[2003] 1 All ER 67

The claimant was the beneficial owner of substantial investments situated in the United States. Those investments represented foreign emoluments taxable in the United Kingdom if, but only if, they were remitted to the United Kingdom. He sought the advice of the defendant accountants as to whether he might, without adverse United Kingdom tax consequences, give some of those investments to his fianc_e so that she could pay for a half interest in a house in the United Kingdom to be acquired by them. The accountants advised that the proposed gift would not be taxable provided that it was a gift on marriage. Shortly after the couple were married, the claimant transferred certain of his assets to an account set up for his wife in the United States. She used some of those assets to pay half of the purchase price of a property in London, to be held by the couple as joint tenants. Subsequently, the Revenue claimed tax on the basis that the gift by the claimant to his wife and the purchase by her of an interest in the property constituted a remittance of the claimant's foreign emoluments to the United Kingdom. The claimant paid the tax, but sought to recover the sum paid as damages in subsequent proceedings for negligence against the accountants. He alleged that their advice had been wrong in law, while the accountants maintained that it had been correct. At trial, the judge expressed no view as to whether the accountants' advice had been right or wrong since he considered it unnecessary and, in the absence of the Revenue, undesirable to determine that issue. Instead, he concluded that a reasonably skilful and careful accountant tax adviser would have realised and informed the claimant that the advice, if implemented, ran a high risk of being challenged by the Revenue, with a significant prospect of success, as the constructive remittance of foreign emoluments. He further held that, if properly advised, the claimant could and would have restructured the transaction in a way that would not have given rise to United Kingdom tax. On that basis, he gave judgment for the claimant for the full amount of the tax paid. The accountants appealed.

Held - Where, in an action for negligent tax advice, the issue between the parties was whether or not the advice had been correct, the court had to determine that issue. Further, if the efficacy of an alternative scheme was relevant, a decision on the soundness of the original advice, as a matter of law, was necessary too. It followed in the instant case that it was necessary to determine whether or not the accountants' advice had been correct in law. That advice had been correct. Following the completion of the gift in the United States, the investments had67 been the wife's absolute property. At that stage, they had lost the characteristics which made them potentially liable to United Kingdom tax in the hands of the claimant. He had not received, used or enjoyed the monetary or financial equivalent of what he had given, nor had he transmitted the proceeds of sale of the investments to the United Kingdom. Moreover, the legislation dealing with constructive remittances did not entitle the court to treat husband and wife as the same person. It followed (Carnwath LJ dissenting) that the accountants had not been negligent. In any event (Carnwath LJ concurring), even if the advice had been wrong, the negligence would not have caused the claimant any loss since there was no basis on which the tax could have been avoided by the implementation of the alternative scheme. Accordingly, the appeal would be allowed (see [45], [57], [58], [60], [63], [77], [78], [81]-[83], [85], [86], [113], below).
   Carter (Inspector of Taxes) v Sharon [1936] 1 All ER 720 applied.
   Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945 distinguished.

Notes
For negligence in respect of the profession of a particular skill, see 33 Halsbury's Laws (4th edn reissue) para 623.

Appeal
The defendants, John Newman and Chantrey Vellacott DFK, a firm of chartered accountants of which Mr Newman was a partner, appealed with permission of Robert Walker LJ granted on 28 November 2001 from the order of Etherton J on 1 November 2001 ([2002] STC 84) giving judgment for the claimant, Charles Richard Grimm, in the sum of £95,845 on his claim for negligence against the defendants. The facts are set out in the judgment of Sir Andrew Morritt V-C.

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7 November 2002. The following judgments were delivered.

INTRODUCTION
   [1] At all material times the claimant (Mr Grimm) was domiciled in the United States but resident in England. He was the beneficial owner of substantial investments situated in the United States representing foreign emoluments taxable in the United Kingdom under Case III of Sch E if, but only if, they were remitted to the United Kingdom. In the autumn of 1991 he sought the advice of the first defendant (Mr Newman), a chartered accountant and partner in the second defendant (Chantrey Vellacott) whether he might, without adverse United Kingdom tax consequences, give to his then intended wife some of those investments to enable her to pay for a half interest in a house in the United Kingdom to be acquired by the two of them. Mr Newman advised that he could.
   [2] Mr Grimm married Ms Aurora Lombardi on 29 September 1991 and gave her $US785,000 worth of those investments. On 30 March 1992 Mr and Mrs Grimm completed the purchase of Templewood Lodge, Hampstead as beneficial joint tenants at the price of £750,000. Mrs Grimm paid half the purchase price and costs amounting to £386,983 from the proceeds of sale of the investments given to her by Mr Grimm. Mr Grimm paid the other half with a loan to him, secured on Templewood Lodge, of £300,000 and the balance from his own resources. In due course the Inland Revenue claimed tax on the basis that the gift by Mr Grimm to Mrs Grimm and the purchase by her of an interest in Templewood Lodge constituted a remittance of Mr Grimm's foreign emoluments to the United Kingdom. On 18 May 1999 Mr Grimm paid £90,953, part of a larger amount, in respect of the tax so claimed.
   [3] On 9 August 2000 Mr Grimm commenced these proceedings against Mr Newman and Chantrey Vellacott claiming damages for negligent advice. Such damages, quantified at £111,145, comprised the tax paid (£90,953), the appropriate proportion of the interest paid (£4,892), the fees paid for the advice of Mr Newman (£1,416) and a proportion of the fees paid in respect of the dealings with the Inland Revenue (£13,884). The action was tried by Etherton J between 8 and 12 October 2001. The issues before him were (a) whether the advice given by Mr Newman was right, but if wrong, (b) whether Mr Grimm's purposes might have been achievable by other means, and if so, (c) what was the measure of Mr Grimm's loss.
   [4] In his clear and careful judgment given on 1 November 2001 ([2002] STC 84), Etherton J expressed no view whether the advice given by Mr Newman was right or wrong. Instead he considered that a reasonably skilful and careful accountant tax adviser would have realised and informed Mr Grimm that it was advice which, if implemented, ran a high risk of being challenged by the Inland Revenue with a significant prospect of success as the constructive remittance of foreign emoluments. He considered that an alternative scheme, the complete elements of which were not explained until the end of the closing submissions of counsel for Mr Grimm, would have achieved the desired result. He awarded damages to Mr Grimm in respect of the tax paid and interest but not in respect of the fees. He awarded Mr Grimm all the costs of the action, notwithstanding the very late appearance of the details of the alternative scheme.
   [5] On this appeal the defendants claim that the judge was wrong in each of those respects. They submit that (1) the judge should have determined that the69 advice of Mr Newman was right in law, (2) the judge should not have permitted Mr Grimm to advance the alternative scheme ultimately relied on by him, (3) such alternative scheme could have been no more efficacious than that on which Mr Newman relied and (4) costs should have been awarded against Mr Grimm down to the time the alternative scheme emerged. By his cross- appeal Mr Grimm contends that (5) the judge was wrong not to award him damages by reference to the costs incurred in dealing with the Inland Revenue. I will deal with these issues in due course, but first it is necessary to set out the facts and the course of the proceedings in more detail and to explain the tax treatment of foreign income and capital gains.

