Schuldenfrei v Hilton (Inspector of Taxes)

CHANCERY DIVISION

[1998] STC 404

HEARING-DATES: 10 February 1998

10 February 1998

CATCHWORDS:
Appeal - Settlement by agreement - Agreement - Assessment - Appeal - Amended notice of assessment issued in error showing no tax payable - Taxpayer remaining silent - Whether assessment determined by agreement - Taxes Management Act 1970, s 54.

HEADNOTE:
On 22 November 1988 the taxpayer submitted to the Revenue a schedule of his capital gains tax computation for the year ended 5 April 1988 listing 16 disposals, including a disposal of certain loan notes, and showing capital gains of over 3m. On 30 November 1988 the inspector issued a capital gains tax assessment for the year 1987-88 in the estimated amount of 374m. On 16 December 1988 the taxpayer appealed against that assessment. Between 1989 and 1993 there was an exchange of correspondence between the inspector and the taxpayer's accountants relating to his capital gains tax liability for 1987-88, in the course of which the taxpayer made substantial payments towards the satisfaction of his liability under the assessment. On 4 December 1992 the inspector requested the latest computation of the taxpayer's chargeable gains less allowable losses for 1987-88, and on 15 April 1993 he issued a reminder. On 25 May 1993 the inspector issued an amended notice of assessment for 1987-88 showing total chargeable gains and net tax payable as nil. The taxpayer took no action to respond to the inspector, and he did not request repayment of the sums which he had paid towards satisfaction of his liability under the original assessment. By letter dated 24 June 1993 the inspector stated that the amended notice of assessment was based on information suggesting that the taxpayer had capital losses exceeding his capital gains for 1987-88 and enclosed a schedule of the taxpayer's disposals, but omitted his disposal of the loan notes. On 18 November 1993 the inspector informed the taxpayer that he had overlooked the taxpayer's disposal of the loan notes. By letter dated 23 February 1994 the taxpayer purported to confirm that he and the Revenue had come to an agreement between May and June 1993 that the original assessment should be discharged. The taxpayer appealed to the Special Commissioners against the capital gains tax assessment contending, inter alia, that the original assessment showing estimated gains of £374m had to be treated as discharged by agreement under s 54 of the Taxes Management Act 1970, since the amended notice of assessment was an agreement or a proposal which the taxpayer had accepted. The Special Commissioners concluded that the appeal was still open, since the inspector and the taxpayer had not actively come to an agreement that the original assessment would be treated as reduced to nil and as discharged or cancelled. The taxpayer appealed.

Held - Generally, as a matter of ordinary language the word 'agreement' in a statute would be assumed to connote a legally binding agreement. Moreover, s 54 was concerned with a dispute as to the correctness of an assessment or decision which one would expect the parties to compromise by an enforceable contract. Further, it would otherwise be impossible to know whether there was an agreement and whether the 30-day period, during which the taxpayer could repudiate or resile from the agreement under s 54(2), had begun or had expired if a document containing an offer sent by an inspector to a taxpayer could be accepted by the taxpayer without some communication to the inspector. Accordingly, the word 'agreement' in s 54(1) referred to a binding legal contract or something close to it, and the rules determining what was required for a contract as a matter of law provided conclusive guidance in almost all cases as to whether there had been an 'agreement' for the purposes of s 54(1). There needed therefore to be communication from the inspector to the taxpayer in the form of an offer and an act by the taxpayer in the form of an acceptance of that offer. On the facts of the instant case, even assuming that the 1993 amended notice of assessment was a sufficient offer, the taxpayer's inactivity and failure to communicate until 1994 could not constitute an acceptance of an offer. Moreover, the wording of the 1993 amended notice recorded something as having happened rather than seeking an agreement. Therefore the 1993 amended notice was not an offer for the purposes of a s 54 agreement. Accordingly, there was no agreement within s 54 and the Special Commissioners had therefore reached a correct decision. Dicta of Popplewell J in R v Inspector of Taxes, ex p Bass Holdings Ltd [1993] STC 122 at 132 applied. Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256 and Felthouse v Bindley (1862) 11 CB (NS) 869 distinguished.

Accordingly, the taxpayer's appeal would be dismissed.

NOTES:
For the settlement of appeals by agreement, see Simon's Direct Tax Service A3.515.

For the Taxes Management Act 1970, s 54, see ibid, Part G2.

CASES-REF-TO:

Baylis (Inspector of Taxes) v Gregory [1988] STC 476, [1989] 1 AC 398, [1988] 3 All ER 495, 62 TC 1, HL; affg [1987] STC 297, [1987] 3 All ER 27, CA; affg [1986] STC 22, [1986] 1 WLR 624, [1986] 1 All ER 289.
Bradley (Inspector of Taxes) v London Electric plc [1996] STC 231.
Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, CA.
Felthouse v Bindley (1862) 11 CBNS 869.
Nye (C L) Ltd, Re [1971] Ch 442, [1970] 3 All ER 1061, CA.
R v Inspector of Taxes, ex p Bass Holdings Ltd [1993] STC 122, 65 TC 495.
Cases referred to in skeleton arguments
Bell v Lever Bros Ltd [1932] AC 161, HL.$5Carvill v IRC [1996] STC 126.
Edwards (Inspector of Taxes) v Bairstow [1956] AC 14, [1955] 3 All ER 48, 36 TC 207, HL.
Green v Minister of Housing and Local Government [1967] 2 QB 606, [1966] 3 All ER 942, DC.
Hartog v Colin & Shields [1939] 3 All ER 566.
Manco Ltd v Atlantic Forest Products Ltd (1971) 24 DLR (3d) 194, NB CA.
Prenn v Simmonds [1971] 1 WLR 1381, [1971] 3 All ER 237, HL.
Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, [1976] 3 All ER 570, HL.
Scottish Power plc v Britoil (Exploration) Ltd (1997) Times, 2 December, CA.
Smith v Hughes (1871) LR 6 QB 597.
United Dominions Trust Ltd v Western [1976] QB 513, [1975] 3 All ER 1017, CA.
Wakelin v L & SW Ry Co (1887) 12 App Cas 41, HL.

INTRODUCTION:
Henry Schuldenfrei appealed by notice of motion against a preliminary decision of the Special Commissioners (Malcolm J F Palmer and Dr N Brice) released on 30 April 1997 (Silver v Inspector of Taxes [1997] STC (SCD) 193), whereby they determined that they had power to hear his appeal against an assessment to capital gains tax. The facts are set out in the judgment. The Special Commissioners' decision is set out below.

DECISION

The appeal

1. On 16 December 1988 Mr Henry Schuldenfrei (the taxpayer) appealed against an assessment to capital gains tax for the year 1987-88 showing estimated gains of £374m and issued in accordance with a notice of assessment dated 30 November 1988. When the appeal came on for hearing before us on 17 March 1997 it was agreed that the hearing would initially address as a preliminary issue the question whether we have jurisdiction to hear the appeal. The question of jurisdiction arises principally from the issue of whether the assessment should be treated as discharged by an agreement under s 54 of the Taxes Management Act 1970. The hearing before us on 17 and 18 March was, and this decision is now, concerned with only that preliminary issue and certain related matters.

2. The taxpayer gave evidence at the hearing. We were given: (a) a short six-paragraph agreed statement of facts; (b) a chronology of events; (c) a 189-page agreed bundle of correspondence and documents which counsel for the taxpayer took us through; and (d) a 34-page supplementary bundle of documents consisting of correspondence after November 1996, to which neither counsel made any reference.

The relevant legislation

3. Section 54 of the Taxes Management Act 1970 provides, in so far as relevant, as follows:

'Settling of appeals by agreement

(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be . . .

