CooperVision Lens Care Limited v The Commissioners for HMRC

PART A Overview

1. This appeal was made in respect of (1) a determination (“ the determination ”) made under regulation 80 of the Income Tax (Pay As You Earn) Regulations 2003 (“ the PAYE Regulations ”), dated 8 February 2021 that the appellant should have accounted for income tax on certain payments under the “Pay As You Earn” (“ PAYE ”) system in respect of the 2014/15 tax year, and (2) a related decision that the appellant should have accounted for Class 1 national insurance contributions (“ NICs ”) in respect of the payments. The relevant payments were made to Mr John Maynard, Mrs Bridget Maynard, and Mr Alan Wells (“ the shareholders ”) for the sale of their shares in the appellant which took place as part of the sale of the entire shares of the appellant, to CooperVision Holdings (UK) Limited (“ CV ”) on 6 August 2014 for a total consideration of £663,223,883.71 (after adjustments).

2. At the time of the sale, the appellant’s shares were held by two groups: (1) the shareholders and five other individuals (“ the majority shareholders ”), and (2) Bond Capital Partners I Ltd (“ Bond ”) and CSP Prism LP (“ Prism ”) (together “ the minority shareholders ”). The appellant was then named Sauflon Pharmaceuticals Limited. The shareholders agreed to accept a price for the sale of their shares equivalent to £2,850 per share; the other five individual majority shareholders agreed to accept a price for the sale of their shares equivalent to £2,134 per share; and Bond and Prism agreed to accept prices for the sale of their shares equivalent to £1,555 and £1,539 per share respectively. We refer to the difference in the prices received by the shareholders and the other majority shareholders and the minority shareholders as “ the price differential ”.

3. The shareholders accounted for tax on the disposals they made of their shares in the appellant (“ the disposals ”) on the basis that they each realised a gain which is taxable under the capital gains tax regime. However, HMRC’s view is that income tax is due on some of the sum received (the price differential) under the special rules in Chapter 3D of Part 7 to the Income Tax (Earnings and Pensions) Act 2003 (“ ITEPA ”). Broadly, these rules apply to tax as employment income sums received as consideration for the disposal of “employment related securities” to the extent that the consideration exceeds the market value of the securities. If that is correct, it is common ground that the appellant, as the employer, should have deducted the resulting income tax from the sum which constitutes employment income under the PAYE system pursuant to s 698(1)(f) ITEPA and should have accounted for class 1 NICs in respect of that sum (as set out in Regulation 22(7) of the Social Security (Contributions) Regulations 2001).

4. The appellant disputes that the determination was validly made: (1) HMRC can make such a determination under regulation 80(1) only if it “appears” to an officer of HMRC that there is a shortfall of tax. It was common ground that HMRC bears the burden of proving that this requirement is met. In the appellant’s view, HMRC have not discharged that burden. (2) Regulation 80(5) provides that a determination made under regulation 80 is subject to various procedural requirements set out in the Taxes Management Act 1970 (“ TMA ”) relating to assessments including those relating to time limits “as if - (a) the determination were an assessment, and (b) the amount of tax determined were income tax charged on the employer, and those Parts of that Act apply accordingly with any necessary modification.” Therefore: (a) Sections 34 and 36 TMA provide, in effect, that a determination such as this made “on a person in a case involving a loss of income tax” may be made not more than four years after the year of assessment to which it relates except that if the loss of tax was “brought about carelessly by the person” it may be made “at any time not more than 6 years after the end of the year of assessment to which it relates ...”. Section 118(5) TMA provides that: “For the purposes of this Act a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation.” (b) As the determination was issued more than 4 years after the end of the year of assessment in which the disposal of the shares took place, HMRC need to demonstrate that the 6 year time limit applies on the basis that the asserted loss of tax was brought about carelessly by the appellant. In the appellant’s view HMRC have not done so.

5. The appellant otherwise appealed against the determination on the basis that (1) Chapter 3D of Part 7 ITEPA is not in point on the basis that the shares disposed of by the shareholders are not “employment-related securities” (“ the ERS issue ”); and (2) the disposal of the shares was made at market value such that there is no sum which is taxable under these provisions (“ the market value issue ”). We refer to these issues together as “ the PAYE issue ”. It was common ground that the burden of proof with respect to the PAYE issue rests on the appellant (see s 50 TMA).

6. Mr Wells and Mr Maynard gave evidence for the appellant, as did Mr Ricupati who made the decision that the appellant would not account for income tax and NICs in respect of the relevant sums. Mr Maynard and Mr Ricupati attended the hearing and were cross-examined. Unfortunately, Mr Wells was unable to attend the hearing due to being unwell. We decided to admit his evidence in his witness statement, but we have borne in mind, in assessing the weight to be attached to it, that it was not tested under cross-examination. Both Mr Maynard and Mr Ricupati were very conscious of the appellants’ own case on the carelessness issue and (1) on occasions to varying degrees at the hearing had a tendency to put forward that case and argue with counsel rather than focussing on the specific question they were asked, and (2) made some statements that lack credibility in light of the overall evidence. Overall, we found Mr Ricupati to be an unreliable witness, whose evidence should be treated with caution, for the reasons set out in Part C.

7. HMRC asserted that the appellant has only disclosed selective documents in circumstances where, so they say, it is clear from the documents which have been disclosed that the witnesses have retained significant relevant documentation. There is a lack of contemporaneous correspondence in respect of the transactions which are the subject of this appeal. However, we consider there is no basis for us to conclude that documents have been deliberately withheld and that this affects the credibility and value of the witness evidence in this appeal.

8. In summary, we have concluded that: (1) For the reasons set out in Part C, the determination was validly made by HMRC within the applicable 6-year time limit. (2) For the reasons set out in Parts B and C the requirements for the provisions of Chapter 3D of Part 7 ITEPA to apply to the consideration received by the shareholders on the sale of their shares is satisfied except as regards “the Fourth Shares” (see Part B) on the basis that (a) the sums were received as consideration for the disposal of “employment related securities” (see Part B), and (b) the consideration exceeds the market value of the securities (see Part C). Accordingly, the appellant, as the employer, should have deducted the resulting income tax from the relevant sums which constitute employment income under the PAYE system and accounted for Class 1 NICs in respect of those sums. Part B - ERS issue Section 1 - Statutory provisions

9. Part 7 ITEPA contains special rules where “securities, interests in securities or securities options are acquired in connection with an employment” (s 417(1) ITEPA). Chapter 3D of Part 7 brings in to charge as employment income sums arising when securities falling within the scope of these provisions are disposed of for more than market value (s 417(2) and (3) ITEPA). In summary: (1) Section 446X ITEPA provides that Chapter 3D of Part 7 ITEPA applies in circumstances where (emphasis added): “(a) employment-related securities are disposed of by an associated person so that no associated person is any longer beneficially entitled to them, and (b) the disposal is for consideration which exceeds the market value of the employment-related securities at the time of disposal.” (2) Under s 421B(1) (subject to certain other provisions which are not in point here) “employment-related securities” are: “securities, or an interest in securities, acquired by a person where the right or opportunity to acquire the securities or interest is available by reason of an employment of that person or any other person ”. (Emphasis added.) We refer to this as “ the causation test ”. (3) Under s 421B(2): “securities are, or an interest in securities is, acquired at the time when the person acquiring the securities or interest becomes beneficially entitled to those securities or that interest (and not, if different, the time when the securities are, or interest is, conveyed or transferred); and “employment” includes a former or prospective employment. (4) Under s 421B(3): “A right or opportunity to acquire securities or an interest in securities made available by a person’s employer, or by a person connected with a person’s employer, is to be regarded for the purposes of subsection (1) as available by reason of an employment of that person unless – (a) the person by whom the right or opportunity is made available is an individual, and (b) the right or opportunity is made available in the normal course of the domestic, family or personal relationships of that person.” (Emphasis added.) We refer to this as “ the deeming test ”. (5) These provisions cease to apply to securities, or an interest in securities, (amongst other circumstances) “immediately after the securities are, or the interest in securities is, disposed of otherwise than to an associated person” (see s 421B(4) and (5)). An associated person is defined in s 421C as: (1)…. (a) the person who acquired the employment-related securities on the acquisition, (b) (if different) the employee, and (c) any relevant linked person. (2) A person is a relevant linked person if - (a) that person (on the one hand), and (b) either the person who acquired the employment-related securities on the acquisition or the employee (on the other), are or have been connected or (without being or having been connected) are or have been members of the same household.” (6) For these purposes, under s 421B(8): “the acquisition”, in relation to employment-related securities, means the acquisition of the employment-related securities pursuant to the right or opportunity available by reason of the employment, “the employment”, in relation to employment-related securities, means the employment by reason of which the right or opportunity to acquire the employment-related securities is available (“the employee” and “the employer” being construed accordingly unless otherwise indicated), and “employment-related securities” means securities or an interest in securities to which Chapters 2 to 4 apply (ignoring any provision of any of those Chapters which limits the application of the Chapter to a particular description or descriptions of employment-related securities).” (7) Section 421D provides as follows as regards “replacement and additional securities and changes in interests” : “(1) Subsections (2) and (3) apply where an associated person is entitled to employment-related securities (the “original securities”) and either - (a) as a result of the conversion of the original securities (or the securities in which they are an interest), or of any other transaction or series of transactions, that person ceases to be entitled to the original securities but that person or another associated person acquires securities or an interest in securities (the “replacement securities”), or (b) … (2) The replacement securities … are to be regarded for the purposes of section 421B(1) (securities acquired pursuant to a right or opportunity available by reason of an employment) as acquired pursuant to the same right or opportunity as the original securities.”

10. Pursuant to s 5(1) and (2) ITEPA, these provisions apply to office holders and all provisions that apply to employees also apply to office holders. Section 2 - Case law

11. The causation test and the deeming test were considered by the Supreme Court in HMRC v Vermilion Holdings Ltd [2023] UKSC 3, [2023] 1 WLR 3908 (“ Vermilion ”) in the context of materially identical provisions (in ss 47(1) and (3) ITEPA). Lord Hodge said this at [21] and [22]: “The purpose of section 471 is to define the circumstances in which the exercise of a securities option is brought within the charge to income tax instead of being subjected to capital gains tax. The section does so by two methods. First, it provides in subsection (1) a causal test, asking whether the right or opportunity to acquire the securities option “is available by reason of an employment of that person or another person”. Secondly, in subsection (3), it avoids such questions as to causation where a person’s employer makes a right or opportunity to acquire a securities option available to him or her…… The judgment of the Court of Appeal of England and Wales in Wicks v Firth vouches the causal nature of the subsection (1) test. See para 11 above. Application of the test set out in that case to particular facts can involve difficult judgments and judges may reasonably differ in their assessments as this appeal discloses. It is against that background that Parliament enacted the deeming provision in section 471(3). It is consistent with the approach of the House of Lords in Wicks v Firth that it is only if that deeming provision does not apply that one has to carry out the assessment of causation under section 471(1).”

12. Having set out, at [27], Lord Briggs’ comments in Fowler v Revenue and Customs Commisioners [2020] 1 WLR 2227, giving guidance on the interpretation and application of deeming provisions (see [27] of that decision), Lord Hodge said this at [24]: “It is not difficult to ascertain the purpose of the deeming provision in s 471(3). The causation questions which can arise under s 471(1) may be difficult and may give rise to disagreement among judges as has occurred in this case. To avoid such difficult questions, sub-s (3) creates a bright line rule: if a person’s employer (or a person connected to that person’s employer) provides the employee the right or opportunity to acquire a securities option, that right or opportunity is conclusively treated as having been made available by reason of the employment of that person (unless sub-ss (a) and (b) apply). This involves a straightforward examination of the agreement or transaction to ascertain who conferred the right or opportunity …” (Emphasis added.)

13. HMRC referred to Lord Hodge’s comments at [27], where he held that the tribunal had erred in law in finding that the employer did not make an option granted to the taxpayer in 2007 available to him because it was made available by the surrender of his previous option granted in 2006 which was granted for his prior services as an external adviser. He commented that the tribunal “sought to apply to the interpretation of the deeming provision under subsection (3) the questions of causation which are relevant to the exercise under subsection (1). This is an error as it denudes the deeming provision of any substance”. HMRC commented that this shows that the question to be applied under the deeming provision is not a question of causation.

14. HMRC submitted that (1) where an employer is a company, it has to act through its directors or shareholders. A realistic view of the facts does not involve looking through the employer, to its shareholders. It is the company who employs the individual, not its shareholders, (2) Mr Wells and Mr Maynard were employees or prospective employees and the options they were given were the rights to acquire shares in their employer, and (3) where the rights are conferred through a contract/a legal agreement, the above comments make it clear that the requirement is simply to look to see who is the other party to that contract/ legal agreement.

15. The correct interpretation of the causation test is succinctly summarised by Arnold LJ in Charman v HMRC [2021] EWCA Civ 1804, [2022] STC 157 at [47] and [48]: “47. There was little, if any, dispute between the parties as to the correct test to be applied to determine whether an interest is acquired "by reason of" employment. It is not necessary for HMRC to show that the interest was acquired by reason only of employment. Nor is the test a " causa sine qua non " or "but for" test. The test that has found favour in subsequent authorities (see Mairs v Haughey [1992] STC 495 at 525 (Hutton LCJ (NI)), Wilcock v Eve [1995] STC 18 at 29 (Carnwath J) and Vermilion Holdings Ltd v Revenue and Customs Commissioners [2021] CSOH 45, [2021] STC 1874 at [45]-[46] (Lord Campbell of Alloway dissenting) and [69] (Lord Doherty)) is that stated by Oliver LJ in Wicks v Firth [1982] 1 Ch 355 at 371: "One is directed to see whether the benefit is provided by reason of the employment and in the context of these provisions that, in my judgment, involves no more than asking the question 'what is it that enables the person concerned to enjoy the benefit?' without the necessity for too sophisticated an analysis of the operative reasons why that person may have been prompted to apply for the benefit or to avail himself of it."

48. Counsel for Mr Charman drew a distinction between what she called "linear" cases (in which one interest replaces another) such as Abbott v Philbin and what she called "convergent" cases (in which an interest is acquired for more than one reason) such as Wicks v Firth . Despite the eloquence of her submissions, I do not find this a helpful distinction. The statutory test must be applied to a wide range of circumstances. As Oliver LJ made clear, the exercise is one which requires an evaluation by the tribunal of fact. In making that evaluation it is not appropriate for the tribunal to try to pigeonhole cases into categories. Particular caution is required before placing reliance upon Abbott v Philbin when that case not only involved different statutory language, but also has been reversed by statute.”

