© 2025 by Michael Firth KC, Gray's Inn Tax Chambers
Contact: michael.firth@taxbar.com
Contracts (general)
Statutory regime applies to contractual relations determined under general law
"[139] This authority, like Morris v Baron and British and Beningtons, shows that the common intention of the parties governs the nature of the contractual arrangements between them. If a statutory regime then has to be applied, it is applied to the state of the contractual relations between them as determined under the general law in accordance with their common intention. Morris v Baron, British and Beningtons and Stead v Dawber illustrate the sort of three-stage analysis we have referred to above, which is different from that contended for by HMRC." (R (oao Cobalt Data Centre 2 LLP) v. HMRC [2024] UKSC 40)
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"[23] Unlike some other relational arrangements including agency, the basis in law of employment is necessarily contractual. Rooted in the common law, it depends on the existence of a contract between employer and employee. For many years, some commentators have thought that it would be better based on the relationship itself (see, for example, BA Hepple: Restructuring Employment Rights (1986) 15 ILJ 69) but it has "obdurately persisted" in being based on the individual contract of employment (see Paul Davies and Mark Freedland: Changing Perspectives Upon the Employment Relationship in British Labour Law, Chap 6 in The Future of Labour Law (2004), ed. Catherine Barnard and others, at p 130).
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[26] As noted above, it is the common law concept of employment that is applicable to the tax and National Insurance legislation relevant to this appeal." (Professional Game Match Officials Ltd v. HMRC [2024] UKSC 29)
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- Unless distinct statutory standard intended
"[125] The Variation Issue arises only on the footing, contrary to our opinion, that the phrase "incurred under a contract entered into [etc]" in section 298(1)(b) refers to the general law of contract and does not import any distinct statutory standard of its own.
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[150] We revert briefly at this point to the section 298 Issue. The difficulties and uncertainties involved in applying the general common law as regards treatment of a change in contractual relations as a variation or a replacement of an original contract are further reasons why it is not plausible to think that the legislative regime as regards what happens in the second 10 year period was supposed to operate solely by reference to common law theory. That would make this tax legislation too uncertain in its effect and would improperly elevate taxpayer choice as to how it should operate above implementation of the policy purpose behind the 10 year time limit." (R (oao Cobalt Data Centre 2 LLP) v. HMRC [2024] UKSC 40)
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Unilateral contracts​​
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- Arises when promisee does the stipulated act
"[62] ... As the passages from Chitty quoted at [41] above show, a unilateral contract is made when A makes a promise to B to pay a sum of money (or do some other act or forbear from doing something) if B will do or forebear from doing something without B making any promise to that effect. It is unilateral because it arises where B does the stipulated act or forbearance without making any promise to do so. But on the judge's findings, this is a case of mutual promises: in return for Mr Harper's promise to pay £50,000 if Mr Schweppe obtained the annulment, Mr Schweppe promised to arrange the necessary finance and obtain the annulment." (Schweppe v. Harper [2008] EWCA Civ 442)
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- Offer may not be withdrawn once promisee begins performance, but promisee not obliged to continue performance
"[49] This is a classic unilateral contract of the Carlill v Carbolic Smoke Ball [1893] 1 QB 256 or the 'walk to York' kind. Once the promisee acts on the promise by inhaling the smoke ball, by starting the walk to York or (as here) by not suing for the maintenance to which she was entitled, the promisor cannot revoke or withdraw his offer. But there is no obligation on the promisee to continue to inhale, to walk the whole way to York or to refrain from suing. It is just that if she inhales no more, gives up the walk to York or does sue for her maintenance, she is not entitled to claim the promised sum.