(3) Where an agreement is not in writing -- (a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the inspector or other proper officer of the Crown to the appellant or by the appellant to the inspector or other proper officer . . .'

4. The only other statutory provision to which we were referred was s 29 of the Taxes Management Act 1970. This, in so far as relevant, provides as follows:

'Assessing procedure

(1) Except as otherwise provided, all assessments to tax shall be made by an inspector . . .

(5) Notice of any assessment to tax shall be served on the person assessed and shall state the date on which it is issued and the time within which any appeal against the assessment may be made.

(6) After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts.'

The issue

5. The principal issue for us in the hearing of the preliminary question of jurisdiction is whether the taxpayer and the Poole inspector, in the circumstances surrounding the issue by the inspector to the taxpayer's agents on 25 May 1993 of an amended notice of assessment to capital gains tax for the year ended 5 April 1988 in a nil amount, came to an agreement within s 54 of the Taxes Management Act 1970 that the assessment issued on 30 November 1988 showing estimated gains of 374m was to be treated as discharged or cancelled, with the result that the appeal is no longer open for hearing by us.

The facts

6. We find the following facts relevant to this preliminary issue. The taxpayer qualified as an accountant in 1968, and although he has never practised as an accountant he has maintained his qualification. He has been and remains the director of numerous companies and is now a senior executive director of a public company. He is a financially sophisticated businessman and investor. On 5 February 1985 the taxpayer was allotted 450 10p shares in Albion Nominees Ltd (the shares) at a price of 10p each. On 10 June 1986 the shares were exchanged for loan notes issued by S & W Berisford plc (the loan notes) in a transaction that was treated as a reorganisation without a disposal for capital gains tax purposes. In September 1986 the taxpayer became a member of Lloyd's, commencing underwriting in January 1987. In 1988 and 1989 the syndicates in which the taxpayer participated suffered very significant losses. In March 1988 the taxpayer disposed of the loan notes for a cash sum of £3,390,125.

7. The taxpayer was aware that his disposal of the loan notes would create a significant capital gains liability and that if he failed to return this liability promptly he ran the risk of a liability to interest on overdue tax. As he was unable to trace receiving a tax return for 1988-89, he wrote three times between August and November 1988 to the inspector at a London district requesting his tax return form for that year. With his third letter, which was dated 22 November 1988, he enclosed a schedule of his capital gains computation for the year ended 5 April 1988. This schedule listed 16 disposals. The first security listed in the disposals was described as '45 Albion Nominees Limited (exchanged for [the loan notes])'. The headings and summary at the foot of the schedule of the figures for the 16 disposals were as follows:
CAPITAL GAINS COMPUTATION -- YEAR ENDED 5 APRIL 1988
COSTPROCEEDSPROFITLOSS
246,823.033,565,526.203,397,439.5978,736.42
NET GAIN3,318,703.17


8. This letter of 22 November 1988 produced a response from the London district office saying that the taxpayer's income tax affairs had been transferred to Poole district and his letter forwarded to them. Shortly thereafter the inspector, Poole, issued the notice of assessment against which this appeal was lodged. This assessment was for chargeable gains for the year estimated at 374m, which led, after deduction of the exempt allowance of 6,600, to a calculation of tax chargeable at 30% on excess gains of 3,393,400 amounting to 1,018,020.

9. The taxpayer replied to the Poole inspector on 16 December 1988 with his formal appeal against the assessment and, since the notice of assessment had been preceded by a letter from that inspector which implied that he had not received the computation which the taxpayer had sent to the London district on 22 November, he sent to the Poole inspector a further copy of that computation.

10. There then followed for over four years correspondence between the Poole inspector and the taxpayer or, from January 1989, his agents and advisers the chartered accountants, Wilder Coe, to whom he had gone for advice primarily in relation to his Lloyd's losses. The topics covered in this correspondence included the date on which the shares had been acquired, the date and circumstances of their exchange for the loan notes, the possibility of a charge for interest, the possibility of a timetable for a payment of the 1987-88 capital gains liability by instalments, the payment in February 1989 of an initial instalment of £150,000, the possibility of setting against the liability a substantial income tax repayment of around £150,000 due to the taxpayer for 1986-87 and 1987-88, whether the loan notes had been the only consideration received by the taxpayer on the exchange of the shares for the loan notes, whether that exchange qualified for the conditions of roll-over in s 85 of the Capital Gains Tax Act 1979, the terms of any documentation relating to that exchange, the terms of the loan notes, the terms and effect of a gift of some of the shares made by the taxpayer immediately prior to the exchange, the issue of a precept for documents relating to that gift and the possibility of a hearing of this appeal before the General Commissioners for Poole in October 1992. From 19 December 1988 to 4 December 1992 the correspondence with the inspector was mainly directed towards the question whether the exchange on 10 June 1986 of the shares for the loan notes was to be treated as a reorganisation without a disposal for capital gains tax purposes. The taxpayer was aware during this correspondence that the disposal of the loan notes created for him a liability of over 1m and that he had satisfied around £300,000 of this liability by a payment of £150,000 in February 1989 and an offset of some £150,000 of income tax repayments that would otherwise have been due to him. He did not in 1989 have funds readily available to meet this liability. We accept that as the extent of his and his wife's Lloyd's losses became clearer it would have become more and more difficult for him to find resources to meet this liability. As the correspondence with the inspector continued over the years on the subject of the exchange of the shares for the loan notes, with periods in which there was effectively silence from the Revenue, the taxpayer came to hope that the liability for capital gains tax on the disposal of the loan notes had gone away.

11. We are satisfied that the taxpayer took all appropriate steps to disclose, although he may initially have been a few days late, the disposal of the loan notes and the proceeds of that disposal. The description of the disposal in the schedule sent with his letter of 22 November was not perhaps the most apt. That schedule, under the line listing the shares, stated '(exchanged for £3,390,125 S & W Berisford plc loan notes)'. That description on its own might be interpreted to mean that the disposal in the year ended 5 April 1988 was an exchange of the shares for the loan notes. But it is clear to us that that was not the intention. The taxpayer's return for the year ended 5 April 1987 sets out the exchange of the shares for the loan notes and gives the date of the exchange as June 1986. And a letter dated 1 February 1989 from Wilder Coe makes it clear that the loan notes were disposed of by being presented for encashment. Accordingly we are satisfied that, if the Revenue were at any time mistaken as to the nature or extent of the disposals by the taxpayer in the year ended 5 April 1988, that mistake was not in any way induced by the taxpayer or his agents.

12. On 4 December 1992 the inspector wrote to Wilder Coe as follows:

'Further to my letter of 22 September 1991 my colleague in City 3 District has now confirmed that Section 85 CGTA applies to the acquisition by Berisford International Plc of the share capital of Berisford (AN) Ltd in exchange for S & W Berisford International Plc loan notes. As your client's tax affairs are now handled by London Provincial 13 District I do not hold the up to date details of your client's Capital Gains Tax position for 1987-88. I shall, of course, liaise with my colleague but in order to avoid unnecessary correspondence between ourselves are you able to provide me with your computation, showing chargeable gains less any capital losses which have been agreed as available to offset against the gains? I shall also need to establish the amount of Capital Gains Tax which your client has paid against the estimated assessment issued by my District in the sum of 3,400,000. Again if you can provide me with details of the position as you know it to be I can make sure that there are no discrepancies to be sorted out.'

It is not clear from the evidence whether this letter was ever received by Wilder Coe. We are however satisfied that they received a short reminder letter addressed to them from the inspector dated 15 April 1993, which was as follows:

'I cannot trace a reply to my letter of 4th December 1992. Are you now able to provide me with your computations and details of tax paid?'

