the December meeting, or subsequently in this period, of a clear mutual understanding sufficient to conclude that payments made to BFC were not, as they were stated and recorded as being, loans, but were payments on capital account and were made conditionally on the shares being allotted to Mr Oyston.  As we have concluded, the payments to BFC in this period were by way of loan, and when those loans were repaid to Mr Oyston on 16 December 1999, that was a repayment of debt falling within paragraph 13(2)(b).
24 May 1996 to 16 April 1998
94.	It was common ground between the parties that payments made by an agent without authority are void (see, for example, Rolled Steel Products (Holdings) Ltd v British Steel Corporation [1986] Ch 246).  The consequence of an agent, such as Mr Oakley, although acting on behalf of his principal, in this case Mr Oyston, in a transaction in which knowledge would otherwise be imputed to his principal, taking part in a fraud or misfeasance against the principal, is that the principal is not bound by the agent’s knowledge of such fraud or misfeasance (see Halsbury, 4th ed re-issue, Vol 2(1), para 165).  In this case, therefore, where Mr Oakley was guilty of fraud or misfeasance in relation to Mr Oyston, Mr Oyston would not be bound by the transaction effected by Mr Oakley with BFC.
95.	In the same way unauthorised dispositions of an agent are not normally binding on the principal.  According to Halsbury, op cit, para 168:
“Unauthorised dispositions not binding on principal.  Where an agent is entrusted with any money, goods, or other property belonging to his principal, as a general rule, no disposition of such property made by the agent without the authority of the principal; and, notwithstanding any such disposition, the principal is entitled to follow the property into the hands of third persons and recover it or its value.
Where an agent is entrusted by his principal with property to be applied for the purposes of the principal, and to be accounted for on that footing, he is in a fiduciary position, and a third person taking from the agent a transfer of the property, with knowledge of a breach of duty committed, or of excess of authority exercised by him, in making the transfer, holds what has been transferred to him under a transmitted fiduciary obligation to account for it to the principal.” 
96.	Where BFC received funds that were stolen and/or the subject of a transaction that was not authorised, and can be regarded as having knowledge of Mr Oakley’s breach of duty, BFC was itself a fiduciary and was under an obligation to account to Mr Oyston for the property it so received.  BFC must be treated as having the same knowledge of Mr Oakley from the time that Mr Oakley became a director of BFC (25 May 1996).  All purported loans made by Mr Oakley to BFC as agent for Mr Oyston from the date of Mr Oyston’s imprisonment (23 May 1996) out of Mr Oyston’s Gold Account (using the forged Royline facility mandate) were the result of a fraud on Mr Oyston, and BFC must at this time be taken to have known of that fraud through Mr Oakley.  The fact that Mr Oakley was at the same time the agent of BFC does not preclude BFC from having the relevant knowledge; that rule operates only in the case of a fraud or misfeasance against the principal, which in this case relates only to Mr Oyston  The making of a loan to BFC did not constitute a fraud or misfeasance against BFC.  Furthermore, from early 1997, on the facts we have found, all transactions of loan were outside the authority of Mr Oakley, and BFC must, through Mr Oakley, be regarded as having notice of that fact.
97.	Mr Jones argued that, in a case where a transaction was not binding on the principal, there was then no valid disposition of the principal’s property and the principal had a proprietary right to demand the return of the particular property.  But, he submitted, such a right could be asserted only if it was possible to identify the property or the traceable product of the property.  If that were not possible, such as would be the case for fungible property such as money, the principal would have a personal right to recover an equivalent amount to that paid over, subject to a defence of bona fide change of position.  Mr Jones accepted that such a defence would be unlikely to be tenable in the case of a loan, for which there would be an obligation to repay.  In any event, the borrower in this case, BFC, would have been on notice of the unauthorised nature of the loans, and so could not argue that it was acting bona fide.  In addition, the principal would have an equitable personal remedy for knowing receipt, under which BFC would be liable to pay to Mr Oyston an amount equivalent to the amounts it received by virtue of the unauthorised transactions.
98.	We accept this as a description of the relevant law.  On this basis Mr Jones submitted that the satisfaction of the liability of BFC to Mr Oyston on 16 December 1999 was either the repayment of a debt within paragraph 13(2)(b) or a payment within paragraph 13(2)(i).  No attempt, he said, had been made to trace the sums purportedly lent to BFC; this was of course impossible.  There was no proprietary right to recover the precise monies; only a personal right to receive an equivalent sum.
