Arctic Case - Where Are We Now?

The famous line in 'Yes Minister' advises us that 'a memo of clarification is not meant to make things clearer but to put us in the clear'. The recent Arctic case does not make anything clearer, but unfortunately neither does it put anyone in the clear.

The purpose of having Special Commissioners' decisions is to provide guidance in cases of difficulties. In which case the recent decision in the case of Arctic v Garnett has failed miserably. It seems clear that this case must now go on to the High Court whose decision becomes binding.

It is remarkable that two learned Commissioners, after hearing days of well prepared and well presented evidence from qualified representatives, arrive at complete opposite views. Out of the seven questions the two Commissioners disagreed on almost all seven points and the only reason that the decision was found in favour of the Revenue was that one Commissioner was the longer standing and the presiding Commissioner and so her decision was given precedence. Is this any way to give guidance?

This result also begs the question that if such learned Commissioners, after hearing the same evidence over a period of days of being presented with the facts, disagreed so obviously, how are contractors or indeed their advisors expected to be able to interpret this particular piece of legislation?

To further complicate the position, after finding for the Revenue on the 'toss of a coin' the only matter the Commissioners actually agreed upon was the awarding of costs against the Revenue for acting wholly unreasonably in the matter of the three earlier years. Therefore the party that had ostensibly won the case had costs awarded against them!

Two particularly relevant points considered by the Special Commissioners were that Mrs Jones was not a director and also she had no right to transfer her share.

The way forward is to clearly await the High Court appeal for final clarification of a confusing matter plunged further into confusion by this decision.

In the meantime the contractors, who feel they could be affected, should review their particular arrangements. If the secondary shareholder is also a director and if that person has an absolute right to transfer the share then the decision in the Arctic case cannot be applied to them. However the prudent amongst us should nonetheless make sure they take advice concerning their own particular arrangements and also have the appropriate fee protection insurances in place to ensure they will have expert support should they be challenged by the Revenue in the future.

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Added to site on 12/11/04

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