These two letters, taken with the taxpayer's evidence, make it clear to us that in April 1993 the inspector had not reached any agreement with the taxpayer or his advisers on the computation of the capital gains tax liability of the taxpayer for the year ended 5 April 1988.

13. The next communication between the inspector and the taxpayer or his advisers was the amended notice of assessment, which is at the heart of this preliminary issue. It is dated 25 May 1993. It has the same reference as the original notice of assessment issued on 30 November 1988. It is also for the year ended 5 April 1988 and it is also in the name of the taxpayer. It clearly purports to alter that original assessment. The introductory paragraph under the heading 'Amended notice of assessment' states:

'This statement shows the adjustments which have been made to the assessment. Where tax remains payable, after taking into account any payments already made, this is payable to the Collector.'

The box in the body of the form of the amended notice for the inclusion of the relevant figures and calculations has the hand-written figure '0' or '0700' opposite the items, 'chargeable gains for the year', 'Total chargeable gains', 'Excess', 'Total Tax' and 'Net Tax Payable'.

14. The taxpayer took advice from Wilder Coe, and in particular from one of their tax partners, on the effect of the receipt of this amended notice of assessment. After he had received advice he believed that if this amended notice stood unaltered for 30 days it might become effective. He deliberately took no action to respond to the inspector about it. He hoped that by doing nothing he might be treated as accepting an offer to settle as nil his capital gains tax liability for his disposals, including his disposals of the loan notes, in the year ended 5 April 1988. He did not ask for repayment of any sums paid or applied towards satisfaction of the assessment of 30 November 1988.

15. The next communication was a letter to Wilder Coe from the inspector dated 24 June 1993. So far as relevant this was in the following terms:

'I refer to Mr Thomas's letter of 4 December 1992 and reminder of 15 April 1993 in which he asked for your computation of chargeable gains and chargeable losses for the year 1987-88. You should now have received an amended notice of assessment for that year showing nil chargeable gains, this being based on information I hold on file which suggests that there are substantial capital losses available for carry forward and attach a schedule showing details I have taken from your client's Tax Returns and schedules. I can accept all the losses claimed except for those which arose from the disposal of the Transvaal Clothing Co . . . Additionally, the Collector of Taxes, Bournemouth advised that 150,000 was paid against the 1987-88 assessment. Repayment will be made when loss details are confirmed.'

16. The schedule enclosed with this letter includes 15 of the 16 disposals listed in the schedule of computations prepared by the taxpayer and enclosed with his letter of 22 November 1988 to the London district which we have referred to in para 7. It also includes losses totalling 39,173 for the taxpayer and his wife's losses on Lloyd's investments and a loss of 60,000 on a disposal that was not listed in the original schedule prepared by the taxpayer. But this schedule includes no reference to any disposal of the shares or the loan notes.

17. On 23 July 1993 Wilder Coe wrote to the inspector saying that they had no record of receiving his letter of 4 December 1992 or the reminder of 15 April 1993. They also said that 'due to personal financial circumstances, to reduce costs' the taxpayer would be dealing with non-Lloyd's matters himself. In his evidence under cross-examination the taxpayer stated that he considered then that the question of his capital gains tax liability on the disposal of the loan notes was settled and that he saw no need to involve Wilder Coe. He did not accept the assertion of counsel for the Crown that the reason for withdrawing instructions from Wilder Coe on this issue was to avoid their embarrassment. We merely find that we are not satisfied that the reasoning in the letter of 23 July 1993 was the full reason. Our findings on the reasons for the taxpayer's actions following the issue of the amended notice and for his failure to point out the error in the schedule prepared by the inspector are limited to those we have set out in para 14. The next letter was therefore from the taxpayer himself to the inspector answering questions raised by the inspector in his letter of 24 June 1993 on the disposal of shares in Transvaal Clothing Co. This response includes the taxpayer's calculations of the indexation allowance on this disposal. The inspector acknowledged this letter on 1 September 1993, simply saying 'I am currently considering the details and will write to you again once I have the information I need'.

18. The taxpayer in his evidence under cross-examination prevaricated in his answers to questions as to whether he knew when he saw the inspector's schedule that there had been an error by the inspector. He made such answers as that he had been dealing with the correspondence as best he could, that as far as he was concerned he had accepted an offer and that he did not focus on the schedule. Taking into account his evidence, the apparent nature and order of magnitude of the error and the removal of instructions on this issue from Wilder Coe, we are satisfied that the taxpayer or his advisers knew after the receipt of this letter that the inspector had issued the amended notice in error, that error being that he had overlooked the disposal in the year ended 5 April 1988 of the loan notes.

19. The next communication between the inspector and the taxpayer was a letter dated 18 November 1993 from the inspector to the taxpayer. This was the first occasion when the inspector notified the taxpayer that he realised that he had overlooked the disposal of the loan notes in the year ended 5 April 1988. This letter included the following statements:

'In my letter of 24 June 1993 to Messrs Wilder Coe you will note that I stated that information I held suggested that your capital losses for the year ended 5 April 1988 exceeded your gains. I had noted that the claim Messrs Wilder Coe made on your behalf under Section 85 CGTA 1979 that the gain which arose when you exchanged your shares in Albion Nominees for S & W Berisford Floating Rate Loan Stock 1991 should be deferred until your loan notes were redeemed had been accepted and thus a gain did not arise during the year ended 5 April 1987. However as your loan notes were redeemed during the year ended 5 April 1988 the deferred gain is as you stated in your computation of gains and losses for the year ended 5 April 1988 to be assessed for the year 1987-88. I offer my sincere apologies for my mistake in overlooking the fact that your loan notes had been redeemed and not including the gain in the statement I enclosed with my letter of 24 June 1993 to Messrs Wilder Coe.'

20. By February 1994 it was clear that the taxpayer took the view that there was an agreement between him and the inspector as a result of the amended notice of assessment to the effect that the original assessment was reduced to nil, and that the inspector considered this view to be incorrect. On 23 February 1994, on advice of leading counsel, the taxpayer wrote to the inspector in the following terms, so far as relevant:

'You are aware that my principal contention is that the appeal has been determined as the result of an agreement within Section 54 of the Taxes Management Act 1970. I am advised that in order to counter any possible argument on the part of the Revenue based on Section 54(3) I should, and I hereby do, confirm by this notice in writing that an agreement was come to between the Revenue and myself between late May and late June 1993 that the assessment under appeal should be varied/discharged by reducing the amount payable thereunder to nil. The amended Notice of Assessment was dated 25 May 1993. In that Notice the Revenue proposed reducing the amount payable under the original assessment to nil. As must inevitably have been the case, and as the Revenue must have known would inevitably have been the case, I found that proposal totally acceptable and therefore accepted it. I did not consider it necessary to communicate to the Revenue at the time. I considered it sufficient in the circumstances simply to resolve to accept the Amended Notice or, at the most, to allow the thirty day period for appealing against such Notice to lapse without appealing against it.'

The submissions

21. The principal submissions of counsel for the taxpayer were as follows.

(a) The Revenue are precluded from denying that there was an agreement for a reduction of the original assessment to nil. Under the terms of s 29(6) of the Taxes Management Act 1970 once a notice of assessment has been served it cannot be altered except in accordance with the Taxes Acts. The only routes for alteration under the Taxes Acts were either by a determination by the commissioners, which clearly had not occurred, or by an agreement under s 54 of the Taxes Management Act 1970. Having served the amended notice of assessment it did not lie with the Revenue to dispute that there had been an agreement and to say that they had acted unlawfully. It must be presumed that they had done everything necessary to give power to serve the amended notice. Accordingly, it must be presumed that there had been the necessary agreement.