THE FACTS
   [6] Mr Grimm was a citizen of and domiciled in the United States. He became resident in the United Kingdom in 1983 and shortly thereafter joined the group of Dutch oil companies known as the Vitol Group. Within the group Mr Grimm enjoyed dual employment, that is to say he had one contract of employment with a non-resident employer covering duties to be performed wholly outside the United Kingdom and another prescribing his duties to be performed within the United Kingdom . His remuneration in respect of his overseas employment was, in part, shares in Vitol. From time to time a company in the Vitol Group repurchased such shares. It was from the proceeds of such repurchases that Mr Grimm accumulated the investments in the United States of America with which this case is concerned. It is not disputed that if the proceeds of the repurchase, or the investments for the time being representing them, had been remitted by Mr Grimm to the United Kingdom he would have been liable to pay tax on them under Case III of Sch E as his foreign emoluments. Mr Grimm was advised in relation to his United States tax affairs by Mr Ott, then a partner in Kilpatrick & Cody, and in relation to his English tax affairs by Mr Newman.
   [7] In 1991 Mr Grimm became engaged to marry Ms Aurora Lombardi. At that time he was living in rented accommodation. They decided that they should buy a house in London. On 24 September 1991 Mr Ott wrote to Mr Newman informing him that the marriage was to take place on 29 September 1991. He continued:

   [8] Mr Newman replied the following day in these terms:

   [9] The next day, 26 September, Mr Grimm spoke to Mr Newman's assistant, Ms Alicia Shaw, concerning the advice Mr Newman had given. Her note records:

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   [10] The marriage duly took place on 29 September 1991. On 18 October 1991 Mr Grimm signed a letter addressed to his wife, stating:

Such transfers actually took place on 15 November 1991 to the value of $US685,000 and on 31 January 1992 to a value of $US100,000. It is common ground that such transfers, coupled with the declaration of intention contained in the letter of 18 October 1991, were valid and effectual to transfer the absolute beneficial ownership in the investments subject thereto from Mr Grimm to Mrs Grimm.
   [11] On 23 October 1991 Mr Ott wrote again to Mr Newman. He recorded:

   [12] Mr Newman replied to Mr Ott on 30 October 1991 in the following terms:

As the judge recorded, the size of the gift was relevant to United States, not United Kingdom, tax law.
   [13] On 2 January 1992 there was a telephone conversation between Mr Grimm and Mr Newman. The contemporaneous note of the latter records that:

   [14] On 1 February 1992 Mrs Grimm wrote to Prudential Bache Securities requesting them to transfer to her account with First National Bank of Boston (FNBB) in Guernsey $US786,000 from the proceeds of sale of the investments given to her by Mr Grimm. She also asked for any funds remaining to be transferred to Mr Grimm's account with Prudential Bache.
   [15] The contract for Mr and Mrs Grimm to purchase Templewood Lodge was made on 24 February 1992. On 19 March 1992 FNBB Guernsey, on Mrs Grimm's instructions, converted the balance of $US786,000 with accrued interest into £454,763‡23 and remitted £386,983 to the solicitors acting for Mr and Mrs Grimm in connection with the purchase of Templewood Lodge. The purchase was completed by a transfer dated 20 March 1992 to Mr and Mrs Grimm as 'joint tenants beneficially entitled'.
   [16] Mr Grimm's tax return of the year ended 5 April 1992 contained no details of the gifts to Mrs Grimm and their subsequent application by her because, as Mr Newman said in his letter to Mr Grimm dated 29 October 1992, 'as this was a gift purely out of capital there is no need to report this to the Inland Revenue'. In an earlier letter to Mr Grimm dated 14 October 1992 he had expressed the opinion that, as none of Mr Grimm's overseas income had been remitted to the United Kingdom, there was no need to report the details.
   [17] On 13 October 1993 the inspector of taxes wrote to Chantrey Vellacott concerning Mr Grimm's holding and disposal of certain shares in Vitol. He referred to a potential Sch E liability and the fact that capital gains in respect of Mr Grimm's foreign assets were assessable on a remittance basis. He noted that Mr Grimm had bought his present residence on 20 March 1992 before the remittance of the proceeds of sale of those shares and asked for details of the purchase price of the house, how it was financed including details of the source72 of the cash required and the relevant dates. These and other details were provided by Mr Newman in subsequent correspondence with the Inland Revenue.
   [18] On 24 November 1997 Mr Newman, on behalf of Mr Grimm, sought the advice of counsel on the issues arising between Mr Grimm and the Inland Revenue. The principal issues arose out of the dual employment of Mr Grimm by Vitol. With regard to the acquisition of Templewood Lodge Mr Newman's note records:

   [19] On 10 February 1998 there was a meeting between Mr Newman and officers of the Inland Revenue for the purpose of ascertaining if a settlement of all outstanding issues could be achieved. After subsequent negotiations, an agreement was reached in March 1999 whereby the Inland Revenue accepted from Mr Grimm £648,720 in respect of tax due and £27,000 in respect of interest and penalties. The tax due, as acknowledged by Mr Grimm, included £160,953 for tax under Sch E for 1991/1992 of which £90,953 was in respect of Case III of Sch E tax arising from remittances via Mrs Grimm, ie in connection with the purchase of Templewood Lodge.

THE PROCEEDINGS
   [20] These proceedings were commenced on 9 August 2000. In para 9 of the particulars of claim Mr Grimm alleged that he made the gifts to his wife in reliance on the advice of Mr Newman and Ms Shaw to which I have referred in [8], [9], above. In para 15 Mr Grimm alleged that he and Mrs Grimm proceeded with the purchase of Templewood Lodge in reliance on the advice of Mr Newman to which I have referred in [12], above. In paras 24 and 25 Mr Grimm alleged in conventional terms the duties of skill and care owed by Mr Newman and Chantrey Vellacott. Paragraph 26 contains the particulars of the alleged breach of duty in 13 sub-paragraphs. In one form or another they assert that the advice given by Mr Newman was wrong in law. In sub-para (3) it is asserted that:

It was not alleged that Mr Newman should have advised Mr Grimm that, even if his advice was right in law, to follow it would be likely to attract a claim from73 the Inland Revenue which would be costly to resist. In para 36(2) Mr Grimm alleged:

   [21] In their defence the defendants maintained in para 15 that the advice given was correct and/or was advice which a reasonably competent accountant could and/or would have given. On 24 October 2000 the defendants sought further information in connection with, amongst other paragraphs of the particulars of claim, para 26. They asked:

   [22] The answers provided on 15 November 2000 were as follows:

   [23] Thus the case for Mr Grimm was that the advice given was wrong in law, that he should have been so advised and that had he been so advised he would not have made the gift at all, he would have bought another house for half the price, or he would have paid for a more expensive house from resources on which United Kingdom tax had already been paid. It was not then suggested that Mr Newman should have advised Mr Grimm to adopt some other scheme which would not have attracted a liability to United Kingdom tax. During the course of the hearing it was suggested that there were alternative schemes under which a house might be bought with the foreign emoluments through a non-resident trust or company. In addition reference was made to the possibility of Mr Grimm obtaining an offshore loan. But it was not until the end of the reply of counsel for Mr Grimm that any suggestion was made that Mrs Grimm should obtain an offshore back-to-back loan using the assets given to her by Mr Grimm for that purpose.
   [24] I shall refer to the judgment of Etherton J in greater detail later but for present purposes it is sufficient to note some of his conclusions. First, he considered that it was unnecessary and, in the absence of the Inland Revenue, 74undesirable to reach any conclusion whether or not the scheme advised by Mr Newman gave rise to a charge to tax. Second, he decided that the Inland Revenue had a strong case for contending that the transaction did give rise to a charge to tax under Case III of Sch E . Third, in failing to advise Mr Grimm to that effect and in failing to consider alternative schemes which would not give rise to a liability to United Kingdom tax the defendants were in breach of their contractual and tortious duties of care. Fourth, if full and proper advice had been given, Mr Grimm could and would have restructured the transaction in a way which would not have given rise to United Kingdom tax. Fifth, had he been so advised by Mr Newman, Mr Grimm would have proceeded with the purchase of a suitable house in London without giving rise to United Kingdom tax by means of a gift to Mrs Grimm of his overseas assets and the use by her of those assets as security for an offshore loan to her for use in the purchase of the property. Sixth, the loss caused by that negligence was the full amount of the tax incurred together with interest thereon.

