[HOUSE OF LORDS]

In re PRESTON

[On appeal from REGINA v. INLAND REVENUE COMMISSIONERS,

Ex parte PRESTON]

Judicial Review - Inland Revenue Commissioners - Abuse or excess of power - Taxpayer forgoing claims for tax relief on understanding that revenue inquiry closed - Revenue obtaining fresh information two years later - Tax advantage cancellation procedure initiated after further two years - Whether unfair to taxpayer - Whether decision open to judicial review as abuse of power - Income and Corporation Taxes Act 1970 (c. 10), s. 460

In 1978 an inspector in the special investigations section of the Inland Revenue informed the taxpayer that he did not intend to raise any further inquiries on his tax affairs if the taxpayer withdrew certain claims for interest relief and capital loss. The taxpayer withdrew the claims and paid capital gains tax on a transaction about which the inspector had been inquiring. Following the receipt of new information in October 1979 relating to the same transaction, the Inland Revenue Commissioners concluded that the taxpayer had received from the transaction a tax advantage of a kind to which section 460 of the Income and Corporation Taxes Act 1970 applied, and in July 1982 they issued the taxpayer with a request for further information. On 14 September 1982 the Inland Revenue

Commissioners gave the taxpayer formal notification initiating the procedure under section 460 of the Act of 1970 for the cancellation of a tax advantage. On an application by the taxpayer for a judicial review of the notification, the judge held that the commissioners had acted unlawfully. On appeal by the commissioners, the Court of Appeal allowed the appeal.

On appeal by the taxpayer:-

Held, dismissing the appeal, that the Inland Revenue Commissioners were amenable to the process of judicial review and a taxpayer could challenge a decision taken by the commissioners in exercising their statutory powers and duties if he could show that they had failed to discharge their statutory duty towards him or that they had abused their powers or acted ultra vires; that unfairness in the purported exercise of a power could amount to an abuse or excess of power if it could be shown that the commissioners had been guilty of conduct equivalent to a breach of contract or breach of representation but that in the circumstances the taxpayer had failed to discharge the burden placed upon him (post, pp. 851B-C, E-H, 852H - 853B,D-F, 862F-G, 864F-G, 866H - 867C, 870H - 871A).

Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617, H.L.(E.) and H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170, C.A. applied.

Per curiam. (i) Judicial review should not be granted where an alternative remedy is available (post, pp. 852C-E, 862C).

(ii) A taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties including their duties under section 460 to make an assessment and to enforce a liability to tax. The court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair (post, p. 864D-F).

Decision of the Court of Appeal, post, p. 840C; [1984] 3 W.L.R. 945; [1984] 3 All E.R. 625 affirmed.

The following cases are referred to in their Lordships' opinions:

Congreve v. Home Office [1976] Q.B. 629; [1976] 2 W.L.R. 291; [1976] 1 All E.R. 697, Phillips J. and C.A.

Council of Civil Service Unions v. Minister for the Civil Service [1985] A.C. 374; [1984] 3 W.L.R. 1174; [1984] 3 All E.R. 935, H.L.(E.)

Edwards v. Bairstow [1956] A.C. 14; [1955] 3 W.L.R. 410; [1955] 3 All E.R. 48, H.L.(E.)

H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170, Mocatta J. and C.A.

Inland Revenue Commissioners v. Garvin [1981] 1 W.L.R. 793; 55 T.C. 24, H.L.(E.)

Laker Airways Ltd. v. Department of Trade [1977] Q.B. 643; [1977] 2 W.L.R. 234; [1977] 2 All E.R. 182, C.A.

Padfield v. Minister of Agriculture, Fisheries and Food [1968] A.C. 997; [1968] 2 W.L.R. 924; [1968] 1 All E.R. 694, C.A. and H.L.(E.)

Ramsay (W. T.) Ltd. v. Inland Revenue Commissioners [1982] A.C. 300; [1981] 2 W.L.R. 449; [1981] 1 All E.R. 865, H.L.(E.)

Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617; [1981] 2 W.L.R. 722; [1981] 2 All E.R. 93, H.L.(E.)

The following additional cases were cited in argument in the House of Lords:

Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223; [1947] 2 All E.R. 680, C.A.

Attorney-General of Hong Kong v. Ng Yuen Shiu [1983] 2 A.C. 629; [1983] 2 W.L.R. 735; [1983] 2 All E.R. 346, P.C.

Reg. v. Liverpool Corporation, Ex parte Liverpool Taxi Fleet Operators' Association [1972] 2 Q.B. 299; [1972] 2 W.L.R. 1262; [1972] 2 All E.R. 589, C.A.

Sebel Products Ltd. v. Customs and Excise Commissioners [1949] Ch. 409; [1949] 1 All E.R. 729

Vestey v. Inland Revenue Commissioners (No. 2) [1980] A.C. 1148; [1979] 3 W.L.R. 915; [1979] 3 All E.R. 976, H.L.(E.)

Wiseman v. Borneman [1971] A.C. 297; [1969] 3 W.L.R. 706; [1969] 3 All E.R. 275, H.L.(E.)

The following cases are referred to in the judgment of the Court of Appeal:

Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617; [1981] 2 W.L.R. 722; [1981] 2 All E.R. 93, H.L.(E.)

Reg. v. Inland Revenue Commissioners, Ex parte Rossminster Ltd. [1980] A.C. 952; [1980] 2 W.L.R. 1; [1980] 1 All E.R. 80, H.L.(E.)

Wiseman v. Borneman [1971] A.C. 297; [1969] 3 W.L.R. 706; [1969] 3 All E.R. 275, H.L.(E.)

The following additional cases were cited in argument in the Court of Appeal:

Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223; [1947] 2 All E.R. 680, C.A.

Sebel Products Ltd. v. Customs and Excise Commissioners [1949] Ch. 409; [1949] 1 All E.R. 729

APPEAL from Woolf J.

By notice of motion dated 8 December 1982 the applicant, Mr. Michael David Preston, applied for judicial review of (i) a notification to the applicant given on behalf of the Inland Revenue Commissioners pursuant to section 460(6) of the Income and Corporation Taxes Act 1970 and dated 14 September 1982, and (ii) a hearing and/or determination by the tribunal pursuant to section 460(7) of the Act. On 24 February 1983 Woolf J. ordered and declared that the Inland Revenue Commissioners were not entitled in the circumstances to exercise their powers pursuant to Part XVII of the Act of 1970 in respect of the acquisition in 1974 and subsequent disposal by the applicant of certain shares and that the commissioners' purported exercise of their powers in respect thereof was unlawful.

By notice of appeal dated 23 March 1983 the Inland Revenue Commissioners appealed on the grounds that (1) the judge erred in law in holding that the commissioners had a general discretion in exercising their functions under Part XVII of the Act of 1970; (2) alternatively, if they did have such a discretion, the material before the judge did not

support his conclusion that they had failed to have regard to any material consideration or otherwise acted outside their powers in respect of such functions; (3) in concluding that the commissioners had acted unreasonably the judge failed to apply the true tests; and (4) the judge's decision had the effect of nullifying the well established principle that the commissioners could not be estopped, by representations made by their officers, from carrying out their statutory functions.

The facts are stated in the judgment of Lawton L.J.

Charles Potter Q.C. and Alan Moses for the Inland Revenue Commissioners. The commissioners do not have a general discretion as to whether or not to invoke the anti-tax avoidance provisions of section 460 of the Income and Corporation Taxes Act 1970, but are under a duty to do so. Taxation is imposed by Parliament and not by executive discretion. Accordingly, the commissioners' decision to proceed against the taxpayer under section 460 is not subject to the controls of Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223. However, there is a managerial discretion which attaches to any administrative action and in so far as the commissioners did exercise some such discretion, the jurisdiction of the courts to interfere is limited to cases where the taxpayer shows either fraud or abuse of power: see Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617, 632, 637, 651.

There being no estoppel or question of breach of contract, the only case against the commissioners has to be based on abuse of power.

A taxpayer cannot, by any agreement with the commissioners or any official of the Inland Revenue, achieve a greater degree of immunity from section 460 than he could by obtaining clearance in advance under section 464; and immunity under section 464 is forfeited if information given is "not such as to make full and accurate disclosure of all facts and considerations ... which are material."

It is reasonable that a taxpayer should make a disclosure of all relevant matters that is full, clear and accurate. Should he fail to do so, it is not unreasonable for the commissioners, on discovering relevant matters, to take action to collect the taxes that Parliament has imposed in relation thereto.

The taxpayer cannot show that the commissioners acted unreasonably. His statements did not amount to a full, clear and accurate disclosure of all relevant matters; and had he obtained a "clearance" under section 464 in respect of the transactions, it is reasonable to suppose it would not have conferred immunity. The taxpayer should be in no better position where he did not even apply for a section 464 clearance.

Stanley Brodie Q.C. and Stephen Nathan for the taxpayer. However the case is put by the commissioners it is obvious that they should honour the agreement they made with the taxpayer. There is a distinction between the Inland Revenue merely expressing satisfaction with what they have seen of a taxpayer's affairs and the case where the taxpayer provides consideration for their agreement to close inquiries into his tax affairs.

The commissioners are not bound in law to proceed under section 460: it is a matter of discretion and when exercising that discretion the commissioners were obliged to take into account the fact of the agreement. It is accepted that there is a duty to collect tax, from which it follows that if the commissioners find facts which fall within section 460(1) in the ordinary case they must proceed, but consideration of later subsections shows that the commissioners have a discretion in deciding whether to exercise their powers under section 460. What section 460(1) does is identify the circumstances in which tax avoidance schemes shall be ineffective. Section 465 plainly envisages the gathering of information to enable the commissioners to decide whether to give notice under section 460(3). That the tax avoidance provisions contain powers and do not impose duties is put beyond argument by section 460(9).

But at whatever stage of the procedure the discretion arises, the commissioners ought not to go ahead and utilise their powers having come to an agreement with the taxpayer whereby he has given consideration in order to finalise his tax affairs. Unless there is some compelling circumstance for not honouring such an agreement, not to do so is prima facie a wrongful exercise of discretion. Further, in deciding whether to go back on such an agreement the commissioners must examine their own conduct and in the present case laches is a very relevant factor.

The duty of the commissioners to neutralise a tax advantage which statute does not allow is subject to, first, a managerial discretion and, secondly, a specific discretion whether to operate the section or not.

Quite apart from the tax collecting aspects the commissioners have to concern themselves with maintaining fairness and with not abusing their power. If they lead a taxpayer on and then for no good reason go back on an agreement that is an abuse of power which encourages rather than discourages tax evasion.

[Reference was made to Sebel Products Ltd. v. Customs and Excise Commissioners [1949] Ch. 409, 413 and Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617.]

It is accepted that one does have to distinguish between interfering with a management decision and investigating an abuse of statutory power. The taxpayer is not seeking an investigation of a management decision but is contending that it was not a proper exercise of power for the commissioners simply to ignore the special arrangement that had been arrived at.

