Prizedome Ltd & Anor v HM Revenue & Customs

Paragraph 1(6) of Schedule 7A to the Taxation of Chargeable Gains Act 1992 operates only where both statutory conditions are met. Condition (b) concerns losses of the first group which have not already been identified as pre-entry losses in relation to that group. It treats the second group as the relevant group for that limited purpose. It does not re-date losses already pre-entry to the first group or remove the restrictions on their set-off after a takeover. A construction producing that result would make no sense and is not compelled by the statutory language. The appeal was dismissed.

Limitgood Ltd and Prizedome Ltd incurred capital losses before joining the Grantchester Ltd group. Grantchester Ltd later became a member of the Grantchester Holdings plc group. The appellants sought to set off their losses against gains made within the latter group under paragraph 1(6) of Schedule 7A to the Taxation of Chargeable Gains Act 1992.

The Special Commissioners allowed the appeal by the chairman’s casting vote. Blackburne J allowed HMRC’s appeal, holding that paragraph 1(6) did not apply. The central issue before the Court of Appeal was whether condition (b) altered the relevant group and the date of entry for the appellants’ losses.

1. Disposition. Lord Justice Mummery dismissed the appeal. Lord Justice Dyson and Lord Justice Jacob agreed.
2. Statutory approach. The court applied the purposive approach to statutory construction stated in Barclays Finance Ltd v Mawson [2005] 1 AC 684 and MacNiven v Westmoreland Investments Ltd [2003] 1 AC 311. The question was whether the provisions, properly construed, applied to the facts. The court also noted the power to correct an obvious drafting error in plain cases, with considerable caution, as described in Inco Europe v First Choice Distribution [2000] 1 WLR 586. No correction of the statutory language was required.
3. Application of Schedule 7A. The Schedule applied in relation to the appellants’ realised losses because they had been members of the Grantchester Ltd group. Under paragraph 1(2), the losses were pre-entry losses by reference to their entry into that group on 27 September 2000. Section 170(10) deemed the Grantchester Ltd and Grantchester Holdings plc groups to be the same group after the takeover, but did not alter the original entry date.
4. Construction of paragraph 1(6)(b). Paragraph 1(6) required both conditions (a) and (b). Condition (a) was satisfied. Condition (b) was directed to losses of companies in the first group which had not already been identified as pre-entry losses in relation to that group. For that limited purpose, the second group was the relevant group. It did not make the second group the relevant group for every purpose of the Schedule, nor did it remove restrictions already applying to losses pre-entry to the first group.
5. Result. The appellants’ construction would have caused losses already subject to restriction to become available for unrestricted set-off after the group takeover. The statutory language pointed to the more limited construction adopted by HMRC and Blackburne J. Paragraph 1(6)(b) was not satisfied, so the claimed set-off was unavailable.

1. Court of Appeal (Civil Division): On 12 March 2009, the appeal was dismissed.
2. High Court, Chancery Division: On 18 January 2008, Blackburne J allowed HMRC’s appeal and held that paragraph 1(6) did not apply.
3. Special Commissioners: On 18 May 2007, the commissioners were divided. The chairman’s casting vote allowed the appellants’ appeal.