TAXATION OF FOREIGN INCOME OR GAINS
   [25] The relevant provisions are those in force in 1991/1992. It is to those that I refer, though I do not understand that the provisions now in force are substantially different. Tax is chargeable under Sch E in respect of any office or employment on emoluments therefrom under three cases. Cases I and II do not apply to emoluments of a person not domiciled in the United Kingdom from an office or employment under which his duties are to be performed wholly outside the United Kingdom. Tax is charged under Case III on-

   [26] What constitutes such a receipt is provided for in s 132(5) of the Income and Corporation Taxes Act 1988 in the following terms:

   [27] Section 65 is directly concerned with tax chargeable under Cases IV and V of Sch D, namely 'tax in respect of income arising from securities out of the United Kingdom except such income as is charged under Schedule C' and 'tax in respect of income arising from possessions out of the United Kingdom not being income consisting of emoluments of any office or employment'. Section 59(1) provides for the tax on such income to be paid by 'the persons receiving or entitled to the income in respect of which the tax is directed by the Income Tax Acts to be charged'. Section 65(1)-(3) provide for the computation of tax payable under those cases except where, as provided for by s 65(4), the person concerned 'is not domiciled in the United Kingdom' or 'being a Commonwealth citizen or a citizen of the Republic of Ireland, he is not ordinarily resident in the United Kingdom'.
   [28] In cases to which s 65(4) applies it is provided by s 65(5) that tax shall be computed-

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   [29] Section 65(6)-(9), which by virtue of s 132(5) apply to foreign emoluments as they apply foreign income, deal with cases in which foreign income is used to back loans to the person entitled to the income. They provide, so far as relevant, as follows:

   [30] By virtue of s 14 of the Capital Gains Tax Act 1979 a similar regime existed in relation to chargeable gains accruing to a person resident or ordinarily resident but not domiciled in the United Kingdom from the disposal of assets situated outside the United Kingdom. In such a case tax is chargeable 'on the amounts (if any) received in the United Kingdom in respect of those chargeable gains, any such amounts being treated as gains accruing when they are received in the United Kingdom' (see s 14(1)). Section 14(2) provides:

   [31] Thus in the case of foreign emoluments or capital gains the test of receipt is whether the emolument or amount in respect of the gain is 'paid, used or enjoyed in, or in any manner or form transmitted or brought to, the United Kingdom'. See s 132(5) of the 1988 Act and s 14(2) of the 1979 Act. In the case of income from foreign possessions taxable under Case V of Sch D the test is whether actual sums have been received in the United Kingdom from 'remittances payable in the United Kingdom, or from property imported, or from money or value arising from property not imported, or from money or value ... brought or to be brought into the United Kingdom'. See s 65(5) of the 1988 Act. In all three cases s 65(6)-(9) of the 1988 Act apply where the person entitled to the foreign emoluments, income or chargeable gains applies them in connection with a loan to himself.
   [32] By 1991 there had been four reported cases relevant to the advice Mr Newman gave to Mr Grimm. In chronological order they are Timpson's Exors v Yerbury [1936] 1 All ER 186, [1936] 1 KB 645, Carter (Inspector of Taxes) v Sharon [1936] 1 All ER 720, Thomson (Inspector of Taxes) v Moyse [1960] 3 All ER 684, [1961] AC 967 and Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945, [1974] 1 WLR 325. The first three concerned income from foreign possessions taxable under Case V of Sch D. Only the fourth is a decision directly on the application of the statutory predecessor of s 132(5) of the 1988 Act.
   [33] In Timpson's Exors v Yerbury [1936] 1 All ER 186, [1936] 1 KB 645 a resident in the United Kingdom was the life tenant under a trust administered in accordance with the law of the state of New York. She directed the trustees to pay out of the income to which she was entitled allowances to her children resident in England. The payments were made by way of bills of exchange drawn on London, payable to the child in question and posted to such child or his or her banker. She was assessed to tax in the United Kingdom on the amount of those allowances on the ground that they were her income and had been remitted to the United Kingdom. The assessment was upheld by the Court of Appeal on the ground that the income represented by the bills of exchange was income to which the life tenant was entitled, though not received by her, when it came to the United Kingdom because the gift to the children was not complete prior to77 collection of the proceeds of the bills of exchange in the United Kingdom. Accordingly she was liable for tax under the predecessor of s 59 of the 1988 Act on the basis of entitlement not receipt. The Court of Appeal left open the question of liability if the gift had been completed outside the United Kingdom. That was the issue determined in Carter (Inspector of Taxes) v Sharon [1936] 1 All ER 720.
   [34] In that case a person domiciled in the United States but resident in England paid allowances to her daughter resident in England out of the income of her investments in the United States. The method of payment was by means of a banker's draft drawn on a London bank payable to the daughter and posted to her in California. The banker's draft was bought by the mother's bank in California and debited to her account. The mother was assessed to tax under Case V of Sch D on the amount of the allowances. The assessment was discharged by the Special Commissioners and, on appeal, by Lawrence J.
   [35] The Special Commissioners held that the gift to the daughter was completed in California, at the latest, when the banker's draft was posted to her on her mother's instructions. The judge concluded that the predecessors of ss 59 and 65(5) of the 1988 Act only applied to income from foreign possessions which is either received by the taxpayer in the United Kingdom or to which he is entitled at the time it comes to the United Kingdom. He specifically rejected the argument for the Crown that if the subject matter of the gift comes to the United Kingdom by direction of the taxpayer it is received by the taxpayer. Thus, for the purposes of Case V of Sch D, if there is a gift of foreign income completed outside the United Kingdom the donee may remit the subject matter or any other property representing it to the United Kingdom without a liability to United Kingdom tax being imposed on either the donor or the donee.
   [36] Thomson (Inspector of Taxes) v Moyse [1960] 3 All ER 684, [1961] AC 967 concerned a British subject resident in England but domiciled in the United States. He was the life tenant of trusts under the wills of both his father and his mother administered in accordance with the law of the state of New York. The income of the trusts was paid in United States dollars into the beneficiary's bank account with a bank in New York. The beneficiary drew cheques on that account in favour of banks in England and instructed them to convert them into sterling and credit the sterling equivalent to the beneficiary's account with that bank. The English bank sold the United States dollars to the Bank of England, as required by the Exchange Control legislation then in force, and credited the proceeds of sale in sterling to the beneficiary's account in England. The beneficiary was assessed to tax under Case V of Sch D. The Special Commissioners discharged the assessments on the grounds that the American income had not been brought into the United Kingdom. Their decision was upheld by Wynn-Parry J ([1958] 3 All ER 225, [1958] 1 WLR 1063) and a majority of the Court of Appeal ([1959] 1 All ER 660, [1959] Ch 464).
   [37] The House of Lords ([1960] 3 All ER 684, [1961] AC 967) disagreed and reinstated the assessments. Lords Reid and Denning considered that the beneficiary had received sums 'from money or value arising from property not imported' within the third category of receipt for which the predecessor of s 65(4) provided. Lord Radcliffe, with whom Viscount Simonds and Lord Cohen agreed, held that the beneficiary was liable for the tax claimed but on somewhat wider grounds. He said:

   [38] With reference to the predecessor of s 65(5) of the 1988 Act Lord Radcliffe added:

   [39] In Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945, [1974] 1 WLR 325 the taxpayer was domiciled in South Africa but resident in England. Before he came to England he arranged for the incorporation of two companies, Artemis Ltd and Lodestar Ltd. Artemis was controlled by the taxpayer but Lodestar, in which he had no interest, was controlled by his business associates. The taxpayer arranged for his foreign emoluments to be applied in the subscription of shares in Artemis, the subscription moneys were lent by Artemis to Lodestar which lent them to the taxpayer in England. The taxpayer was assessed on the amounts of the loans from Lodestar under Case III of Sch E. The assessment was upheld by the Special Commissioners. They found that all the transactions were parts of a pre-ordained plan and that the taxpayer had received79 foreign emoluments in the United Kingdom to the extent of the loans from Lodestar.
   [40] The decision of the Special Commissioners was upheld by Templeman J on two grounds, first, that as the sums lent by Lodestar to the taxpayer were traceable to the taxpayer's foreign emoluments the latter were received by him in the United Kingdom and, second, the emoluments were used, enjoyed in and transmitted to the United Kingdom within the meaning of the predecessor of s 132(5) of the 1988 Act so as to constitute receipt.
   [41] With regard to the first ground Templeman J said:

   [42] With regard to the second ground, after referring to the speech of Lord Radcliffe in Thomson v Moyse, Templeman J said:

WAS THE ADVICE OF MR NEWMAN CORRECT IN LAW?
   [43] In his judgment ([2002] STC 84), Etherton J said:

   [44] Counsel for Mr Newman and Chantrey Vellacott submitted that the judge was wrong in this respect. They pointed out, as the judge had correctly observed, that the issue between the parties was whether or not the advice given was correct in law. The case for Mr Grimm was conducted throughout on the footing that it was not; not that, if right, Mr Grimm should have been warned of problems he might face in satisfying the Inland Revenue to that effect. Further they drew attention to the fact that the judge had no such reservation in relation to the alternative scheme which he considered would not have given rise to a liability to tax in the United Kingdom. They did not question the validity of the considerations which led the judge to avoid deciding this issue but contended that they were inadequate. Counsel for Mr Grimm conceded that it would have been more satisfying if the judge had decided on the validity of Mr Newman's advice and urged us to do so.
   [45] Like the judge I too am reluctant to decide a point of such potential importance in the absence of the Inland Revenue and in the knowledge of its possible impact on the tax planning of others. Nevertheless it is not possible to avoid a decision on whether or not the advice of Mr Newman was correct in law for that was and is precisely the issue between the parties. Further if the efficacy of the alternative scheme is relevant, which it is, then a decision on the soundness, as a matter of law, of the original advice is necessary too. Those who may read this judgment must bear in mind that we have not heard any argument from the Inland Revenue and the conclusion we reach relates to the efficacy of advice given in 1991. They must consider for themselves the extent to which they may safely rely on our decision in arranging their affairs now.

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   [46] Though Etherton J did not decide in terms whether the advice of Mr Newman was correct as a matter of law it is plain from the terms of his judgment what his conclusion would have been. Accordingly I should refer to his reasoning and conclusion.
   [47] He considered (at [62]) that Mr and Mrs Grimm acquired Templewood Lodge as beneficial joint tenants and (at [63]) that as between Mr and Mrs Grimm the liability to repay the mortgage loan of £300,000 was that of Mr Grimm alone. He continued (at [64]):

   [48] The judge then considered the effect of various publications from the Inland Revenue and others and concluded (at [68]):

He added (at [69]):

   [49] The judge then dealt with a number of matters no longer in issue. They were that neither the knowledge and experience of Mr Grimm nor the co-ordinating role of Mr Ott qualified the unambiguous nature of the advice Mr Newman gave. The judge found as a fact that both Mr Grimm and Mr Ott reasonably believed that if Mr Grimm acted as advised in the letters of 22 and 30 October 1991 no taxable remittance would be involved. He acquitted Mr Newman (at [76]) of any breach of duty in failing to advise Mr Grimm not to fund the acquisition of his interest by means of the mortgage loan for £300,000 and found as a fact (at [77]) that Mrs Grimm's contribution was of half the purchase price and related expenses and not more. In relation to the warnings against 'reciprocity' contained in the letters of 25 September and 30 October 1991 and the telephone conversation on 26 September 1991 he said (at [78]):

   [50] Etherton J concluded (at [79]):

   [51] The submission of the defendants is that the completed gift abroad by Mr Grimm to Mrs Grimm of the investments with which she later funded the acquisition of her interest in Templewood Lodge precludes any constructive remittance for the purposes of Case III of Sch E, Case V of Sch D or s 14 of the 1979 Act . They rely on the decisions in Timpson's Exors v Yerbury [1936] 1 All ER 186, [1936] 1 KB 645 and Carter (Inspector of Taxes) v Sharon [1936] 1 All ER 720, particularly the latter. They contend that such investments in the beneficial ownership of Mrs Grimm lost their characteristics of income or chargeable gains of Mr Grimm.
   [52] The defendants point out that Carter v Sharon was not cited in Harmel v Wright. They distinguish the latter on the grounds that there was no gift to another and, in this case, the recipient in the United Kingdom was Mrs Grimm83 not Mr Grimm. They submit that in this case it is not possible to stigmatise the intermediate transactions as a 'conduit pipe' as it ran between different persons and, as far as Mr Grimm is concerned, what was put in by him was different in kind to any conceivable use or enjoyment by him which came out. They rely on the speech of Lord Radcliffe in Thomson (Inspector of Taxes) v Moyse [1960] 3 All ER 684, [1961] AC 967 as demonstrating that what must be received in the United Kingdom is the financial equivalent to the foreign income or chargeable gain.
   [53] The case for Mr Grimm in this court is not the same as that advanced before Etherton J. It is clear from the passage from the judgment of Etherton J ([2002] STC 84 at [64]), which I have quoted in [47], above, that the case before him which, in effect, he accepted was that the constructive remittance by Mr Grimm arose out of his proprietary interest in Templewood Lodge which carried with it a right of physical occupation and the potential accrual of Mrs Grimm's interest by survivorship. In this court in both the written and oral argument of counsel Mr Grimm relied on the remittance made on 19 March 1992 by FNBB Guernsey, on the instructions of Mrs Grimm, of £386,983 to the solicitors acting for Mr and Mrs Grimm to be applied by them on completion of the purchase.
   [54] Counsel for Mr Grimm contend that the money so received by the solicitors may be clearly traced from and identified with the foreign emoluments or income of Mr Grimm. They claim that in consequence the foreign emoluments of Mr Grimm were 'paid [to], used or enjoyed in, or in any manner or form transmitted or brought to the United Kingdom' by Mr Grimm. In this connection they rely on Harmel v Wright. In addition they point out that the gift was part of a pre-arranged tax avoidance scheme in which Mr Grimm evidently expected, with justification, that his new wife would use the gift to buy her interest in Templewood Lodge. In this connection they point to the dictum of Lord Nicholls of Birkenhead in MacNiven (Inspector of Taxes) v Westmoreland Investments Ltd [2001] UKHL 6 at [2], [2001] 1 All ER 865 at [2], [2001] 2 WLR 377 that WT Ramsay Ltd v IRC, Eilbeck (Inspector of Taxes) v Rawling [1981] 1 All ER 865, [1982] AC 300-