[50] The facts of this case are analogous to Errington v Errington [1952] 1 KB 290 in which a father paid a lump sum for a house for his son and daughter-in-law leaving a balance payable by mortgage to a building society. He promised his son and daughter-in-law that if they continued in occupation and paid the mortgage instalments, he would transfer the property to them after the last instalment had been paid. When the father died, his personal representatives sought to revoke this promise and claimed possession. It was held that the couple were entitled to occupy the house as long as they paid the mortgage instalments. Denning LJ said at page 295:-
"The father's promise was a unilateral contract - a promise of the house in return for their act of paying the instalments. It could not be revoked by him once the couple entered on performance of the act, but it would cease to bind him if they left it incomplete and unperformed, which they have not done. If that was the position during the father's lifetime, so it must be after his death"
The present case is stronger than Errington since on Mr Soulsbury's death, Mrs Soulsbury had completed all possible performance of the act required for enforcement of Mr Soulsbury's promise." (Soulsbury v. Soulsbury [2007] EWCA Civ 969 - promise to pay £100k if promisee did not enforce order for periodical payments/seek other ancillary relief)
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Conditions precedent​​
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- No duty on either party to render principal performance until occurrence of condition precedent
"[64]...Where an agreement is subject to a condition precedent, there is before the occurrence of the condition precedent no duty on either party to render the principal performance promised by him: see Chitty para 2-145." (Schweppe v. Harper [2008] EWCA Civ 442)
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- Payment of deposit not interpreted as condition precedent to exercising option but obligation arising as a result of exercise
"[52] The Claimants submit that payment of the deposit required by Clause 4.2 was a condition precedent to the valid exercise of the Plot 2 Option. As illustrative examples in support of their submission they refer to Hare v Nicoll [1966] Ch 130 and, by way of contrast, Millichamp v Jones [1982] 1 WLR 1422. In Hare v Nicoll the option to repurchase shares stated that “… if the vendor shall before May 1, 1963, give notice in writing to the purchaser of his desire to repurchase [the shares] at the price of £[X] and on payment of the said sum of £[X] before June 1 1963 to the purchaser the vendor may at any time thereafter by deed revoke the trusts hereby declared… .” It was held that the two conditions (i.e. notice in writing and payment of £[X] by the respective specified dates) had to be strictly complied with for the option to be effectively exercised. By contrast, in Millichamp v Jones , two clauses of the option agreement provided that “3. The said option shall be exercisable by the intending purchasers giving to the intending vendor notice in writing ….” and “5. Upon the exercise of the said option the intending purchasers shall pay to the intending vendor’s solicitors as stakeholders by way of deposit £[x].”
"[53] I accept the submission, supported by Barnsley’s Land Options (6 th Edn) at 4-28, that “in all cases … it is necessary to consider carefully the form of words used and there are no general principles which will determine whether the deposit is actually payable as a condition precedent to the exercise of the option; each agreement must be construed individually.” In other words, normal principles for the construction and interpretation of commercial contracts in writing are to be applied. Adopting that approach, the conclusions that payment of the deposit was in Hare v Nicholl and was not in Millichamp v Jones a condition precedent to the effective exercise of the option may be seen to be almost self-evidently correct.
[54] Turning to Clause 4, both the terms and the structure of the clause lead to the conclusion that payment of the deposit was not a condition precedent to the exercise of the option. The terms are clear: the option is exercised by the Buyer giving written notice to the seller; and the deposit becomes payable “on the exercise of the option” (i.e. when the option is exercised) and not as part of the identified procedure for exercising it. The structure reinforces the clarity of the terms: Clause 4.1 says how the option is exercised; clause 4.2 creates a separate obligation that arises when the option is exercised. There is nothing in either the terms or structure that is analogous with the approach in Hare v Nicholl where, as set out above, two obligations linked by “and” (to show their concurrent necessity) were both subject to the initial qualifying “if”, which, as a matter of structure and syntax, showed them to be the conditions that together necessarily preceded the purchaser’s right to revoke the trusts." (Peacock v. Imagine Property Developments Ltd [2018] EWHC 1113 (TCC), Stuart-Smith J)
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- Result not in party's control was a condition precedent
"[66] In important respects, this agreement is similar to an agreement for the sale of land "subject to finance". In Lee-Parker v Izzet (No 2) [1972] 1 WLR 775, there was an agreement for the sale of a house "subject to the purchaser obtaining a satisfactory mortgage". Goulding J held that this condition was a condition precedent to the existence of a binding contract and that the condition was void for uncertainty. He said at p 779H that the concept of a satisfactory mortgage was too indefinite to be given any practical meaning. "Everything is at large, not only matters like the rate of interest and ancillary obligations on which evidence might establish what would be usual or reasonable, but also those two most essential points---the amount of the loan and the terms of repayment".
