Furniss V Dawson - The Decision

The Decision

The judgement of the court was given by Lord Brightman. The other four judges (Lord Fraser of Tullybelton, Lord Scarman, Lord Roskill and Lord Bridge of Harwich) gave shorter judgements agreeing with Lord Brightman's more detailed judgement.

The court decided in favour of the Inland Revenue (as it then was: it is now HM Revenue and Customs).

The judgement can be viewed as a battle between:

• extending the principle in the Duke of Westminster's Case (Inland Revenue Commissioners v. Duke of Westminster A.C. 1); and
• extending the Ramsay Principle;

two conflicting ideas which could, at their extremes, be expressed as:

• a rule that any taxpayer may organise his affairs in any way he wishes (provided it is legal) so as to minimise tax (Westminster) and
• a rule that a taxpayer will be taxed on the effect of his transactions, not upon the way he has chosen to organise them for tax purposes (Ramsay).

Lord Brightman came down firmly in favour of an extension of the Ramsay Principle. He said that the appeal court judge (Oliver L. J.), by finding for the Dawsons and favouring the Westminster rule, had wrongly limited the Ramsay Principle (as it had been expressed by Lord Diplock in a case called IRC v. Burmah Oil Co. Ltd.). Lord Brightman said:

The effect of his judgment was to change Lord Diplock's formulation from "a pre-ordained series of transactions ... into which there are inserted steps that have no commercial purpose apart from the avoidance of a liability to tax" to "a pre-ordained series of transactions ... into which there are inserted steps that have no enduring legal consequences." That would confine the Ramsay principle to so-called self-cancelling transactions.

Oliver L. J. had given considerable weight to the fact that the existence of Greenjacket Investments Ltd. was real and had enduring consequences. At the end of the transaction, the Dawsons did not own the money which had been paid by Wood Bastow Ltd.: instead, Greenjacket Investments Ltd. owned that money and the Dawsons owned Greenjacket Investments Limited. Legally speaking, those are two very different situations. However Lord Brightman saw this as irrelevant. In any case where a predetermined series of transactions contains steps which are only there for the purpose of avoiding tax, the tax is to be calculated on the effect of the composite transaction as a whole.