16. We note that immediately preceding the passage from Oliver LJ’s comments in Wicks v Firth [1982] 1 Ch 355 (“ Wicks ”) set out in Charman , Oliver LJ (as he then was) said this: “Speaking only for myself I do not in the case of this legislation, find the philosophical distinction between a “causa causans” and a “causa sine qua non” helpful. I see no reason why a benefit “derived” from the employment (to use the words of the chapter title) necessarily has to be invested with an intention on the part of the employer to remunerate the employee for the performance of his duties.”

17. In making this comment Oliver LJ rejected (at least in part) the formulation of the causation test made by Denning LJ (as he then was) in that case which was as follows: “It seems to me that the words “by reason of” are far wider than the word “therefrom” in section 181(1) of the Income and Corporation Taxes Act 1970. They are deliberately designed to close the gap in taxability which was left by the House of Lords in Hochstrasser v. Mayes [1960] G AC 376. The words cover cases where the fact of employment is the causa sine qua non of the fringe benefits, that is, where the employee would not have received fringe benefits unless he had been an employee. The fact of employment must be one of the causes of the benefit being provided, but it need not be the sole cause, or even the dominant cause. It is sufficient if the employment was an operative cause in the sense that it was a condition or the benefit being granted …” (Emphasis added.)

18. Mr Jones submitted that the fact that Lord Denning’s formulation is not correct is also apparent from Hutton LJ’s comments in Mairs v Haughey 66 TC 273. Having set out Denning LJ’s comments in Wicks at 310 F to I, Hutton LJ (as he then was) said, at 311 I to 312 A to C, that he preferred Oliver LJ’s formulation of the test: “which involves asking the question "what is it that enables the person concerned to enjoy the benefit'?" rather than the causa sine qua non test suggested by Lord Denning. I respectfully agree with Lord Denning and Oliver LJ that the words "by reason of" in s 154 are wider than the word "therefrom" in s 19(1). It also follows that, if one does not apply to s l54 the causa sine qua non test approved by the House of Lords in relation to s 19(1), a causa sine qua non may constitute a "reason" for the provision of a benefit. But I consider, with respect, that the causa sine qua non test suggested by Lord Denning is too wide and could let in a factor in the past which, in ordinary language, would not constitute a "reason" for the provision of the benefit. It is appropriate to recall the warning given by Lord Radcliffe in Hochstrasser v. Mayes , at 391, that, whilst explanations by eminent judges of the meaning of particular words are valuable, they do not displace the words themselves. Neill L.J. gave the same warning in Hamblett v. Godfrey , at 370D, when he said: "...one must never lose sight of the fact that these explanations cannot provide a substitute for the statutory words".”

19. As HMRC submitted, whilst it is clear that the “causa sine qua non” test put forward by Denning LJ is not good law, his final comments (as highlighted in the passage in [17] above) remain good law and accord with the approach of Oliver LJ.

20. From the caselaw it is clear that (1) the causation test to be applied is wider than the test applied in answering the question of whether emoluments are “from employment” and is not a “but for” test, and (2) the exercise of determining whether the right or opportunity to acquire securities or an interest in securities was available by reason of employment is an evaluative one.

21. HMRC submitted that where the share acquisition is “intimately connected with employment”, this will be sufficient for the causation test to be satisfied by reference to the comments of the Upper Tribunal (“ UT ”) in Charman v HMRC [2020] UKUT 253 (TCC); [2020] STC 1970 at [118]. The UT said this: “…it would not be inappropriate to describe the nature of the rights held by Mr Charman at the time of the share exchange as ‘intimately connected with the employment’, rather than enjoyed in another capacity (see Carnwath J’s comment to that effect in Wilcock v Eve , set out at [83] above, in the context of the emoluments test).”

22. Earlier in their decision: (1) The UT set out that in Wilcock v Eve [1995] STC 18, in reviewing the statements in the leading cases on the emoluments “from” employment issue, Carnwath J observed, at [25]: “Without any desire to diminish the undoubted authority of those statements, it must be recognised that in most of these borderline cases the problem is that there is more than one operative cause for the payment. Inevitably, there is an element of value judgment in deciding on which side of the statutory line the payment falls.” (2) They continued, at [82], that Carnwarth J commented further, at [26] of his decision, on the contrasting outcomes in some of the cases: “One sees the essential contrast between rights intimately linked with employment and rights enjoyed in some other capacity.” (3) At [83] the UT noted that, at [27], “the court framed the question on this issue as whether the loss of rights under the share option scheme was ‘intimately connected with the employment’, or alternatively as something distinct”.

23. HMRC also referred to the analysis of the caselaw by the UT as regards the difference between the “from employment” test and the causation test: (1) At [84] the UT cited the comments of Carnwath J in Wilcock v Eve at [29] and [30] that there is little difference between the two tests. These include that “it is clearly established that the concept of reward is not an essential ingredient, even in the case of an ordinary charge under Sch E” and “It may be that we have moved beyond Wicks v Firth , to a point where there is very little difference, if any, between the two tests”. (2) At [85], the UT cited the following comments made by Mummery LJ in Kuehne & Nagel ([2010] UKUT 457 (TCC), [2011] STC 576) (at [32] and [33]): “When considering the cause of, or the reason for, an event or an act in a particular case, the courts steer clear of involvement in general theories of causation. Instead they apply a mix of general principle, legal policy and good-sense pragmatism to determine whether legal liability in accordance with the conditions set by the relevant rules has been established on the particular facts of the case … All I need say at this point is that the use of “from” in the idea expressed in the statutory expression “earnings from an employment” and “earnings derived from an employment” in a fiscal context indicates, as matter of plain English usage, that there must, in actual fact, be a relevant connection or a link between the payments to the employees and their employment.” (3) At [87] and [88], the UT referred to Patten LJ’s comments in that case. They noted that Patten LJ referred (at [50]) to the need for “a sufficient causal link to be established between the payment and the employment”. Having reviewed the chief authorities, he then stated this, at [52] and [53]: “ It must follow from this that, in order to satisfy the s 9 test, one must be able to say that the payment is from employment rather than from a non-employment source. This has certainly been the approach of the courts in most of the decided cases, examples of which …… This process of evaluation requires the fact-finding judge to make findings of primary fact based on the evidence as to the reasons and background to the payment and then to apply a judgment as to whether the payment was from the employment rather than from something else …” Patten LJ concluded, at [59]: “If the employment is a substantial and equal cause of the payment, it becomes open to the judge to say that the statutory test is satisfied. The payment is then from the employment even if it is also substantially attributable to a non-employment cause.” (4) At [95] and [96] the UT concluded as follows on the relationship between the two tests: “Ms Shaw argued that the two tests were materially indistinguishable, citing as support the observations of Carnwath J to that effect in Wilcock v Eve , set out at para [84] above. We do not agree that those observations bear that weight. They are expressed tentatively (‘It may be …’) and in our view it is clear that ‘by reason of employment’ is intended to be and is wider than ‘from’ employment. That was the unequivocal view of all three judges in Wicks v Firth , not only Lord Denning, and Hutton LCJ expressly agreed with those views in Mairs v Haughey (at the passage set out at para [78] above). Doubtless there will be factual situations where, as Carnwath J suggested, the two tests would produce the same result. However, it does not necessarily follow in every case that because something is not received ‘from’ employment it is not acquired ‘by reason of employment’. A degree of caution is therefore required in applying authorities on the former to the latter. As to the meaning of ‘by reason of employment’, the formulation proposed by Oliver LJ in Wicks v Firth is to be preferred to that of Lord Denning in that case. That follows from Wilcock v Eve and Mairs v Haughey (CA) .”

24. Therefore, the guidance on the “from employment” test is of some relevance albeit that as the UT said a degree of caution is required in having regard to the authorities on that test in applying the causation test given it is established this test is intended to be and is wider than the “from employment” test.

25. HMRC submitted that the UT applied the “intimately connected” test set out in Wilcock v Eve in their conclusion on the relevant issue as follows: (1) One of the issues was whether shares in Axis Capital acquired by the taxpayer on the exchange of his shares in Axis Specialty, in which all shareholders participated, were employment related securities given in particular that the shares in Axis Specialty were such securities. The UT said, at [116], that the issue was: “ Given that Mr Charman was eligible to participate in the exchange because of his shareholding in Axis Specialty, is it relevant in considering the ‘by reason of employment’ question to take into account the surrounding facts, circumstances and characteristics of the shareholdings and the exchange? Or does one ignore these factors and look no further than the fact that Mr Charman was an Axis Specialty shareholder, and therefore, as Ms Shaw says, must be regarded in the same way as regards his acquisition of Axis Capital shares as any other shareholder?” (2) The UT concluded, at [117], that as: “a binary ‘but for’ test is insufficient, it must be the case that the question of whether the interest in the Axis Capital shares was acquired in pursuance of a right or opportunity arising by reason of employment falls to be considered by reference to all relevant facts and circumstances” (3) Having set out the relevant factors including that the shareholding which enabled Mr Charman to participate in the exchange was acquired by reason of employment, the UT said, at [118], that some factors carried more weight than others in carrying out the necessary evaluative exercise but it was right that that exercise should take relevant factors and circumstances into account in assessing what in substance enabled or was the source of the acquisition of the Axis Capital shares: “Taking those factors into account, it would not be inappropriate to describe the nature of the rights held by Mr Charman at the time of the share exchange as ‘intimately connected with the employment’, rather than enjoyed in another capacity (see Carnwath J’s comment to that effect in Wilcock v Eve , set out at [83] above, in the context of the emoluments test).”

26. It was common ground that the “ultimate question is whether the relevant statutory provisions, construed purposively, were intended to apply to the transaction, viewed realistically”, as Lord Reed said in UBS AG v HMRC [2016] UKSC 13; [2016] 1 WLR at [66], citing Ribeiro PJ in Collector of Stamp Revenue v Arrowtown Assets Ltd [2003] HKCFA 52; 6 ITLR 454 at [35]. Answering that question generally involves two stages, as Lords Briggs and Leggatt explained in the later decision in Rossendale BC v Hurstwood Properties (A) Ltd and ors [2022] AC 690 at [15]-[17]: “15. … The first is to ascertain the class of facts (which may or may not be transactions) intended to be affected by the charge or exemption. This is a process of interpretation of the statutory provision in the light of its purpose. The second is to discover whether the relevant facts fall within that class, in the sense that they “answer to the statutory description” (Barclays Mercantile at para 32). This may be described as a process of application of the statutory provision to the facts. It is useful to distinguish these processes, although there is no rigid demarcation between them and an iterative approach may be required.

16. Both interpretation and application share the need to avoid tunnel vision. The particular charging or exempting provision must be construed in the context of the whole statutory scheme within which it is contained. The identification of its purpose may require an even wider review, extending to the history of the statutory provision or scheme and its political or social objective, to the extent that this can reliably be ascertained from admissible material.

17. Likewise, the facts must also be looked at in the round …” Section 3 - Facts, submissions and conclusions

27. Mr Wells and Mr Maynard acquired the shares through four acquisitions: (1) On 12 August 1987 (“ the First Acquisition ”), Mr Wells and Mr Maynard acquired 30,000 and 6,000 shares respectively (“ the First Shares ”). (2) On 21 December 1988 (“ the Second Acquisition ”), Mr Wells and Mr Maynard acquired 57,000 and 11,400 shares respectively (“ the Second Shares ”). (3) On 21 August 1991 (“ the Third Acquisition ”), Mr Wells and Mr Maynard acquired 3,000 and 6,600 shares respectively (the “ Third Acquisition Shares ”). (4) On 2 October 1995 (“ the Fourth Acquisition ”), when Mr Wells and Mr Maynard acquired 28,422 and 7,579 shares respectively (“ the Fourth Shares ”). Background to the acquisitions