(b) The amended notice itself constituted the agreement for the purposes of s 54. It was not a unilateral agreement but a consensual agreement. The Revenue could reasonably assume that the taxpayer would agree to a proposal for a nil assessment. They were therefore justified in altering the original assessment on the basis of that presumed agreement. The terms of the amended notice therefore were correct in stating that adjustments had been made to the original assessment. The amended notice thus was either itself the agreement, and in writing, or it confirmed an unwritten presumed agreement. In either case the terms of s 54(3) were satisfied.

(c) If the amended notice was not itself an agreement or confirmation of an agreement that was not in writing, it was at the least a proposal that the original assessment should be reduced to nil. This is how any normal person would read it. It became an agreement when the taxpayer received it and assented to it. An agreement under s 54 did not need to be a formal contract. He distinguished R v Inspector of Taxes, ex p Bass Holdings Ltd [1993] STC 122 where it was held that the ordinary law of contract applied to a s 54 agreement which was therefore susceptible to rectification. It had not been necessary in that case to decide that a s 54 agreement was a contract as Snell's Equity (29th edn, 1990) p 633 was authority for the view that the jurisdiction to rectify was general and applied to any case where an instrument did not accord with the intention of the parties. Therefore neither consideration nor formal communication of acceptance were required. Furthermore this was a situation were, even if s 54 requires a legally binding contract, that was satisfied here because either the requirement of communication could be treated as waived or the Revenue, being prepared to accept a nil assessment and reasonably presuming that any taxpayer would accept such an agreement, would not be in any way prejudiced by any failure by the taxpayer to communicate acceptance. He relied on Chitty on Contracts (27th edn, 1994) p 109 and 110, paras 2-027 and 2-028.

(d) If any agreement to reduce the original assessment to nil is to be regarded as an agreement that was not in writing, no problem for the taxpayer arises under s 54(3) in view of the written notice by the taxpayer of the fact of the agreement and its terms given by his letter of 23 February 1994. It matters not that the Revenue were not in agreement with the taxpayer at the time that letter was written. It confirms the fact that an agreement was come to and its terms.

(e) If there was any mistake that underlay the issue of the amended notice, that was not a mistake as to the nature of the proposal put to the taxpayer or as to its terms. Even if an agreement under s 54 has to consist of a legally binding contract, he submitted, citing Smith v Hughes (1871) LR 6 QB 597, that a mistake of the nature that may have existed here would not have invalidated a legal contract. It followed that it also could not take away the effect of the less formal agreement that is all that is required here. Chitty p 309, para 5-023 was authority for the view that a mistake must relate to the terms of the contract; as the inspector really intended to reduce the assessment to nil the contract was not viable. Although Hartog v Colin & Shields [1939] 3 All ER 566 was authority for the view that where one party could not reasonably have supposed that an offer expressed the real intention of the person making it, and where that party must have known it to have been made by mistake, there was no binding contract, there was no evidence before us to show that that was the case in this appeal; any mistake was in the calculations made by the Revenue and not as to the terms of the amended assessment.

(f) Any attempt by the Revenue to argue that their own mistake in issuing the amended notice vitiates the effect of the agreement made for the purposes of s 54 would circumvent the effect of the House of Lords decision in Scorer (Inspector of Taxes) v Olin Energy Systems Ltd [1985] STC 218, [1985] AC 645.

(g) He distinguished Baylis (Inspector of Taxes) v Gregory [1988] STC 476, [1989] 1 AC 398 on the facts. In that case the inspector had purported to vacate an assessment and had not communicated the fact to the taxpayer. In the present case the inspector had sent a document which was a proposal to reduce the amount assessed to nil, or a statement that the Revenue were agreeable to the tax assessed being reduced to nil, and had notified the taxpayer.

(h) There were other arguments on which counsel for the taxpayer reserved his position. These were that the issue of the amended notice created for the taxpayer some defence of estoppel or claim to some remedy for maladministration by the Revenue. But he accepted that, if we were not satisfied that we had no jurisdiction because of a s 54 agreement to reduce the original assessment to nil, we had no jurisdiction to consider these issues.

22. Counsel for the Crown made the following principal submissions.

(a) Citing s 29(6) of the Taxes Management Act 1970 and Baylis (Inspector of Taxes) v Gregory, he submitted that the original assessment served on the taxpayer on 30 November 1988 could be altered only by the commissioners on appeal or by an agreement in accordance with s 54 of the Taxes Management Act 1970. No such step or agreement had occurred prior to the issue of the amended notice of 23 May 1993. The amended notice was therefore ineffective. Also, to construe a unilateral act of the inspector as a s 54 agreement would be inconsistent with the decision in Baylis (Inspector of Taxes) v Gregory.

(b) Citing Bass Holdings he submitted that a s 54 agreement is an agreement to which the ordinary law of contract applies. From that it followed that the acceptance of an offer had to be communicated to the offeror and he cited Chitty on Contracts (27th edn, 1994) p 109, para 2-027. The document of 25 May 1993 was an amended notice of assessment; it said that it showed the adjustments which had been made and so it was intended to confirm what had already happened; as nothing had happened the document was, on the face of it, wrong and therefore ineffective. The taxpayer had argued that the Revenue could not rely upon its unlawful act, but the Revenue were not relying on it; he merely drew attention to the fact that the document of 25 May 1993 was ineffective to vary the assessment of 30 November 1988.

(c) If any s 54 agreement is to be shown it had to arise after and as a result of the service of the amended notice. But this was not an offer. It purported, incorrectly, to state what had happened. If it was an offer or proposal, there was never any communication of acceptance before the nature of the Revenue's error was identified. Neither was this a case where the requirement of communication of the acceptance could be waived. It could not be assumed that, if there had been an offer, it was bound to be accepted. Many taxpayers would not accept what they knew to be an error and would be concerned to ensure that they paid the right amount of tax.

(d) Referring to s 54(3) he submitted that, even if there were an agreement, then it was not in writing and the fact of the agreement and its terms had not been confirmed by notice in writing. When the taxpayer wrote on 23 February 1994 the parties were not ad idem. By using the words 'where an agreement is not in writing [emphasis added]' s 54(3) required the notice in writing to be served at a time when the agreement was in existence.

(e) In his skeleton, citing Hartog v Colin & Shields [1939] 3 All ER 566, he submitted, that if, contrary to his submissions, there was an agreement that the original assessment be reduced to nil, the taxpayer was deliberately taking advantage of what he or his accountants knew to be a mistake, and that any agreement is vitiated by that fact.

(f) Finally, he distinguished the decision in Scorer (Inspector of Taxes) v Olin Energy Systems Ltd [1985] STC 218, [1985] AC 645 on its facts. In that case an agreement had been reached and there was no question of the taxpayer 'snapping up' an error of the inspector; the taxpayer there was not relying on something that he knew was wrong.

Reasons for our decision

23. The principal question for us in consideration of the preliminary issue of jurisdiction is whether the Revenue and the taxpayer at any time came to an agreement that the original estimated assessment of November 1988 should be reduced to nil. The relevant words in s 54 are 'where a person gives notice of appeal, and before the appeal is determined by the Commissioners, the inspector . . . and the appellant come to an agreement, whether in writing or otherwise, that the assessment . . . under appeal should be treated . . . as discharged'. The two persons concerned need to 'come to an agreement'. The fact that the inspector sent the amended notice is clear evidence that when he sent it he considered that the assessment for capital gains tax on the taxpayer for the year ended 5 April 1988 could and should be reduced to nil. He presumably at that time expected that it would be treated as reduced to nil. We accept from his evidence that when the taxpayer learnt that the amended notice had been sent he hoped that it would be reduced to nil. He believed that, if he did not object to it, it might be effective to reduce his liability to nil. He and the inspector at that time probably had the same expectation that it would become treated as nil. But the fact that two persons find that they have the same expectations or objectives does not mean that they have come to any agreement.