99.	For the reasons we discussed above in our analysis of the proper construction of paragraph 13, that the return by BFC of an amount equivalent to the amounts ostensibly paid to BFC by way of loan did not involve any transfer out of the assets of the company, we do not agree with Mr Jones.  In our discussion we took Hillsdown Holdings as an analogy.  In that case the property in question was cash.  H plc was not regarded as having acquired a beneficial interest in that cash although it had doubtless mixed it with its own funds.  H plc was regarded as a constructive trustee because it had received trust property with sufficient knowledge to make it so liable.  In relation to the stolen monies and unauthorised loans we regard BFC as being in a similar position.  Accordingly we find that in this respect the returns of those amounts by BFC to Mr Oyston on 16 December 1999 were neither repayments of debt within paragraph 13(2)(b) nor payments within paragraph 13(2)(i).
17 April 1998 to 15 December 1999
100.	After Mr Oakley’s arrest on 17 April 1998, Mrs Oyston was responsible, with the assistance of Mr Cherry and Mr Barker, for the cash requirements of the group companies, including BFC.  During this time substantial loans were made on behalf of Mr Oyston to BFC.  Both Mrs Oyston and Mr Cherry candidly admitted in evidence that no thought had been given to financing BFC or the Appellant by way of share capital.  This is entirely understandable in the circumstances, as cash requirements for the differing companies in the group were changing very rapidly.  The evidence shows that in this period amounts had gone into BFC and amounts had come out.  This is entirely consistent with the fact that, and indeed could only have been achieved on the basis that, cash was injected by way of loan, repayable as and when required, and not by way of share capital.
101.	There is no question but that Mrs Oyston was acting with Mr Oyston’s authority when she made these loans to BFC.  Mr Sherry argued that Mrs Oyston made a mistake.  We have already considered the limitations of this argument in relation to the period when Mr Oakley was, on our finding, acting within the authority conferred on him by Mr Oyston.  For the same reasons as we gave in relation to loans to BFC made by Mr Oyston through Mr Oakley in that period, we reject the arguments of the Appellant on mistake in relation to loans made by Mrs Oyston.  Viewed objectively, Mrs Oyston’s intention was to retain the flexibility to move cash into and out of all the companies, including BFC, as circumstances demanded.  To achieve this, the loans that were made were intended to be loans, and there is no question of the contracts in that respect having been entered into by mistake.
102.	 Even if the making of the loans could be regarded as a mistake by Mrs Oyston, it was not a mistake of which BFC had notice.  Mr Oakley had ceased to be a director of BFC on 17 April 1998.  His knowledge could no longer be imputed to BFC.  Mr Sherry sought to argue that once Mr Oakley was no longer a director, nevertheless BFC did not lose the knowledge that had been imputed to it through Mr Oakley during the currency of his directorship (that share subscriptions and not loans should be made), so that when, as the argument went, the mistake continued, BFC must be treated as fixed with the knowledge that what Mrs Oyston was doing was also a mistake.  We do not agree with Mr Sherry.  His proposition is not supported by authority and we consider that it cannot be right.  A company can have no knowledge of its own.  That is the reason why it must be regarded as having the knowledge of its officers.  And in the same way a company can have no memory.  The knowledge of the officers can only be imputed to the company whilst those officers are in office.
103.	But in this case Mr Sherry’s arguments went further than mistake.  He referred us to Futter and anor v Futter and the Commissioners for Revenue and Customs [2010] EWHC 449, a recent case in the High Court on the application of the “Rule in Hastings-Bass” (see Re Hastings-Bass [1975] Ch 25).  That rule or principle was summarised by Lloyd LJ in Sieff v Fox [2005] EWHC 1312 as follows (at [119]):
“The best formulation of the principle seems to me to be this.  Where trustees act under a discretion given to them by the terms of the trust, in circumstances in which they are free to decide whether or not to exercise that discretion, but the effect of the exercise is different from that which they intended, the court will interfere with their action if it is clear that they would not have acted as they did had they not failed to take into account considerations which they ought to have taken into account, or taken into account considerations which they ought not to have taken into account.”