28. Mr Maynard and Mr Wells first became involved in business together in the 1980s: (1) In 1983 Mr Wells was working for a contact lens solution company called Contactasol Ltd as “a Main Board Director, Sales & Marketing Director”. When that company’s owner was away for long periods of time, he also acted as Deputy Managing Director. He was also Managing Director of Menicon UK Ltd, a separate contact lens and contact lens solutions company owned by Contactasol Ltd. (2) Mr Wells explained that (a) by 1983 he had been with Contactasol Ltd for about six years and had worked very hard to turn it into a successful business. He liked working in that industry and wanted to have his own business in it, (b) buying Contactasol Ltd did not seem viable. He was concerned to ensure that his children’s future would be secure. That was a main driving force for his decision to own and run his own company in the same industry, (c) the problem with trying to start such a business was that a licence was required for sales in the UK but the licence approval process was taking at least 4 years. He thought that the only answer was to acquire a company with products already licensed. Unfortunately, there were almost none around as most such companies in Europe had already been acquired, and (d) there was a very small contact lens solutions manufacturing operation run as a division of Contact Lenses (Manufacturing) Ltd (“ CLM ”). CLM also had divisions dealing with frame manufacturing and contact lens production. CLM was a 100% owned subsidiary of CLM Group Ltd (“ CLM Group ”), which was owned by Mr Philip Cordrey and Mr David Clulow (“ the CLM owners ”). He decided to try to purchase this business (“ the business ”) with funds of around £250,000 generated from another business. He also used money to fund his acquisition of the shares (although he cannot remember if this included the acquisitions in the 1990s). (3) In around 1983 Mr Wells offered the CLM owners a contact lens solution manufactured by Contactasol Ltd but which carried the CLM label. He got to know the people at CLM, including the CLM owners, quite well and later made his approach to buy the business. He was not aware at the time that they were in the process of selling their key solutions product (SOFTAB) to an American company, Alcon (then part of the Nestlé Group) and they had also given Alcon a first option to buy the business. His negotiations with the CLM owners lasted over a nine-month period and proved to be very difficult. During negotiations, CLM’s sales director went to work for Alcon. He was also interested in buying the business but could see this was not possible. Eventually the Finance Director, Mr John Maynard took over negotiations on behalf of the CLM owners when they wanted far too much money for the business. (4) Mr Maynard explained that (a) he had joined CLM Group in September 1983 as Financial Controller (Director Designate) and was confirmed as Financial Director in December 1983, (b) as soon as he joined it became apparent that the CLM Group was in financial trouble and their management was struggling to turn the business around. The CLM owners’ other interests meant they were less focused on running the CLM Group. As a result, they were persuaded to sell off loss-making businesses and surplus assets and rationalise down to the profitable core business of contact lens retailing managed through David Clulow Ltd, and (c) in 1985, the CLM Group’s retail business centred on the three Edwardian houses in Earl’s Court, where between 12 and 20 ophthalmic opticians were employed. It was the largest contact lens practice in the UK, and probably in Europe. However, the business was loss-making. A major obstacle for that business was the success that the CLM owners had had since the 1960s in pioneering contact lens retailing at low prices in the UK by selling their own manufactured products (contact lenses and contact lens solutions). Retail competitors were reluctant to provide purchase volume details to a business that might use the information to plot its own expansion. By the time he joined the CLM Group, the CLM owners were reaching the conclusion that they could not turn around this business and would have to sell it. (5) Mr Wells explained that when his negotiations with the CLM owners broke down Mr Maynard came up with a plan that, (a) there would be a transfer of the business to a previously dormant subsidiary of CLM, (b) that company would then be transferred out (demerged) from the CLM Group, and (c) he would have options to acquire a 30% shareholding in the company and would have control over the business, but the CLM owners would remain as passive investors and realise value with an exit over time. Mr Maynard presented this to him as a deal that he felt could be made to work, (d) this was not ideal for him as he wanted to buy the business outright and take the company off in a new direction. He did not want anything to do with the CLM Group because he did not like the way the CLM owners operated. But this was a way of getting around what he considered to be their unrealistic expectations of value for their business, which was at that stage loss-making, and so he felt they had to do the deal in this way, (e) he was impressed that Mr Maynard had managed to come up with a way of enabling him to achieve his goal. As discussions progressed, he began to develop respect for Mr Maynard. So, when Mr Maynard raised the suggestion that he would have the option to take a 6% interest in the company, he was very much open to the idea. He thought that Mr Maynard wanted to be involved as a co-owner because he also liked what he saw in him, Mr Maynard was interested in the plans he had for the business and he believed that they would work. It was attractive to have someone with experience as financial director in the industry. (6) Mr Maynard explained that (a) when he became involved in the negotiations with Mr Wells they both had solicitors acting for them. He got to know Mr Wells pretty well and thought he had identified a remarkable individual with whom he thought he could make a success of the business, albeit that it would be a huge challenge, (b) the CLM owners wanted more for the business than Mr Wells would pay (in the region of £1 million plus) and so the proposed purchase fell apart. Mr Maynard spoke to the accountant he had brought in and he had the idea of the different structure. The idea was that, in return for this, the CLM owners would provide the seed finance for the business to move forward. The thinking behind Mr Wells being given options to acquire an ownership interest, rather than buying it outright, was that he was cautious about committing his own money under this deal structure before he better understood the business and the people he would be dealing with and, as the business could not operate as he planned without certain licences, which it did not have at that time, (c) Mr Maynard decided that he would like to have an ownership interest in the business. He was impressed by Mr Wells’ experience and by the performance of Contactasol Ltd which he had been driving and he could see why the CLM Group was not successful. He also bought in to the idea that one of the problems with the manufacturing operations was that other opticians would not buy from them. He proposed to the CLM owners, on his own initiative, after he had spoken to Mr Wells, that he would have options to acquire a 6% stake in the business. At one stage Mr Wells suggested that his ownership interest could be larger but he did not pursue that because he did not think the CLM owners would agree to that, (d) it was agreed that they would have options to buy new shares in the company in three tranches at an agreed price which would provide the company with additional finance, (e) with their respective solicitors, they had a long debate about whether, before Mr Wells had a 25% ownership interest, he could stop the CLM owners from winding up the business. In the end, it was agreed that he would not be able to do that. Mr Maynard was not happy about that, since he was representing the CLM owners in the negotiations, and it was a difficult conversation with Mr Wells, and (f) they concluded a deal whereby Mr Wells was to have options to take a 30% share of the demerged company for £100,000 and would have management control to run its business and Mr Maynard was to have options to take a 6% share of the company, on the same terms, for £20,000. The deal also involved the name of the demerged company being switched to Sauflon Pharmaceuticals Ltd, which was then the name of another group company. Getting that name was attractive, image-wise, for the business.

29. Mr Maynard accepted at the hearing that (1) when he joined CLM it was apparent the CLM owners would either have to sell the business or engage someone with experience in the industry to turn the business around, (2) they were impressed with the performance of Contactasol Ltd, which Mr Wells had been managing and driving, and (3) by 1985, they were convinced that Mr Wells could develop, manage and make a success of their failing solutions manufacturing business as he had done for Contactasol Ltd. Grant of share options and appointment as directors in 1985

30. A Shareholders’ Agreement dated 20th October 1985 was signed between the CLM owners, the appellant, Mr Wells and Mr Maynard (the “ 1985 Shareholders’ Agreement ”). Mr Wells’ Service Agreement was adopted as scheduled to the agreement. The agreement otherwise contained the following provisions of relevance: (1) The recitals stated this: “Subject to the conditions precedent herein contained the parties are desirous that they shall become shareholders in the Company and that the business and affairs of the Company shall be conducted on the basis of this Agreement”. The conditions precedent, included that the demerger would take place and that certain “financial facilities” (see below) would be made available to Sauflon. (2) Various provisions relating to the management of the company, including that the “Directors will be Mr Cordrey, Mr. Clulow, Mr Maynard, Mr Wells for so long as they shall respectively remain a Shareholder …”. The clause also entitled Mr Wells to nominate another person as director whilst the beneficial owner of not less than 10% of the shares. For those purposes it was stated that Mr Wells was deemed to be a 10% shareholder prior to the exercise of the options granted to him in clause 5. (3) It was provided that “Mr Wells shall be appointed Managing Director and will have control of the day to day running of the Company and the Business and shall define the powers and duties of its executives and employees” and would enter into a service agreement whereby he was to be employed as such. (4) It was provided that the Managing Director would prepare “a business plan and forecasts of turnover, profits and cash flow for the next following 12 months, together with a review of the financial position of the Company and its trading record over the previous, 6 months based on the latest available management accounts”. The board was to use its best endeavours to approve that business plan and other documents and such approval authorised the Managing Director to implement all matters therein without further approval. (5) Certain matters required the unanimous written consent of, or resolution passed unanimously by, all the shareholders or all the directors. (6) Clause 5 contains the options which entitled Mr Wells and Mr Maynard to subscribe for 30% and 6% of the shareholding of the appellant (as to which see further below). The options in clause 5 were granted by the “Shareholders”, which term was defined to mean “All shareholders from time to time of the Company” then being the CLM owners. This clause included a provision that: “For the avoidance of doubt it is agreed that the rights granted to Mr Maynard and Mr Wells under this Clause are granted and imposed upon them not by reason of or in connection with their proposed appointments as directors and/or employees of the Company but of their being investors in the Company and of their each having agreed to make their investment conditional [sic] upon their said respective rights being granted to them.” (7) The CLM owners were required to take all reasonable steps to obtain a guarantee in respect of the export of the company’s products from Barclays Bank Plc (“ Barclays ”) of £50,000 and to obtain an overdraft of £150,000 from Barclays and (b) the CLM owners were required to lend £50,000 to the company.

31. Pursuant to the 1985 Shareholders’ Agreement, options were granted to Mr Wells and Mr Maynard to purchase up to 30% and 6% (respectively) of the issued ordinary shares to be exercised sequentially: on exercise (a) the first tranche would give them 12% of the issued share capital at a price of £36,000; the second tranche would bring their total holding to 24% of the issued share capital, at a price of £36,000; and the third tranche would bring their total holding to 36% of the issued share capital at a price of £4,000 for each 1% to be issued to them: (1) Under clause 5.2: (a) Mr Wells was entitled to subscribe for such number of shares as would give him ownership of 10% of the issued share capital (or 20%, if the option in clause 5.3 had already been exercised), for consideration of £30,000, and (b) Mr Maynard had an equivalent option in relation to a 2% shareholding (or 4%, if the option in clause 5.3 had been exercised) for consideration of £6,000. These options could be exercised “At any time until 120 days after grant to [the appellant] … of valid product licences” in respect of specified products. (2) Under clause 5.3 (a) Mr Wells was entitled to subscribe for such number of shares as would result in him becoming the owner of 20% of the shareholding in the appellant or 10%, if the clause 5.2 option above had not already been exercised), for consideration of £30,000, (b) Mr Maynard had an equivalent option in relation to a 4% shareholding (or 2%, if the clause 5.2 option had not been exercised) for consideration of £6,000. These options could be exercised “At any time until 28 days after [the appellant] has obtained … the renewal of” certain manufacturing licences. (3) Under clause 5.4 (a) Mr Wells was entitled to subscribe for such number of shares as would result in him becoming the owner of 30% of the shareholding in the appellant, for consideration of £4,000 for each 1%, and (b) Mr Maynard had an equivalent option in relation to a 6% shareholding, again for consideration of £4,000 per 1%. These options could be exercised at any time within the five years from the date of completion of the 1985 Shareholders’ Agreement. (4) If Mr Wells was removed from office as Managing Director or if the service agreement was terminated, he could require the CLM owners to purchase his shareholding from him.

32. Immediately following the making of the 1985 Shareholders’ Agreement and the de-merger of Sauflon from the CLM Group, the only shareholders of the appellant were the CLM owners.

33. Mr Maynard explained that, (1) the appellant only obtained a manufacturing licence in 1992, when it moved to new facilities in Kent, because they could not risk having a licence application rejected due to the state of the Earl’s Court facilities, and (2) after the 1985 Shareholders’ Agreement was entered into, it became clear that the process of applying for and being granted the product licences referred to in clause 5.2 would take much longer than originally envisaged. They did not acquire them until 1992, when the company acquired CLM Ltd (and thereby its product licences). He thought that the long-stop date of five years from completion was extended in 1988.

34. As the appellant submitted, the intention in granting the options on these terms appears to be to incentivise Mr Wells and Mr Maynard to buy into the appellant earlier, at a time when the degree of risk in that investment was higher. Hence Mr Wells and Mr Maynard were incentivised to exercise their options under clause 5.2 and 5.3 because it was cheaper for them to do so, in comparison with their options under clause 5.4. But whereas they had five years to exercise their options under clause 5.4, they had less time in which to do so under clauses 5.2 and 5.3 if the licences referred to were granted to the appellant swiftly. In effect, the earlier their buy-in to the appellant, the greater the risk to them. The appellant also submitted that it is clear that those features are driven by considerations of economic risk and the options are not linked in any way to any employment. We have commented on this below

35. Pursuant to the 1985 Shareholders’ Agreement, on 4 November 1985 the business was demerged from the CLM Group, as described in the appellant’s accounts for the period 3 November 1985 to 1 November 1986 (“ the 1986 Accounts ”).

36. On 5 November 1985 (1) Mr Wells was appointed as a director of the company and became its managing director, and (2) Mr Maynard was also appointed as a director of the company and became its finance director. Mr Maynard stopped working for the CLM Group for 5 days a week and instead worked for them for 3 days a week; the other 2 days he spent working for the appellant. Eventually, in around February 1992, he left the CLM Group entirely to work at the appellant full time.

37. In his witness statement Mr Maynard said that: (1) Neither he nor Mr Wells would have become directors on 5 November 1985 without the completion of the 1985 Shareholders’ Agreement. He really doubts he would have joined as a director without having an ownership interest in the appellant. Realistically, the fact that he was going to be a part-owner of the business was part of what made him take on the role. It was a gamble. (2) In any event, he thinks that the deal would not have come off, at least in the same way, without his involvement. As part of the negotiations, he had to do a lot of work getting Barclays on board to lend to the appellant. Mr Wells would not give a personal guarantee, so the CLM owners provided the guarantee. But even with the guarantee, he thought Barclays would have been a bit worried about lending to the business. They needed someone with financial knowledge to have confidence lending to the appellant and his involvement meant that they had a qualified accountant. Hence he was pushing at an open door as far as the CLM owners were concerned with regard to negotiating his 6% interest in the company. This was a deal that they wanted to do, Mr Wells wanted him to have equity as well as being involved in the company, and his involvement was advantageous. The fact that the CLM owners agreed to this certainly was not anything to do with his employment or remuneration for his employment. They had never offered equity to an employee. That was not what they did: it was their business. And he certainly did not join the CLM Group in 1983 on the basis that he would be offered equity. His involvement in Sauflon was a business venture; it was not any part of or linked to, his role at the CLM Group. (3) In practice, Mr Wells was entirely responsible for the company’s strategic planning and the delivery of that plan, with Mr Maynard’s assistance where required (such as in producing budgets). The CLM owners accepted that Mr Wells was in control. The business was based on Mr Wells “big idea - the optician only policy”. Mr Wells further strengthened his position by appointing two colleagues from his Contactasol days as executive directors, Mr Peter Pannell (Sales and Marketing) on 2 December 1985 and David Lloyd (Technical) on 1 January 1987. The CLM owners attended board meetings, but they were essentially passive directors. They were supportive of Mr Wells and they believed in what he was trying to do with the business. They held meetings with them on occasion, but they never requested a meeting so far as he recalls. When the CLM owners stepped down as directors in 1987, that had no impact on the running of the business, and their replacements, Mr Peter Manford and Mr David Gowing were people that Mr Wells and he effectively selected and therefore they were inclined to be supportive of them.

38. At the hearing Mr Maynard gave the following evidence: (1) If one combines the 1985 Shareholders’ Agreement with the service contract, “apart from very minor aspects it gives Mr Wells a controlling interest” in the appellant. Mr Wells would not have entered into employment with the appellant without being sure he could obtain his goal of running his own solutions company. He accepted that, pursuant to the negotiations that led to this agreement, Mr Wells agreed to become employed as managing director with control of the day to day running of the business but added on the basis that he acquired a “controlling interest in the business…and to then protect his interest” or on the basis of “having secured the equity interest [by which he meant the right to subscribe for securities] and as a whole agreement”.” (2) He was reluctant to accept that the reason he and Mr Wells were granted the options was because they had agreed to become respectively the finance director and managing director of the appellant to run the solutions business. However, in effect, he did accept this. He initially said that is the wrong way round; they only agreed to take on those roles because they were offered the options. When pressed he maintained that was the wrong way of putting it; they had to find a way of persuading Mr Wells to take the company on. He wanted to own the business and he needed to have a way of controlling its operations. This structure was a substitute for an outright sale/purchase. It was put to him that had Mr Wells not become employed as director he would not have received the options. He said he would not have joined the company and taken up the employment if he did not have the option to subscribe for shares to the tune of 30%. Mr Maynard’s interest was in saving CLM Group and he had originally thought they would sell the business. He seemed to accept that what counsel put was true as regards his own position but still maintained “it was not particularly the way round it went”; the share options came first. (3) He then accepted that the options were granted to him and Mr Wells as part of the consideration for their appointments and employment as managing director and finance director of the appellant under the 1985 Shareholders' Agreement. He added that that agreement was not as simple as an employment agreement. He said counsel’s view was a way of looking at it but he still believes that that agreement is the key to how the business was run for the next 6 years.

