Macniven v. Westmoreland Investments Limited

The House considered whether payments of accrued interest by Westmoreland to its creditor (the trustees of an exempt pension scheme) were "payments" within the meaning of section 338 of the Income and Corporation Taxes Act 1988 and therefore deductible as charges on income. The court reiterated the Ramsay approach as a method of statutory construction (to give commercial meaning to statutory concepts where appropriate) but held that Ramsay does not impose a free-standing rule overriding the ordinary meaning of statutory language.

Applying those principles, the House held that "paid" in section 338 should be given its ordinary legal meaning — the discharge of an obligation — and that the payments in question, though circular and undertaken for tax advantage, genuinely discharged Westmoreland's interest liabilities. The statutory anti-avoidance provisions relied on by the Crown (including section 338(5)(a), section 75(3) and section 787(1) as discussed in the judgment) did not, on the facts and findings, defeat the claim. Consequently the appeal was dismissed.

The appellant (HM Inspector of Taxes) challenged determinations by the Special Commissioners that Westmoreland Investments Ltd had "paid" yearly interest within the meaning of section 338 of the Income and Corporation Taxes Act 1988 and so could claim deductions. Westmoreland had large accrued interest liabilities to its parent company's trustee (an approved, tax-exempt superannuation scheme). The trustees lent money to Westmoreland which was immediately used to pay overdue interest; Westmoreland accounted for tax which the exempt trustees then reclaimed. The Special Commissioners found the loans and payments to be genuine and allowed the deductions. Carnwath J allowed the Crown's appeal at first instance but the Court of Appeal reversed and allowed Westmoreland. The case reached the House of Lords by way of the Crown's appeal.

• Nature of the claim: claim by Westmoreland for allowable deductions under section 338 for yearly interest paid; Crown sought to disallow on Ramsay/anti-avoidance grounds.
• Issues framed:
  1. Whether the Ramsay approach to statutory construction required the circular transactions to be disregarded so that no "payment" occurred;
  2. Whether "paid" in section 338 bore an ordinary legal meaning (discharge of liability) or a narrower/commercial meaning excluding circular, tax-driven payments;
  3. Whether specific statutory anti-avoidance provisions (including section 338(5)(a), section 75(3) and section 787(1) as discussed) prevented deduction.
• Court’s reasoning: The House reviewed Ramsay and its successors, explaining that Ramsay is a technique of purposive construction applied where the statutory concept can and should bear a commercial meaning. Ramsay does not authorise a general rule that all tax-driven or circular transactions must be ignored. The court found no textual or contextual basis for giving "paid" in section 338 any meaning other than the ordinary one of discharge of the debt. The payments therefore qualified as charges on income. The specific statutory provisions relied on by the Crown did not, in the circumstances and on the findings of fact, defeat Westmoreland's claim.

The House therefore dismissed the Crown's appeal and rejected the contention that Ramsay required disregard of the payments on the facts of this case.

Appeal dismissed. The House held that the Ramsay approach is a principle of statutory construction applicable where the statutory concept is to be given a commercial character, but it does not override the ordinary meaning of statutory language. "Paid" in section 338 bears its ordinary legal meaning of discharge of an obligation; the interest payments here were genuine discharges and therefore deductible. The Crown's alternative arguments based on the specific anti-avoidance provisions failed on the facts.

Special Commissioners allowed Westmoreland (findings: loans and payments were real). Carnwath J allowed the Crown's appeal ([1997] STC 1103). Court of Appeal reversed Carnwath J and allowed Westmoreland ([1998] STC 1131). House of Lords dismissed the Crown's appeal ([2001] UKHL 6).