104.	Mr Jones submitted that the Rule in Hastings-Bass was confined to trusts and could not be extended more generally to the exercise of fiduciary powers outside the confines of a trust.  We agree.  We were not referred to any authority that would extend the principle to a case of this nature.  In Anker-Petersen v Christenson [2002] WTLR 313 Davis J had contrasted the position of a voluntary disposition by an individual with the “exercise of a power or discretion by a fiduciary” (at page 330H).  But we do not regard this as authority for extending the principle to contracts of agency.  It is clear from Futter, and from Lord Justice Lloyd’s judgment in Sieff v Fox, that strict boundaries are placed on the application of the principle.  The tests that have been laid down must be strictly applied.  The Rule can therefore, in our view, only be applied in the case of a trust where the discretion is given by the terms of the trust.  This is not apt to include the exercise of an authority under a contract of agency.
105.	In any event, we do not see how the principle, were it to have been applicable, could have availed the Appellant in this case.  It applies only where the effect of the exercise of a discretion is different from what the trustee (which, on the assumption that the rule does apply, would here be Mrs Oyston) intended.  It is quite clear on the facts that the intended effect of the making by Mrs Oyston of the loans to BFC was that those monies should be readily repayable and available elsewhere as circumstances dictated.  As the evidence of Mrs Oyston and Mr Cherry confirms, no thought was given to reinvestment relief or any other capital gains consequences of making loans and not share subscriptions, and Mrs Oyston accordingly cannot be regarded as having any intention in that regard.  The intention of the beneficiary (here Mr Oyston) is not a relevant consideration.
106.	On this basis we find that the loans made by Mrs Oyston to BFC as attorney for Mr Oyston were loans that were repaid by BFC to Mr Oyston as part of the 16 December 1999 arrangements.  That was value received by Mr Oyston for the purpose of paragraph 13 of Schedule 5B TCGA.
Jebwill
107.	We have found as a fact that the arrangement whereby Mr Oyston repaid sums to Jebwill and acquired a right to repayment from Zabaxe was in essence a novation.  That created a new debt due from Zabaxe to Mr Oyston.  Mr Sherry sought to argue that there was no need for any novation, and that Mr Oyston acquired his rights against Zabaxe by way of subrogation.  We did not hear full argument on this, but we heard no evidence of there having been a prior agreement between Mr Oyston and Zabaxe, such as an agreement of guarantee or indemnity, which could have given rise to subrogation in a contractual sense.  Instead the evidence of Mr Cherry was that the assumption by Mr Oyston of Zabaxe’s liability to Jebwill was extensively documented at that time.  Although this documentation was not produced in evidence, we infer that Zabaxe must have agreed to pay Mr Oyston as consideration for his assuming the liability to Jebwill, and for Zabaxe’s release from that liability.  In our view it is more likely than not that this was by way of novation.  We regard it as unlikely that the documentation would have omitted to include a right for Mr Oyston to recover from Zabaxe, and that he would have found it necessary to have relied upon seeking to claim a remedy of subrogation in equity.  
108.	In our view the proper inference to be drawn from the evidence before us as to the arrangements is that Zabaxe provided consideration to Mr Oyston in the form of a promise to pay him an equivalent amount to the liability to Jebwill that he had assumed.  That was a debt that was repaid as part of the December 1999 arrangements.  The amount was paid directly by BFC to Mr Oyston in satisfaction of Zabaxe’s debt due to him.  That falls within paragraph 13(2)(b), as there is no requirement that the debt repaid must be a debt of the paying company; it can be a repayment of any debt owed to the individual.  But Zabaxe can also be regarded as having repaid its debt to Mr Oyston by these means.  Zabaxe was connected with the Appellant, and so a repayment of its debt owed to Mr Oyston would also fall within paragraph 13(2)(b).
Summary of conclusions
109.	We summarise our conclusions as follows:
(1)	For the period up to Mr Oyston’s imprisonment on 23 May 1996, Mr Oakley’s authority to make loans to BFC was not limited by any instruction from Mr Oyston or by Mr Oakley’s own knowledge.  Monies introduced into BFC by way of loan in this period represented valid debts of BFC owed to Mr Oyston.  To the extent those debts were repaid on 16 December 1999, those repayments fell within paragraph 13(2)(b) of Schedule 5B TCGA.
(2)	For the period from 23 May 1996 to Mr Oakley’s arrest on 17 April 1998, Mr Oakley stole monies from Mr Oyston’s Gold Account.  Mr Oyston had a right of restitution in respect of all monies derived from that account that were purported to have been lent to BFC.  The recovery of those amounts on 16 December 1999 amounted to neither the repayment of a debt within the meaning of paragraph 13(2)(b) nor to a payment within paragraph 13(2)(i) of Schedule 5B TCGA.