39. In his witness statement Mr Wells explained that: (1) One of the first things he did was to launch his planned “optician only policy”, which became a key driver for the business. At the time, retail trade channels for contact lens solutions were restricted to opticians and chemists, all other contact lens solutions manufacturers sold their products to both channels and a large proportion of follow-on purchases by the public went through chemists. His plan was to sell the appellant’s products only to opticians, giving them the opportunity to recapture the follow-on market which was dominated by chemists. (2) The initial problem was that their products were not very different to those being offered by their competitors. They first used marketing to convince opticians to work with them by showing them how much money they were losing to chemists. The first few years were very difficult. The market in the UK had moved on from preserved products to preservative-free products, but that had not happened overseas yet. So he reawakened contacts there from his time at Contactasol Ltd to sell preserved products there. They had to exist for about two years largely on export sales, and he spent most of his time during that period travelling abroad trying to drive sales. (3) At that time they were developing a preservative-free product (AEROTAB) but had to wait for the product licence to be granted for it, which took years. Once they had the licence they were able to sell that to opticians. This delay meant that it was not until around 1987 that he could properly launch the policy. This policy led to the appellant becoming a UK market leader during the 1990s. (4) He had day to day control over the business, as he considered was essential. Although the CLM owners initially remained as directors of the company, they had no involvement in running the business. Within a couple of years, they came off the board because they were tying a big deal up with Specsavers and the person who ran Specsavers at that time saw them as direct competitors, in particular, due to The David Clulow Optician chain. He indicated that he would stop dealing with them because of their involvement. This gave an opportunity to get them off the board. They agreed to resign and the deal with Specsavers went through.

40. Mr Wells also said that he had very little recollection or understanding in relation to the detail of the options. Not only has it been almost 40 years since these events took place, but his focus in 1985 was to acquire the right to take a 30% interest in the business and once he had achieved that, his main focus was on driving the business forward. He thought that it did not matter to him when he and Mr Maynard exercised the options. The key was that they had them. The precise timing or way in which they were later exercised is not something he would have found very significant. When decisions were made about exercising those options, he would have discussed it with Mr Maynard (although he does not actually recall doing so). He was much more focussed on the details and mechanics of such things than he was.

41. We consider that the evidence establishes that the options were granted to Mr Wells and Mr Maynard as part of the consideration for their appointment as directors under the 1985 Shareholders’ Agreement. It is clear from Mr Maynard’s evidence that the options were an incentive for them to agree to become directors and were part of their remuneration for acting as directors of the appellant. On his evidence, he and Mr Wells would not have become directors/employees of the appellant but for the opportunity they were offered, in the form of the options, to acquire shares in the appellant and thereby in effect become owners of the business. Conversion of the first tranche options into convertible loan notes

42. Mr Maynard said that in 1986 he and Mr Wells negotiated with the CLM owners for their first investment to be made in the form of loans, on receipt of loan notes which were convertible into shares. They took a risk by lending, on an unsecured basis, in Mr Maynard’s case, using part of his inheritance from his late mother and, in Mr Wells’ case, using part of the proceeds of the sale of one of his earlier businesses. He cannot remember the specifics of the process and negotiations but knows that the conversion rights reflected the terms of the first tranche options.

43. The appellant’s 1986 accounts record that convertible loan notes were issued as follows: “During the year the company issued £71,000 loan notes to the Directors paying interest at the rate of 3½% above the base rate of Barclays Bank plc. The principal sum is repayable at such time as the shareholders consider sufficient funds are available. £36,000 of these loan notes are convertible into share capital in the Company at the lenders [sic] discretion so that after conversion the lenders will hold 12% of the issued share capital of the Company.”

44. Those accounts also record that loans were made by the CLM owners and their pension fund in respect of which the appellant issued loan notes to them.

45. Mr Maynard said that the reason for these loans was that the business was in significant difficulties and needed money. It was therefore important to keep Barclays happy and retain their confidence. To do that, shareholders had to step up and provide money from their own resources. He accepted at the hearing that he and Mr Wells decided to replace the first tranche options with convertible loan notes, rather than to exercise those options, because they were both risk averse. First acquisition Evidence and facts

46. On 12 August 1987, Mr Wells and Mr Maynard converted their convertible loan notes into equity and were allotted shares to give them a 10% and 2% shareholding in the appellant respectively. The shareholdings in the appellant became as follows: Number % holding Class Mr Cordrey 132,000 44 Ord. Mr Clulow 132,000 44 Ord. Alan Wells 30,000 10 Ord. John Maynard 6,000 2 Ord. Total 300,000 100

47. Mr Maynard did not recall but thought the exercise of the conversion rights at this time may have had something to do with showing Barclays that they were increasingly committed to the business: by swapping their debt into equity, they were showing Barclays that they were committed.

48. Following this, as shown in the appellant’s accounts for the period ending 31 October 1987, (1) Mr Wells and Mr Maynard made additional loans to the appellant in return for loan notes in proportion to their respective equity interests in the business: Mr Wells lent £32,500 and Mr Maynard lent £6,500 on the same terms as set out above, and (2) the CLM owners also lent additional funds via their pension schemes of £51,000 in total in return for loan notes.

49. As Mr Maynard explained in his witness statement, there was a decision generally among the shareholders at this time to make loans to the appellant. This brought additional funding into the company, in addition to increased bank lending and overdrafts. At this time, there was a pressing need to find enough cash to keep the business running.

50. At the hearing, Mr Maynard accepted that from 1985 to this time, his and Mr Wells’ involvement in the appellant was not as owners of the appellant but rather as office holders responsible for managing and running the business on the owners’ behalf. He said, however, that it was “in our own interest too, in the sense that we had options in the company and an ambition to develop the company into a success” and if he was just an office holder of a business and under an employment contract, he would not have advanced money into the business. He accepted that although the business was in difficulty, the CLM owners were supportive of him and Mr Wells and they believed in what they were both trying to do with the business. When it was put to him that remained the case when there was a variation to the 1985 Shareholders’ Agreement in 1988 he said they were supportive of them and “we agreed on the basis of the original shareholders’ agreement how the business would be funded into the future for a short period of time”. He said again that he and Mr Wells would not have provided loans to the appellant if they were just office holders: “It reflected our ambition to drive the company forward and make a success of it”. He accepted that is always going to be the objective of both the office holders but also the owners but said that if they were simply office holders there is no reason particularly why they would put money up in a very risky venture at that stage. He accepted that the position remained in 1988 that the CLM owners remained impressed with the work that Mr Wells and he had been doing in relation to the business. They understood the importance to themselves and the appellant of retaining and incentivising them in their roles of managing and running its business.

51. In October 1987 the CLM owners resigned their directorships and transferred their shares to nominees (Newhall Nominees Ltd). This had no impact on the running of the business. Their replacements were Mr Peter Manford and Mr David Gowing, each of whom was effectively selected by Mr Wells and Mr Maynard. These directors and the other directors (Mr Pannell and Mr Lloyd), at this time had no shares or options to acquire shares and did not lend any money to the company. Submissions and conclusions – does section 421B(3) apply?

52. HMRC contended that the First Shares are “employment related securities” under s 421B(3) on the basis that the conversion rights under the loan notes held by Mr Wells and Mr Maynard were a “right or opportunity to acquire” the First Shares and those rights were made available by the appellant, their employer. The appellant said that HMRC’s contention is not based on a realistic view of the facts. Moreover, the tribunal’s task is to focus on substance, not form: see, by analogy, PA Holdings Ltd v HMRC [2012] STC 582 at [33] to [38]. In the appellant’s view, in substance, the conversion rights were “made available” by the CLM owners such that s 421B(3) does not apply: (1) The CLM owners agreed to allow Mr Wells and Mr Maynard to “swap” the first tranche of their options (as options granted by them) for convertible loan notes. The conversion rights reflected the terms of those options. It follows (or, it is reasonable to infer) that the conversion rights likewise (since they reflected the terms of the original options) took the form of rights granted by the CLM owners. Moreover, without the CLM owners each agreeing to the “swap”, it could not have happened. (2) The substance of the position is that the CLM owners made the right or opportunity available. Mr Wells and Mr Maynard agreed with the CLM owners that they would make loans to the appellant (on agreed terms), and that they would have the right to convert that debt into equity on the terms of (or terms materially similar to) those contained in the 1985 Shareholders’ Agreement. As noted, without the CLM owners each agreeing to the arrangement, it could not have happened. Thus, the conversion rights were “made available” by the CLM owners, who were not employers of Mr Wells or Mr Maynard and were not connected to the appellant.

53. HMRC submitted that: (1) The appellant’s argument is wrong on the basis of the decision in Vermilion . In that case, (a) the original 2006 option was granted to Quest Advantage Ltd, (b) it was cancelled in 2007 and a new option was conferred and, around the same time, Mr Noble was appointed as executive chairman, (c) in 2016, Mr Noble replaced Quest Advantage Ltd as the holder of the 2007 option and he exercised the option in 2016 (see Vermilion at [5] to [8]), (d) notwithstanding the fact that the original 2006 option was acquired before Mr Noble became the executive chairman of Vermilion, the acquisition of the shares was held to be caught by the deeming provision. The only material question was who conferred the 2007 option ( Vermilion at [27]), and (e) here the question is who conferred the loan notes. The answer is the appellant. (2) To apply s 421B(3) in this way is consistent with a purposive application of that provision to the facts viewed realistically. The broad wording of s 421B indicates that Parliament intended it to apply to instances of employment and to charge transactions related to employment. If there is an employment, the starting point is that such a transaction is within the scope of the provision. To treat the conversion rights as interchangeable with the options for the purpose of s 421B(3), thereby ignoring the fact that the rights were granted by the employer, would frustrate the purpose of the provision.

54. The appellant said that HMRC’s propositions regarding the purpose of this provision are far too broad. Mr Jones emphasised that the tribunal has to assess who made the right or opportunity available to the person in question; the test is not necessarily satisfied because the employer issued the relevant rights/securities.

55. In our view, as HMRC submitted, the First Shares are “employment related securities” under s 421B(3) on the basis that the conversion rights attached to the loan notes held by Mr Wells and Mr Maynard were a “right or opportunity to acquire” the First Shares and those rights were made available by the appellant, their employer. Our reasoning is as set out in relation to the application of s 421B(1) below. We can see no reason to ignore the fact that the appellant issued the loan notes with the conversion rights on the basis that the CLM owners had to agree to that for it to take place. Does s 421B(1) apply?

56. HMRC submitted, alternatively, that the First Shares are employment-related securities by virtue of s 421B(1) on the basis that the right or opportunity to acquire the First Shares was made available by reason of Mr Wells and Mr Maynard’s employment. The right (in the form of the convertible loan notes) was acquired in 1986, after they joined the appellant as directors on 5 November 1985. Their employment was, at least, an effective cause of the acquisition of the loan notes, which is sufficient for these purposes pursuant to Wicks .

57. The appellant submitted that HMRC’s view is not correct on the basis that: (1) The right or opportunity for Mr Wells and Mr Maynard to acquire the First Shares was the conversion rights in the convertible loan notes which themselves were acquired by virtue of the initial options. The conversion rights did not reflect any form of reward for past service or any kind of incentive for future service. Indeed, they were not linked to their employments in any way. (2) Rather, the conversion rights were available to Mr Wells and Mr Maynard because of their negotiations with the CLM owners to allow them to make their first tranche of investment in the appellant as debt that was convertible into equity on terms which reflected their existing options, as opposed to making an outright equity investment by exercising those options. The reason for that re-negotiation had nothing to do with their employment and everything to do with their interests, and risk appetite, as investors and putative shareholders. It is notable that no other employee (and there were other directors at the time) invested in this way. (3) The rights under the options, for which the loan notes were swapped, were not available to Mr Wells or Mr Maynard by reason of an employment. They acquired the options because they wanted to become business owners and they successfully negotiated a deal which gave them rights (the options) to acquire a 36% interest in the appellant, with the understanding that the CLM owners would thereafter exit the company over time. It was the grant of the options which led to them becoming directors, rather than the options being granted because of their position as directors. Indeed, the options were granted prior to their appointment as directors. As noted, the terms on which the options were granted do not contain performance conditions, employment related restrictions or other conditions and/or incentivisation elements. The 1985 Shareholders Agreement specifically provides that the option rights were not granted and imposed upon them by reason of or, in connection with, their proposed appointments as directors and/or employees of the appellant. Mr Wells’ aim was to work for himself and acquire a business and the CLM’s goal was to sell their business. However, due to the price the CLM owners wanted for the business, an alternative structure was used to achieve this goal albeit over a longer period of time. Moreover that structure is inconsistent with the idea that the CLM owners were trying to headhunt Mr Wells to come and work in the group, because it involved hiving down the business and removing it from the CLM group. If they had just wanted Mr Wells to work for them, they could have recruited him into the group. They would not have spun out the business into a separate company. That the CLM owners may have had faith in Mr Wells as an investor does not mean that those options were made available by reason of employment. The evidence, as is consistent with common sense, is clear that Mr Maynard and Mr Wells got the options so that they could acquire the interest in the business that they wanted and then they became directors so as to be able to control and safeguard their interests or their business. In effect, they became directors because of their interest in the business. They did not get an interest in the business because they were directors. There is a question of cause and effect. (4) The conversion rights did not take on the character of employment-related securities simply because the “swap” occurred after Mr Wells and Mr Maynard had become directors.