Ordinarily the courts are not concerned with whether a civil servant has acted fairly or not, but if one has special circumstances which produce a situation where a certain course of action by a civil servant would be so unfair as to be manifestly unreasonable that is a matter which he ought to take into account and his failure to do so would bring the case within the principle of Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223.

Moses in reply. Section 460 and the sections following it provide a code which will protect the taxpayer if he follows it before entering into a scheme or finalising his tax affairs.

[LAWTON L.J. Do the commissioners maintain that if a taxpayer strikes a good managerial bargain with the commissioners, all matters having been argued out, and years later the commissioners open the whole matter up and deprive him of relief, the taxpayer has no remedy at all?]

It could be that the commissioners' performance of their duty was so oppressive that the court could intervene because it amounted to an abuse of their powers under the Wednesbury test.

It is accepted that the court can intervene in circumstances where performance of the duty under section 460 was so oppressive as to amount to an abuse of power.

31 July 1984. The following judgment was handed down.

LAWTON L.J. This is an appeal by the Inland Revenue Commissioners against a judgment of Woolf J. delivered on 24 February 1983 whereby he allowed an application by Mr. Michael David Preston for judicial review in respect of action taken by the commissioners against Mr. Preston under Part XVII of the Income and Corporation Taxes Act 1970 and made a declaration accordingly. The issue raised by this appeal is: did the commissioners in 1982 act lawfully towards Mr. Preston in making inquiries about his purchase and sale of some shares and by setting in motion the procedure for the cancellation of tax advantages provided for by Part XVII of the Act of 1970 when, in 1978, one of their inspectors had told him that he did not intend to make any further inquiries about his tax affairs and, in reliance on that statement, he had withdrawn two claims for relief and had paid capital gains tax on the transaction about which the inspector had asked questions?

On 10 April 1974 Mr. Preston acquired half the issued share capital of Gymboon Ltd., which had a share capital of £100 in £1 shares. On 1 February 1975 he sold 15.4 per cent. of his interest to purchasers who had already acquired the other half of the issued share capital. In September 1976 Gymboon Ltd. started trading, mainly in commodities. On 11 January 1977 Mr. Preston sold the remainder of his shares in Gymboon Ltd. to Broadforth Ltd. for £24,375. At that time Mr. Preston's shares were in the name of a nominee, Wingmead Securities Ltd.

At the beginning of May 1978 an inspector in the special investigations section of the Inland Revenue, named Thomas, wrote to Mr. Preston telling him that he would like to discuss with him his tax returns for the years 1975-76, 1976-77 and 1977-78. When Mr. Preston asked what particular matters he wanted to discuss, Mr. Thomas, by letter dated 18 May 1978, identified four. Three of these are relevant to this appeal: Mr. Preston's claims for relief for interest paid to Rossminster Acceptance Ltd., the loss he had claimed in respect of the sale and purchase of shares in Jurby Raven Ltd. and his transactions in the shares of Gymboon Ltd. By letter dated 24 May 1978 Mr. Preston gave Mr. Thomas some of the information for which he had asked. Towards the end of his letter came this paragraph:

"As things stand today it is not a matter of great concern to me whether or not I proceed with my claims for relief for interest or capital loss. What is most certainly of greater importance is that my taxation affairs are maintained on a current basis. Accordingly, without prejudice to any claim which may have to be made for interest relief or capital loss, I am prepared to forgo such claims for the years in question on the basis that by so doing I shall facilitate the agreement of my tax affairs."

On 25 May 1978 Mr. Preston and Mr. Thomas talked to one another on the telephone. In the course of that conversation Mr. Thomas told Mr. Preston that he wanted information about his purchase and sale of shares in Gymboon Ltd. and why the shares had risen so much in value between September 1976 and their sale in January 1977. The next day Mr. Thomas wrote to Mr. Preston recording what he, Mr. Preston, had said about being willing to withdraw his claims for relief for interest payments and the loss on his sale of shares in Jurby Raven Ltd. The letter continued:

"As stated on the telephone I should like the following factual information regarding the shares in Gymboon Ltd.: (a) full details of the acquisition and disposal of these shares, including the names and addresses of the person from whom they were acquired and to whom they were sold, the relevant dates and numbers of shares involved (b) a note of the circumstances in which the value of the shares increased so quickly between September 1976 and the date of disposal. What was the precise nature of Gymboon Ltd.'s business activities?"

By letter dated 23 June 1978 Mr. Preston gave Mr. Thomas details about the acquisition and sale of his Gymboon Ltd. shares. The information included the following:

"Gymboon Ltd.'s activity was that of a dealer in shares and commodities, the latter being traded on the London Metal Exchange, and it was as a result of the substantial profits generated by its dealings that the value of its shares increased as they did."

That information would not have amounted to such "full and accurate disclosure of all facts and considerations relating [to the transaction] which [were] material to be known to the Board" for the purposes of section 464 of the Act of 1970 had Mr. Preston tried to get the protection given by that section. By letter dated 21 July 1978 Mr. Thomas replied:

"... I have noted the information supplied regarding the shares in Gymboon Ltd. On receipt of your note formally withdrawing your claims to relief for interest paid to Rossminster Acceptance Ltd. during the two years ended 5 April 1976 and confirming that you are not pursuing the inclusion in the computation of your gains chargeable to capital gains tax a loss on the disposal of shares in Jurby Raven Ltd. I propose to return your tax papers to HM Inspector of Taxes North East 5 (London) as I do not intend to raise any further inquiries on your tax affairs."

By letter dated 28 July 1978 Mr. Preston wrote withdrawing his claims for relief. Thereafter he paid capital gains tax on the sale of his Gymboon Ltd. shares.

From about July 1979 onwards the Inland Revenue obtained more and more information about the tax avoidance schemes which had been drafted by persons connected with Rossminster Ltd. and sold by them to members of the public: see Reg. v. Inland Revenue Commissioners, Ex parte Rossminster Ltd. [1980] A.C. 952. Many of these schemes involved dividend stripping. One of the companies involved in these stripping activities was alleged by the Inland Revenue to be Broadforth Ltd., the company to which Mr. Preston had sold his Gymboon Ltd. shares. On 8 October 1979 the Inland Revenue received information which led them to suspect that Mr. Preston's sale of his shares in Gymboon Ltd. had been in the course of one or more of Rossminster Ltd.'s tax avoidance schemes. They also learned, but not from Mr. Preston, that the sale price of his Gymboon Ltd. shares, namely £24,373, had been based on an asset value which excluded a provision for corporation tax on Gymboon Ltd.'s profits. The Inland Revenue were of the opinion that the sale at this price had given Mr. Preston a tax advantage of a kind to which Part XVII of the Act of 1970 applied. The relevant provisions are set out in sections 460 to 465.

In my judgment, the information about Mr. Preston's purchase and sales of his Gymboon Ltd. shares which the Inland Revenue had in the summer of 1982 would, in the ordinary course of tax-collecting, have justified their deciding that Mr. Preston might be a person to whom section 460 of the Act of 1970 applied. He seemed to have had a transaction in securities with results coming within section 461 and there was reason for thinking that one of its main objects had been tax avoidance. Mr. Preston's case has been, however, that his was a special case because in reliance upon what he had been told by Mr. Thomas in his letter dated 21 July 1977 he had withdrawn his claims for relief and had paid capital gains tax on the sale price of the shares, and by mid-July 1982 it was too late for him to claim further relief under section 33 of the Taxes Management Act 1970.

Confident that Mr. Preston's case was a proper one for the cancellation of the suspected tax advantages gained through a tax avoidance scheme the Inland Revenue decided to apply section 460. Mr. Potter, on behalf of the commissioners, submitted that the Inland Revenue had a duty to do so. In Wiseman v. Borneman [1971] A.C. 297, 319 Lord Wilberforce had said that the Inland Revenue did have a duty to use the same provision which had been in the Finance Act 1960, section 28. Subsection (1) of section 460 sets out the circumstances in which a taxpayer is liable to have his tax advantages cancelled, concluding with the words "this section shall apply to him in respect of that transaction or those transactions." Section 460(3) provides:

"Where this section applies to a person in respect of any transaction or transactions, the tax advantage obtained or obtainable by him in consequence thereof shall be counteracted by such of the following adjustments, that is to say an assessment, the nullifying of a right to repayment or the requiring of the return of a repayment already

made (the amount to be returned being chargeable under Case VI of Schedule D and recoverable accordingly), or the computation or recomputation of profits or gains, or liability to tax, on such basis as the Board may specify by notice in writing served on him as being requisite for counteracting the tax advantage so obtained or obtainable."

Subsection (6), however, provides:

"The Board shall not give a notice under subsection (3) above until they have notified the person in question that they have reason to believe that this section may apply to him in respect of a transaction or transactions specified in the notification; ..."

Section 465 empowers the Inland Revenue to obtain information from the suspected taxpayer. It is an exploratory provision and is ancillary to section 460. It does not initiate the cancellation procedure as Woolf J. seemed to think it did. The taxpayer is given rights when the Inland Revenue take action under section 460 against him. The action stops if he can show that the suspected transactions were carried out for, inter alia, bona fide commercial reasons (see subsection (1)) and a special tribunal is available for him if the Inland Revenue is not willing to accept what he says about the suspected transaction: see subsection (7).

By a notice dated 26 July 1982 and issued by the Inland Revenue under section 465 Mr. Preston was required to furnish more information about Gymboon Ltd. and the sale of his Gymboon shares and to produce documents. By letter dated 29 July 1982 Mr. Preston reminded the Inland Revenue of what had happened in 1978. He provided a little more information, but not much. By letter dated 14 September 1982 the Inland Revenue sent him a formal notification under section 460(6) that they had reason to believe that the section applied to him in respect of the Gymboon Ltd. shares transaction. It was this notification which initiated the cancellation procedure and which, as I adjudge, the Inland Revenue had a duty to initiate having regard to the information they had received.

The decision to initiate the cancellation procedure was taken by a senior inspector named Hobson. In a statement by him which was put before Woolf J., and later verified by affidavit, he said:

"On 26 July 1982 I issued a notice under section 465 of the Act to the other shareholder, Mr. M. D. Preston. At that time I was aware of the correspondence [referred to by Mr. Preston]. I think I saw this correspondence in Mr. Preston's district file, but in any event copies of it were in a section file. I did not consider that this correspondence inhibited me in any way from initiating action under section 460 of the Act. That matter was not under consideration in 1978 and all the facts were not then known."

Woolf J. was of the opinion that the Inland Revenue "did not consider what happened in 1978 was relevant to their decision to take action in 1982." I do not share the judge's firm opinion about Mr. Hobson's statement. It can be understood as meaning that he did consider what had happened in 1978 but decided that the facts which

had been discovered later justified the initiation of the section 460 procedure. Having formed the opinion he did about Mr. Hobson's statement Woolf J. adjudged that the Inland Revenue had not, before initiating the section 460 procedure, considered factors which they should have considered. He went on to say that if he were wrong on this point their decision to proceed, which was an exercise of discretion, was unreasonable. Either way of looking at the case, in his judgment, justified an order for judicial review.