24. We do not find any of the authorities cited to us of much help in the circumstances of this appeal. In Bass Holdings Ltd the inspector had invited agreement to particular figures and the taxpayer had written to say expressly that he could agree the figures contained in the inspector's invitation. The issue was whether the agreement the two of them had thereby come to could be vitiated in some way because it had been based on a mistake. Counsel for the Crown referred us to the following passage in the decision of Popplewell J in Bass Holdings Ltd [1993] STC 122 at 132:

'I see no reason why the ordinary law of contract should not apply to this agreement as to any other agreement. The effect of a concluded agreement under s 54(2) is that it shall be final and conclusive but that does not mean that the court is not entitled to look and see whether all the ingredients necessary to the formation of a proper contract have been complied with. Thus capacity, fraud, mistake and such like matters seem to me to be available to a party who seeks to challenge the agreement on one or more grounds. In the sense that the agreement is res judicata of the issues which it determines it is clearly final and conclusive. But that does not mean, in my judgment, that the ordinary rules governing the formation of the contract are deemed to have been complied with.'

Popplewell J was clearly addressing his mind to the circumstances when one of two persons who had come to an agreement to settle an appeal sought to challenge that agreement, rather than, as here, where one party seeks to satisfy us that an agreement has been come to. But we take his views as clearly persuasive authority for at least the view that we should be very chary of finding that circumstances are such as to lead to the conclusion that an agreement has been come to, (or conversely has not been come to), when at common law they are not circumstances such as to create a contract, (or conversely are such as to create a contract).

25. We do not understand why the service of the amended notice of assessment should raise any presumption binding on us that the inspector and the taxpayer had come to an agreement to reduce the assessment to nil. Taken on its own, and knowing that the original assessment could, in view of the terms of s 29(6) of the Taxes Management Act 1970, be altered in that way only if there were such an agreement, the service of the amended notice might raise some presumption that there had been such an agreement. But the taxpayer seeks to satisfy us that they came to such an agreement. As we have found in para 12 we are satisfied that they had not come to any such agreement prior to the issue of the amended notice. Those facts rebut that presumption. The sending of the amended notice does not of itself change that fact. Much of the argument of Mr Venables QC, counsel for the taxpayer, in this respect seems to us to verge on the assertion that by the issue of the amended notice the Revenue are in some way estopped from denying that there was an appropriate agreement to justify its issue. As we understand it, it is agreed that we are not to consider the applicability of some doctrine of estoppel.

26. Nor can we see how the amended notice by itself constituted a s 54 agreement. We accept that a taxpayer is very unlikely to object to a statement in the form of the amended notice that his liability is to be reduced to nil, and the Revenue no doubt frequently act on the assumption that he will not object. But as we have said, the fact that two persons find that they have the same objectives or expectations does not mean that they have come to any agreement. If the taxpayer wants to plead that there is an agreement to reduce his liability to nil he must satisfy us that he has come to such an agreement with the Revenue. This seems to us to require some active reaching of an agreement. The mere fact that the Revenue has said that it has reached a conclusion, however favourable to the taxpayer, does not necessarily mean that the Revenue has come to any active agreement with the taxpayer. Here all the prior discussions with the taxpayer and his agents had been on their part on the basis that the taxpayer had a significant liability. At no time had the taxpayer proposed that the liability should be treated as nil. He had rather proposed and made substantial payments and concessions towards satisfaction of the liability. The issue of the amended notice did not in our judgment, of itself, constitute coming to any agreement. It was simply a unilateral act by the Revenue. There was no invitation here in correspondence to agree figures set out by the inspector. The only prior invitation had been that the taxpayer set out his own computations. He had, possibly because the invitation had been mislaid by Wilder Coe, failed to take up that invitation.

27. The facts in this case do not require us to consider what would be the effect of an amended notice of assessment, issued in error without forewarning as this one was, to which the taxpayer responds promptly with a written assumption that this is a proposal to settle the terms of his liability and that he accepts that proposal. That is not what the taxpayer did. He deliberately took no action to respond. He made, at least initially, no communication to express his agreement with any proposal that could be implied from the issue of the amended notice. We are therefore left with the issue of whether the inspector and the taxpayer must be implied or assumed for some reason to have come to an agreement.

28. Mr Venables based his submission that no communication was required from the taxpayer here to create a s 54 agreement on the grounds that, although communication of the acceptance of an offer is normally required to create a contract at common law, that is not always the case. He first referred us to Chitty p 109, para 2-027, which states that the main reason for the rule requiring communication of acceptance is that otherwise it could cause hardship to the offeror, in this case the inspector, to be bound without knowing that his offer had been accepted. No such hardship to the inspector would arise here and that normal reason therefore does not apply in this case. He gave us two examples of types of contract where that communication is not required. The first is where the offer expressly or impliedly waives the need for communication of acceptance. This amended notice, if it was a proposal capable of acceptance, did not expressly waive communication of its acceptance, nor do we see why it should be implied to have done so. This notice came out of the blue. Nothing that happened before could lead the taxpayer to expect it or could lead to the implication that he did not need to respond to it if he wanted to be treated as having reached an agreement on it. It seems to us that the more unexpected a proposal is the less can it be implied that no communication of acceptance is needed to show that an agreement has been come to. We see no logical reason why there should be some special rule for amended notices in a nil amount rather than an amended notice which, while clearly giving an unexpected bonus to the taxpayer, still requires payment of some liability.

29. The second category of agreements that can at common law become binding on the offeror without communication of acceptance to which Mr Venables drew our attention are those where the contract is unilateral. Performance of the required act is sufficient without any prior communication of acceptance. But we do not see agreements come to under s 54 as in this category. The purpose of the provision is surely to encourage settlement of disputes by discussion between the taxpayer and the Revenue. It is not its purpose to encourage unilateral generosity by the Revenue. Again we see no reason why there should be some special rule for the acceptance of amended notices to reduce to nil, but not for some higher but generous figure.

30. The final leg of Mr Venables's argument was that agreement had not been in writing but had been confirmed by the formal notice sent on 23 February 1994 which complied with s 54(3)(a). If it is sufficient to have the confirmation of the terms of an agreement and of its existence coming from the party who seeks to show in proceedings such as these that there has been a s 54 agreement, then we would not be much influenced by the fact that the parties might be in disagreement by the time the confirmation is sent. We can envisage circumstances when an inspector and a taxpayer might have reached a clear oral agreement that has not been put into formal writing before the Revenue seek for some reason to resile from it. We would have thought that the taxpayer could in those circumstances attempt to take advantage of s 54(3)(a). It is not therefore the timing of the letter of 23 February 1994 which leads us to disregard it. We disregard it because it cannot confirm the fact that an agreement was come to. No such agreement had been come to. Nor could it when sent constitute in any way the acceptance of any proposal to reduce the assessment to nil. It is clear that no such proposal was then on the table.