   [55] It is also necessary to mention the second and third points to which Lord Nicholls referred. The second is to the effect that the first point does not entitle the court to treat the transaction or any step in it as a sham or to go behind it in search of some supposed underlying substance. Rather it enables 'the court to look at a document or transaction in the context in which it properly belongs' (see [2001] 1 All ER 865 at [4]). The third point is that having identified the legal nature of the transaction the courts 'must then relate this to the language of the statute' (see [5]).
   [56] Counsel for Mr Grimm accepted that if there had been no pre-arrangement for the application of the gift then the principle of Carter v Sharon, which they did84 not dispute, would have applied so that any subsequent application by Mrs Grimm such as occurred in this case would not have constituted a constructive remittance.
   [57] I prefer the arguments for the defendants. First, it is not suggested that the gift by Mr Grimm in favour of Mrs Grimm was not perfected in the United States at the time the transfers to her were made. Nor is it suggested that Mr Grimm retained any beneficial interest therein or contractual right of control over the property he gave to Mrs Grimm. Thus in February 1992 the investments were the absolute property of Mrs Grimm for her to do with them what she willed. On the basis of Carter v Sharon, at that stage the investments lost the characteristics which made them potentially liable to United Kingdom tax in the hands of Mr Grimm.
   [58] Second, the passages in the speech of Lord Radcliffe in Thomson v Moyse to which I have drawn attention do point to the need for monetary or financial equivalence between the foreign income or emolument and that which is received, used or enjoyed in the United Kingdom. Mr Grimm did not receive, use or enjoy the monetary or financial equivalent of what he gave. Nor did he transmit the proceeds of sale of the investments to the United Kingdom.
   [59] Third, the analogy with Harmel v Wright is false. In that case the taxpayer received from Lodestar the monetary equivalent of what he had disposed of to Artemis. The original disposer and ultimate recipient was the same and the 'conduit pipe' through which the money was poured readily identifiable.
   [60] Fourth, the real issue, as it seems to me, is whether the legislation dealing with constructive remittances entitles the court to treat husband and wife as the same person. In my view it does not. In many contexts specific provision is made to that effect. But in the context of constructive remittances there is no such provision in the legislation and, in my view, none can be implied. Likewise, there is nothing in the Ramsay principles as explained by Lord Nicholls in MacNiven's case [2001] 1 All ER 865 at [2] to justify any such treatment. If one considers the terms of s 132(5) of the 1988 Act or s 14 of the 1979 Act on the one hand or s 65(5)(b) of the 1988 Act on the other they apply to the acts, use and enjoyment of Mrs Grimm but not to those of her husband.
   [61] Fifth, the particular feature now relied on, namely the remittance by Mrs Grimm to the solicitors jointly instructed on the purchase of Templewood Lodge was made in the course of satisfying her joint and several obligation to the vendors. It was not a receipt by or on behalf of Mr Grimm in a several capacity; nor was there any use or enjoyment of the money by him in such a capacity. No doubt this is why it was not a point the Inland Revenue ever relied on.
   [62] I appreciate that I am reaching a conclusion different from that of counsel consulted by Mr Newman on behalf of Mr Grimm on 24 November 1997. He considered that it was not a pure gift because 'strings were attached to it' with the consequence that Carter v Sharon had no application. If by strings he meant that Mr Grimm retained some beneficial interest in or contractual control over the investments then his instructions were incorrect. If, on the other hand, he meant an expectation as to the use Mrs Grimm might put the gift, such as Lord Nicholls referred to in MacNiven's case (see [54], above), that could not, in my view, justify ignoring the gift to Mrs Grimm and its effect (see [55], above). Similarly I am reaching a conclusion at variance with that of the Inland Revenue. The basis of the Inland Revenue's claim, as set out in their letter of 21 August 1997, was that the remittance to Mrs Grimm was analogous to the use of company loans as in Harmel v Wright. For the reasons I have given I do not agree. In a letter of 19 January 1999 Mr Newman reported to Mr Grimm the outcome of his meeting85 with Mr Barker of the Inland Revenue Special Compliance Office held to discuss a 'without prejudice' offer to settle all the issues between the Inland Revenue and Mr Grimm. He said:

   [63] In my judgment the advice given by Mr Newman to Mr Grimm was correct as a matter of law. Thus I would reject the basis on which the case for Mr Grimm was advanced. As the judge recorded, no complaint was made of Mr Newman's conduct of the negotiations with the Inland Revenue by which the many and various claims of the Inland Revenue were compromised. It follows that I would allow the appeal and dismiss the claim. However in the absence of any argument from the Inland Revenue I ought to examine the other grounds on which the defendants rely.

SHOULD THE JUDGE HAVE ALLOWED MR GRIMM TO RELY ON THE ALTERNATIVE SCHEME?
   [64] It is necessary to approach this issue on the assumption that my conclusion on the correctness of Mr Newman's advice is wrong. Etherton J said ([2002] STC 84 at [82]):

Later (at [87]) Etherton J found that Mr Grimm 'would have purchased Templewood Lodge, or something slightly smaller and less expensive, but costing more than the amount of his contribution to the joint purchase of Templewood Lodge'. As he observed (at [88]): 'The issue which then arises is whether [Mr Grimm] could and would have purchased a property in a way that would not have given rise to tax.'
   [65] The judge then referred to the paucity of information as to what assets Mr Grimm held outside the United Kingdom and their derivation. He concluded (at [90]):

   [66] Etherton J (at [91]) rejected the suggestions, for a variety of reasons, that Mr Newman could or should have advised the purchase through offshore trustees or companies and continued:

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   [67] The judge recorded (at [92]) that, at the very end of his submissions in reply, counsel for Mr Grimm suggested a scheme whereby Mr Grimm would have given the investments to Mrs Grimm for her to deposit with a foreign bank as security for a back-to-back loan to be applied by her in the purchase of the house in London. He recorded (at [93]) that such a submission did not sit comfortably with the answers to the requests for further information to which I have referred in [22], above, and he recorded the protests of counsel for the defendants that there was no evidence as to the cost of such an arrangement nor as to any loan to value ratio.
   [68] Etherton J concluded (at [94]):

   [69] He concluded (at [95]) that such a scheme would have been implemented and would have been effective. He said:

   [70] Counsel for Mr Grimm contended before us that it was his case throughout the hearing before Etherton J that some alternative scheme would have worked. He suggested that there was no obligation to plead any specific alternative scheme for what was involved was an issue of law, but, if there was, all that was missing was a detail of the alternative scheme relied on which should be treated with more benevolence than a wholly new case. He suggested that the fault was that of the defendants. He submitted that counsel for the defendants should have objected to the consideration of any alternative scheme when the topic was broached by counsel for Mr Grimm in his opening submissions and should, consistently with CPR 16.5, have pleaded that no alternative scheme would work.
   [71] These are bold submissions. It was for Mr Grimm to plead and prove loss arising from reliance on negligent advice. When specifically asked for details of the advice he considered Mr Newman should have given, Mr Grimm made no reference to any alternative scheme. In those circumstances I do not see how the obligation imposed on a defendant by r 16.5(2) to state his own version of events could possibly arise. There was no relevant allegation to deny. The acquiescence of counsel for the defendants in counsel for Mr Grimm pursuing unpleaded allegations of which he had received adequate notice cannot be treated as acquiescence in the pursuit of allegations of which he had not. Furthermore, reference to the transcript demonstrates that, when the defendants' counsel first became aware of the detail of the alternative scheme at the end of the final submissions of Mr Grimm's counsel, he did indeed object at having to consider it.
   [72] Moreover this is not a 'mere pleading point'. There was no reference to this scheme in the evidence of the expert called by Mr Grimm. No reference to a back-to-back loan to Mrs Grimm on the security of the foreign investments was ever put to Mr Grimm or Mr Newman. Nor was there any evidence to indicate the likely terms of such a loan or whether Mrs Grimm was either willing or able to comply with them. Thus the essential factual elements on which the point of law might have arisen, namely what the reasonable tax adviser would have advised and whether the claimant would have implemented that advice, were never explored let alone established.
   [73] The judge was properly concerned not to put the parties to the delay and expense involved in any adjournment necessitated by an application for permission to amend if it could be avoided. Nevertheless, in my view, the course the judge took was impermissible. The allegation of the alternative scheme was inconsistent with the answer to the request for further information. The back-to-back loan scheme about which Mr Newman had been examined was a putative loan to Mr Grimm or other the taxpayer whose foreign assets or emoluments were to be used in the context of s 65(6)-(9) of the 1988 Act. He was not examined about a back-to-back loan to Mrs Grimm and the use by her of the proceeds in the purchase of a house in the United Kingdom. In my view the judge should not have allowed Mr Grimm to rely on this alternative scheme unless and until an application by him for permission to amend had been made and allowed.
   [74] Accordingly, on this ground too I would allow the appeal and discharge the judge's order. But it would be unsatisfactory to leave the matter there for, if88 the alternative scheme did work and I am wrong on the correctness of Mr Newman's advice, the proper course might be for us to consider such an application at this stage and, if allowed, to direct a new trial. In those circumstances it is necessary to consider whether the alternative scheme would have worked.

WOULD THE ALTERNATIVE SCHEME HAVE AVOIDED UNITED KINGDOM TAX?
   [75] Again this question must be approached on the footing that Mr Newman's original advice was wrong in law. This would be on the basis that the principle of Carter (Inspector of Taxes) v Sharon [1936] 1 All ER 720 did not apply because the funds used in the purchase of the house could be traced back to or identified with Mr Grimm's foreign asset or emoluments in accordance with Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945, [1974] 1 WLR 325, with or without assistance from the Ramsay principles (see WT Ramsay Ltd v IRC, Eilbeck (Inspector of Taxes) v Rawling [1981] 1 All ER 865, [1982] AC 300).
   [76] Counsel for Mr Grimm submitted that on the gift of the foreign assets to Mrs Grimm they lost their characteristics of foreign income or emoluments. Further he contended that such assets when charged by Mrs Grimm to the foreign lender would be seen to remain offshore, only the proceeds of the loan being remitted by Mrs Grimm to the United Kingdom. He accepted that the provisions of s 65(8) of the 1988 Act would apply only to a loan to Mr Grimm, not Mrs Grimm. In that connection he contended that, as those provisions are narrowly drawn to apply only to the person in whose hands the foreign assets or emoluments are taxable in the event of remittance to the United Kingdom, it is impermissible to apply the principles of Harmel v Wright or the Ramsay case to extend them to others.
   [77] I am unable to see any basis on which tax could be avoided by implementation of the alternative scheme on the assumption that it was properly payable under a scheme such as Mr Newman originally advised. First, the fact that s 65(8) applies to the person entitled to the foreign income or emoluments, not his or her spouse, does not by necessary implication exclude the identification of such foreign income or emoluments with the proceeds of the loan when remitted to the United Kingdom. A provision of limited application is not inconsistent with the application of other principles outside the sphere of its application. Second, the alternative scheme would be as much a pre-arranged tax avoidance scheme as that proposed by Mr Newman. If it is right to withhold the application of the principle of Carter v Sharon in the one case then it is just as right to do so in the other. Indeed the interposition of the offshore loan to Mrs Grimm might be regarded as a prime example of the insertion of an unnecessary step simply for tax reasons.
   [78] It follows that if we had been invited to entertain an application by Mr Grimm for permission to amend I would have refused it. In those circumstances there could have been no reason to order a new trial. But the consequence is also that Mr Grimm has failed to prove that the breach of duty by Mr Newman caused him any loss. Accordingly I would allow this appeal on the alternative ground that Mr Grimm sustained no loss by reason of Mr Newman's negligence.

COSTS
   [79] If the appeal is allowed then the order for costs of which complaint is made falls with the rest of the order. There is no need for me to deal with this issue.

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QUANTUM OF DAMAGES
   [80] Similarly the cross-appeal in respect of the judge's refusal to award damages in respect of the fees charged by Chantrey Vellacott for Mr Newman's initial advice or conduct of the negotiations with the Inland Revenue do not arise either. Nor is there any need for me to deal with those issues.

CONCLUSION
   [81] In these circumstances I would allow the appeal and discharge the order of Etherton J because either the advice of Mr Newman was correct in law or, if it was not, Mr Grimm failed to establish that he had sustained any loss by relying on it.

POTTER LJ.
   [82] I agree. I have however had the advantage of reading in draft the judgment of Carnwath LJ who differs upon the issue of negligence and, in these circumstances, I merely add a few words of explanation for preferring the reasoning of Sir Andrew Morritt V-C.
   [83] So far as Mr Newman's original advice was concerned, it seems to me plain from a study of the pleadings and the transcripts that the proceedings were conducted upon the basis that Mr Grimm roundly asserted that Mr Newman's advice that the scheme was effective for the purposes of avoiding United Kingdom tax was wrong, whereas the defendants' case was that it was correct. The flags of the parties were thus pinned to their respective masts, and the judge was invited to deal with the matter on that basis, until the allegation of negligence was expanded in the course of Mr Jefferis' final submissions on 12 October 2001. In these circumstances it seems to me that, not only should the judge have dealt with the issue of negligence on the basis pleaded, but he should have confined himself to it. It was always open to Mr Grimm to conduct the case on the basis which found favour with the judge, but he did not do so. The nearest the pleadings came to it was the averment pleaded as set out the judgment of Sir Andrew Morritt V-C (at [20], above). That did not relate specifically to the advice which it is alleged should have been given. In relation to that very question, at para 6(iii) of the defendants' request for further information dated 24 October 2000, they specifically asked: 'What advice do you allege the defendants should have given you, but failed to give you?', only to receive the reply:

The case was thereafter conducted on that basis.
   [84] It does not seem to me that this is a mere pleading point, contrary to the merits of the case. It is a point of substance because the issue of what effect the putative advice would have had was never explored in evidence and it may well have been that, given the defendants' view that the scheme propounded was effective, the risk of challenge by the Inland Revenue would have been taken by Mr Grimm in any event. Certainly the judge held specifically that, on the basis of Mr Grimm's evidence (and contrary to his pleaded case), had he been appropriately advised he would in any event have proceeded with the purchase of the house whether or not on the basis of the alternative scheme, because he wished to buy the house and had the (foreign) assets with which to do so.

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   [85] For these reasons I agree with the judgment of Sir Andrew Morritt V-C on the question of whether or not the case in negligence as put against the defendants was established. On that basis the issues raised in the cross-appeal do not need to be decided.