Through Mr. Potter the Inland Revenue attacked this judgment on two grounds: first, that such discretion as the Inland Revenue has in deciding to initiate the section 460 procedure is a managerial one and as such not subject to judicial review; and, secondly, that on the facts of this case the decision to initiate the procedure was not unreasonable.

Although the Inland Revenue have a duty to "collect and cause to be collected every part of inland revenue" (see section 13 of the Inland Revenue Regulation Act 1890 (53 & 54 Vict. c. 21)), they have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge the highest net return that is practicable having regard to staff available to them and the cost of collection: see Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617, 636, per Lord Diplock. Mr. Potter submitted that on the facts of this case the Inland Revenue were exercising their managerial function in deciding to proceed under section 460 and in consequence their decision was not subject to judicial review. In the National Federation case Lord Wilberforce said, at p. 635, that judicial review does not extend to call in question the exercise of management powers. Lord Wilberforce, however, also said, at p. 632, that the Inland Revenue Commissioners are not immune from the process of judicial review. In my judgment, the court can examine by way of judicial review the Inland Revenue's use of managerial discretion if, but only if, they have behaved in a way which amounts to an abuse of power. This the Inland Revenue, through their junior counsel, Mr. Moses, conceded. Having regard to the standards which the Inland Revenue have maintained for so long, cases of abuse of power are likely to be few, if any.

On the facts of this case Mr. Potter submitted that the decision to proceed under section 460 had been reasonable. In 1978 Mr. Preston had not made a "full and accurate disclosure" of all the relevant facts and circumstances relating to the sale of his Gymboon shares. Being a chartered accountant he must have appreciated that the sale price had been calculated by reference to the gross profits and not the net profits as it would have been had there been no tax avoidance scheme. Had he sought protection under the section 464 procedure he would not have got it. When, after July 1979, the Inland Revenue learned more about the transaction they were entitled to reconsider the arrangement made in 1978: see section 29(3) of the Taxes Management Act 1970. In the circumstances they did act reasonably.

In this court Mr. Brodie, on behalf of Mr. Preston, accepted that what had happened in 1978 did not amount either to the making of a contract which bound the Inland Revenue or to a promissory estoppel.

He submitted, however, that the Inland Revenue, when considering whether to start the section 460 procedure, had to weigh all the relevant factors, of which their own duty to behave fairly towards the taxpayer was an important one. This they had not done. They had regarded the events of 1978 as irrelevant. They knew Mr. Preston had withdrawn his claims for relief in reliance on Mr. Thomas's statement that he did not intend to raise any further queries about his tax affairs. Mr. Thomas had known in 1978 that the purchaser of Mr. Preston's shares, Broadforth Ltd., was a member of the Rossminster Group and a share dealing company. If he had had any suspicions then, and he might have had some, he should have asked more questions. The Inland Revenue had said that they knew by 8 October 1979 that Mr. Preston's shares had been sold in the course of a Rossminster tax avoidance scheme. Despite their knowledge the Inland Revenue did not take any action under section 460 until September 1982, by which date, as they must have known, it was too late for Mr. Preston to seek relief pursuant to section 33 of the Taxes Management Act 1970. All this, submitted Mr. Brodie, brought the behaviour of the Inland Revenue within the ambit of judicial review since they had failed to take into account a factor which they ought to have taken into account, that is to say, what had happened in 1978, and had behaved as no reasonable Commissioners of Inland Revenue should do. Mr. Brodie relied strongly on what Lord Scarman had said in the National Federation case [1982] A.C. 617, 650-652. Lord Scarman had said, at p. 651:

"The analysis of the statutory provisions is clearly correct. They establish a complex of duties and discretionary powers imposed and conferred in the interest of good management upon those whose duty it is to collect the income tax. But I do not accept that the principle of fairness in dealing with the affairs of taxpayers is a mere matter of desirable policy or moral obligation. Nor do I accept that the duty to collect 'every part of inland revenue' is a duty owed exclusively to the Crown."

At p. 652 comes this passage:

"The duty of fairness as between one taxpayer and another is clearly recognised in these (and other passages) in the modern case law. Is it a mere moral duty, a matter for policy but not a rule of law? If it be so, I do not understand why distinguished judges allow themselves to discuss the topic: they are concerned with law, not policy. And is it acceptable for the courts to leave matters of right and wrong, which give rise to genuine grievance and are justiciable in the sense that they may be decided and an effective remedy provided by the courts, to the mercy of policy? Are we in the twilight world of 'maladministration' where only Parliament and the Ombudsman may enter, or upon the commanding heights of the law? The courts have a role, long established, in the public law. They are available to the citizen who has a genuine grievance if he can show that it is one in respect of which prerogative relief is appropriate."

In my judgment, this passage in Lord Scarman's speech was obiter. As Mr. Potter pointed out, the other members of the appellate committee did not discuss the concept of fairness in the way that Lord Scarman had done. I do not infer that he was suggesting that every taxpayer who thinks that he has been treated unfairly by the Inland Revenue can apply for judicial review. The aggrieved taxpayer has statutory rights of appeal: see Part V of the Taxes Management Act 1970. In my opinion, this part of Lord Scarman's speech should be understood as meaning that the taxpayer's grievance, whatever it may be, must be "one in respect of which prerogative relief is appropriate" and that unfairness on the part of the Inland Revenue can be of such a degree as to make prerogative relief appropriate. Since prerogative relief is not appropriate for reviewing the exercise of managerial discretion, unfairness in the exercise of that discretion will only attract prerogative relief if it amounts to an abuse of power.

In my judgment, on the facts of this case the Inland Revenue when deciding to initiate section 460 procedure were exercising a managerial discretion. This being so it was not subject to judicial review unless what was done amounted to an abuse of power. There was no abuse of power in this case. The Inland Revenue's decision to proceed under section 460 was a reasonable one having regard to Mr. Preston's omission to make in 1978 as full a disclosure of the relevant facts as he could have done and the further facts which the Inland Revenue discovered after July 1979. The delay in initiating the procedure was not enough to make the decision an abuse of power.

I would allow the appeal.

GRIFFITHS L.J. I agree.

DILLON L.J. I, too, agree.

Solicitors: Solicitor of Inland Revenue; Landau & Scanlan.

C. N.

November 15. The Appeal Committee of the House of Lords (Lord Scarman, Lord Bridge of Harwich and Lord Brightman) allowed an appeal by the taxpayer for leave to appeal.

APPEAL from the Court of Appeal.

This was an appeal by the appellant, Michael David Preston, by leave of the House of Lords dated 15 November 1984, from the judgment dated 31 July 1984 of the Court of Appeal (Lawton, Griffiths and Dillon L.JJ.), ante p. 840C) allowing an appeal by the respondents, the Commissioners of Inland Revenue, from the judgment and order dated 24 February 1984, of Woolf J., making on the appellant's application for judicial review a declaration that the respondents' exercise

of powers pursuant to Part XVII of the Income and Corporation Taxes Act 1970 was unlawful.

The facts are set out in the opinion of Lord Templeman.

Stanley Brodie Q.C., Rex Bretten Q.C. and Stephen Nathan for the appellant. This is not a tax case but an administrative law case which raises a question concerning the lawful exercise of the powers of the Inland Revenue Commissioners. The question is whether the respondents could lawfully set in motion provisions relating to the cancellation of a tax advantage. Could the respondents do in 1982 what they expressly stated they would not do in 1978? There is no authority supporting the proposition that there is a doctrine of uberrimae fidei in relation to disclosures to the revenue. The arguments put forward by the respondents in the Court of Appeal were arguments brought in to justify the respondents' actions and were not taken into account at the relevant time.

As to the law, the relevant authorities are: Associated Provincial Picture Houses Ltd. v. Wednesbury Corporation [1948] 1 K.B. 223; Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617 and the recent decision of this House in Council of Civil Service Unions v. Minister for the Civil Service [1985] A.C. 374. H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170 is of assistance on the question of the duty of a public authority to act fairly and consistently. The above cases support the following propositions of law: (i) The respondents are not immune from the process of judicial review. They are an administrative body (like any other) with statutory duties which the courts in principle can supervise. A taxpayer would not be excluded from seeking judicial review if he could show that the respondents had either failed in their statutory duty towards him or had been guilty of some action which was an abuse of their power or outside their powers altogether: the Self-Employed case [1982] A.C. 617, 632C-E per Lord Wilberforce.

(ii) The respondents are charged by statute with the care, management and collection on behalf of the Crown of income tax, corporation tax and capital gains tax. In the exercise of these functions the board have a wide managerial discretion as to the best means of obtaining for the national exchequer from the taxes committed to their charge, the highest net return that is practicable having regard to the staff available to them and the task of collection: the Self-Employed case [1982] A.C. 617, 636G-H, per Lord Diplock; 651 et seq., per Lord Scarman.

(iii) There is a legal duty to deal fairly with the affairs of taxpayers, and of each individual taxpayer: the Self-Employed case [1982] A.C. 617, 651, per Lord Scarman and the cases cited in his speech at pp. 651-652; H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170.

(iv) The managerial discretion which the respondents have to exercise in the use of their statutory powers in discharge of their duties in the care, management and collection of the Inland Revenue, is no different in character and no less amenable to supervision by the courts than any other administrative discretion with which any public officer or authority may be invested for the purpose of discharging statutory duties. What

changes from case to case are the facts and surrounding circumstances in which a discretionary power has to be or comes to be exercised depending on the nature, purpose and subject matter of the statute and the factual context in which it was enacted. The description "managerial" which the House has applied to the administrative discretion which the respondents have to exercise, is apt given that their statutory powers are generally to be exercised in the care and management of the Inland Revenue. It was particularly apt in the context of the Self-Employed case [1982] A.C. 617 in which the respondents successfully repelled the attack made on the special arrangement they had made with the defaulting taxpayers on the footing that it represented a good management decision and a proper exercise of their statutory powers. Nonetheless though aptly described as a managerial discretion, that description does not in any way affect the principles to which a public officer or authority of the court must have regard in considering whether the discretion is being or has been improperly or unlawfully exercised. For this purpose there is no difference between the exercise of a managerial and an administrative discretion.

(v) In the present case the sections of the Income and Corporation Taxes Act 1970 contained in Part XVII, in particular sections 460 and 465, vest the respondents with discretionary powers which they are obliged to exercise in accordance with the conventional principles and the legal duty to deal fairly with the affairs of a taxpayer. Reliance is placed on the language of section 460(1), (3), (6), (7), and (9), and of section 465. In particular, section 460(9) provides: "No other provision contained in the Tax Acts shall be construed as limiting the powersconferred by this section ..." The observation of Lord Wilberforce in Wiseman v. Borneman [1971] A.C. 297, 319, to the effect that the respondents have a duty to operate the tax avoidance provisions in no way detracts from this submission. This observation is consistent with, but adds nothing to, the duty on the respondents to "collect and cause to be collected every part of inland revenue": Inland Revenue Regulation Act 1890, section 13(1).