58. HMRC submitted that if, as the appellant argued, the circumstances at the time of acquisition of the loan notes themselves are to be ignored because the notes were granted in exchange for the first tranche of options, those options were granted by reason of Mr Wells and Mr Maynard’s prospective employment: (1) In particular: (a) Mr Wells and Mr Maynard’s prospective employer, the appellant, was party to the 1985 Shareholders’ Agreement, (b) under that Agreement, Mr Wells and Mr Maynard were to be appointed directors. In other words, the options were granted as part of the same agreement which required their appointment as directors, (c) Mr Wells was entitled to require the CLM owners to purchase his shares upon termination of his Services Agreement (see above), and (d) the CLM owners saw the value that Mr Wells and Mr Maynard could bring to the business, and the benefit to the appellant in engaging their services as directors. The options were granted as part of the consideration for their appointment. (2) The grant of the options was, in all the circumstances, “intimately connected” to their prospective employment. That employment was an operative cause of the options being granted (see Lord Denning’s comments in Wicks ) and what enabled Mr Wells and Mr Maynard to enjoy the options (see Oliver LJ’s comments in Wicks ). Consequently, the options were granted “by reason of employment”, as were the loan notes which replaced them. (3) It is misguided to approach the question under s 421B(1), as the appellant does, from the perspective that Mr Wells and Mr Maynard acquired the loan notes as shareholders or investors in the appellant, given that they were also employees. Viewed realistically, the First Acquisition stemmed from and was “intimately connected” with their employment.

59. In our view, the First Shares are “employment-related securities” for the purposes of s 421B(1): (1) The evidence is clear that (a) the conversion rights in the loan notes, which allowed Mr Wells and Mr Maynard to acquire the First Shares, were granted to them by the appellant at some point in 1986, on the same terms as applied under the first tranche of options, which had been granted by the CLM owners, (b) hence, in August 1987, they acquired the First Shares for the price they had agreed in 1985 with the CLM owners, respectively of £30,000 and £6,000 for 10% and 2% of the issued share capital, (c) under the first tranche options they would have had to fund the price on exercise of the options whereas under the loan notes, the price was satisfied by the loans, (d) this change was negotiated with the CLM owners in 1986. The business was then in need of finance and Mr Wells and Mr Maynard were “risk averse”. In 1986, they did not wish to hold an equity investment in the appellant but were prepared, in effect, to provide the appellant with the funds required to pay the price they had already agreed for the First Shares, as interest bearing loans, pending the monies being used to acquire those shares. (2) Hence, in 1986 the impact of these transactions was that (a) Mr Wells and Mr Maynard simply swapped their first tranche of options for the same equivalent rights under the loan notes, in effect, on pre-paying the price for the relevant shares which were subject to the options/conversions rights, should they wish to acquire them (assuming the relevant conditions for them to be able to exercise them were met), and (b) the CLM owners and the appellant were in precisely the same position, as regards the exercise of the conversion rights, as they would have been in on the exercise of the rights under the options, as regards the effect on the shareholdings in the appellant. However, in effect, the appellant had already received the price which would be due on exercise/conversion in the form of the interest-bearing loans. (3) In our view, (a) in all the circumstances, the change in the structure in 1986 did not materially affect the nature of the relevant rights, for Mr Wells and Mr Maynard, to acquire the First Shares as originally granted to them in 1985. Those rights, in effect, simply continued unchanged in substance from when they were granted in 1985 until exercised, in their revised form, in 1987, (b) it is those unchanged rights, which allowed Mr Wells and Mr Maynard to acquire the First Shares, and (c) it follows that the tribunal’s assessment of whether those rights were obtained by reason of an employment should include reference to all the facts and circumstances when those rights were first obtained in 1985. (4) We consider that, in all the circumstances, the first tranche of options were granted by reason of Mr Wells and Mr Maynard’s prospective employment with the appellant. We note the factors which HMRC point to and, in particular, that it is clear (as Mr Maynard accepted) that the options were granted as part of the same agreement which required their appointment as directors, in effect, as part of the consideration for their appointment as such. We cannot see that the analysis is affected by the argument that (a) they acquired the options so that they could acquire an interest in the business and then became director to be able to control and safeguard their interests or their business, or (b) prior to their involvement, the business was demerged into a separate company. The fact is that when the options were granted, the business operated by the appellant was not Mr Maynard’s and/or Mr Wells’ business in any relevant sense. They were engaged as directors to work for the appellant by operating its business and, at that time, the business was wholly owned by the CLM owners (indirectly) as the appellant’s sole shareholders. Plainly, as they had rights under the options, subject to certain conditions, to become shareholders in the appellant and so indirectly to own an interest in the business, it was in their interest to build the business. The fact remains, however, that the options were granted to them as part and parcel of them becoming directors in order to run the appellant’s business and turn that business around from a loss making to a successful profit making one (as over time they then did). The statement in the 1985 Shareholders’ Agreement that the options were not granted in connection with employment with the appellant cannot outweigh the reality of the circumstances at the time. Second acquisition Evidence and facts

60. As a result of the various difficulties, the appellant was still loss-making in 1988 (and was balance sheet insolvent). Mr Maynard said that they took the view that, at this time, lending to the business was a better way of financing the business than subscribing for shares. In addition, they thought that the price set in the 1985 Shareholders’ Agreement for the remaining shares they were entitled to subscribe for was too high given the performance of the business at that time.

61. They therefore had a negotiation with the CLM owners which resulted in them agreeing to vary the 1985 Shareholders’ Agreement by an agreement entered into on 28 November 1988 (“ the 1988 Variation Agreement ”). No copy of this was available but its existence is recorded in a subsequent 1991 deed of variation (“ the 1991 Variation Agreement ”). Mr Maynard’s recollection, as set out in his witness statement, is that: (1) It allowed him and Mr Wells to purchase shares from the CLM owners (or, rather, from their nominee) at a price of 25p per share, instead of the appellant issuing new shares to them at the higher price per share as provided for originally. (2) It also extended the long-stop date that was applicable to some of their options beyond the five-year period. (3) It did not affect the 30%/6% ceiling on the total percentage of the shares that Mr Wells and Mr Maynard could acquire. (4) It related to all of the unexercised options, albeit that the price of 25p per share only applied to some of the shares they could buy from the CLM owners (specifically, the 57,000 shares and 11,400 shares they in fact purchased on 21 December 1988) and a higher price per share applied to the remaining shares. If they could have bought all of the shares necessary to take them to their 30% and 6% respective interests in the company for 25p in 1988 he expects they would have done so.

62. Mr Maynard said in his witness statement that a benefit of this variation, in so far as the CLM owners were concerned, was that they gained some funds. In substance the only change for them was that this put money in their pockets in circumstances where they were still short of money and were struggling to finance their lifestyles from the CLM Group. He added that it was the product of a commercial negotiation and it was: “not linked to my or Alan’s employment in any way. It was a renegotiation of the terms on which we would invest in the company. In essence, we thought we could, and should, be able to buy the shares more cheaply, based on the performance of the business at that time.”

63. At the hearing Mr Maynard accepted that his and Mr Wells’ continued employment and incentivisation was central to the CLM owners’ agreement to vary the terms of the options. He said that he could not talk for them but he expected that was the case.

64. On 21 December 1988, Mr Wells and Mr Maynard exercised some of their rights/options to buy 57,000 and 11,400 shares respectively from the nominee which held the CLM owners’ shares for 25p per share. Mr Maynard funded this investment from his own resources. He cannot recall the precise reasons for the timing of this, but expects that it was done to show Barclays that he and Mr Wells were increasingly committed to the business.

65. Following this acquisition the overall shareholding in the appellant was as follows: Number % holding Class Mr Cordrey’s nominee 97,800 32.6 Ord. Mr Clulow’s nominee 97,800 32.6 Ord. Mr Wells 87,000 29.0 Ord. Mr Maynard 17,400 5.8 Ord. Total 300,000 100.0

66. Mr Maynard said in his witness statement that the 1988 Variation Agreement reflected what was essentially a very unsophisticated venture capital approach on the part of him and Mr Wells: “It meant that Alan and I acquired our increased shareholding in the company more cheaply. Sauflon still received funding, in the form of our lending, but by funding Sauflon through debt rather than subscribing for new shares we benefited from being loan creditors. The risk taken by a loan creditor is lower than the risk taken by an equity investor.” Submissions and conclusions

67. HMRC submitted that the Second Shares are “employment-related securities” within the meaning of s 421B(1) on the basis that, (1) for all the reasons set out above in relation to the acquisition of the First Shares, the original options were granted by reason of Mr Wells and Mr Maynard’s prospective employment with the appellant, and (2) the amendment of the options by the 1988 Variation Agreement does not alter that analysis. The amendment of an option granted by reason of employment does not remove the underlying reason for the grant of the option.

68. The appellant submitted that HMRC’s view is incorrect on the basis that (1) the 1988 Variation Agreement gave Mr Wells and Mr Maynard the right or opportunity to acquire the Second Shares, (2) that was the product of a commercial negotiation between the shareholders, acting as shareholders, as to the terms and basis on which Mr Wells and Mr Maynard would invest money into the business: by buying shares from the CLM owners at a reduced price and instead lending money to the appellant, as opposed to making equity investments, and (3) the variations made did not in any way alter the non-employment-related character of the rights/opportunities made available to Mr Wells and Mr Maynard by the CLM owners in 1985. Overall, so the appellant said, the 1988 Variation Agreement had nothing to do with the employment held by Mr Wells and Mr Maynard. It was not a reward for past performance or an incentive for future service. Their employment was not a source or cause of the right or opportunity to acquire the shares. As Mr Maynard said, this simply enabled the CLM owners to raise funds and it reflected what was essentially a very unsophisticated venture capital approach. Moreover, if the CLM owners had wanted to incentivise Mr Maynard and Mr Wells, it is irrational that they would sell their own shares thereby decreasing their interest in the appellant.

69. HMRC responded that: (1) The appellant argues, in effect, that the variation/replacement of the original options under the 1988 Variation Agreement broke the chain of causation between Mr Wells and Mr Maynard’s employment and the right to acquire the Second Shares. The appellants’ approach is an overly mechanistic one, of the kind which was rejected by the UT and the Court of Appeal in Charman . There, the exchange of the taxpayer’s options over shares in one company, of which he was director, for options in another group company of which he was not, did not break the chain of causation between his employment and his acquisition of shares in the second company by exercise of those options (see [52]). (2) Applying the legislation purposively to the facts viewed realistically, it is irrelevant that the 1988 Variation Agreement was allegedly “the product of a commercial negotiation between the shareholders”, given that the context for those negotiations was that Mr Wells and Mr Maynard were employed by the appellant as directors and held options under the 1985 Shareholders’ Agreement, by reason of that employment. Mr Maynard’s evidence was clear (see above). It does not matter that this also benefitted the CLM owners in that they received monies directly by selling their shares rather than the company issuing new shares. That does not break the link with the original options, which were granted by reason of employment or prospective employment. The appellant’s final point ignores the fact that the CLM owners would still own more than 50% of the share capital of the appellant.

70. We consider that the Second Shares are “employment-related securities” for the purposes of s 421B(1). These shares were acquired pursuant to the option rights granted to Mr Maynard and Mr Wells in 1985 subject to the limited variation agreed between the parties (namely them, the appellant and the CLM owners) that they were able to acquire the shares at a cheaper price direct from the CLM owners rather than subscribing for them on issue by the appellant at a higher price. For the CLM owners this plainly had the benefit that they received funds directly into their hands as opposed to the funds going into the appellant. However, we cannot see that this limited change to the manner in which the option rights were fulfilled, somehow changed the essential character of the option rights which, for all the reasons set out above, were acquired by Mr Maynard and Mr Wells in 1985 by reason of their employment with the appellant. Third acquisition Evidence and facts

71. As set out in Mr Wells’ evidence, in 1991 the appellant secured a deal with funds managed by or under the umbrella of Quester Capital Management Ltd (“ Quester ”). Mr Wells explained that: (1) There are two crucial elements to a contact lens solutions business: product and manufacturing licences. The appellant was producing category 1 products under the Medicines Act, which meant that their manufacturing facilities needed to be up to standard but they were very poor. They had to find a proper medical manufacturing plant and did so in around 1991 in Kent. To fund this, they sought private equity investment for the business. (2) They considered that Quester were not the best venture capitalist investor, in terms of the finance they were prepared to offer, but they were the best in terms of attitude. They got on well with Mr Andrew Holmes, who was the key contact at Quester, and with funding from Quester purchased the new plant. By that time, the business was building very nicely. The problem came when they moved into the new plant, because they had to shut down production, move it over, and get new licences. They were about a year without being able to manufacture and that caused enormous amounts of problems. But at the time of raising the funding they could demonstrate very successful growth in the company.

