Scorer v Olin Energy Systems Ltd

An agreement determining a tax appeal under section 510 of the Income Tax Act 1952 is final as to the particular matter agreed. The Revenue cannot reopen that matter through a discovery assessment merely because the inspector made a mistake of law or fact, misunderstood the material, or failed to consider the legal issue expressly.

The scope of the agreement is determined objectively. The question is whether the agreement, read in its surrounding circumstances and against the material known to be available to the inspector, would lead a reasonable person to conclude that the inspector admitted the taxpayer’s claim. Finality does not protect a taxpayer whose misleading information caused the inspector’s agreement.

The taxpayer carried on separate engineering and ship-chartering trades. After the ship-chartering trade ceased, it claimed to set that trade’s accumulated interest losses against the engineering trade’s profits. Its computation disclosed the claimed set-off, and the inspector agreed the computation under section 510 of the Income Tax Act 1952. A successor inspector later issued an additional corporation tax assessment under section 5(3) of the Income Tax Management Act 1964.

The special commissioners held that the agreement precluded the additional assessment. Walton J reversed them. The Court of Appeal, by a majority, restored their determination in [1984] STC 141. The central issue before the House was whether the availability of the discontinued trade’s losses was the particular matter determined by the section 510 agreement.

1. Appeal dismissed unanimously. Lord Keith of Kinkel delivered the leading speech. Lord Fraser of Tullybelton, Lord Bridge of Harwich and Lord Brightman expressly agreed with his reasons. Lord Templeman agreed that the appeal should be dismissed. The Court of Appeal’s order was affirmed, and the Revenue was ordered to pay the taxpayer’s costs in the House.

2. Per Lord Keith, an agreement under section 510 of the Income Tax Act 1952 has the same consequences as a determination of the appeal by the commissioners. An additional discovery assessment under section 5(3) of the Income Tax Management Act 1964 cannot reopen the particular matter that formed the subject of such an agreement. It may address a different matter.

3. The scope of the agreement was to be assessed objectively. The question was whether the inspector’s agreement to the computation, considered with the surrounding circumstances and all material known to be in his possession, would lead a reasonable person to conclude that he had admitted the claim presented to him.

4. The taxpayer’s accounts and computations sufficiently disclosed that the ship-chartering trade had ceased, that its losses were brought forward under section 345 of the Income Tax Act 1952, and that those losses were being set against the engineering trade’s profits. The inspector therefore agreed the very set-off later challenged. The legal point need not have been expressly formulated.

5. Lord Keith approved Fox LJ’s reasoning that the material question was whether the inspector agreed, not why he agreed. An error of law or fact, a misunderstanding, or a failure to consider the matter did not remove the agreement from section 510. The statutory purpose was finality. The position might differ where misleading information caused the agreement, but no such information had been supplied here.

6. Lord Templeman emphasised that the claimed set-off was legally erroneous and that tax properly due had escaped assessment. That consequence did not prevent dismissal because the inspector had accepted an error apparent from the accounts.

1. House of Lords: Dismissed the Revenue’s appeal and affirmed the Court of Appeal’s order.

2. Court of Appeal: By a majority, Lawton and Fox LJJ, Kerr LJ dissenting, allowed the taxpayer’s appeal and restored the special commissioners’ determination: [1984] STC 141.

3. High Court: Walton J allowed the Revenue’s appeal by case stated and reversed the special commissioners.

4. Special commissioners: Determined that the section 510 agreement precluded the additional assessment.