A very recent decision of this House in Council of Civil Service Unions v. Minister for the Civil Service [1985] A.C. 374 shows the very wide ambit of the process of judicial review. The only reasons why the remedy was not granted in the circumstances of that case was because questions of national security were involved. The present case is a classic case for the application of judicial review where the citizen cannot rely on estoppel or breach of an undertaking but nevertheless it can be said that the public body in question has not acted fairly. Attorney General of Hong Kong v. Ng Yuen Shiu [1983] 2 A.C. 629 is authority for the proposition that prima facie for the Inland Revenue Commissioners to break the promise they made to the appellant is not to act fairly, unless they can show that they had good reasons for so acting. [Reference was made to Reg. v. Liverpool Corporation, Ex parte Liverpool Taxi Fleet Operators' Association [1972] 2 Q.B. 299, 307G, 309, 310C.]

Sebel Products Ltd. v. Customs and Excise Commissioners [1949] Ch. 409, 413 supports the proposition that where the Inland Revenue Commissioners do make an agreement as here, they may change their

minds if further facts are brought to their notice, but they should not do so lightly without very good reasons since they are an emanation of the Crown. The observations of Vaisey J. in Sebel are consistent with the duty to act fairly. On that assumption and on the assumption that there is a duty to honour agreements without there being an overriding public duty to the contrary, the next question is: how should the commissioners proceed if they do discover facts to that effect? The commissioners should notify the taxpayer that new circumstances have arisen which are such that there is an overriding public interest that they should not be held to the agreement. If they do not notify the taxpayer, two serious consequences follow: (i) the commissioners may be seen to be acting "sharply," or unfairly: (ii) unless the taxpayer knows the reasons why the agreement has been withdrawn he has no means of answering them.

D. C. Potter Q.C. and Alan Moses for the respondents. Section 460 of the Income and Corporation Taxes Act 1970 is mandatory and not discretionary. It is plain that there are three ingredients which are necessary before it can be put into operation, namely, there are circumstances, involving transactions in securities, resulting in the obtaining of a tax advantage. Subsection (1) contains a let out which is very important. Subsection (3) gives a very wide power to counteract the tax advantage. The safeguards are that a notice is not to be given under subsection (3) until a notification has been given under subsection (6) that the Board have reason to believe that the section may apply to the person in question in respect of a transaction or transactions specified in the notification. Section 460 imposes a tax liability. The Inland Revenue Commissioners are under a duty to collect tax. But this does not entail a duty to exact every penny from taxpayers. The duty is only inhibited on the principle of the Self-Employed case [1982] A.C. 617 if there has not been full disclosure. The expression "may make" where it appears in subsections (1) and (3) of the Taxes Management Act 1970 connotes a duty and not merely a power, otherwise the commissioners would have a discretion to tax persons; but the power of imposing taxation is entrusted to Parliament alone. It is emphasised that section 460 is mandatory. The reference to "powers" in section 460(9) does not make the provisions of section 460 discretionary. The commissioners have a duty to operate the tax avoidance provision: see Wiseman v. Borneman [1971] A.C. 297, 319D, per Lord Wilberforce.

It is conceded that the commissioners are amenable to the process of judicial review: the Self-Employed case [1982] A.C. 617. Judicial review would be available to a taxpayer if there had been an abuse of power. Merely because an action by the revenue is unfair does not make such action subject to judicial review. It is in this context that the Wednesbury

principle [1948] 1 K.B. 223 is applicable. Judicial review is available where there is gross unreasonableness. It is conceded that if the commissioners had made an agreement with the taxpayer where there had been full and frank disclosure, the commissioners would be subject to judicial review if thereafter they went back on that agreement because it could be said that the commissioners' conduct was grossly unfair or irrational. Vestey v. Inland Revenue Commissioners (No. 2) [1980] A.C. 1148, 1171F-H, 1172 et seq., emphasises that the commissioners have a mandatory duty to recover tax. The most that can be said the other way is that they have a managerial discretion in administering the tax.

As to the appellant's knowledge: (i) he must have known that he was getting a price at a pre-tax value on the sale of the shares in question. (ii) There was a pre-sale move to take Gymboon out of paragraph D of section 461. The correspondence establishes that the agreement was that the inspector did not intend to make further enquiries. It did not go so far as stating that the inspector of the investigating section agreed that the investigation of the taxpayer's affairs was closed; that is, that there was an undertaking by the Inland Revenue Commissioners that the matter was forever closed. The answers given by the taxpayer are too laconic and are not such a full disclosure as to justify his stating later that the revenue's action was unfair or an abuse of power. If the full facts are not disclosed, whether innocently or otherwise, the revenue are entitled to take the matter further. If a person takes out an insurance policy and innocently fails to disclose material matters, the contract being one of uberrimae fidei, the insurance company is entitled not to be bound by the terms of the contract of insurance. Similarly here. The onus is on the taxpayer to prove that the revenue have acted with such gross unreasonableness as to amount to an abuse of power. If a taxpayer is complaining of unfairness in the sense that he, because of his agreement with the revenue, withdrew certain claims for relief, the onus is on the taxpayer to show that such claims had a reasonable chance of success, namely, that there was some validity in the claims. The revenue stands squarely on the proposition that the taxpayer must give full disclosure of all facts within his knowledge. The doctrine of uberrimae fidei applies, and the taxpayer cannot shield himself behind any agreement. Section 464(2) applies to the innocent and the non-innocent taxpayer alike. The language of that provision is so plain that even if an innocent taxpayer fails to make full disclosure so that when full details are available to the revenue certain reliefs are not available to the taxpayer, any clearance given to the taxpayer is void. The presence of section 464 makes plain the limits between the action that the revenue must take under section 460 and the preclusion from action. There is no room for any other test. Section 464 is in such clear terms as to preclude the application of the remedy of judicial review in the absence of an abuse of power. Here there was no abuse of power. The revenue is under obligation to operate section 460 which is draconian.

The opportunity for a taxpayer to invoke judicial review in respect of section 460 proceedings is very limited. It is not oppressive to apply the section where there has not been full and frank disclosure by the taxpayer. A case of oppression is for the taxpayer to make out. In the present case the taxpayer has not shown that the revenue's delay

prevented him from making valid claims for relief. The managerial discretion given by revenue law is a very narrow discretion. The commissioners have a positive duty to collect tax imposed by Parliament. In the Self-Employed case [1982] A.C. 617, 632C-E, Lord Wilberforce succinctly states the law in this respect; see also per Lord Diplock at p. 637C-D. The Court of Appeal in the present case applied the right test and arrived at the right conclusion.

Brodie Q.C. replied.

Their Lordships took time for consideration.

25 April 1985. LORD SCARMAN. My Lords, I would dismiss the appeal for the reasons to be developed by my noble and learned friend, Lord Templeman, with whose speech I agree. Since, however, the appellant relies on the principle of fairness as the ground for judicial review in this case and cites in support of his submission my speech in Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617, I think it necessary to explain why I have reached the conclusion that his case fails.

I shall do so by stating a few propositions relevant to the appeal which I believe to be correct in law, by making a few comments upon the facts of this particular case, and by indicating what I consider to be the true reason for dismissing the appeal. But first, and by way of preface, I must make clear my view that the principle of fairness has an important place in the law of judicial review: and that in an appropriate case it is a ground upon which the court can intervene to quash a decision made by a public officer or authority in purported exercise of a power conferred by law.

First, "the Inland Revenue Commissioners are not immune from the process of judicial review": per Lord Wilberforce in the National Federation of Self-Employed case, at p. 632. This proposition, if it were ever doubted, is now, as I understand it, put beyond doubt by the speeches of your Lordships in the present appeal.

The second proposition relates to the grounds upon which a taxpayer may seek judicial review of a decision taken by the Inland Revenue Commissioners. The commissioners have their statutory powers and duties, the exercise of which can be challenged by the process of judicial review only if certain principles of general application are met. The taxpayer must show either a failure to discharge their statutory duty to him or that they have abused their powers or acted outside them: Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617, per Lord Wilberforce, p. 632, and per Lord Roskill, p. 660.

My third proposition is that unfairness in the purported exercise of a power can be such that it is an abuse or excess of power. This was the view of the law which I expressed in the National Federation of Self-Employed case (notably at p. 650): and it remains my view. I do not consider it to be inconsistent with the words of Lord Diplock in that case, p. 637, which my noble and learned friend Lord Templeman quotes in his speech, namely that:

"judicial review is available only as a remedy for conduct of a public officer or authority which is ultra vires or unlawful, but not for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise ..."

I do not understand my Lord to have been saying that the unfairness of what has been done can in no circumstances become relevant in determining whether what was done was ultra vires or unlawful. If, however, the words are to be understood in that sense, then with very great respect I cannot accept them as a totally accurate statement of the law: see now Council of Civil Service Unions v. Minister for the Civil Service [1985] A.C. 374. I stand where I stood in the Court of Appeal decision, H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170. The present case, as is clear from the speech of my noble and learned friend, Lord Templeman, illustrates how and in what circumstances the principle of fairness falls to be considered in determining whether a statutory power has been abused or exceeded. I return later to this, the critical point in the appeal.

My fourth proposition is that a remedy by way of judicial review is not to be made available where an alternative remedy exists. This is a proposition of great importance. Judicial review is a collateral challenge: it is not an appeal. Where Parliament has provided by statute appeal procedures, as in the taxing statutes, it will only be very rarely that the courts will allow the collateral process of judicial review to be used to attack an appealable decision. In the first part of his speech my noble and learned friend, Lord Templeman, has set out in detail the ample appeal procedures available to a taxpayer aggrieved by a decision of the commissioners to exercise their powers and duties under Part XVII of the Act of 1970 to counteract a tax advantage alleged to have been obtained by him.

But cases for judicial review can arise even where appeal procedures are provided by Parliament. The present case illustrates the circumstances in which it would be appropriate to subject a decision of the commissioners to judicial review. I accept that the court cannot in the absence of special circumstances decide by way of judicial review to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. But circumstances can arise when it would be unjust, because it would be unfair to the taxpayer, even to initiate action under Part XVII of the Act of 1970. For instance, as my noble and learned friend points out, judicial review should in principle be available where the conduct of the commissioners in initiating such action would have been equivalent, had they not been a public authority, to a breach of contract or a breach of a representation giving rise to an estoppel. Such a decision could be an abuse of power: whether it was or not and whether in the circumstances the court would in its discretion intervene would, of course, be questions for the court to decide.

It was the appellant's case that upon the true construction of the correspondence in 1978 between him and Mr. Thomas, an officer of the Special Investigations Section, the commissioners purported to contract or to represent that they would not thereafter re-open the tax assessments

of the appellant for the years 1974-75 and 1975-76 if he withdrew his claims for interest relief and capital loss. Had he made good this case, I do not doubt that he would have been entitled to relief by way of judicial review for unfairness amounting to abuse of the power to initiate action under Part XVII of the Act of 1970. But he failed upon the construction of the correspondence as my noble and learned friend demonstrates in his speech.