72. Mr Maynard set out that this deal resulted in several agreements being entered into: (1) He and Mr Wells entered into a deed dated 19 June 1991 with the CLM owners and the appellant, which varied the 1985 Shareholders’ Agreement and the 1988 Variation Agreement (“ the 1991 Variation ”). As part of the deal with Quester, they agreed to waive their remaining options on the basis that they would then be replaced by new options. It was provided that: “Mr. Wells hereby irrevocably waives all rights to have issued or transferred to him any further shares pursuant to the [1985] Shareholders’ Agreement or the [1988 Shareholders Agreement] and accordingly insofar as the same remain unperformed the provisions of the [1988 Shareholders’ Agreement] as they relate to Mr. Wells’ options will be deemed cancelled and of no further effect.” It was stated that the same provision applied in relation to Mr Maynard mutatis mutandis. (2) The shareholders entered into a “Share Subscription and Shareholders Agreement” dated 20 June 1991 (“ the 1991 Shareholders’ Agreement ”). Three Quester or Quester-related funds entered into this: Quester Capital Management Ltd, Parquest Capital Management Ltd and Parquest Europe Investment I CV. Relevant provisions include the following: (a) The parties were Mr Wells and Mr Maynard, the CLM owners, the appellant and the Quester entities which were collectively defined as the “Investors”. The Recitals recorded that the “Executives” (defined as Mr Wells and Mr Maynard) and the other existing shareholders and the appellant had requested the “Investors” to subscribe for shares and loan notes and the Investors had agreed to do so on the terms and subject to the conditions set out in the Agreement. (b) It was provided that, subject to and conditionally upon completion of the acquisition agreement and the purchase by the “Investors” of the relevant shares the “Lead Investor” (one of the Quester funds) granted to (i) Mr Wells an option “to purchase 3,000 Ordinary Shares at the Option Price (as hereinafter defined) exercisable (on one occasion only) by notice in writing served on the Lead Investor at any time prior to the earlier of 31st December 1991 and a Listing or Take-Over (and provided always that Mr Wells is then a director or employee of or consultant to the Company) specifying the number of Shares in respect of which the Wells Option is exercised and enclosing therewith (by cheque …) the Option Price (as hereinafter defined) for such Shares”; and (ii) Mr Maynard, an option to purchase 6,600 Ordinary Shares on the same terms as applied to Mr Wells’ option. The “Option Price” for each share which was the subject of the options was “the sum which is equal to the aggregate of £1 plus 20% per annum compounded annually and calculated from the date hereof up to (and including) the date of payment of such Option Price.” (3) It was a condition of the agreement that (a) “the Company has effected and there is in force and on risk a policy of insurance on the life of Mr Wells covering death… and on such other terms as shall be acceptable to the Lead Investor” and (b) “the Company and Mr Wells have entered into the Service Agreement”, defined as “the service agreement to be between the Company and Mr Wells in Agreed Form”. It was also provided that: “The Company shall maintain in force the “key man” policy referred to in” this provision. (4) As “Executives” under the agreement, Mr Wells and Mr Maynard gave undertakings in relation to the performance of their employment duties and post-employment restrictive covenants pursuant to clause 6.2. It was provided that: “Each of the Executives hereby acknowledges that the foregoing undertakings are part of the consideration afforded to the Investors in return for the Investors agreeing to make subscriptions on the terms hereof …”. (5) As part of the deal, ordinary resolutions of the appellant were passed on 20 June 1991 which made the necessary changes to increase its authorised share capital and change the rights attaching to some of the shares. (6) The appellant also adopted new articles of association (“ the 1991 Articles ”) which (amongst other things) provided (in article 6(D)) for the other shareholders to have the right to buy back the shares held by any employee, director or consultant if they ceased to be such: “If at any time any director or employee of, or consultant to the Company or any subsidiary of the Company shall cease to be a director or employee of, or consultant to the Company or any such subsidiary (for whatever reason) and such person and/or any Relevant Associate(s) of such person shall be (a) Member(s) of the Company, then (unless the holders of 90% of the Shares otherwise agree in writing or the Directors resolve otherwise at the relevant time) there shall be deemed to have been given on the date of such cessation a Mandatory Transfer Notice in respect of all Shares then held by such person and any Relevant Associate(s) of such person. ” (Emphasis added.) (7) The 1991 Shareholders Agreement contained the following related provisions: “Each of the parties hereby agrees that. (a) the provisions of Article 6(D) of the New Articles shall not apply to Mr Wells or Mr Maynard if the directorship, employment or consultancy of such person is wrongfully terminated by the Company in breach of any relevant service or consultancy agreement; (b) if Mr Maynard ceases to be a director or employee of or consultant to the Company or any subsidiary of the Company for any reason other than the wrongful termination by the Company of any relevant service or consultancy agreement and he and/or any of his Associates is/are (a) member(s) of the Company then notwithstanding the provisions of such Article 6(D) Mr Maynard and his Associates shall be entitled to retain (in aggregate) 18, 000 Ordinary Shares a nd the provisions of Article 6(D) shall be limited such that a Mandatory Transfer Notice shall be deemed to have been given on the date of such cessation only in respect of such number of Shares then held by Mr Maynard and such Associates as exceeds 18,000 Ordinary Shares; (c) if Mr Wells ceases to be a director or employee of or consultant to the Company or any subsidiary of the Company on or at any time after 1st May 1995 for whatever reason and he and/or any of his Associates is/are (a) member(s) of the Company the provisions of such Article 6(D) shall not apply to any Shares then held by him and such Associates ,” (d) if Mr Wells ceases to be such a director or employee of or consultant to the Company or any subsidiary of the Company at any time on or before 30th April 1995 for any reason other than in circumstances where the Company has properly terminated the Service Agreement under any of Clauses [] (inclusive) and he and/or any of his Associates is/are (a) member(s) of the Company, a Mandatory Transfer Notice shall be deemed to have been given on the date of such cessation in respect of such aggregate number of Shares then held by Mr Wells and such Associates as are set out in the table below .'- Date of Cessation No. of Shares subject to Mandatorv Transfer 1st May 1991 - 30th April 1992 15,000 1st May /992 - 30th April 1993 11,250 1st May 1993 - 30th April 1994 7,500 1st May /994 - 30th April 1995 3,750” (Emphasis added.) (8) The CLM owners agreed (acting by their nominee) to sell 118,500 “A” ordinary shares and 27,600 ordinary shares to Quester Nominees Ltd and Parvest Europe Investment I CV. This left the CLM owners with 49,500 ordinary shares (24,750 each) and they also subscribed for 90,000 “B” preference shares, issued to them via their nominee.

73. Mr Wells and Mr Maynard exercised the options granted to them by Quester on 21 August 1991, funded by their own resources. Following this the shareholdings in the appellant were held as follows: Number % holding (with voting rights) Class Mr Cordrey’s nominee 24,750 8.25 Ord. Mr Clulow’s nominee 24,750 8.25 Ord. Alan Wells 90,000 30 Ord. John Maynard 24,000 8 Ord. Quester funds 118,500 39.5 A Ord. For employees 18,000 6 Ord. Totals 300,000 100

74. Mr Maynard said that increasing his investment in the appellant was beneficial to Mr Wells because they were allied. He set out that the position in relation to voting rights at this time was as follows: (1) Under the 1991 Articles and 1991 Shareholders’ Agreement, the default position was that ordinary shares and ordinary “A” shares had voting rights but preference “A” and “B” shares did not. Quester’s ordinary “A” shares amounted to 39.5% of those shares, but under the 1991 Shareholders’ Agreement it was agreed that those shares would only give 30% voting rights. (2) He and Mr Wells together held 114,000 ordinary shares, which was 38% of the total issued ordinary and ordinary “A” shares and which effectively gave them voting rights of 42% (38% /90.5%). (3) Mr Cordrey and Mr Clulow held 49,500 ordinary shares, 16.5% of the total issued ordinary and ordinary “A” shares with effective voting rights of 18%. (4) The remaining ordinary shares (18,000) were held by, or for the benefit of, current or future employees. Quester Nominees Ltd held those shares pursuant to options granted in the 1991 Shareholders’ Agreement to offer those shares for sale to certain employees. It was a condition of those options that the shares could only be offered for sale to employees of the appellant. That condition did not apply to the options granted to Mr Wells and Mr Maynard by Quester: the options were exercisable even if Mr Wells or Mr Maynard were only consultants to the company.

75. Mr Maynard and Mr Wells were responsible for the negotiations with Quester and, separately, with the CLM owners. Mr Maynard said that there were no direct negotiations between Quester and the CLM owners. He said that: (1) The option given to Mr Wells under the 1991 Shareholders’ Agreement was granted as a like for like replacement of the previous remaining options and once it was exercised, he would have a 30% interest in the appellant except that (a) there was a difference in the price per share, which he regarded as insignificant given the value added to the appellant by virtue of Quester’s investment, (b) these options were subject to a condition that Mr Wells was a director, employee or consultant of the company at the time the option was exercised, and (c) these options involved him purchasing shares from Quester. Mr Maynard’s options operated similarly except he received an increased interest such that, when exercised, he would have an 8% interest in the company rather than 6% as he had under the previous remaining options. (2) Mr Maynard wanted to increase his investment in the appellant because he thought, with the capital it had raised from Quester, the company had a real future to it. They had six years of trading; they had a business plan which looked pretty good; and they had convinced a third-party investor that this was a business worth investing in. They were now on the market as an “optician only” business and their turnover and profits were growing and they had also solved their manufacturing difficulties by acquiring the new factory in Kent and securing the capital from Quester to fit out and commission it. It looked like a business that had a future. Quester’s investment gave him an opportunity to seek to increase his equity interest and he took that opportunity. (3) He cannot recall the detail behind how his increased investment was agreed. He would have had discussions with both Mr Wells and Quester. However, Mr Wells would have been happy for him to have more than 6% of the business. By this time they had been working together for six years and had got to know each other a lot better. The events of the previous 5 to 6 years had been rather stressful and they had built up a significant amount of trust. The 1985 Shareholders’ Agreement had given Mr Wells a considerable amount of control over the business, but the 1991 Shareholders’ Agreement meant that he lost that control to a fair extent and a third-party investor had come in. The CLM owners were not particularly allied to Mr Wells, whereas Mr Maynard was, so he saw it to be in his interests for Mr Maynard to increase his share because that would give him more control if they continued to act together. (4) The 1991 Shareholders' Agreement gave them the right to buy shares from Quester, effectively in substitution for their remaining unexercised rights/options. Had they not exercised those options, the shares would have remained in the hands of Quester, which had bought the shares from the CLM owners.

76. At the hearing: (1) Mr Maynard confirmed that in 1990 he and Mr Wells drew up a business plan and approached venture capitalists. He had not retained that business plan. His and Mr Wells’ involvement as managing director and finance director would have been emphasised as a strong selling point in that business plan - it would have been important. Quester would have regarded their continued executive involvement in the running of the business as key to the appellant achieving success and to Quester maximising their investment. He said hence Quester insisted on taking key man insurance out on Mr Wells. He cannot now recall the details of the discussions and negotiations that led to the agreement. (2) It was put to him that another condition to Quester’s investment was that Mr Wells would enter into a service agreement and he accepted that shows the importance of his continued services as managing director to Quester’s willingness to enter into the transactions. It was also put to him that he and Mr Wells were required to give undertakings in respect of the performance of their employment duties and post-employment restrictive covenants. He accepted that (a) part of the consideration that he and Mr Wells were giving under this agreement directly related to their continued employment and performance of their employment duties and that was an important part of the consideration, and (b) in effect, the right to acquire shares was conditional on them both continuing to provide services to the appellant. He commented that they were not known to Quester at the time other than in their presentations and what they had done and what they proposed to do. Quester would therefore want to be cautious about options. He said that he did not think one could go so far as to say their respective employments and roles were an important part of the consideration for the grant of their share options. He said this is also to do with the fact that they had not exercised all the options under the original agreement, and they would not have entered into this agreement without that being guaranteed. So, this was a two-sided argument/discussion. He then accepted that from Quester’s perspective it was an important part of the consideration that Mr Wells entered into the service agreement and that they both gave undertakings relating to the performance of their employment duties. He said that from his and Mr Wells’ point of view, this is a negotiation, and they would not have entered into this agreement if it meant giving up the 3,000 shares in Mr Wells’ case, and the 600 shares in his case, that were granted under the original options.

77. Mr Wells said in his statement he could recall very little about the reason for the provisions set out in [72(6)] and [(7)] above. He does not recall the provisions relating to him, but that may be because he had no intention whatsoever of leaving the appellant at any time and so they were not at all significant to him. The appellant was his business so there was no chance, whatsoever, of him leaving. The purpose of this might have been to give Quester comfort that he would not leave the business, but that is speculation. He does not recall the provisions relating to Mr Maynard and/or the other directors or employees but the difference between Mr Maynard (and him) and other directors or employees is that they were founder members and had put money into the appellant. They invested in the appellant from the start. This is not accurate in that they did not make loans to the appellant until a year after they entered into the 1985 Shareholders’ Agreement and did not acquire any shares in the appellant until a further year after that.

78. Mr Maynard thought that the position regarding the buy-back of their shares was an easy concession for him and Mr Wells to give, since neither intended to leave the business. As regards the other persons this applied to he said that he and Mr Wells were entirely aligned with Quester in that they did not want any equity sitting in the hands of ex-employees. He said that they gave these concessions to Quester on the basis that they were new investors who regarded them, especially Mr Wells, as key to the appellant achieving success given the wealth of knowledge they had of the business. He expected that they wanted this additional comfort that he and Mr Wells would remain involved in the business in some capacity.

79. Mr Maynard said that the provision in the 1991 Shareholders' Agreement which recorded the intention of the parties to sell the appellant in the period of 30 March 1997 to 30th March 2000 was requested by Quester, presumably as reassurance for their investors. Private equity funds are usually subject to a term (closure) date when their own investors expect to realise their investments. He and Mr Wells would not agree to a commitment to sell the appellant by a fixed date, so this clause simply recorded a non-binding intention. This clause set a precedent for the subsequent 2007 Shareholders' Agreement. Submissions and conclusion

80. HMRC submitted that the right to acquire the Third Shares was made available by reason of employment under s 421B(1) on the basis that the terms of the 1991 Shareholders’ Agreement make clear that Mr Wells and Mr Maynard’s employment with the appellant was intimately connected with, and was at least, an effective cause of their being granted the right to acquire the Third Shares.

81. The appellant submitted that: (1) The options were, in relation to Mr Wells (as to 6,000 shares) and Mr Maynard (as to 600 shares), essentially a like-for-like replacement of the extant rights granted to them under the 1985 Shareholders’ Agreement as varied in 1988. None of the differences is significant to the analysis. Neither the rights as originally granted in 1985 nor as subsequently varied in 1988 were made available to Mr Wells or Mr Maynard by reason of an employment for the reasons already given. There is nothing in the circumstances in which the pre-existing rights to acquire shares (from the CLM owners) were, in effect, swapped for replacement options to acquire shares (from Quester) which warrants characterising the new options as being made available by reason of an employment. (2) There is nothing in the evidence to suggest that Mr Maynard’s employment was a cause, of any description, of him being granted this option to purchase an additional 6,000 shares. It was granted to him, as shareholder, as part of the negotiations to secure Quester’s investment, so as to strengthen (from Mr Wells’ and Mr Maynard’s perspective as shareholders) the control they could exercise over the appellant. He acquired this right due to his further activity as a shareholder and investor in the appellant. (3) The provisions in the articles and the revised 1991 Shareholders’ Agreement do not affect the analysis. Unlike for employees who were granted options, the conditions did not require either Mr Wells or Mr Maynard to remain employees of the appellant: it would have sufficed for them to continue as self-employed consultants to the appellant in order for them to be able to exercise their options and/or so that the buy-back rights were not engaged. Moreover, the buy-back rights were much more limited than for employees. Thus, there was no particular link to the employment or any requirement that Mr Wells or Mr Maynard remain employed in order to avoid forfeiture of the Third Shares.

82. HMRC submitted that (1) if a reason for the right to acquire the Third Shares being made available to Mr Wells and Maynard was their existing shareholding as a result of the First and Second Acquisitions, that shareholding was itself held by reason of employment with the result that s 421B(1) applies to the Third Shares, and (2) the fact that Mr Wells and Mr Maynard could retain the relevant shares if they became consultants of the company does not alter that analysis. That only highlights that they were required to continue providing services to the appellant in order to retain their entitlements to shares under the 1991 Shareholders’ Agreement, and that the right to acquire these shares was not granted to them merely as “investors” in the company.