[67] It seems to me that, although the agreement in the present case was not expressed as an agreement subject to a condition precedent, in substance that is what it was. The finance was a necessary, but not sufficient, condition of obtaining the annulment. Mr Papadopoulos submits that the loan was incidental to the annulment: the agreement was to obtain the annulment, not to obtain the finance. I have described the obtaining of the annulment as the "core" obligation. But the finance was an essential element of what the judge described as "the package" that the parties agreed that Mr Schweppe would provide. Without the finance, the annulment could not be obtained." (Schweppe v. Harper [2008] EWCA Civ 442)
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Intention to create legal relations​​
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Certainty​​
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- Familial/connected person situations
"[45] In Roger Dyer and Jean Dyer v HMRC [2016] UKUT 381 (TCC) (Dyer) the Upper Tribunal (UT) considered various authorities on the circumstances in which a contract otherwise than in writing can be determined to have come into existence. The authorities (relevant quotations of which are set out by the UT in paragraphs 25 - 28) confirm that for a contract to come into existence the parties to it must have reached agreement as to the terms on which they propose to transact. The three "essential characteristics of a contract are recorded by the UT in paragraph 33 as:
"... an intention to enter into a legally binding relationship; mutuality of obligation; and certainty..."
[46] In Dyer the First-tier Tribunal had found, on the evidence, that the relationships were familial and not contractual. Mr and Mrs Dyer and their daughter acted in a certain way, but their conduct was not sufficient to establish a contract between their daughter and the family company and there was nothing which was enforceable between them. The UT also considered that the conduct between the parties lacked the necessary certainty required for a contract - the parties had not agreed their respective rights and obligations. In the context of a contract of employment a description of the role, hours to be worked, place of work, remuneration etc. would, in the UT's view, have been necessary to provide the certainty to establish a contract. Finally, the UT considered that there was no evidenced mutuality of obligations.
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[48] However, and in our view, most critically, there was insufficient certainty as to the terms of the purported agreement prior to 3 December 2014. On 3 December 2014 MDNSL had been incorporated, it had entered into a lease agreement (with break clause) and employed a head teacher. However, we consider that these are all steps it took preparatory to any contract to acquire the goodwill of the Appellant's business. It was putting itself in a position to acquire the business but as at 3 December 2014 it was not in a position to be certain that it could take any proposed transfer as it awaited planning consent for the property to be used as a nursery, it required OFSTED registration but most significantly there was, at that point, no agreed mechanism by reference to which the consideration payable for the transfer would be determined and thereby there was a lack of certainty that MDNSL would acquire and at what price (or how such price would be determined)." (Delaney v. HMRC [2024] UKFTT 214 (TC), Judge Brown KC)
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- Court will give effect to agreement whose detailed terms are incomplete but which was intended to be binding
"[102] Whilst we agree with Mr Vallat that there are circumstances in which a term in a contract can be too vague to be contractually binding, we do not think that the circumstances of this case fall within that category. It is apparent from the authorities that a contractual term which the parties intend to be contractually binding and whose overall effect is explicit but whose detailed terms are incomplete should be given effect by the courts.
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[107] Applying the principles set out above in the present case, we think that there can be little doubt that both TBC and the participants intended the contract between them to include the salary sacrifice. We say that notwithstanding the view expressed by Mr Bramwells in his testimony to the effect that the salary sacrifice was not contractually binding. We think that that view flies in the face of all the other evidence with which we have been provided apart from the statement in the FAQs to the effect that the scheme was a "non–contractual arrangement" and, in our view, that statement should be construed, in context, as saying no more than that TBC reserved the right to terminate the scheme without facing a claim from participants to the effect that it was not entitled to do so. Indeed, the FAQs stated that, if a participant chose to opt out of the BSS at a later date, that would "constitute a variation to your contract" and that could hardly be the case if participation in the scheme, and the salary sacrifice which that necessarily entailed, were not intended to be contractually binding.
[108] We agree that the participants were not made aware of the detailed terms on which the salary sacrifice would operate but that is no different from the clawback provision in Openwork or the option to buy standards in Hillas and, in both cases, the relevant court considered that the relevant provision should be upheld and sought to give effect to its terms. In this case, it was apparent from the written terms of the contractual documentation that the amount of salary that each participant would be required to sacrifice would be greater than the amount of the payment which the participant would receive in respect of mileage, subsistence expenses or public transport expenses and that an entitlement in respect of mileage, subsistence expenses or public transport expenses would be carried forward in circumstances where payment of that entitlement and the consequent adjustment to salary would take the participant below the NMW.