CARNWATH LJ.
   [86] I gratefully adopt Sir Andrew Morritt V-C's exposition of the facts and the course of the proceedings. For the reasons given, I agree that the appeal should succeed on the grounds relating to the alternative scheme. The judge should not have allowed the alternative scheme to be introduced; and, in any event, adoption of that scheme would not have improved Mr Grimm's chances of avoiding liability to tax on the gift. Where I differ, with respect, is in relation to the conclusion that negligence was not established. This does not affect the conclusion on the appeal, which is the most substantial aspect of the case. However, there is also a cross-appeal, which on this basis would have become a live issue.
   [87] The critical allegation, in my view, is that contained in para 26(3) of the particulars, which has already been quoted. The claimant's case did not depend simply on the contention that Mr Newman's advice was wrong in law. The alternative contention was that, whatever the courts might ultimately have been held to be the correct position in law, there was a significant likelihood that the Inland Revenue would claim tax, and would succeed. Implicit in that, as I read it, is the allegation that Mr Newman should have been aware of that risk, and taken it into account in his advice to his client. That alternative formulation expresses the practical reality that, whatever the position in strict law, most people prefer to avoid a battle through the courts with the Inland Revenue; and they expect their tax advisers to take reasonable steps to protect them from such an outcome.
   [88] The likelihood became fact. As soon as the Inland Revenue became aware of the circumstances surrounding the gift and the house purchase, they did claim tax, and they were successful in their claim. The legal position was not tested before the commissioners or the courts. But that was because (as alleged in paras 28-29 of the particulars of claim), Mr Grimm was given advice by counsel (Mr Peacock), which, with the concurrence of Mr Newman, led to him conceding the claim.
   [89] In those circumstances, it is small comfort to the claimant to be told by this court, some years later, that if he had fought it out, he would have succeeded. More importantly, in my view, it is irrelevant to the substance of the case on this formulation. The issue is not whether the advice would ultimately have been upheld, because that is not what happened. The issue is whether a reasonably skilful adviser, in Mr Newman's position, should have recognised the risk of what in fact occurred, and have advised his client accordingly.
   [90] I am conscious that the other members of the court take a different view of the way the case was developed. Sir Andrew Morritt V-C at [20], above, referring to para 26(3) of the particulars of claim, says:

I accept that this way of putting the matter was far from the forefront of the claimant's case, as developed before the judge. However, it was in my view91 sufficiently raised (at least implicitly) by the pleadings, and, having reviewed the transcript of the hearing, I do not think it can be said to have been abandoned.
   [91] For this reason, I think that the judge was entitled to treat this as a live issue, and to base his decision upon it. Having taken that course, and having regard to his subsequent findings, he was also entitled, in my view, to decline to express a concluded view on the tax point. This is not because of any qualms about deciding such an issue in the absence of the Inland Revenue, or because of its possible effects on other taxpayers. If such an issue arises on the case as pleaded, then it must be decided. However, the mere fact that the parties want it to be decided is not enough. On the pleadings, the judge was entitled, in my view, to approach the case on the alternative basis that there was a significant likelihood of the Inland Revenue making the claim, and being successful.
   [92] This way of looking at the case cannot, in my view, be avoided by casting doubt on Mr Peacock's advice, or on the adequacy of his instructions. That was not the way the case was put by the defendants at the hearing. This was not surprising, since it was Mr Newman who gave the instructions, and carried out the advice. In evidence, Mr Newman himself expressed his respect for the advice of counsel, and expanded on this in re-examination. Counsel seems to have taken the commonsense view that, whatever the theory, a tribunal would need convincing evidence (including some 'grilling' of Mr Grimm in cross-examination), before being persuaded that there were no 'strings attached' to the gift. After discussion, Mr Newman was evidently content to accept that view of the matter, and to act on it.
   [93] Nor did Mr Newman deny in cross-examination, that, if he had thought there were significant risks attached to the scheme, he would have been under a duty to advise of those risks. As I understand it, on this issue, the defendants had two main points: first, that the risks, if any, were reasonably perceived as not significant-'within the risks of normal life'-particularly having regard to the financial experience of both Mr Grimm and his American adviser; and, secondly, that the concession of the Inland Revenue's claim was part of a 'global settlement' and therefore not specifically attributable to the advice in relation to the gift.
   [94] The judge ([2002] STC 84) rejected both arguments, and in my view was entitled to do so on the evidence. On the first point, he held (at [68], [73], [74]) that the scheme 'stood a significant risk of giving rise to a charge to tax'; that the advice was unqualified, and the claimant, notwithstanding his financial experience, was entitled to treat it as such; and that none of the textbooks or other matters relied on by the defendants justified a reasonably skilful adviser giving such unqualified advice. On the second point, he found (at [100]) 'no cogent evidence' that the concession on the gift was accepted by the Inland Revenue as a reason for reducing other claims.
   [95] I accept that the above is a somewhat selective view of the proceedings. This simple way of expressing the case may not have emerged with great clarity from the pleadings, or from the claimant's submissions and evidence. On some aspects, his case had a chameleon-like quality, notably on the questions of what would have happened if he had been advised of the risk, what other points might have taken by the Inland Revenue to defeat the scheme, and what alternative schemes might have been more successful. However, as I have sought to explain, it was a view of the matter which was open to the judge on the pleadings. It is not excluded by a finding of law against the claimant on the tax point.
   [96] There remains the question whether a reasonably skilful adviser should have recognised the risk that the scheme would be subject to successful92 challenge. This does involve a consideration of the relevant statutory provisions and authorities, not as a matter of legal decision, but as they would have been perceived by a competent adviser at the time. Here again, I gratefully acknowledge the analysis of the statutory provisions and the four most relevant cases in the judgment of Sir Andrew Morritt V-C, including their relation to the most recent developments in the Ramsay line of authorities (see WT Ramsay Ltd v IRC, Eilbeck (Inspector of Taxes) v Rawling [1981] 1 All ER 865, [1982] AC 300). I am also grateful for the clarity of the arguments as presented to us by Mr Tallon QC and Mr Nugee QC (for the defendants and Mr Grimm respectively). In fairness to the judge, it is right to acknowledge that the emphasis of those legal arguments was rather different to that adopted below.
   [97] In the light of that analysis, I see the force of the view that, on the completion gift to the wife in America, the emoluments lost their character as such; and that accordingly there were no emoluments to remit, actually or constructively, to this country. I have two main concerns. The first relates to the width of the expression 'paid, used or enjoyed', as it appears in s 132(5) of the Income and Corporation Taxes Act 1988; the second, to the application of the Ramsay principle.
   [98] The precise meaning of the words 'used or enjoyed' in s 132(5) does not appear to have been considered in any reported case. That provision (as it appeared in the Finance Act 1956) did not form the basis of the decision in Harmel v Wright (Inspector of Taxes) [1974] 1 All ER 945, [1974] 1 WLR 325, although Templeman J referred to it as 'not inconsistent' with the result he had reached (see [1974] 1 All ER 945 at 953-954, [1974] 1 WLR 325 at 331). It is of interest that counsel for the Inland Revenue (Mr Vinelott QC, as he then was) did not submit that those words 'substantially altered' the effect of the earlier cases; but merely that they 'can shed light on and possibly give some small extension to the word "receipt"' (see [1974] 1 All ER 945 at 954, [1974] 1 WLR 325 at 331).
   [99] That limited view would have been consistent with the evidence of Mr Churchill, the claimant's expert witness in this case, based on his previous experience as a tax inspector, and his interpretation of the Inland Revenue's current instructions to its inspectors. He said that the word 'enjoyment' in s 132(5) 'would have been interpreted as economic enjoyment rather than personal enjoyment' (see report, para 5.7). The approach taken by the Inland Revenue in this case, which treated Mr Grimm's occupation of Templewood Lodge as 'enjoyment', was at odds with 'the official stated view that there must be financial consideration for a remittance to take place' (para 6.4).
   [100] Mr Tallon's submissions were to similar effect. He said that s 132(5) was 'concerned with turning the income which has arisen in one country into the expendable resources of its owner in the United Kingdom'. He illustrated this by two contrasting cases: in the first, a husband in the United States of America uses his emoluments to make a gift of a necklace to his wife, who then brings it to, and wears it in, the United Kingdom; in the second, the husband in the United States uses the emoluments to buy a pair of expensive cufflinks for himself, and then brings them to, and wears them in, the United Kingdom. The section would bite on the second but not the first. In the first, the necklace, by the time it reaches the United Kingdom, has ceased to represent 'an expendable resource' of the husband, even though he may enjoy seeing his wife wear it. In the second, on the other hand, the cufflinks arrive in the United Kingdom as 'an expendable resource' of his own (even if, I infer, he only bought them because his wife enjoyed seeing him wear expensive cufflinks).