83. We consider that the Third Shares are “employment-related securities” for the purposes of s 421B(1). As HMRC submitted, the terms on which the new options were granted make it clear that they were granted, in effect, in return for Mr Wells and Mr Maynard’s continued employment with the appellant. As Mr Maynard accepted (1) part of the consideration that he and Mr Wells gave under the relevant agreement directly related to their continued employment and performance of their employment duties and that was an important part of the consideration, and (2) in effect, the right to acquire shares under the options granted to them was conditional on them both continuing to provide services to the appellant. We do not think that it detracts from this that Mr Wells and Mr Maynard could retain the shares which were subject to the options if they were consultants of the company. They were not consultants and the possibility of them becoming such is theoretical only. The important fact is that they were directors/employees of the appellant and the acquisition and retention of shares they could acquire under their options was tied to their continuing employment as such.

84. Moreover, on the appellant’s own evidence the option relating to all of Mr Wells Third Shares and those relating to 600 of Mr Maynard’s shares were granted as a like for like replacement of the previous remaining options except that (1) there was a difference in the price per share, which was regarded as insignificant given the value added to the appellant by virtue of Quester’s investment, (2) the options were subject to a condition that Mr Wells was a director, employee or consultant of the company at the time the option was exercised, and (3) these options involved the purchase of shares from Quester. If and to the extent that the new options are regarded as in effect a continuation of the old options, we cannot see that these changes to the terms on which the options applied changed the essential character of the option rights which, for all the reasons set out above, were originally acquired by Mr Maynard and Mr Wells in 1985 by reason of their employment with the appellant and continued to be so held/acquired by them when previously replaced in relation to the Second Acquisition. Fourth acquisition Evidence and facts

85. In 1995, the CLM owners sold their remaining ordinary shares and left the UK. Mr Maynard conducted the negotiations in relation to this. Mr Wells cannot now recall the discussions around the sale, except that there was an understanding between him and Mr Maynard that they could, and did, use this to get a majority shareholding between them. Mr Maynard explained the transactions as follows in his witness statement: (1) In 1995 the CLM owners wished to sell their remaining ordinary shares in the appellant. They struck a deal whereby (a) the appellant bought back their remaining ordinary shares (49,500 in aggregate) at a price of £3.03 per share, which were then cancelled and (b) the appellant issued 49,500 ordinary shares to the remaining shareholders (including Quester) at a price of £3.03 per share. The initial subscription required was 25p per share with the remainder due on call by the appellant. (2) He and Mr Wells had a negotiation with Quester and the other shareholders about the division of the 49,500 ordinary shares between them. On 2 October 1995, Mr Wells bought 28,422 ordinary shares, Mr Maynard bought 7,579 ordinary shares, Quester bought 10,536 of the shares and the remaining 2,963 were purchased by certain employees of the appellant. Mr Maynard funded his purchase from his own resources. (3) Mr Wells and Mr Maynard wanted to obtain more than 50% of the voting shares of the appellant. This deal achieved that: as a result of it, they together held 150,001 out of 300,000 of those shares (118,422 for Mr Wells and 31,579 for Mr Maynard). (4) The deal was initially negotiated between them and the CLM owners. Mr Maynard and Mr Wells had a good relationship with Quester and Mr Maynard thinks that Quester were prepared to allow them to acquire more than 50% of the voting shares because under the 1991 Shareholders’ Agreement Quester had various levers they could pull to operate control over the business, such as requiring consultation with their “Investor Director” over investment decisions, on the appointment of directors, changes to salaries and benefits, and so on. Mr Maynard commented that, as a result, to some extent having a majority shareholding might have been seen by Quester as insignificant, but his and Mr Wells’ view was that if the business was a success then it would be significant. In the event, this proved to be the case. (5) This acquisition was a commercial decision taken by them to increase their investment in the appellant and, in doing so, to take (together) a majority interest in the business. They were able to negotiate a deal with the CLM owners for a price which they were prepared to accept. In Mr Maynard’s view their acquisition of these shares had nothing to do with their employment. He noted that the deal resulted in the other shareholders - including Quester, which had no employment relationship with the appellant - also acquiring shares on exactly the same terms.

86. Following these transactions, the issued shares in the appellant were held as follows: Number % holding (of shares with voting rights) Class Mr Wells 118,422 9.5 Ord. Mr Maynard 31,579 10.5 Ord. Quester funds 118,500 39.5 A Ord. 10,536 3.5 Ord. By or for employees 20,963 7 Ord. Totals 300,000 100

87. At the hearing: (1) It was put to Mr Maynard that this involved two sequential transactions: a sale of shares by the nominee for the CLM owners to the appellant, and then the issue by the appellant of shares to the shareholders. Mr Maynard said he did not think it was sequential: the CLM owners approached him because they wanted to sell their shares. They then had a negotiation about the price, with Mr Wells involved, and at the same time they then also announced to the other shareholders, including Quester, that they were acquiring shares and negotiated with them. As a proper strategy, they wanted to have more than 50% of the equity and it was an opportunity to do so and they put that to the other shareholders. They saw it as one single transaction; it does not look like it on paper, but it was done because it suited for cost purposes: it enabled the shares to be reissued, at a discount, at 25 pence, as opposed to having them paying £3.03 at the beginning, by buying the shares directly from the CLM owners, but it could have gone that way quite easily. (2) Mr Maynard accepted that the CLM owners were not party to the second agreement pursuant to which he and the other relevant persons acquired their respective shares from the appellant. He said it was all negotiated. There was a negotiation with him and Mr Wells and the CLM owners and there was a negotiation with him and Mr Wells and the other shareholders as to who the shares were allotted to and: “We saw it as one transaction.” He said again it was a matter of cost. Paying £3.03 to acquire the shares directly from the CLM owners would have been a substantial financial burden at the time, and the way around that was for the company to buy the shares back and to reissue the shares at 25p, and this was the correct legal process for achieving that. (3) Mr Maynard confirmed that the CLM owners had no say or involvement in the division of the shares between the various shareholders. He accepted that by 1995, he and Mr Wells had been managing and running the appellant for the past 10 years and were key to both its past and future success. It was put to him that it was as a result of that service that they had both acquired their existing shareholding. He said they had just gone through a whole series of reasons why they acquired the shareholding, because looking back to 1985, it was not the result of their work for the appellant at that time. It was put to him that that was at least part of the reason they were both given the opportunity to acquire further shares in 1995. He said: “It was a negotiation. For example, when I phoned up Quester, Andrew Holmes, who was the lead investor and director said he didn’t need to offer us for the shares, which I felt rather sad about.” Submissions and conclusion

88. HMRC said that the right or opportunity to acquire the Fourth Shares was made available by the appellant, who issued the shares to Mr Wells and Mr Maynard for the purposes of s 421B(3). In the appellant’s view, on the contrary, this was an opportunity “made available by” the CLM owners in deciding to sell their remaining shares. The shareholders then negotiated between themselves as to the specific numbers of shares each shareholder would be able to acquire. As a matter of substance, the transaction was a sale by the CLM owners to the acquiring shareholders. In HMRC’s view, the appellant’s argument ignores the Supreme Court’s statement in Vermilion that the sub-section “involves a straightforward examination…to ascertain who conferred the right or opportunity”. They said that, if s 421B(3) required an enquiry not just into whether the employer made the right available, but whether it did so “in substance” as opposed to form (whatever that might mean), the purpose of the sub-section would be defeated.

89. In HMRC’s view, alternatively, s 421B(1) applies on the basis that Mr Wells and Mr Maynard’s employment with the appellant was an effective cause of the right to acquire the Fourth Shares being available to them: (1) Mr Wells had, by the time of the Fourth Acquisition, been in charge of the appellant for ten years and Mr Maynard had also been employed as a director for the same length of time, (2) one reason for the right or opportunity being made available was their existing shareholding which had already been acquired by them by reason of employment. That shareholding enabled them to enjoy the benefit of this acquisition. The fact that the right or opportunity was also made available to non-employees at this time is immaterial. The Court of Appeal rejected a similar argument in Charman at [52].

90. The appellant submitted that s 421B(1) does not apply on the basis that the right or opportunity to acquire the Fourth Shares was made available to all of the shareholders; some of them were employed by the appellant but some (notably Quester) were not. Moreover, this right or opportunity was made available to all the shareholders for the same reason, namely, because of the CLM owners’ decision to sell their remaining ordinary shares. As the relevant minutes show, the shares on offer from them were, in substance, divided up among the existing shareholders. That division was a product of a negotiation between those various shareholders. Given that the right or opportunity to acquire additional shares was made available to all shareholders, including Quester, for the same reason, and resulted in the other shareholders, including Quester, acquiring additional shares on the same terms (albeit in varying proportions), it is not tenable to characterise that right or opportunity as having been made available “by reason of” an employment. It was available to them because they were shareholders in the appellant, just as Quester was, and their employment had nothing to do with it.

91. In our view, essentially for the reasons given by the appellant, the Fourth Shares are not “employment related securities” either by virtue of s 421B(3) or s 421B(1). On a realistic view of the facts, the right or opportunity to acquire the Fourth Shares was “made available by” the CLM owners to Mr Maynard and Mr Wells as part of their decision to sell their remaining shares to the existing shareholders on negotiation of the price with them. The appellant’s role in issuing the Fourth Shares was essentially simply part of the mechanics for enabling the shareholders to use funds within the appellant to fund part of the price negotiated for the shares with the CLM owners. In effect, the appellant fulfilled the opportunity which was made available to Mr Wells and Mr Maynard (and the other shareholders) by the CLM owners in selling their shares back to the appellant. In this instance we cannot see any basis for HMRC’s stance that Mr Maynard’s and Mr Wells’ employment with the appellant was an effective cause of the right to acquire the Fourth Shares being available to them. The right or opportunity was made available by the CLM owners to all of the shareholders on the same basis and they negotiated between themselves as to how many of the shares they would each effectively acquire. There is nothing to link the acquisition of the Fourth Shares with Mr Wells’ and Mr Maynard’s continued employment with the appellant. Shares acquired by and disposed of by Mrs Maynard

92. As set out below, on or around 4 November 2011 Mr Maynard transferred 15,789 shares (roughly half of his shareholding) to his wife, Mrs Maynard. As HMRC submitted, the disposal was to an associated person within the meaning of s 421C(2), such that s 421B(5) ITEPA is not satisfied. As a result, Chapter 3D continues to apply to those securities pursuant to s 421B(4) (as the exemption provisions in s 421B(5) to (7) are not fulfilled). Hence, such of Mr Maynard’s shares as we have held were employment related securities continued to be such after the transfer to Mrs Maynard. Part C – Market value and validity issues Section 1 – Market value legislation, case law and submissions

93. As HMRC submitted, an apt description of the purpose of the charge on disposals of “employment-related securities” for more than market value is set out by Oliver LJ in Wicks at 370 as follows: “…the obvious intention of this legislation - presumably in an attempt to produce fairness between taxpayers -is to impose tax on the value of those otherwise untaxed advantages which the employee enjoys because he is employed…”.

94. HMRC stated that the purpose of 446Y is, in their words: “...to identify aberrations in the price received for employment-related securities and then subject them to tax”. The appellant said that a better description is that the provisions are designed to capture what is essentially disguised remuneration provided by way of share disposals. For example, if an employee obtains shares and then disposes of them to an entity connected with the employer at an inflated price, these provisions would be in point. In the appellant’s view there is a clear sense of “mission creep” in terms of the way that HMRC are seeking to deploy this provision in this case. The appellant added that, in any event HMRC still have to show that there is an “aberration” and, for the reasons set out below, they have not done so.

95. The term “market value” for these purposes has the same meaning as it has for the purposes of the Taxation of Chargeable Gains Act 1992 (“ TCGA ”) (see s 421 ITEPA). The definition is set out in ss 272 and 273 of TCGA as follows: “272 Valuation: general (1) In this Act “market value” in relation to any assets means the price which those assets might reasonably be expected to fetch on a sale in the open market. (2) In estimating the market value of any assets no reduction shall be made in the estimate on account of the estimate being made on the assumption that the whole of the assets is to be placed on the market at one and the same time.” “273 Unquoted shares and securities (1) The provisions of subsection (3) below shall have effect in any case where, in relation to an asset to which this section applies, there falls to be determined by virtue of section 272(1) the price which the asset might reasonably be expected to fetch on a sale in the open market. (2) The assets to which this section applies are shares and securities which are not listed on a recognised stock exchange at the time as at which their market value for the purposes of tax on chargeable gains falls to be determined. (3) For the purposes of a determination falling within subsection (1) above, it shall be assumed that, in the open market which is postulated for the purposes of that determination, there is available to any prospective purchaser of the asset in question all the information which a prudent prospective purchaser of the asset might reasonably require if he were proposing to purchase it from a willing vendor by private treaty and at arm’s length.” We refer to this market value test as imported into the relevant provisions in ITEPA as “ the market value test ”.

96. HMRC referred to Netley v HMRC [2017] UKFTT 0442 (TC); [2017] SFTD 1044 (“ Netley ”), where Judge Jonathan Cannan, having reviewed the authorities, drew together the following principles relevant to determining market value under ss 272 and 273 TCGA, at [203]: “(1) The sale is hypothetical. It is assumed that the relevant property is sold on the relevant day (see Duke of Buccleuch v IRC [1967] AC 506 at 543 per Lord Guest). (2) The hypothetical vendor is anonymous and a willing vendor, in other words prepared to sell provided a fair price is obtained (see IRC v Clay [1914] KB 466 at 473, 478). (3) It is assumed that the relevant property has been exposed for sale with such marketing as would have been reasonable ( Duke of Buccleuch v IRC at 525B per Lord Reid). (4) All potential purchasers have an equal opportunity to make an offer ( Re Lynall [1972] AC 680 at 699B per Lord Morris). (5) The hypothetical purchaser is a reasonably prudent purchaser who has informed himself as to all relevant facts such as the history of the business, its present position and its future prospects (see Findlay’s Trustees v CIR (1938) ATC 437 at 440).”

97. HMRC referred to the comments of Eades LJ in IRC v Clay (“ Clay ”) where, in considering the open market value of a piece of land, he said this: “ A value, ascertained by reference to the amount obtainable in an open market, shews an intention to include every possible purchaser. The market is to be the open market, as distinguished from an offer to a limited class only, such as the members of the family. The market is not necessarily an auction sale. The section means such amount as the land might be expected to realize if offered under conditions enabling every person desirous of purchasing to come in and make an offer, and if proper steps were taken to advertise the property and let all likely purchasers know that the land is in the market for sale…..” (Emphasis added.)