Secondly, had the appellant made good his case based on delay, the process of judicial review would have been available to him. The appellant's case on delay was that the commissioners had delayed initiating action to counteract the tax advantage which the appellant realised from his dealings in the shares of Gymboon Ltd. until his own claims for interest relief and capital loss had become statute barred by lapse of time. I, like others of your Lordships, was impressed by this case when it was first advanced by Mr. Brodie Q.C. for the appellant. But the factual analysis of the circumstances of the delay undertaken by my noble and learned friend in his speech has convinced me that it would be unreasonable and unjust to treat the delay as an abuse of power, which in other circumstances it might well have been.

For the reasons, therefore, given by my noble and learned friend, Lord Templeman, I am of the opinion that the appellant has failed to make out his case for intervention of the court by way of judicial review. I would dismiss the appeal.

LORD EDMUND-DAVIES. My Lords, for the reasons developed in the speech of my noble and learned friend, Lord Templeman, which I have had the advantage of reading, I would concur in dismissing the appeal.

LORD KEITH OF KINKEL. My Lords, I have had the benefit of reading in advance the speech to be delivered by my noble and learned friend, Lord Templeman. I agree with it, and for the reasons given by him I too would dismiss the appeal.

LORD BRIGHTMAN. My Lords, I also agree that this appeal should be dismissed for the reasons given by my noble and learned friend, Lord Templeman.

LORD TEMPLEMAN. My Lords, this is an appeal in judicial review proceedings whereby the appellant, Mr. Preston, seeks a declaration that the respondent Inland Revenue Commissioners are not entitled to exercise and perform their statutory powers and duties under Part XVII of the Income and Corporation Taxes Act 1970 by counteracting a tax advantage alleged to have been obtained by the appellant by his dealings in the shares of Gymboon Ltd.

Part XVII of the Act of 1970 begins with section 460. By section 460(6), if the commissioners have reason to believe that a taxpayer has obtained a tax advantage in consequence of a transaction in securities in the circumstances prescribed by section 461, the commissioners may notify the taxpayer in writing. The taxpayer may then make a statutory declaration that section 460 does not apply to him either because he has

not been involved with any transactions in securities in the circumstances prescribed by section 461 or because he can show, in the words of section 460(1):

"that the transaction or transactions were carried out either for bona fide commercial reasons or in the ordinary course of making or managing investments, and that none of them had as their main object, or one of their main objects, to enable tax advantages to be obtained ..."

If, notwithstanding the taxpayer's statutory declaration, the commissioners see reason to take further action, they shall by section 460(7)(a) submit to a tribunal established for the purpose by section 463, a certificate to that effect together with the statutory declaration of the taxpayer and, if the commissioners wish, a counter-statement by the commissioners with reference to the matter. The tribunal after taking into consideration the statutory declaration by the taxpayer and the certificate and counter-statement by the commissioners shall by section 460(7)(b) determine "whether there is or is not a prima facie case for proceeding in the matter ..." If the tribunal determine that a prima facie case has been established, the commissioners by section 460(3) shall counteract the tax advantage obtained by the taxpayer by a number of alternative adjustments, including an additional assessment to tax on such basis as the commissioners may specify by notice in writing served on the taxpayer as being requisite for counteracting the tax advantage so obtained. By section 462(1) the taxpayer to whom notice has been given may appeal to the special commissioners on the grounds that section 460 does not apply to him or that the adjustments directed to be made are inappropriate. An appeal lies from the special commissioners to the tribunal under section 462(2). The tribunal shall rehear and determine the appeal and by section 462(3) the determination of the tribunal shall be final.

In the present case, there has been a notification by the commissioners and a statutory declaration by the appellant both under section 460(6), followed by the presentation to the tribunal of a certificate, the statutory declaration and a counter-statement. The tribunal has determined under section 460(7) that there is a prima facie case for proceeding. The commissioners have proceeded by serving notice under section 460(3) designed to counteract, by means of an additional assessment, the tax advantage which they say the appellant has obtained. No appeal has yet been heard by the special commissioners under section 462(1) because the appellant seeks by this appeal to obtain a declaration that all the steps taken against him by the commissioners pursuant to Part XVII of the Act of 1970 are unlawful.

The dispute between the appellant and the commissioners has its origin in the activities of the appellant between 1974 and 1977. The appellant gave an account of his activities between those years in a letter dated 24 May 1978 written by the appellant to Mr. Thomas, an officer of the Special Investigations Section maintained by the commissioners. In November 1974 the appellant took employment with the Rossminster Group Ltd.

"with a view to developing a commercial and corporate financial activity for the group, and with the ultimate aim of making such activity the principal, if not sole, activity of the group." He "built up a team of six or seven competent corporate finance executives. Our activities were principally confined to commercial and corporate finance matters and, in particular, my own involvement with the other activities of Rossminster was minimal." By the latter part of 1976, "on the one hand the substance of Rossminster's current financial well-being clearly now depended very little on my department and in commercial terms we were no longer an essential ingredient of the group's future well-being. At the same time, from a personal viewpoint, I had become progressively less sympathetic towards the nature and aims of Rossminster's main field of activity."

It is common knowledge that Rossminster's main field of activity to which the appellant referred consisted of the invention, marketing and carrying into effect of large numbers of sophisticated tax avoidance schemes which were lawful and which were thought by Rossminster, but not guaranteed to be effective. The appellant ceased to be employed by Rossminster in March 1977 and received an ex gratia payment.

From information supplied to your Lordships by the appellant through his counsel, it appears that the tax returns for the appellant for the years 1974-75 and 1975-76 represented that after allowing for claims for loan interest, the appellant was not liable to pay any income tax. In the year 1974-75 a deduction of £11,592 loan interest was claimed for income tax purposes and a capital loss of £10,000 was shown for capital gains tax purposes. In the year 1975-76 a deduction of £26,074 loan interest was claimed for income tax purposes. In May 1978 the appellant's taxation returns were referred to the Special Investigations Section of the commissioners. After some preliminary correspondence, Mr. Thomas, the officer of the Special Investigations Section dealing with the matter invited the appellant to call on Tuesday, 6 June and said in a letter dated 18 May that the particular matters that he would like to discuss were:

"(a) Your claims to relief for interest paid to Rossminster Acceptances Ltd., (b) the loss which you have claimed in respect of the purchase and sale of shares in Jurby Raven Ltd., and allied operations, (c) your transactions in the shares of Gymboon Ltd., Jacksons Bourne End Ltd., the Telbex Group Ltd., Powerstem Ltd., Alanvale Securities Ltd. and First London Securities Ltd., (d) the leaving payment which you received from Rossminster Management Services Ltd. It would be very helpful if you would bring to the meeting the documents, correspondence and other papers in your possession which are relevant to these matters."

It subsequently transpired in July 1982 that among the documents in the appellant's possession which were relevant was an incomplete draft of the agreement whereby the appellant had sold his shares in Gymboon Ltd.

The appellant replied by letter dated 24 May 1978. He pointed out

"that although a chartered accountant, I am by no means well versed in highly-complex taxation matters, and feel that I am not competent to converse with you on equal terms. Subject to my comments below, therefore, if the interview is still considered necessary I feel that I must now seek professional advice. In the meantime, however, in order to facilitate the finalisation of my affairs I set out below certain information and observations on the matters specified in your letter of the 18 May. In this regard it seems to me that your questions fall into two main categories. Dealing first with the claims for relief for interest paid to Rossminster Acceptances Ltd. (in connection solely with which the holding of shares in First London Securities Ltd. arose) and for loss on disposal of shares in Jurby Raven Ltd., the following background information may be relevant."

He then set out the history of his employment with Rossminster from which I have largely quoted and continued:

"As you will appreciate, as the head of the corporate financial and commercial activity at Rossminster I would have displayed a considerable lack of confidence in my employers if I had failed to enter into the transactions in question and into which all other senior employees of Rossminster had evidenced their intention to enter. The foregoing deals adequately, I hope, with the first category. Turning to the second category of matters raised by your enquiries, these involve commercial investments of business substance, and need not, in my view, be considered other than as capital transactions. As things stand today it is not a matter of great concern to me to see whether or not I proceed with my claims for relief for interest or capital loss. What is most certainly of greater importance is that my taxation affairs are maintained on a current basis. Accordingly, without prejudice to any claim which may have to be made for interest relief or capital loss, I am prepared to forgo such claims for the years in question on the basis that by doing so I shall facilitate the agreement of my tax affairs. In the light of the above you may feel that a discussion is no longer necessary. However, if you still wish to proceed with such a meeting, perhaps you will provide me with a list of specific questions on which I can obtain professional advice."

There was a telephone conversation between Mr. Thomas and the appellant on the 25 May 1978 and the substance of that conversation was confirmed the following day by a letter from Mr. Thomas in these terms:

"If I understand the penultimate paragraph of your letter correctly, you are withdrawing your claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April 1976, and you are not pursuing the inclusion in the computation of your gains chargeable to capital gains tax a loss on the disposal of shares in Jurby Raven Ltd. For the avoidance of doubt would you please let me have a note confirming these amendments to your

income tax returns. I have considered your comments regarding the subjects mentioned in sub-paragraphs (c) and (d) of my letter of 18 May 1978. As stated on the telephone, I should like the following information regarding the shares in Gymboon Ltd.: a. full details of the acquisition and disposal of these shares, including the names and addresses of the person from whom they were acquired and to whom they were sold, the relevant dates and numbers of shares involved, b. a note of the circumstances in which the value of the shares increased so quickly between September 1976 and the date of disposal. What was the precise nature of Gymboon Ltd.'s business activities? I look forward to hearing from you on these points. I confirm that I should not wish to trouble you with an interview if you withdraw your claim to relief for interest paid to Rossminster Acceptances Ltd. and for the loss on the disposal of the shares in Jurby Raven Ltd."

After a reminder dated 21 June 1978 the appellant responded by a letter dated 23 June 1978 and provided the following information concerning the shares in Gymboon Ltd.:

"(a) (i) On 10 April 1974, I acquired 50 per cent. of the issued share capital in the company at par from Gardencare Group Ltd. (formerly Danecross Ltd.) of 44, Grange Walk, London, S.E.1. (ii) On 1 February, 1975, I sold 15.4 per cent. of the shares in the company to Mrs. S. L. M. Aaronberg of 6, Westchester Drive London, N.W.4 thus reducing my holding in the company to 34.6 per cent. This sale was made at par. (iii) On 11 January, 1977, and pursuant to an unsolicited offer, I sold my remaining holding in the company which, at that time, was 346 shares at 10p each, to Broadforth Ltd. (an unconnected party) of 1, Hanover Square London, W.1 for £24,375. (b) Gymboon Ltd.'s activity was that of a dealer in shares and commodities, the latter being traded upon the London Metal Exchange, and it was as a result of the substantial profits generated by its dealing that the value of its shares increased as they did. I trust that the above is sufficient for your requirements and upon hearing from you that you have no further questions on my tax affairs, I shall be happy to write formally to you withdrawing my claims of relief for interest paid to Rossminster Acceptances Ltd. and for a loss on disposal of shares in Jurby Raven Ltd."