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   [101] I find the example helpful, because it does focus attention on a crucial point. 'Enjoyment' by the husband is not enough to bring the section into play. The enjoyment must be of his 'emoluments', in some form. If the emoluments have been converted, by a valid gift, into a necklace belonging to his wife, there are no longer his emoluments, and are therefore not within the section. On the other hand, the illustration also underlines the difficulty, and potential artificiality, of applying such narrow distinctions in the context of dealings between husband and wife.
   [102] The second concern relates to the application in the present context of the Ramsay line of authorities, and requires a more detailed explanation. On the basis of the arguments presented to us, I would not, respectfully, dissent from the analysis, in the judgment of Sir Andrew Morritt V-C, of the facts of this case by reference to the most recent of those authorities, MacNiven (Inspector of Taxes) v Westmoreland Investments Ltd [2001] UKHL 6, [2001] 1 All ER 865, [2001] 2 WLR 377. In saying that, I have regard particularly to the speech of Lord Hoffmann, with which all their Lordships (including Lord Nicholls of Birkenhead) agreed.
   [103] Like Sir Andrew Morritt V-C, I would underline the point that we have not heard argument from the Inland Revenue. Furthermore, some (not least the judge in Harmel v Wright-see Lord Templeman 'Tax and the Taxpayer' (2001) 117 LQR 575) might regard the speeches in MacNiven's case, as representing a retreat from previous statements in their Lordships' House, including the classic statement by Lord Brightman in Furniss (Inspector of Taxes) v Dawson [1984] 1 All ER 530 at 543, [1984] AC 474 at 527. Lord Nicholls ([2001] 1 All ER 865 at [13]) himself arrived at his conclusion via a 'road to Damascus'. A careful tax adviser today would need to keep in mind the statements of Lord Steyn and Lord Cooke of Thorndon in IRC v McGuckian [1997] 3 All ER 817 at 825, 829-830, [1997] 1 WLR 991 at 1000, 1005 respectively, about the open-ended nature of the journey. It might be a mistake to regard MacNiven's case as representing the last word.
   [104] More significantly, as Sir Andrew Morritt V-C observes, we are concerned with the efficacy of advice given in 1991. The Ramsay principle was at a much earlier stage of its development. Interestingly, at that time the most recent case at in the House of Lords was Craven (Inspector of Taxes) v White, IRC v Bowater Property Developments Ltd, Baylis (Inspector of Taxes) v Gregory [1988] 3 All ER 495, [1989] AC 398, which might itself be regarded as marking an earlier phase of retrenchment. However, I do not think that the question in this case can be answered by an over-sophisticated analysis of the ebb and flow of judicial views as to the limits of the doctrine, over the years since the Ramsay case itself in 1982. What matters is how a reasonably careful tax adviser would have seen the position in 1991.
   [105] The way the case is put in the particulars of claim (para 26(4)) is as follows:

   [106] The judge did not comment specifically on this formulation, nor on the Ramsay line of cases, although Mr Newman was cross-examined about it. The judge ([2002] STC 84 at [78]) relied simply on the 'gloss' placed on the statute by Harmel v Wright. Nor was there any evidence that, in making their claim, the Inland Revenue had been relying on the Ramsay approach. Their case apparently was that the transfer of funds was analogous to the use of company loans in Harmel v Wright, and that the 'funds were remitted to the UK and enjoyed by [Mr Grimm] by way of purchase and occupancy of the UK home' (see the letter of 16 September 1996).
   [107] The Ramsay case was not mentioned by Mr Peacock in his advice. As I have said, he took the simple view that the gift had 'strings attached', and was not therefore within Carter v Sharon. There is no record of any more detailed discussion of the law. I agree with Mr Tallon that the 'strings', which Mr Peacock would have had in mind, were some form of obligation on the wife to put the funds towards the purchase of the house in the United Kingdom, sufficient to detract from the quality of the transfer as an absolute gift in America. In legal terms, the consequence would have been to move the facts across the narrow border between Carter v Sharon and Timpson's case (as already explained by Sir Andrew Morritt V-C). As in Timpson's case, the gift would not have been complete until its English purpose had been achieved.
   [108] Mr Tallon's simple answer to this is that there was no evidence before the judge, and no finding by him, that there were any such 'strings'. The judge directed his attention to the use made of the funds in England, but overlooked the fact that, by that time, they had ceased to be emoluments of Mr Grimm, and therefore were on the Carter v Sharon side of the border. That is fair comment on the evidence as it has emerged in this case, between two parties neither of whom, at the time of the Inland Revenue's inquiries, had any reason to suggest otherwise.
   [109] However, it is not the way it was seen by Mr Peacock at that time, and one can understand why. There was no contractual obligation on Mrs Grimm to use the funds towards the purchase of the house. But there was a clear expectation that she would do so, as part of what was a predetermined scheme. That is at least a sufficient starting point for a Ramsay analysis. As Lord Nicholls said (in the passage already referred to):

He is there summarising the essential (and controversial) rationale of the Ramsay doctrine, as explained for example by Lord Brightman in Furniss' case [1984] 1 All ER 530 at 542, [1984] AC 474 at 526):

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   [110] Of course, wearing MacNiven spectacles, one recognises that this is not the end of the analysis, for the reasons explained by Sir Andrew Morritt V-C. However, it may help to explain why Mr Peacock (advising some four years before MacNiven's case) might have been sceptical about Mr Newman's protestations that there were 'no strings', merely because there was no contractual obligation; or as to the prospects of maintaining this position in the face of strong cross-examination before the commissioners.
   [111] I am conscious that I must not read thoughts into the minds of those involved, beyond what is supported by the evidence. Whether or not such a Ramsay analysis underlay Mr Peacock's thinking is not in the end material. I come back to what seems to me the simple and correct view of the case. In the event, the scheme did not work, because counsel advised that it could not be defended. The reasons which led Mr Peacock to give that advice have not been criticised by Mr Newman. Nor did he give any reason why they should not have equally been in his mind, as a specialist adviser, in 1991. The proof of the pudding was in the eating.
   [112] Accordingly, in respectful disagreement with the other members of the court, and for somewhat different reasons, I would uphold the judge's finding of negligence.
   [113] Notwithstanding this difference, I am unable, for the reasons given by Sir Andrew Morritt V-C, to agree with the judge's view of the consequences of that negligence. There was no alternative scheme, and therefore fuller advice would not have led to the charge to tax being avoided. In theory, there remains the question whether any part of the claim subject to the cross-appeal should have been allowed. The answer to this is not straightforward, since the case before the judge proceeded on the footing that there was an alternative scheme; there were no clear findings as to how, if this had not been the case, the claimant would have reacted to fuller advice. On the majority view, this issue does not arise, and anything I say would be academic. I prefer therefore to express no view.