31. We did not understand Mr Venables to argue that the correspondence between the inspector and the taxpayer or his advisers between the issue of the amended notice of 25 May 1993 and the inspector's letter of 18 November 1993 constituted by themselves a s 54 agreement. But for the sake of completeness we confirm that we find that no agreement was come to in that correspondence, save perhaps as to the limited question of the losses on the disposal of the investment in Transvaal Clothing Co. Four letters were written in this period. Two by the inspector and two by the taxpayer or his advisers. It was a period when both the inspector and the taxpayer probably expected that the assessment would be reduced to nil. But we do not find that any agreement was come to in that period either in writing or by action that the assessment would be reduced to nil. The taxpayer simply answered the questions on Transvaal Clothing Co.

32. Mr Venables submitted that we should not circumvent the effect of the House of Lords decision in Scorer (Inspector of Taxes) v Olin Energy Systems Ltd [1985] STC 218, [1985] AC 645. Any attempt by the Revenue to rely on their own mistake would subvert the authority of that decision, which promoted the interest of achieving finality through s 54 agreements. But in that case it was clear that the inspector, albeit incorrectly in a mistaken view of the facts, had agreed computations put to him by the taxpayer's accountants. They had come to an agreement. Here no agreement has been come to. The taxpayer chose to remain silent. We accept that we are in effect finding that an amended notice of assessment is not necessarily final, but that is very different from finding that an agreement, which has been come to for the purposes of s 54 to settle an appeal, is not final.

33. In summary we find that at no time did the taxpayer or his advisers ever come to an agreement with the inspector that the original estimated assessment dated 30 November 1988 would be treated as reduced to nil and accordingly as discharged or cancelled. The appeal lodged on 16 December 1988 is therefore still open and we have jurisdiction to hear it.

COUNSEL:
Peter Sheridan QC, Robert Venables QC and Amanda Hardy for the taxpayer; Timothy Brennan for the Crown.

PANEL: NEUBERGER J

JUDGMENTBY-1: NEUBERGER J

JUDGMENT-1:
NEUBERGER J. This is an appeal brought by Mr Henry Schuldenfrei, a chartered accountant, against a preliminary decision of the Special Commissioners given on 30 April 1997 (see Silver v Inspector of Taxes [1997] STC (SCD) 193) when they determined that they had power to hear his appeal against an assessment in respect of capital gains tax.

The facts are as follows. On 10 June 1986 the taxpayer exchanged some ordinary shares for some loan notes. In March 1988 he disposed of all the loan notes. On 30 November 1988 he received a notice of assessment (the first notice) in respect of capital gains tax on the disposal of the loan notes. This was headed 'Inland Revenue. Capital Gains Tax Year Ending 5 April 1988' and there then followed his name and home address. The text of the first notice included this:

'If you do not agree with the assessment you should appeal in writing within 30 days from the date of issue above. If you also consider that the amount charged is excessive, you may apply to postpone some or all of the tax . . .'

The first notice recorded the total chargeable gains (from the disposal of the loan notes) as 3,400,000 and the amount of tax payable as 1,018,020.

On 16 December 1988, within the 30-day period specified, the taxpayer gave notice of appeal against this assessment. There then followed discussions between the taxpayer's accountants and the inspector of taxes and the payment by the taxpayer of some money on account. Meanwhile, the appeal remained effectively in abeyance.

On 25 May 1993 the taxpayer received a document of central relevance in this case. I shall refer to it as 'the second notice'. It bears the same reference as the first notice and also refers to the year ending 5 April 1988. It is addressed to the taxpayer, care of his accountants, and the text starts:

'Amended notice of assessment.

This statement shows the adjustments which have been made to the assessment. Where tax remains payable after taking into account any payments already made this is payable to the collector. You are reminded of the general rule that interest is chargeable on tax paid late.'

It then states that the chargeable gains for the year are nil and total tax is nil.

Between May and November 1993, there was some correspondence which is not of central relevance between the taxpayer or his accountants and the inspector.

On 18 November 1993 the inspector wrote to the taxpayer a letter including this passage:

'In my letter of 24th June 1993 to [the taxpayer's accountants] you will note that I stated that information I held suggested that your capital losses for the year ended 5th April 1988 exceeded your gains. I had noted that the claim [the accountants] made on your behalf under Section 85 CGTA 1970 that the gain which arose when you exchanged your shares . . . for . . . the loan notes should be deferred until your loan notes were redeemed and had been accepted and thus a gain did not arise during the year ended 5 April 1987. However, as your loan notes were redeemed during the year ended 5 April 1988, the deferred gain is as you stated in your computation of gains and losses for the year ended 5 April 1988 to be assessed for the year 1987-88. I offer my sincere apologies for my mistake in overlooking the fact that your loan notes had been redeemed and not including the gain in the statement I enclosed with my letter of 24th June 1993 . . . I now give my revised computation for the year 1987-88.'

The letter then sets out that computation. Accompanying that letter was a further amended notice of assessment (the third notice) with substantially the same computation as the letter and recording the chargeable gain and the liability for tax at the same respective figures as were in the first notice.

Further correspondence then followed, but the only other document to which I need refer is a letter of 23 February 1994, which the taxpayer wrote to the inspector; it included the following:

'You are aware that my principal contention is that the appeal has been determined as the result of an agreement within Section 54 of the Taxes Management Act 1970. I am advised that in order to counter any possible argument on the part of the Revenue based on Section 54(3) I should, and I hereby do, confirm by this notice in writing that an agreement was come to between the Revenue and myself between late May and late June 1993 that the assessment under appeal should be varied or discharged by reducing the amount payable thereunder to nil.'

The taxpayer's appeal of 16 December eventually came on for hearing before the Special Commissioners. They considered a preliminary point, namely whether, as the taxpayer contended, they were no longer competent to hear the appeal because it had been agreed by the taxpayer and the inspector that the original assessment contained in the first notice was to be treated as reduced to nil. The commissioners found against the taxpayer on that point and it is against that decision which the taxpayer now appeals.

It is necessary to set out some of the provisions of the Taxes Management Act 1970. Section 29 provides as follows:

'(1) Except as otherwise provided, all assessments to tax shall be made by an inspector, and -- . . .

(5) Notice of any assessment to tax shall be served on the person assessed and shall state the date on which it is issued and the time within which any appeal against the assessment may be made.

(6) After the notice of assessment has been served on the person assessed, the assessment shall not be altered except in accordance with the express provisions of the Taxes Acts.'

Section 31 provides:

'(1) An appeal may be brought against an assessment to tax by a notice of appeal in writing given within thirty days after the date of the notice of assessment.

(2) The notice of appeal shall be given to the inspector or other officer of the Board by whom the notice of assessment was given.'

The centrally relevant provision is s 54:

'(1) Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown and the appellant come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time when the agreement was come to, the Commissioners had determined the appeal and had upheld the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it, as the case may be.

(2) Subsection (1) of this section shall not apply where, within thirty days from the date when the agreement was come to, the appellant gives notice in writing to the inspector or other proper officer of the Crown that he desires to repudiate or resile from the agreement.

(3) Where an agreement is not in writing -- (a) the preceding provisions of this section shall not apply unless the fact that an agreement was come to, and the terms agreed, are confirmed by notice in writing given by the inspector or other proper officer of the Crown to the appellant or by the appellant to the inspector or other proper officer . . .'

I can omit para (b) and sub-ss (4) and (5).

As the taxpayer had exercised his right of appeal under s 31 against the assessment contained in the first notice, it seems clear from ss 29(6) and 54(1) that the only ways (subject to certain exceptions irrelevant in this case) in which the assessment in the first notice could have been varied were (1) by a determination of the commissioners and (2) by an agreement within s 54(1). That is not in dispute between the parties, and it is supported by observations in Baylis (Inspector of Taxes) v Gregory [1986] STC 22 at 38, [1986] 1 WLR 624 at 627-628 per Vinelott J, and [1987] STC 297 at 321-322, [1989] 1 AC 398 at 434-435 per Slade LJ.