There followed a letter from Mr. Thomas, dated 21 July 1978, which noted the information supplied regarding the shares in Gymboon Ltd. and said:

"On receipt of your note formally withdrawing your claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April 1976 and confirming that you are not pursuing the inclusion in the computation of your gains chargeable to capital gains tax of a loss on the disposal of shares in Jurby Raven Ltd. I propose to return your taxpapers to H.M. Inspector of Taxes, North East 5 (London) as I do not intend to raise any further inquiries on your tax affairs."

The correspondence ended with a letter dated 28 July 1978 from the appellant in which, after acknowledging the letter from Mr. Thomas dated 21 July, he continued:

"Accordingly, I am pleased to give you formal notice that I hereby withdraw my claims to relief for interest paid to Rossminster Acceptances Ltd. during the two years ended 5 April 1976 and confirm that I am not pursuing the inclusion in the computation of my gains chargeable to capital gains tax of a loss on the disposal of shares in Jurby Raven Ltd."

In October 1978 tax assessments were made on the appellant taking into account the withdrawal of his claims for tax relief. On 16 October 1978 the appellant was assessed to capital gains tax in the sum of £7,302 in respect of the sale of the appellant's shares in Gymboon Ltd. This liability was set off against tax repayments in respect of certain annuity benefits received by the appellant when he left the employment of Rossminster.

Subsequently, the Special Investigations Section received from Gymboon Ltd. the accounts of the company for the year ended 13 September 1977. Mr. Owston, an inspector of taxes, senior principal grade, employed in the Inland Revenue Technical Division, Special Investigations Section, in an affidavit sworn on 22 December 1982 deposed that on 8 October 1979 he was one of the inspectors of taxes engaged in the Special Investigations Section considering the tax avoidance scheme known as the Rossminster Company Purchase Scheme.

"On that day there were referred to me the accounts of Gymboon Ltd. for the year ended 13 September 1977. ... It was apparent to me from those accounts that the shares of the company had been sold during the year ended 13 September 1977 by its former shareholders, of whom Mr. M. D. Preston was one, in the course of the Rossminster Company Purchase Scheme."

In April 1981, the claims for capital loss and loan interest for the year 1974-75 which the appellant had withdrawn in 1978 ceased by statute to be renewable and they cannot now be revived. The appellant's claim for loan interest for the year 1975-76 ceased to be renewable in April 1982.

By section 465 of the Act of 1970:

"Where it appears to the Board that by reason of any transaction or transactions a person may be a person to whom section 460 above applies, the Board may by notice in writing served on him require him, within such time not less than 28 days as may be specified in the notice, to furnish information in his possession with respect to the transaction or any of the transactions, being information as to matters, specified in the notice, which are relevant to the question whether a notice under subsection (3) of that section should be given in respect of him."

In exercise of the powers conferred by section 465, the commissioners by a notice dated 26 July 1982 required information from the appellant concerning the following transactions:

"1. On 13 September 1976 the subdivision of the 100 ordinary £1 shares of Gymboon Ltd. (Gymboon) into 1,000 ordinary 10p shares. 2. On 10 January 1977 the creation by Gymboon of 300 13 per cent. redeemable preference shares of £1 each. 3. On or about 10 January 1977 the grant to Broadforth Ltd. (Broadforth) of an option to subscribe for 300 13 per cent. redeemable preference £1 shares in Gymboon. 4. On 11 January 1977 the following alterations in the share capital of Gymboon: (a) the increase in the authorised capital to £410 by the creation of 1,000 ordinary lp shares; (b) the conversion of the existing issued 1,000 ordinary 10p shares into 1,000 deferred 10p shares; (c) the rights issue of a 1,000 ordinary lp shares. 5. On 11 January 1977 the sale by you to Broadforth of your 346 deferred 10p shares and 346 ordinary lp shares (held on renounceable letters of allotment) in Gymboon for a consideration of £24,375. 6. On 11 January 1977 the acquisition by St. George's Elizabethan Theatre Ltd. (St. George's) of all the shares in Gymboon. 7. The transactions described as 'Annuity payment £75,000' in the note to the accounts of Gymboon for the year ended 13 September 1977. 8. The transaction described as 'Donation to the then ultimate holding company being a U.K. registered charity £66,852' in the notes to the accounts of Gymboon for the year ended 13 September 1977. 9. (a) On 3 February 1977 the transfer of all the shares in Gymboon to the Elizabethan Theatre Trust. (b) The write-down in respect of the fall in the value of the shares in Gymboon in the accounts of St. George's for the period 29 October 1975 to 4 February 1977."

The information which was sought included the sale agreement whereby the appellant sold his Gymboon shares to Broadforth.

By a letter dated 29 July 1982 the appellant supplied such information as was available to him including the only copy in his possession of the sale agreement, which was only an incomplete draft, whereby he sold his Gymboon shares to Broadforth. The appellant, however, prefaced the information which he furnished with a protest in the following terms:

"In your letter dated 21 July 1978 and sent to me by Special Investigations Section you stated 'I do not intend to raise any further inquiries on your tax affairs.' If you refer to this letter and to the correspondence which led up to it, you will see that this latter statement was a consequence of and in consideration for the withdrawal by me of certain claims for tax relief. I would contend accordingly that this correspondence constituted a binding legal agreement which estops you from now raising inquiries on Gymboon Ltd. or any other matters covered by the correspondence."

On 14 September 1982 the commissioners served on the appellant notification under section 460(6) that the Board had reason to believe that section 460 applied to the appellant in respect of the transactions which had been set out in the section 465 notice dated 26 July 1982.

On 11 October 1982 the appellant made a statutory declaration pursuant to section 460(6). He contended that the sale of his shares in Gymboon and "the incidental alterations on the company's share capital

preceding that sale" were outside the scope of section 460(1) as being transactions carried out for bona fide commercial reasons or in the ordinary course of making or managing investments and not having as their main objects or one of their main objects to enable tax advantages to be obtained. He also contended that the transactions did not fall within the scope of section 461 which rigidly defines the prescribed circumstances such as dividend stripping to which section 460 applies. Section 461 includes within its ambit tax advantages achieved by a scheme whereby a shareholder receives in connection with the distribution of profits of a company a consideration which represents assets of the company available for distribution by way of dividend but in such manner that the shareholder does not pay or bear tax on the consideration as income. In his statutory declaration the appellant gave detailed reasons why in his view sections 460 and 461 did not apply to the sale of his shares in Gymboon. The appellant also drew attention to the fact that he had been assessed to capital gains tax in the sum of £7,302 in respect of the purchase and sale of his shares in Gymboon Ltd. Finally, he drew attention to the 1978 correspondence and concluded:

"By reason of the agreement thus made the Inland Revenue is now contractually precluded from seeking to apply the provisions of the said section 460 to me in respect of the sale of the shares."

On 20 December 1982 the commissioners served a counter-statement under section 460(7). On the same day the commissioners certified to the tribunal, pursuant to section 460(7) that the commissioners saw reason to take further action and on the 28 January 1983 the tribunal constituted under section 463 determined that there was a prima facie case for proceeding against the appellant under section 460.

The legality of the commissioners' actions was challenged in these proceedings on 18 November 1982 when the appellant applied for leave to apply for an order prohibiting the commissioners from taking any further steps under Part XVII of the Act of 1970 for the purpose of investigating or assessing the appellant to further tax liabilities in connection with the affairs of Gymboon Ltd. In his application the appellant asserted that the conduct of the commissioners in invoking section 460 was a breach of contract or breach of representations made in the 1978 correspondence with Mr. Thomas and that "In the premises the said conduct of the commissioners constitutes an improper exercise alternatively an abuse of the statutory powers of collection and management of Inland Revenue." In his affidavit in support sworn on 17 November 1982 the appellant made the same submissions and said:

"if I had realised that the commissioners would subsequently attempt to go back on their word and their agreement with me made in 1978, I should not have agreed to withdraw my claims for tax relief."

On behalf of the commissioners Mr. Thomas swore an affidavit in reply on 22 December 1982. He said that in 1978 the appellant:

"did not tell me that the sale price of the shares was based on an asset value which excluded provision for corporation tax on those profits ... I now understand that the £24,735 paid to the applicant for his Gymboon shares was in excess of their true market value and could only have been paid because no provision had been made for corporation tax. ... I am advised that since the applicant was able to obtain cash from the sale of his shares in Gymboon which represented the accumulated profits of the company available for distribution by way of dividend without payment of tax thereon as income, the transaction is caught by the anti-avoidance provisions of Part XVII of the Income and Corporation Taxes Act 1970. At no time did I say or imply that the Board of Inland Revenue would not contemplate proceedings under these provisions."

In argument before your Lordships, the commissioners without implying bad faith on the part of the appellant, indicated by their counsel that in their view the value of the appellant's shares in Gymboon Ltd. increased from £34.60 to £24,735 partly "as a result of the substantial profits generated by its dealings" as the appellant informed Mr. Thomas in the appellant's letter dated 23 June 1978 but also partly because the effect of the Rossminster company purchase scheme was to relieve Gymboon from its liability to corporation tax by artificial transactions.

On 25 January 1983 Woolf J. granted the appellant leave to apply for judicial review and on 23 February 1983 the application came before the same judge. On the following day Woolf J.

"ordered and declared that the Inland Revenue Commissioners were and are not entitled in the circumstances of the case to exercise their powers pursuant to Part XVII of the Income and Corporation Taxes Act 1970 in respect of the acquisition in 1974 and subsequent disposal by the applicant of shares in Gymboon Ltd. and that the commissioners' purported exercise of the said powers in respect thereof was and is unlawful."

The reasons of the judge are to be found in the report of the case in [1983] 2 All E.R. 300. On 31 July 1984 the Court of Appeal (Lawton, Griffiths and Dillon L.JJ.) allowed an appeal by the commissioners from the decision of Woolf J. and discharged the order which he had made: see ante, p. 840C. Your Lordships were informed that the commissioners have made on the appellant under section 460 an additional assessment to income tax to counteract the tax advantage which they assert he obtained from the shares of Gymboon Ltd. An appeal by the appellant to the special commissioners pursuant to section 462(1) of the Act of 1970 against the additional assessment made under section 460(3) awaits the result of this present appeal whereby the appellant with leave of your Lordships' House, appeals against the decision of the Court of Appeal. It will be for the special commissioners and the tribunal to determine, if this appeal fails, whether section 460 applies and if so whether in computing the tax advantage obtained by the appellant and the appropriate amount of any counteracting assessment, the capital gains tax of £7,302 paid by the appellant in respect of the Gymboon shares should be taken into account. If on this appeal it appears that the

actions taken by the commissioners under section 460 have been unlawful, the commissioners cannot proceed to enforce the additional assessment made upon the appellant under section 460, whether or not the appellant in 1977 fell foul of section 460. If your Lordships determine that the actions taken by the commissioners under section 460 have been lawful, then subject to the appeal procedure provided by section 462 to the special commissioners and the tribunal, the commissioners will proceed to enforce the additional assessment.

