R (Greenfield) v Secretary of State for the Home Department

A transaction is a sham only where the relevant parties share a subjective intention that the apparent rights and obligations should differ from those they actually intend, and intend to give third parties or the court a false impression. Artificiality, uncommercial terms and later departures are not, without more, shams. The court may consider external and circumstantial evidence. A document may be partly sham where it records divisible transactions, although this is exceptional. On an appeal on a point of law, the court may intervene where the only reasonable conclusion on the facts is inconsistent with the tribunal’s decision. It may supply an omitted finding where that conclusion was the only reasonable one.

The Revenue appealed against Jonathan Parker J’s order allowing the taxpayers’ appeal by case stated under section 56 of the Taxes Management Act 1970. The appeal arose from the Special Commissioners’ decision that an agreement concerning Abbey Farm, an assignment and related recitals were shams.

The later deed contained separate arrangements concerning the sale of red land to Crest and the holding and disposal of green land through Conteglade. The High Court held that the earlier agreement had merged into the deed and that the deed was not a sham. The central issues were whether the Commissioners’ finding was unreasonable, whether the deed could be partly sham, and whether the Court of Appeal could supply an omitted finding.

Appeal allowed. Lady Justice Arden delivered the judgment. Sir Martin Nourse and Lord Justice Kay agreed. The case stated and the assessments were remitted to the Special Commissioners, with costs here and below.

1. Meaning of sham. Under the principles stated by Diplock LJ in Snook v London & West Riding Investments Ltd ([1967] 2 QB 786), the relevant parties must subjectively intend both to create rights and obligations different from those appearing from the documents and to give third parties or the court a false impression. The court may examine external evidence, including subsequent conduct. Artificiality or an uncommercial arrangement is insufficient by itself. Later departure from an agreement may instead show an agreed variation.
2. Appellate review. Applying Edwards v Bairstow ([1956] AC 14), an appeal on a point of law permits review of factual findings for unreasonableness, not reconsideration for correctness. Intervention is justified where the only reasonable conclusion on the facts is inconsistent with the tribunal’s decision. The same approach applies to an omission to draw an inference.
3. 1984 Agreement. The Special Commissioners were entitled to consider the evidence in the round. The meeting at which Mr Taylor obtained instructions for negotiations with Crest, the unexplained financial benefits, the rent arrangements, the releases of land from rent and the 10 per cent fee could support the inference that Mr Taylor and his companies acted as agents or bankers for the family. The findings were therefore sufficient to sustain the conclusion that the 1984 Agreement, the Assignment and related recitals were shams.
4. Partly sham instruments. The Commissioners made no express finding about the 1984 Deed. The court nevertheless could supply the omitted finding where, in light of the facts found, it would have been unreasonable not to make it. The all-or-nothing approach was rejected. A document may exceptionally be partly sham where it records divisible transactions. Clause 2 concerning the green land could therefore be sham even though clause 1 concerning the red land was valid.
5. Third-party titles. A sham transaction is ineffective rather than merely voidable. The court left open possible protection for good-faith purchasers. Here, because all relevant parties joined in the conveyances, the purchasers obtained good title, but those conveyances did not cure the sham or alter the continuing effect of clause 2 between the original parties. The only reasonable finding was that clause 2 was also a sham.

• Court of Appeal: Allowed the Revenue’s appeal, held that the 1984 Agreement, Assignment and related recitals were shams, supplied the finding that clause 2 of the 1984 Deed was also a sham, and remitted the case stated and assessments.
• High Court of Justice, Chancery Division (Revenue): Jonathan Parker J allowed the taxpayers’ appeal against the Special Commissioners’ decision.
• Special Commissioners: Held that the 1984 Agreement, the Assignment and related recitals were shams and discharged the alternative assessments.