The dispute between the parties is whether, on the facts of this case, it can be said that the inspector and the taxpayer came 'to an agreement, whether in writing or otherwise' that the assessment in the first notice should effectively be either 'varied' to nil or 'cancelled'.

The taxpayer's primary case is that the inspector sending the second notice and the taxpayer not objecting to it (and, indeed, on his case believing that, by not objecting to it, it became effective and binding) gave rise to an 'agreement' between the taxpayer and the inspector within s 54(1). A question which has been argued as one of general principle is whether the reference in s 54(1) to an 'agreement' is to an agreement which would, as a matter of law, be a binding contract, as the Crown contends, or whether a much looser arrangement is contemplated.

In my judgment, while it may be putting it a little high to say that there must in every conceivable case be an arrangement which would in law be a binding contract, when the legislature used the word 'agreement' in s 54(1) it had in mind something which, at least normally, must be a binding contract and only in very rare cases would an arrangement which fell short of this do.

I reach that conclusion for a number of reasons. First of all, as a matter of ordinary language, when one sees in a statute the word 'agreement', one assumes that it is a reference to the legal concept embodied in that word. While I would accept that the word 'contract' is clearer, none the less, the word 'agreement' appears to me to carry with it the idea of a legally binding agreement. In the case of s 54(1), that receives a little support from the use of the indefinite article; 'an agreement' suggests a little more formality than 'agreement' on its own.

Secondly, s 54(1) envisages the existence of a dispute in that an inspector will have made an assessment with which the taxpayer is unhappy because he will have appealed. A dispute -- particularly a dispute as to a legal liability -- seems to me to be something which one would expect the parties to compromise by an enforceable contract rather than by something which fell short of that.

Thirdly, if it be right that a document, which was on any view an offer, could be sent, either by an inspector to a taxpayer or by a taxpayer to an inspector, and it could be accepted by the recipient without some communication to the offeror, it could lead to considerable difficulties and impracticalities. How would the offeror know whether the offer had been accepted or not? This is particularly relevant if the offer is made by an inspector to a taxpayer because the date on which the offer is accepted is of obvious importance in the light of s 54(2) under which the taxpayer has 30 days to pull out of any agreement. If the acceptance can be, as it were, locked in the taxpayer's mind, it is not only impossible to know whether there is an agreement, but also one cannot tell from when the 30 days runs or when those 30 days expire, and, therefore, when any alleged agreement has therefore become binding.

Fourthly, I derive assistance from observations of Popplewell J in R v Inspector of Taxes, ex p Bass Holdings Ltd [1993] STC 122. Although he was concerned with a somewhat different point, it does appear that counsel for the taxpayer in that case specifically advanced the argument that the 'agreement' contemplated by s 54(1) was not a contract but was based on some sort of res judicata (at 129). In this connection Popplewell J appears to have held that the 'agreement' contemplated by s 54(1) was what would be regarded as a contract in law. He said this (at 132):

'I see no reason why the ordinary law of contract should not apply to this agreement as to any other agreement. The effect of a concluded agreement under s 54(2) is that it shall be final and conclusive but that does not mean that the court is not entitled to look and see whether all the ingredients necessary to the formation of a proper contract have been complied with. Thus capacity, fraud, mistake and such like matters seem to me to be available to a party who seeks to challenge the agreement on one or more grounds. In the sense that the agreement is res judicata of the issues which it determines it is clearly final and conclusive. But that does not mean, in my judgment, that the ordinary rules governing the formation of the contract are deemed to have been complied with.'

Even if Popplewell J went further than necessary and the closing words of that observation were obiter, it seems to me that, on any view, part of the ratio was that the legal features and incidental aspects of, and rights relating to, a contract applied to an agreement under s 54. Even on that more limited view of the decision, the case provides support for the conclusion that the 'agreement' which the legislature had in mind when enacting s 54(1) was a binding legal contract or something close thereto.

I am not prepared to go so far as to say that anything which falls short of being a legally binding contract cannot be an agreement for the purposes of s 54(1) in any circumstances. That is neither necessary nor appropriate for me to decide. However, in my judgment, to put it at its lowest, the rules as to what is required for a contract as a matter of law provide very useful guidance, and in almost all cases conclusive guidance, as to whether or not there is an 'agreement' for the purpose of s 54(1).

That then brings me to the question of whether, on the facts of this case, there was an 'agreement'. It may be over-formalistic to divide that question into two parts, namely whether there was an offer in the form of the second notice and, if so, whether there was an acceptance of that offer. However, even if one adopts a more flexible approach than that inherent in the concept of a legally binding contract, it seems to me that it is necessary to ask oneself whether there was a communication from the inspector which was a sufficient act or proposal on his part and also whether there was a sufficient act or communication on the part of the taxpayer which, between them, could give rise to an 'agreement'.

Assuming for the moment that the second notice could be a sufficient offer, I do not see how it can be said that the inactivity of the taxpayer and the failure on his part to make any communication until 1994 can justify his contention that there was an 'agreement'. Normally, it is clear that a failure to take any step which could be said to amount to a communication accepting an offer puts paid to the contention that there is a contract as a matter of law. Indeed to my mind even applying a much more flexible test, for there to be an agreement between two parties as a matter of ordinary language, the existence of some sort of mutual communication is almost always required; to say that there was 'an agreement' between two people when one of them did not communicate his agreement in any manner whatever offends against the concept of 'an agreement' even to a non-lawyer.

This is not even a case where, as in the well-known Carlill v Carbolic Smoke Ball Co [1893] 1 QB 256, the taxpayer can point to any action on his part which could be said to amount to an acceptance by conduct. Indeed, such an argument would be hard for him to mount, bearing in mind that, in that case, the offer indicated how the offeree or class of offerees could accept by action. There was nothing to that effect in the second notice.

This is not even a case where the supposed offer indicated to the offeree that he could accept by doing nothing, as in another well-known case Felthouse v Bindley (1862) 11 CBNS 869 where, I note, even though the offeree was told that he need not communicate his acceptance, it was held that there was no binding contract because he had not assented to the offer.

It was argued by Mr Sheridan QC for the taxpayer that a recipient of the second notice would have assumed that, by doing nothing for 30 days, he must be deemed to have accepted the proposal it contained, because it purports to amend the first notice, which made it clear that, if no appeal was lodged within 30 days, its terms are binding.

I do not accept that point. First, as a matter of law, although the second notice purports to be an amended notice of assessment, it has no effect in law because there is simply no room for a reassessment or amended notice of assessment (see Baylis). Therefore, there is no question of it being effective whether an appeal is lodged against it or not. Secondly, a person receiving the second notice would, if he had referred to the first notice, see that, unlike the first notice, it had no provision indicating that, if he did not appeal against the second notice within 30 days, it would be binding. To my mind, a reasonable recipient of the second notice would assume that failure to act would have the same result which would have flowed from failing to appeal the first notice within 30 days.

To my mind, therefore, even assuming in the taxpayer's favour that the second notice was an offer in the sense that, if the taxpayer had communicated his agreement to the inspector, there would have been an agreement for the purpose of s 54, the failure of the taxpayer to make any communication indicating consent to the contents of the second notice before it was withdrawn on 18 November 1993 and replaced by the third notice is fatal to the taxpayer's case.

This is no doubt an unusual case in that the second notice records the tax payable at nil. One sees the force of the argument that in those circumstances there is nothing for the taxpayer to accept. None the less, s 54 talks in terms of agreement and, to my mind, even in relation to a nil assessment, there has to be some mutual communication of assent before it can be said that there is 'an agreement'. I also reject the contention that the fact that the second notice involved a nil assessment means that the inspector somehow 'waived' the need for any acceptance being communicated. Whether as a matter of law or ordinary language there was no 'agreement' and as no estoppel is, or could be, alleged, that is really the end of the matter, in my judgment.