Woolf J. rightly decided that the appellant had no remedy against the commissioners for breach of contract or breach of representations made by Mr. Thomas in 1978 because the commissioners could not in 1978 bind themselves not to perform in 1982 the statutory duty of counteracting a tax advantage imposed on the commissioners by section 460 of the Act of 1970. The only remedy which might be available to the appellant was the remedy of judicial review. Judicial review is available where a decision-making authority exceeds its powers, commits an error of law, commits a breach of natural justice, reaches a decision which no reasonable tribunal could have reached, or abuses its powers. Judicial review should not be granted where an alternative remedy is available. In most cases in which the commissioners are said to have fallen into error, the remedy of the taxpayer lies in the appeal procedures provided by the tax statutes to the general commissioners or special commissioners. This appeal structure provides an independent and informed tribunal which meets in private so that the taxpayer is not embarrassed in disclosing his affairs and the commissioners are not inhibited by their duty of confidentiality. The commissioners and the tribunals established to hear appeals from the commissioners have wide knowledge and experience of fiscal law and practice. Appeals from the general commissioners or the special commissioners lie, but only on questions of law, to the High Court by means of a case stated and the High Court can then correct all kinds of errors of law including errors which might otherwise be the subject of judicial review proceedings: see Edwards v. Bairstow [1956] A.C. 14. Judicial review process should not be allowed to supplant the normal statutory appeal procedure. The present circumstances are exceptional in that the appeal procedure provided by section 462 cannot begin to operate if the conduct of the commissioners in initiating proceedings under section 460 was unlawful.

My Lords, it is clear that the commissioners are amenable to the remedy of judicial review in a proper case. In Reg. v. Inland Revenue Commissioners, Ex parte National Federation of Self-Employed and Small Businesses Ltd. [1982] A.C. 617 a group of self-employed taxpayers applied for an order of mandamus directing the commissioners to collect tax from casual employees with whom the commissioners had made an arrangement not to investigate tax evasion prior to 1977. In the instant case the appellant seeks an order to restrain the commissioners from proceeding to collect the tax which they have assessed on the appellant under section 460. In the Self-Employed case Lord Wilberforce said, at pp. 631-632:

"The Inland Revenue Commissioners are a statutory body. Their duties are, relevantly, defined in the Inland Revenue Regulation

Act 1890 and the Taxes Management Act 1970. Section 1 of the Act of 1890 authorises the appointment of commissioners 'for the collection and management of inland revenue' and confers on the commissioners 'all necessary powers for carrying into execution every Act of Parliament relating to inland revenue.' By section 13 the commissioners must 'collect and cause to be collected every part of inland revenue and all money under their care and management and keep distinctive accounts thereof.' Section 1 of the Act of 1970 provides that 'Income tax ... shall be under the care and management of the commissioners.' This Act contains the very wide powers of the board and of inspectors of taxes to make assessments upon persons designated by Parliament as liable to pay income tax. ... From this summary analysis it is clear that the Inland Revenue Commissioners are not immune from the process of judicial review."

Lord Wilberforce said, at p. 632, that from the authorities and from principle:

"a taxpayer would not be excluded from seeking judicial review if he could show that the revenue had either failed in its statutory duty toward him or had been guilty of some action which was an abuse of their powers or outside their powers altogether. Such a collateral attack - as contrasted with the direct appeal on law to the courts - would no doubt be rare, but the possibility certainly exists."

Lord Diplock stated, at p. 637:

"judicial review is available only as a remedy for conduct of a public officer or authority which is ultra vires or unlawful, but not for acts done lawfully in the exercise of an administrative discretion which are complained of only as being unfair or unwise ..."

Then, at p. 644, he added that the commissioners:

"are accountable to Parliament for what they do so far as regards efficiency and policy, and of that Parliament is the only judge; they are responsible to a court of justice for the lawfulness of what they do, and of that the court is the only judge."

Lord Roskill said, at p. 660, that the commissioners:

"are, and must as a public body charged with the performance of a public duty of crucial importance be, amenable to the general law and liable to possible correction if their statutory powers are exceeded, or their statutory duties are not lawfully discharged."

The speech of my noble and learned friend, Lord Scarman, was to the same effect and he made observations as to the principle of fairness. At p. 650, Lord Scarman referred to the remedy of mandamus as one which has:

"been recognised by the judges as a remedy for certain forms of abuse of discretion, upon the principle that the improper or capricious exercise of discretion is a failure to exercise the discretion which the law has required to be exercised: ..."

In considering the statutory provisions applicable to the commissioners, Lord Scarman said, at p. 651:

"They establish a complex of duties and discretionary powers imposed and conferred in the interest of good management upon those whose duty it is to collect the income tax. But I do not accept that the principle of fairness in dealing with the affairs of taxpayers is a mere matter of desirable policy or moral obligation. Nor do I accept that the duty to collect 'every part of inland revenue' is a duty owed exclusively to the Crown ... I am persuaded that the modern case law recognises a legal duty owed by the revenue to the general body of the taxpayers to treat taxpayers fairly; to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise; to ensure that there are no favourites and no sacrificial victims."

He concluded, at p. 652, "I am, therefore, of the opinion that a legal duty of fairness is owed by the revenue to the general body of taxpayers."

Mr. Brodie, on behalf of the appellant, submitted that if, as Lord Scarman announced in the Self-Employed case [1982] A.C. 617, the commissioners owe a duty of fairness to the general body of taxpayers, the commissioners must equally owe a duty of fairness to each individual taxpayer. I agree, but a taxpayer cannot complain of unfairness, merely because the commissioners decide to perform their statutory duties including their duties under section 460 to make an assessment and to enforce a liability to tax. The commissioners may decide to abstain from exercising their powers and performing their duties on grounds of unfairness, but the commissioners themselves must bear in mind that their primary duty is to collect, not to forgive, taxes. And if the commissioners decide to proceed, the court cannot in the absence of exceptional circumstances decide to be unfair that which the commissioners by taking action against the taxpayer have determined to be fair. The commissioners possess unique knowledge of fiscal practices and policy. The commissioners are inhibited from presenting full reasons to the court for their decisions because of the duty of confidentiality owed by the commissioners to each and every taxpayer.

The court can only intervene by judicial review to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the court is satisfied that "the unfairness" of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers an abuse of power by the commissioners.

In most cases in which the court has granted judicial review on grounds of "unfairness" amounting to abuse of power there has been some proven element of improper motive. In the leading case of Padfield v. Minister of Agriculture, Fisheries and Food [1968] A.C. 997 the Minister abstained from exercising his statutory discretion to order an investigation because he feared the consequences of the investigation might be politically embarrassing. In Congreve v. Home Office [1976]

Q.B. 629 the Minister exercised his power to revoke television licences because he disapproved of the conduct of the licence holders, albeit they had acted lawfully. In Laker Airways Ltd. v. Department of Trade [1977] Q.B. 643 the Minister exercised his statutory discretion to give directions with regard to civil airways with the ulterior motive of making it impossible for one of the airlines to pursue a course of which the Minister disapproved. In these cases judicial review was granted because the Ministers acted "unfairly" when they abused their powers by exercising or declining to exercise those powers in order to achieve objectives which were not the objectives for which the powers had been conferred. The question of "fairness" was considered in H.T.V. Ltd. v. Price Commission [1976] I.C.R. 170.

In that case the Price Commission misconstrued the counter inflation price code and changed its mind as to the treatment of exchequer levy as an item in the costs of television companies allowable for the purpose of increasing their advertising charges within the limits prescribed by the code. The effect of the change of mind of the Price Commission was to deprive the companies of an increase of advertising charges which they were plainly intended to enjoy and which they badly needed in order to remain financially viable. Lord Denning M.R. said, at pp. 185-186:

"It has been often said, I know, that a public body, which is entrusted by Parliament with the exercise of powers for the public good, cannot fetter itself in the exercise of them. It cannot be estopped from doing its public duty. But that is subject to the qualification that it must not misuse its powers: and it is a misuse of power for it to act unfairly or unjustly towards a private citizen when there is no overriding public interest to warrant it. So when an army officer was told that his disability was accepted as attributable to war service, and he acted on it by not getting his own medical opinion, the Minister was not allowed to go back on it: see Robertson v. Minister of Pensions [1949] 1 Q.B. 227. And where an owner, who was about to build on his land, was told that no planning permission was required, and he acted on it by erecting the building the Minister was not allowed to go back on it: see Wells v. Minister of Housing and Local Government [1967] 1 W.L.R. 1000 and Lever Finance Ltd. v. Westminster (City) London Borough Council [1971] 1 Q.B. 222. Very recently where a man was issued with a television licence for a year, then, although the Minister had power to revoke it, it was held that it would be a misuse of that power if he revoked it without giving reasons or for no good reason: see Congreve v. Home Office [1976] 2 W.L.R. 291."

In the first three cases cited by Lord Denning M.R. the authorities acted in a manner for which, if the authorities had not been emanations of the Crown, the applicants would have enjoyed a remedy by way of damages or an injunction for breach of contract or breach of representations. In the third case of Congreve, as I have indicated, the decision was "unfair" because the Minister was actuated by an irrelevant motive.

In the H.T.V. case [1976] I.C.R. 170 my noble and learned friend, then Scarman L.J., said, at p. 189:

"Agencies, such as the Price Commission, must act fairly. If they do not, the High Court may intervene either by prerogative order to prohibit, quash or direct a determination as may be appropriate, or, as is sought in this case, by declaring the meaning of the statute and the duty of the agency. ... It is a commonplace of modern law that such bodies must act fairly. ... It is not really surprising that a code must be implemented fairly, and that the courts have power to redress unfairness."

Scarman L.J., after considering the Price Commission's change of mind, said, at p. 192, that "the commission's inconsistency has already resulted in unfairness, and, unless corrected, could cause further injustice. First, it gives rise to a real possibility of an erosion of profit margin ..." Next, if, as the Price Commission contended, the Exchequer levy was excluded in 1976 but included in 1973 then the television companies would be unable to obtain a fair increase in advertising charges corresponding to increases in costs between 1973 and 1976:

"The commission, to avoid being unfair, must either include or exclude Exchequer levy as a cost upon both sides of the comparison. Since it has made clear that, in the absence of a ruling to the contrary, it intends to exclude it when calculating current profit margins, the commission must also exclude it when calculating the profit margin at April 30, 1973. I am not completely sure that it intends so to do if it succeeds in this litigation. ... The commission has acted inconsistently and unfairly; and on this ground, were it necessary, I would think H.T.V. are also entitled to declaratory relief."