[109] It is possible that, had a court been asked to resolve a contractual dispute between TBC and a participant as to a point of detail such as whether or not TBC was entitled to apply a de minimis in calculating the payment to be made in any week in respect of a participant's entitlements or entitled to write off the overall carried forward pool of entitlements at a particular time, the court might have had difficulties in determining whether or not those were part of the terms on which the salary sacrifice was agreed. However, to quote Lord Wright in Scammell and Leggatt J in Astor, those are simply difficulties in interpreting the relevant terms. In this case, we do not have to consider the answers to those questions for the simple reason that there never was a dispute between the parties in relation to the terms of the salary sacrifice. Those difficulties in relation to the details do not mean that the salary sacrifice as a whole was too vague to be a valid and binding contractual term." (Best Connection Group Limited v. HMRC [2024] UKFTT 1103 (TC), Judge Beare)
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- "Reasonable finance" too uncertain
"[81] I agree with Dyson LJ, certainly in the context of this case, that a notion of "reasonable finance" is too uncertain to be given any practical meaning and that the appeal should be dismissed because the arrangement on which Mr Schweppe relies is too uncertain to be a contract. With respect to Waller LJ's reasoning in paragraph 53 of his judgment, I do not consider that such lack of certainty can be overcome by providing a worthy claimant with a remedy for loss of a chance."
(Schweppe v. Harper [2008] EWCA Civ 442)
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Multiple agreements as part of a single package
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- Entitled to read contracts together but not to treat as a single composite agreement in absence of sham
"[61] The UT concluded (at [110]) as follows:
"Therefore, where there is in truth one transaction, the tribunal is entitled to read the contracts together for the purpose of determining their legal effect. That is not the same as saying that where there is a series of contracts to implement a transaction there is a single composite agreement. As we have said the "composite agreement" approach is not correct as a matter of contractual construction."
"However what must not be done is to adopt blinkers in looking at each agreement. In determining the legal rights and obligations acquired by the LLPs pursuant to the contractual arrangements the FTT was entitled and correct to look at the entirety of each set of transactions, which it found at [91] were entered into at the same time and as a single package."
[62] It found that as a matter of contractual construction and in the absence of Ramsay, the FTT erred in adopting a "composite agreement" approach to the scheme documentation [107].
[63] The judgment shows that a high threshold must be met in order for the rights and obligations ostensibly created under a document or a set of documents to be regarded, as a matter of private law, as other than stated. Critically, unlike the Ramsay principle, a private law analysis does not permit a departure from the legal rights and obligations created. What it requires is discovery of the "true nature of the legal rights and obligations created pursuant to the contractual arrangements" [110].
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[72] Although the FTT found that the arrangement was circular and amounted to a self contained financing agreement it seems to us implicit that it accepted the legal rights and obligations created under the documents." (Vaccine Research Limited partnership v. HMRC [2025] UKFTT 402 (TC), Judge Tilakapala)
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Identifying the parties to a contract
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- Extrinsic evidence admissible
"[57] In my view the principles which emerge from this line of authorities are the following:
i) Where an issue arises as to the identity of a party referred to in a deed or contract, extrinsic evidence is admissible to assist the resolution of that issue.
ii) In determining the identity of the contracting party, the court's approach is objective, not subjective. The question is what a reasonable person, furnished with the relevant information, would conclude. The private thoughts of the protagonists concerning who was contracting with whom are irrelevant and inadmissible.
iii) If the extrinsic evidence establishes that a party has been misdescribed in the document, the court may correct that error as a matter of construction without any need for formal rectification.
iv) Where the issue is whether a party signed a document as principal or as agent for someone else, there is no automatic relaxation of the parol evidence rule. The person who signed is the contracting party unless (a) the document makes clear that he signed as agent for a sufficiently identified principal or as the officer of a sufficiently identified company, or (b) extrinsic evidence establishes that both parties knew he was signing as agent or company officer.
[58] In my fourth proposition the phrase 'sufficiently identified' is not a happy one. It is intended to include cases where there is an inconsequential misdescription of the entity on behalf of whom the individual was signing. This is exemplified by Badgerhill Properties." (Hamid v. Francis Bradshaw Partnership [2013] EWCA Civ 470)
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