Estera Trust (Jersey) Ltd v Singh & Ors

Before an order is sealed, the court may amend its terms where a later-discovered fact or legal point makes that necessary for fair disposal of the case. That jurisdiction does not require the court to impose an artificial transaction on reluctant parties merely to secure a tax advantage. In a purely commercial context, the court should refuse such relief where the proposed structure may be regarded as aggressive tax avoidance, may expose other parties to scrutiny, or would delay finality and interfere with their legitimate business interests. Relief against mistake may remove the consequences of the mistake, but cannot improve the applicant’s position beyond the position that would have existed without it. Fairness, simplicity, finality and the public interest in payment of properly due tax may outweigh the applicant’s interest in eliminating tax risk.

The petitioners had obtained an order requiring the first and fourth respondents to purchase their shares in Edwardian Group Ltd. Following the quantum judgment, the petitioners discovered that a purchase by the company could be treated as an income distribution under the Income Tax (Trading and Other Income) Act 2005. They applied to postpone completion and sought an order permitting the shares to be transferred to a Jersey company to be incorporated later, followed by put and call arrangements designed to avoid immediate tax liability.

The respondents opposed the structure. They relied on the possible tax-avoidance character of the arrangement, the risk of HMRC scrutiny, the delay until 2020, and the need for finality. The central issues were whether the court had jurisdiction to alter the buy-out structure before the order was sealed and, if so, whether it was fair and just to exercise that discretion.

1. Jurisdiction. The court had jurisdiction to amend the terms of its decision before the order was drawn up and perfected. The earlier order identified the shares to be sold, but left the manner of sale to be determined at the quantum trial. It therefore did not prevent a structure involving an intermediate person, company or trust, if a proper basis for that structure were established.
2. Tax-avoidance risk. The proposed Jersey NewCo arrangement was an artificial structure conceived solely to avoid a substantial income-tax liability. It could reasonably be regarded by HMRC as aggressive tax avoidance. The court could not determine in advance whether the arrangement would succeed for tax purposes or bind HMRC, and could not rule out an interpretation of section 385 of the Income Tax (Trading and Other Income) Act 2005 under which the liability would remain with Estera.
3. The possible risk that HMRC would scrutinise the affairs of the company or Jasminder Singh was a relevant, although not overriding, factor. The court should not rely on its own order as a reason for facilitating conduct that might otherwise be regarded as inappropriate tax avoidance.
4. Even assuming that the arrangement was not improper and caused no risk to the respondents, the court would not ordinarily compel reluctant parties in a purely commercial dispute to enter into a transaction whose sole purpose was to save tax for another party. The proposed order was exceptional because it involved a non-existent, non-party company, a future option structure, continuing court supervision and substantial delay.
5. Mistake. The court accepted that relief against mistake may have tax-saving consequences, applying the principle discussed in Pitt v Holt [2013] 2 AC 108. However, relief can remove the effect of a mistake; it cannot place the applicant in a better position than if the mistake had not occurred.
6. Discretion and outcome. The respondents were entitled to complete the buy-out without further delay. The petitioners could reasonably mitigate the tax consequences through DTA relief or on-shoring the trusts. Fairness, simplicity, finality and the public interest in payment of tax outweighed the petitioners’ interest in avoiding all tax risk. The application for the proposed Jersey NewCo structure was refused.

The judgment records earlier liability and quantum trials in the same proceedings, but no appellate history.