In the H.T.V. case [1976] I.C.R. 170, the "unfairness" of the decision was due not to improper motive on the part of the Price Commission but to an error of law whereby the Price Commission misconstrued the code they were intending to enforce. If the Price Commission had not misconstrued the code, they would not have acted "inconsistently and unfairly." Of course the inconsistent and unfair results to which Scarman L.J. drew attention were themselves powerful support for the contention that the Price Commission must have misconstrued the code.

In the present case, the appellant does not allege that the commissioners invoked section 460 for improper purposes or motives or that the commissioners misconstrued their powers and duties. However, the H.T.V. case and the authorities there cited suggest that the commissioners are guilty of "unfairness" amounting to an abuse of power if by taking action under section 460 their conduct would, in the case of an authority other than Crown authority, entitle the appellant to an injunction or damages based on breach of contract or estoppel by representation. In principle I see no reason why the appellant should not be entitled to judicial review of a decision taken by the commissioners if that decision is unfair to the appellant because the conduct of the

commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuse of power for which in the present case judicial review is the sole remedy and an appropriate remedy. There may be cases in which conduct which savours of breach of conduct or breach of representation does not constitute an abuse of power; there may be circumstances in which the court in its discretion might not grant relief by judicial review notwithstanding conduct which savours of breach of contract or breach of representation. In the present case, however, I consider that the appellant is entitled to relief by way of judicial review for "unfairness" amounting to abuse of power if the commissioners have been guilty of conduct equivalent to a breach of contract or breach of representations on their part.

The sole question which now falls to be determined is whether upon the true construction of the correspondence which passed between the appellant and Mr. Thomas in 1978, the commissioners, acting by Mr. Thomas, purported to contract or purported to represent that they would not thereafter re-open the tax assessments of the appellant for the years 1974-75 and 1975-76 if he withdrew his claims for interest relief and capital loss for those years. Woolf J. concluded [1983] 2 All E.R. 300, 310:

"On my reading of the material, the taxpayer was led to believe that the 1978 (sic) share transaction was closed when he paid the capital gains tax on those shares. For him to now be faced with a new claim in respect of that transaction would be wrong and improper unless there were circumstances, of which I have no evidence and of which I know not, which would alter the normal implication to be drawn from such a situation."

In my opinion the judge overlooked the evidence that in 1978 Mr. Thomas did not receive from the appellant and was not in possession from other sources of information which was significant for the purposes of section 460.

By no stretch of imagination could the answer given by the appellant in his letter of 23 June 1978, "On 11 January 1977 ... I sold my remaining holding in the company, which at that time was 346 shares of 10p each to Broadforth Ltd. ... for £24,375" be regarded as providing "full details of the ... disposal of these shares" requested by the inspector, in the light of the series of steps, seven in all, which were carried out for the purpose of effecting the sale. The inhibitory effect which the inspector's letter of 21 July 1978 would, or might, have had on future Revenue action was lost to the appellant by the fact that it did not contain the full disclosure which the inspector had the right to expect and on which he plainly relied.

The 1978 correspondence discloses an initial request on the part of Mr. Thomas to discuss with the appellant all the matters set forth in the letter from Mr. Thomas dated 18 May 1978. When the appellant offered to withdraw his capital loss and interest claims there was no further need to discuss those claims. The appellant gave certain information on the other matters, which information Mr. Thomas was prepared to accept as

satisfactory. Mr. Thomas concluded his inquiries on the basis of the information supplied to him by the appellant. The correspondence does not support the view that Mr. Thomas agreed that no further inquiries would be made or action taken by the commissioners if they received further information from which the commissioners could reasonably suspect that the assessments made in the light of the information supplied by the appellant did not represent his full liability to tax. By section 29(3) of the Taxes Management Act 1970:

"If an inspector or the board discover - (a) that any profits which ought to have been assessed to tax have not been assessed, or (b) that an assessment of tax is or has become insufficient, or (c) that any relief which has been given is or has become excessive, the inspector or, as the case may be, the board may make an assessment in the amount, or the further amount, which ought in his or their opinion to be charged."

By section 460(3) of the Income and Corporation Taxes Act 1970 the commissioners are charged with the duty of counteracting any tax advantage by means of an assessment. The only limitation on that duty is imposed by section 460(9) whereby no assessment may be made later than six years after the chargeable period to which the tax advantage relates, in this case not later than 5 April 1983.

In my opinion, the 1978 correspondence does not disclose any agreement or representation that the commissioners would abandon their right and neglect their duty of raising further assessments on the appellant before April 1983 in respect of any of the matters canvassed in the correspondence if further information showed that, notwithstanding the explanations furnished by the appellant in 1978, further tax was chargeable.

Save in exceptional circumstances such as those which obtained in the Self-Employed case [1982] A.C. 617, I do not think it would be proper for the commissioners to absolve a taxpayer from a tax liability of which the commissioners were unaware. The 1978 correspondence does not indicate any intention on the part of Mr. Thomas to absolve the appellant from undisclosed liability. This does not mean that the appellant did not derive any benefit from the agreement made in 1978 whereby he abandoned the claims to interest relief and capital loss which he never sought to justify and in which he expressed a singular lack of confidence. The appellant obtained from the 1978 agreement that which he sought, namely, avoidance of the inconvenience of an interview, release from the time and trouble involved in studying and answering further questions and the expense of professional advice. He obtained these advantages and a speedy assessment of his tax liability on the basis of the information which he supplied in the course of the correspondence.

When the commissioners received further information from the accounts of Gymboon Ltd. and from their investigations of the Rossminster group and ultimately from the appellant and his fellow shareholder, there was nothing in the 1978 agreement which made it unfair for the commissioners to enforce any liability to tax which Mr. Thomas did not know to exist in 1978. Some significant information

might have come to light in 1978 if Mr. Thomas had interviewed the appellant but Mr. Thomas desisted from making further inquiries from the appellant at the request of the appellant and on the basis of the information supplied by the appellant. That information was woefully inadequate. Full details of the disposal were requested. Bare details alone were given. When the application for judicial review came before Woolf J. it was plain from the facts and the evidence that the commissioners were invoking section 460 notwithstanding the 1978 agreement, because the commissioners were not in possession of the full facts in 1978. Nevertheless the judge pressed the commissioners to give further evidence about the commissioners' reasons for invoking section 460 and about their process of reasoning. He then dismissed their further evidence as inadequate: ante, pp. 843F - 844B. My Lords, it was not open to Woolf J. to usurp the functions of the commissioners or to investigate further their reasons and reasoning for invoking section 460. The sole question for the judge on judicial review was whether in the light of the 1978 agreement it was an abuse of power for the commissioners to invoke section 460. In my opinion it was not.

Faced with these difficulties Mr. Brodie on behalf of the appellant concentrated on two matters which he said made the decision of the commissioners to proceed under section 460 an abuse of power.

As to the first matter, Mr. Brodie made great play with what he described as a "concession" volunteered by counsel for the commissioners in the course of argument in the Court of Appeal, namely that in the 1978 disclosures and correspondence the appellant acted "innocently." But the state of mind of the appellant in 1978 is not in issue or in evidence in these proceedings. I decline to be influenced by a casual, courteous and irrelevant observation made in argument by one counsel and forensically elevated by another into a "concession." The state of mind of the appellant in 1978 may be explored in section 460 proceedings in order to shed light on the intentions of the appellant in 1977. This appeal is confined to a consideration of the propriety of the conduct of the commissioners in invoking section 460 notwithstanding the terms of the 1978 correspondence.

As to the second matter, Mr. Brodie relied on a submission which was first considered by Lawton L.J. in the Court of Appeal ante, p. 840C. Lawton L.J. referred, at p. 845B-C, to the submission of Mr. Brodie that:

"The Inland Revenue had said that they knew by 8 October 1979 that Mr. Preston's shares had been sold in the course of a Rossminster tax avoidance scheme. Despite their knowledge the Inland Revenue did not take any action under section 460 until September 1982, by which date, as they must have known, it was too late for Mr. Preston to seek relief pursuant to section 33 of the Taxes Management Act 1970."

Lawton L.J. dismissed this submission summarily in the last sentence of his judgment on p. 846 when he said "The delay in initiating the procedure was not enough to make the decision an abuse of power."

I have already observed that the appellant never sought to justify his claims which he said were of no great concern to him and were less

important than the establishment of his tax affairs on a current basis. That object he achieved. In his statutory declaration of 11 October 1982, his affidavit sworn on 17 November 1982, and his notice of application for leave to apply for judicial review dated 18 November 1982, the appellant did not complain of any delay but complained of breach of contract, breach of representation, or conduct analogous to breach of contract or breach of representation constituting an abuse of power. On 22 December 1982 the affidavit of Mr. Owston on behalf of the commissioners stated that the commissioners appreciated by 8 October 1979 that the appellant had sold his shares "in the course of the Rossminster Company Purchase Scheme." No evidence was filed on behalf of the appellant thereafter complaining of delay between 1979 and 1982. The commissioners were invited to give further evidence during the hearing before Woolf J. but not on the reasons for delay between 1979 and 1982 and there is no reference to or reliance upon that delay in the judgment of Woolf J.

A decision in 1979, when the commissioners received the Gymboon accounts, to invoke section 460 but not to take action under that section until after April 1982 when the appellant's claims had expired, would have been inspired by an improper motive and would have constituted an abuse of power. If the commissioners had deliberately waited from 1979 until 1982 in order that the claims of the appellant might be time barred, different considerations would have applied. But there is no suggestion that the commissioners waited deliberately. The appellant chose to withdraw his claims. He ran the risk, of course unwittingly, that his claims would cease to be renewable before the expiry of the time limit which governed the actions of the commissioners and before the commissioners in fact took action. It is not surprising that the significance of the passing of time with regard to the appellant's claims was not present to the minds of the commissioners. The commissioners were not asked to explain the delay. There are several possible reasons which come to mind. The difficulties and complications of enforcing section 460 are well known: see for example, Inland Revenue Commissioners v. Garvin [1981] 1 W.L.R. 793. We do not know how many relevant tax avoidance schemes and how many cases which might have involved such schemes were under consideration between October 1979 and April 1982. We know that after the decision of this House in W. T. Ramsay Ltd. v. Inland Revenue Commissioners [1982] A.C. 300 the Chancellor of the Exchequer estimated that the tax avoidance industry could have cost the Revenue £300m. annually. We can suspect that priority was accorded by the commissioners to the investigation of each case which required action at some time between October 1979 and April 1982 in order that an additional assessment might not become barred by lapse of time under section 460(3) or otherwise. We can suspect that the numbers of the staff of the Inland Revenue equipped and available to investigate and unravel possible liability under section 460 and other tax avoidance provisions of fiscal legislation were limited. We know that the commissioners did not obtain copies of the contract for the sale of the appellant's shares until July 1982 and we were informed that the commissioners consider that contract to be relevant to the question of

whether the appellant sought to obtain a tax advantage by the sale of his shares. In these circumstances the appellant has not shown that delay between 1979 and 1982 converted the commissioners' otherwise lawful actions into an abuse of power. I would dismiss the appeal.

Solicitors: Landau & Scanlan; Solicitor of Inland Revenue.

J. A. G.