(3)	From 26 March 1997, which is the earliest date from which we have found there to have been evidence of an instruction to Mr Oakley to put monies into BFC by way of subscriptions for shares, Mr Oakley’s authority to make loans to BFC was curtailed.  Sums introduced into BFC by way of loan prior to that time, otherwise than from monies obtained by Mr Oakley as a result of his misfeasance as described in (2) above, were valid loans the repayment of which on 16 December 1999 fell within paragraph 13(2)(b).  After that date such amounts were recoverable by Mr Oyston by way of restitution and were neither repayments of debt within paragraph 13(2)(b) or payments within paragraph 13(2)(i).
(4)	From 18 April 1998, payments by Mrs Oyston on Mr Oyston’s behalf to BFC by way of loan were valid loans.  The repayment of those loans on 16 December 1999 fell within paragraph 13(2)(b).
(5)	The amount owed by Zabaxe to Mr Oyston that arose as a result of his assuming Zabaxe’s debt to Jebwill was a debt of Zabaxe.  The repayment of that debt on 16 December 1999, through payment by BFC directed by Zabaxe to be made to Mr Oyston, was the repayment of a debt within paragraph 13(2)(b).
Consequences of our conclusions
110.	We have found that part of the amount of £4,147,410 that was paid to Mr Oyston by BFC on 16 December 1999 was a repayment of debts due to Mr Oyston within paragraph 13(2)(b) of Schedule 5B TCGA.  Mr Oyston is therefore regarded as having received value from the Appellant, on the basis that BFC is a company connected with the Appellant.  A similar analysis applies in respect of the debt treated as repaid by Zabaxe to Mr Oyston.   That value was received in the seven-year period referable to the issue to Mr Oyston of the 276,494 ordinary shares of £1 each in the Appellant that are claimed to be eligible shares.  The value was received on or before the date of the issue of the shares (21 December 1999).  Accordingly, the effect of paragraph 13(1)(a) is that the shares in question subscribed for by Mr Oyston are treated as never having been eligible shares.
111.	Whilst accepting that this was the consequence of a strict application of paragraph 13, Mr Sherry argued that a purposive approach should be adopted and that the Tribunal could conclude that relief should be disallowed only to the extent of the value received.  We have considered this carefully, but we are not persuaded that such an approach can be adopted, even on a purposive construction of the provision.  Paragraph 13(1) refers to “any value” having been received, and operates wholly by reference to a comparison of the time that any value (as defined) was received with the date of the issue of the shares.  Except as we describe below, there is no link between the receipt of the value and the actual funding of the share issue.  There is therefore, in our view, no scope for any apportionment by reference to the extent of the value received.
112.	Where more than one issue of shares is made in the relevant period, there is in our view one circumstance where value received in that period might operate to cause only one (or some) of those issues to cease to be a subscription for eligible shares.  Paragraph 13(2)(b) requires the repayment of debt to be “in pursuance of any arrangements for or in connection with the acquisition of the shares”  (emphasis supplied).  This is a reference to a particular subscription for shares.  If therefore an individual had, for example, subscribed for shares in two tranches, only one of which was associated with a debt repayment in the relevant period, only that tranche would not be treated as eligible shares.  The other tranche would remain as eligible shares, and relief would be available, always assuming that no other value was received in the relevant period.
113.	These circumstances do not arise in this case.  There was only one subscription for and issue of shares.  All the shares comprised in that single issue are “the” shares to which paragraph 13(2)(b) refers.  The repayment of the loans, although that represented, on our findings, only part of the subscription price, was wholly for or in connection with the single acquisition of the shares subscribed for by Mr Oyston.
114.	Mr Sherry attempted to argue that each share had been acquired for its subscription price of £15, and that on this basis an apportionment should be possible.  We cannot accept this.  The legislation clearly envisages a subscription for, and issue of, a number of shares, and it would go against the ordinary and well-established accepted meaning of those terms to seek to treat each share as having been individually subscribed for or issued.  There was a single subscription and issue of shares, and the repayment of the loans was associated with the shares comprised in that subscription and issue.  All of the shares must therefore be treated as never having been eligible shares.  Even if we had considered that we were able to accept Mr Sherry’s argument, it would have remained the case that the loans were repaid in connection with the acquisition of all the shares, and the result would have been the same.
Decision
115.	For the reasons we have given, we dismiss this appeal.      
 
This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009.   The application must be received by this Tribunal not later than 56 days after this decision is sent to that party.  The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

ROGER BERNER

TRIBUNAL JUDGE
RELEASE DATE: 21 May 2010