The logically anterior question to which I now turn, and which I find much more difficult, is whether the second notice was, effectively an offer.

On the one hand, it can be said and has been said with force on behalf of the taxpayer that, if it is not an offer whose acceptance could lead to an agreement which satisfies s 54, it is hard to see what purpose it had at all. An 'amended notice of assessment', once an appeal has been lodged against a notice of assessment, has no actual or potential legal effect unless it represents an offer whose acceptance can result in a s 54(1) agreement.

However, I have reached the conclusion, with no little hesitation, that the wording of the second notice is not really apt so as to enable it to be accepted. It records something as having happened within the Revenue's own records. The crucial first line is: 'This statement shows the adjustments which have been made to the assessment'. It does not seek to reach an agreement; it does not refer to any dispute or to the appeal. On any view, it is an odd document in the light of the statutory provisions; indeed, it is a little hard to understand why the Revenue produced this document. None the less, on a fair reading, I do not think it represents an offer capable of acceptance which can lead of itself without further ado to a s 54 agreement. To use lawyers' language, it may be an invitation to treat.

The taxpayer advanced a further argument in the light of the fact that the second notice had no statutory basis. It was suggested that the inspector stated in the second notice that he had done something which he could not do, as he could only have made an adjustment to the assessment if there had been a s 54(1) agreement and that, therefore, the court should proceed on the basis that there had been such an agreement.

Two Latin dicta were relied on: omnia praesumuntur rite esse acta and nemo audiendus est suam turpitudinem allegans. So far as the first is concerned, it embodies a presumption that all that should have been done has been done. But that is not an irrebuttable presumption certainly as between the parties to the arrangement. It takes matters no further here. So far as the second is concerned, namely, no man can rely on his own wrong, it is a principle of much more limited scope than would be of assistance to a taxpayer in the present case. I would refer to the observations of Harman LJ in Re C L Nye Ltd [1971] Ch 442 at 470-471.

In my judgment, therefore, there was no agreement within s 54 and the commissioners were right essentially for the reasons that they gave.

There are other points which have been raised and with which it is not necessary for me to deal. One such point is what the taxpayer believed at the time he received the second notice. Were the commissioners entitled to find that he kept quiet on receipt of that notice for 30 days in the 'hope' that it 'might' become effective, or should the commissioners have found, or should the matter be sent back to them to ask them if they find, that, in accordance with his evidence, he believed that that would be the effect of his inaction for 30 days? That is not something which I need determine in the light of the conclusions I have already reached. However, the debate on this aspect has given rise to a point on which I have been asked to express a conclusion, albeit I emphasise that any view I express is obiter.

This appeal comes before me under s 56A of the Taxes Management Act 1970, which first came into force on 1 September 1994. Until then, if anyone wished to take the decision of the General Commissioners or of the Special Commissioners to the High Court, it would be under s 56, which is accurately headed 'Statement of Case for Opinion of the High Court'. Section 56 still applies to decisions of the General Commissioners, but s 56A now provides a new regime for appeals from the Special Commissioners. The question is whether, in an appeal from the Special Commissioners under s 56A, the court is entitled to look at the evidence before the Special Commissioners.

On appeals under s 56 one is concerned with the old fashioned statement of case. There, the court could not go outside the four corners of the commissioners' decision. Thus, if the commissioners failed to deal with a point of fact, it was not open to the court to look at any of the evidence: the matter had to be remitted by the court to the commissioners, to make the appropriate determination. That indeed is what Jacob J did in Bradley (Inspector of Taxes) v London Electric plc [1996] STC 231.

Section 56A, however, embodies a more modern approach; thus, it is common ground that RSC Ord 55 applies to appeals from the Special Commissioners under s 56A. Rule 7(4) of Ord 55 is in these terms:

'It shall be the duty of the appellant to apply to the Judge or other person presiding at the proceedings in which the decision appealed against was given for a signed copy of any note made by him of the proceedings and to furnish that copy for the use of the Court; and in default of production of such a note, or if such note is incomplete, in addition to such note, the Court may hear and determine the appeal on any other evidence or statement of what occurred in those proceedings as appears to the Court to be sufficient.'

The taxpayer argues that it is open to him to do that which he did, namely to apply to the commissioners for their approval of a note of the evidence taken before them. After some hesitation (not surprisingly in the light of the novelty of this point) the commissioners were prepared to do this. If Ord 55, r 7(4) applies, then it is not merely a question of the taxpayer in this case having the right to seek and refer to such a note: it is his duty to apply to the commissioners for such a note.

The Crown contends that this course is inappropriate. It points out that Ord 55, r 7(4), like all the provisions of Ord 55, is governed by r 1(4) which states that the following rules of the Order shall --

'. . . have effect subject to any provision made in relation to that appeal by any other provision of these rules or by or under any enactment.'

The Crown relies on s 56A(4) of the Taxes Management Act 1970, which provides:

'The High Court or, as the case may be, the Court of Appeal shall hear and determine any question of law arising on an appeal under subsection (1) or (2) above and may reverse, affirm or vary the decision appealed against, or remit the matter to the Special Commissioners with the Court's opinion on it, or make such other order in relation to the matter as the Court thinks fit.'

It is argued that the purpose of this subsection is to circumscribe the power of the court so as to enable it to deal only with matters of law, and that, therefore, it is inappropriate to burden the court with a lot of inappropriate and irrelevant evidence. It is also pointed out that some hearings before the commissioners can last a very long time, and that it would result in great inconvenience if Ord 55, r 7(4) applied in such circumstances.

Although I have some sympathy with those submissions, my view is that Ord 55, r 7(4) does apply to appeals under s 56A. It seems to me that the section provides a completely different scheme from s 56. Appeals from many different types of tribunals are limited to points of law; furthermore, some points of law involve looking at the evidence. If Ord 55, r 7(4) is very burdensome if literally applied, then that must be true in connection with many appeals from many different tribunals, where often the appeals last a long time. It may be that r 7(4) should be interpreted in a practical way so that it is to be treated as referring to a note of the proceedings in so far as relevant to the issues in the appeal. Alternatively, it may be that, particularly where the evidence is very substantial and much of it is completely irrelevant to the point on appeal, the parties will, either by agreement or with the leave of the court, limit the ambit of r 7(4) to those aspects of the evidence (if any) which are relevant to the issues to be raised in court.

Mr Brennan on behalf of the Crown very properly drew attention to s 56(7), which appears to me to provide a little indirect support for my conclusion. This gives the court specific power in relation to a case stated under s 56 to send the case back for amendment; no such provision seems to exist in a s 56A appeal. I also derive support from obiter observations of Jacob J in Bradley at 233.

The only other point which I should mention is the question of whether the letter of 23 February 1994 was sufficient for the purpose of s 54(3)(a) if there had been an agreement for the purpose of s 54(1). The commissioners were inclined to the view that, if there had been such an agreement, then, notwithstanding the fact that the letter was written after the inspector had purported to withdraw the second notice and serve that notice, the letter of 23 February 1994 was none the less sufficient for that purpose. It is a somewhat surprising result but it seems to me that the wording of s 54(3)(a) is too clear and I would agree with the commissioners on that point as well.

In the event for the reasons I have given, I dismiss this appeal.

DISPOSITION:
Appeal dismissed with costs.

SOLICITORS:
Lipkin Gorman; Solicitor of Inland Revenue