98. HMRC also referred to further comments in Re Lynall [1972] AC 680 at 699B (“ Lynall ”) which concerned the open market value of shares on the death of the shareholder where the shares were subject to restrictions on sale/transfer. It was held that for the purposes of determining open market value it must be assumed that there is a sale of the shares, the effect of which would be to place the purchaser in the same position as that occupied by the seller/deceased. As regards how the hypothetical sale is to be viewed, Lord Reid said, at 694 H to 695 B, that HMRC’s evidence as to how large blocks of shares in private companies are in fact sold under a form of private process was irrelevant. In his view, that kind of sale “is not a sale in the open market. It is a sale by private treaty made without competition to a selected purchaser at a price fixed by an expert valuer.” He said, at 695 D, that the idea behind this provision is the classical theory that: “the best way to determine the value in exchange of any property is to let the price be determined by economic forces - by throwing the sale open to competition when the highest price will be the highest that anyone offers . That implies that there has been adequate publicity or advertisement before the sale, and the nature of the property must determine what is adequate publicity….” (Emphasis added.)

99. Viscount Dilhorne similarly rejected HMRC’s approach. He said this, at 701 C to E: “…it was said that the normal way in which a block of shares in a private company is sold is for the vendor to find a potential purchaser, and then if the directors approve of him they will authorise their accountants to furnish confidential information to an accountant acting for the purchaser who will in the light of his advice make an offer for the shares. On such a sale, no doubt all or nearly all the relevant information, whether confidential or otherwise, will be disclosed to the purchaser's accountant and a higher price will be obtainable than would be the case in the absence of such information…In my opinion, it is the antithesis of a sale in the open market. Only a person or persons selected by the vendor will be able to make an offer. It is, I think, an essential feature of a sale in the open market that persons interested should have an opportunity to purchase, not just those selected by the vendor. This method of selling shares in a private company is not a sale in the open market but one by private treaty.”

100. The appellant referred to IRC v Gray [1994] STC 360 (“ Gray ”), where Hoffmann LJ (as he then was) described the hypothetical exercise required, at 372 a-d, as follows: “In all other respects, the theme which runs through the authorities is that one assumes that the hypothetical vendor and purchaser did whatever reasonable people buying and selling such property would be likely to have done in real life. The hypothetical vendor is an anonymous but reasonable vendor, who goes about the sale as a prudent man of business, negotiating seriously without giving the impression of being either over-anxious or unduly reluctant. The hypothetical buyer is slightly less anonymous. He too is assumed to have behaved reasonably, making proper inquiries about the property and not appearing too eager to buy. But he also reflects reality in that he embodies whatever was actually the demand for that property at the relevant time … It cannot be too strongly emphasised that although the sale is hypothetical, there is nothing hypothetical about the open market in which it is supposed to have taken place . The concept of the open market involves assuming that the whole world was free to bid, and then forming a view about what in those circumstances would in real life have been the best price reasonably obtainable. The practical nature of this exercise will usually mean that although in principle no one is excluded from consideration, most of the world will usually play no part in the calculation. The inquiry will often focus on what a relatively small number of people would be likely to have paid. It may have to arrive at a figure within a range of prices which the evidence shows that various people would have been likely to pay, reflecting, for example, the fact that one person had a particular reason for paying a higher price than others, but taking into account, if appropriate, the possibility that through accident or whim he might not actually have bought. The valuation is thus a retrospective exercise in probabilities, wholly derived from the real world but rarely committed to the proposition that a sale to a particular purchaser would definitely have happened .” (Emphasis added.)

101. The appellant emphasised that, on the basis of this authority, the required exercise is “wholly derived from the real world” and also referred to Walton (exor of Walton decd) v IRC [1996] STC 68 (“ Walton ”) at 86. Mr Jones submitted that Gray also provides authority for the proposition that, where the asset to be valued consists of an aggregate of items (such as a holding of shares in a company), the hypothetical vendor must be supposed to have taken the course which would get the largest price for the asset, provided that this does not entail undue expenditure of time and effort on the part of the vendor (see Gray at 373). He said that this reflects the “reality principle” described in Gray that the hypothetical vendor does whatever reasonable people selling property would be likely to have done in real life.

102. As set out in Gray at 372 e to f, the courts have often referred to the need for the hypothetical vendor and purchaser to be “willing”. “It is often said that the hypothetical vendor and purchaser must be assumed to have been “willing”, but I doubt whether this adds anything to the assumption that they must have behaved as one would reasonably expect of prudent parties who had in fact agreed a sale on the relevant date. It certainly does not mean that having calculated the price which the property might reasonably have been expected to fetch in the way I have described, one then asks whether the hypothetical parties would have been pleased or disappointed with the result; for example, by reference to what the property might have been worth at a different time or in different circumstances. Such considerations are irrelevant.” (Emphasis added.)

103. In Lynall Harman LJ commented that: “...the so called willing vendor is a person who must sell: he cannot simply call off the sale if he does not like the price…”. In Walton , at 85g-j Gibson LJ said that “the concept of the open market automatically implies a willing seller and a willing buyer, each of whom is a hypothetical abstraction”. He referred to Hoffmann LJ’s comment that the willing buyer “embodies whatever was actually the demand for that property at that time”. He added similarly that whilst both the seller and the buyer are assumed to be willing, neither is to be taken to be “over-eager” and : “Each will have prepared himself for the sale, the seller by bringing the sale to the attention of all likely purchasers, and honestly giving as much information to them as he was entitled to give ( Lynall v I.R.C. [1972] A.C. 680 at p. 694 per Lord Reid) and the buyer by informing himself as much as he can properly do. The statute assumes a sale. That means that however improbable it is that there would ever be a sale of the property in the real world, for example because of restrictions attached to the property, nevertheless the sale must be treated as capable of being completed, the purchaser then holding the property subject to the same restrictions (see I.R.C. v Crossman [1937] A.C. 26). It also means that the vendor, if he is offered the best price reasonably obtainable in the market, cannot be assumed to say that he will not sell because the price is too low as inadequately reflecting some feature of the property nor can the purchaser be assumed to say that he will not buy because the price is too high. Because the market is the open market, the whole world is to be assumed to be free to bid.”

104. Mr Jones submitted that, in determining the market value of shares in circumstances such as these, the tribunal should have regard to the sale of other shareholdings in the market which actually took place at the same time as the disposal of shares by the shareholders. He made the following main submissions: (1) As is not disputed, the price CV was prepared to pay for all of the shares in the appellant was agreed at arm’s length between unconnected parties. HMRC accept that this price represented the market value of all of the shares. The prices for which (a) the majority shareholders, and (b) the minority shareholders agreed to sell their shares, were negotiated between them and Mr Maynard/Mr Wells. These prices were also agreed at arm’s length between unconnected parties. (2) It follows that the prices agreed by the various selling shareholders, as the prices for which each shareholder was willing to sell their respective shareholding, represent the best evidence of the market value of those shareholdings. The very essence of the market value test is that it seeks to find “the price which those assets might reasonably be expected to fetch on a sale in the open market”. The evidence set out below shows that the relevant discussions were plainly commercial and conducted on an “arm’s length” basis. Each shareholder negotiated and achieved for themselves the best price for their shares on the open market. The fact that different shareholders received different amounts for their shares is a product of the market and its dynamics. (3) The position in this case is, in reality, no different from the position if CV had approached each shareholder individually and negotiated, at arm’s length, a price for their holding. Where that is done, there is no proper basis for seeking to go behind those individual prices. There is no reason to believe that the price for which each shareholder actually agreed to sell their shares would have been different if the negotiations had taken place directly with CV. The negotiations that took place between the selling shareholders are, in effect, a proxy for the negotiations that would have taken place between them and CV. One is therefore left with the position that the overall price paid by CV was the product of an arm’s length bargain, and the division of that price between each of the vendor shareholders in return for their respective holdings was likewise the product of arm’s length bargaining. (4) These submissions are supported by the expert evidence adduced by the appellant. Mr Weaver’s evidence is that the actual transaction - in particular the prices for which the various shareholders agreed to sell their shares - is the best evidence of market value of those shares as at the relevant valuation date. CV acquired multiple parcels of shares in order to acquire the whole of the appellant, and each seller disposed of their particular parcel of shares separately for an amount for which they negotiated between various groups. Conceptually each of the three sets of negotiations involved a seller and a purchaser for the purposes of establishing a comparable for market value purposes. As Mr Weaver describes, there were in each case two parties on either side of a negotiation over the price for which the shares would be disposed of. They were acting for self-interest and gain, and, as Mr Weaver put it, each pound that crossed that divide mean that one side got more and the other side got less. (5) One is looking for a suitable and reliable comparator to determine market value. One must look for the best evidence available. Whether or not as a matter of strict legal form there is a purchaser is not determinative of whether the evidence of the actual deal is probative. There is no reason to consider that the bargains reached between the sellers for their shares is unreliable as a guide to that. Mr Weaver’s report supports this and is also consistent with the case law principles and with the approach of the advisers involved at the time to the question of the valuation of the shares at the time of the transaction.

105. As well as relying on Gray , Mr Jones referred to a decision of the Special Commissioners in Hawkings-Byass v Sassen [1996] STC (SCD) 319 (“ Hawkings-Byass ”), a decision of the Court of Session in IRC v Stenhouse’s Trustees [1992] STC 103 (“ Stenhouse ”) and a decision by this tribunal in Alan Anderson v HMRC [2017] SFTD 100 (“ Anderson ”).

106. Hawkings-Byass concerned the valuation for capital gains tax purposes of various shareholdings in a company as at 31 March 1992. Mr Jones emphasised that in determining market value the Special Commissioners took account of the fact that the articles of the company had complicated and restrictive provisions about who could become a shareholder and provided that ordinary shareholders had a power to appoint directors according to how many shares they held and that there were allegiances of varying degrees between the shareholders which could and did fluctuate. He submitted that: (1) It is legitimate to have regard to the fact that other shareholdings would be on the market at the same time, where there is factual evidence to that effect (see Hawkings-Byass at 332f-g). (2) The hypothetical purchaser would know or be informed about alliances formed and reformed between shareholders (see Hawkings-Byass at 332h-j). (3) Even where all shares are of the same class, it is not unusual for one shareholding (or a group of shareholdings) to be worth more than another shareholding (or group of shareholdings), depending on the circumstances, including, for example, where the former would give the purchaser control of the company (see Hawkings-Byass at 334j and 335b).

107. Mr Jones submitted that the Stenhouse case plainly demonstrates that evidence of actual transactions is admissible and, where it is sufficiently reliable, that it is the best evidence of market value. That case concerned the valuation of shares that had been distributed by a trust for capital transfer tax purposes by reference to the price which the shares might reasonably be expected to fetch if sold in the open market at that time at (see page 110): “…I therefore do not understand why it is said to follow from the fact that value has to be ascertained on a hypothesis that any evidence of actual transactions should be ruled out as so irrelevant as to be inadmissible . Whether it is correct to start, as the trustees’ witnesses did, with the accounts of the companies and information available in the public domain, is, in my opinion a question of fact and opinion, not one of law. Similarly, the question whether any weight, and if so how much, is to be attached to evidence of transactions seems to me to be a question of fact and opinion. Some of the transactions on which the Crown relies may be of no use: but there may be others which took place between parties who were genuinely trying to strike an open market value, and I do not see why such cases should simply be ignored...” (Emphasis added.)

108. Finally, Mr Jones referred to the decision by this tribunal in Anderson in considering the market value test in ss 272 and 273 TCGA as authority for the proposition that an actual offer made for the shares in question by a willing purchaser in the open market very soon before the valuation date and which is still on the table at that date, can be considered best evidence of that value (see [134] and [135] of that decision). He said that the appellant’s approach in this case is a simple and logical extension of the principle set out in this case. If it is legitimate to look at an offer made for the shares but not accepted, then, unless there is some reason to treat the evidence as unreliable, there is no reason in principle why an actual sale of the asset on the open market at the valuation date should not be taken into account.

109. In HMRC’s view, the appellant’s approach is wholly out of kilter with the requirements of the legislation as interpreted in the case law. Mr Nawbatt said that the agreed allocation of the proceeds of a sale of all the shares in a company, as between the sellers, is not itself a sale and is not a proxy for a sale; none of the parties to that allocation agreement, is a buyer or a “quasi-buyer”. The sellers did not negotiate between themselves to purchase the asset but rather negotiated how to divide between them the overall sale price offered by CV for all the shares. It is clear from the case law that the essential question is - what is the value of the asset to the person acquiring it immediately after it acquired it ? The agreement as to the allocation of the price as between the sellers is irrelevant; they did not negotiate between themselves on the basis of what the asset was worth to them immediately after the disposal. There is no authority (or valuation guidelines) which suggest that in postulating the hypothetical sale and purchase transaction, it is permissible or appropriate to substitute another type of transaction for a sale or to substitute for a buyer another party to a different type of transaction. The only buyer in this case is CV. The value of all the shares to CV after it purchased the appellant, viewed at the time at the point of purchase, was the same. CV made a global offer of £665 million for all of the shares in the appellant and CV did not care how that global price was divided up between the sellers; that was left for negotiation between the sellers. That is the only evidence of the market value of these shares to a buyer.

110. Mr Nawbatt submitted that the case law demonstrates why the appellant’s suggested exercise of looking at the private agreement reached between the selling shareholders is fundamentally flawed; by definition, on any view, that is not an open market and the private agreement that they reached is the antithesis of the concept of the open market. He relied on the comments highlighted in Clay and Lynall above and, in particular, on the decision of the Supreme Court in Grays Timber Products Ltd v HMRC [2010] UKSC 4; [2010] 1 WLR 497 (“ Grays Timber ”).

111. In Grays Timber , on being appointed as the managing director of the taxpayer company and a director of the parent company, an individual, G was allotted approximately 6% of the total issued share capital in the parent company. Subsequently, all the issued ordinary shares in the parent company were acquired by an outside purchaser, J, for £6 million. Under the terms of a subscription and shareholders’ agreement, G became entitled to receive a disproportionately large part of the proceeds of sale of just over £1.4 million, whereas a rateable part would have been just under £0.4 million. It was held that HMRC were correct to determine that the disposal of G’s shares was for a consideration that exceeded their market value within the meaning of s 446X(b) ITEPA. As Lord Walker set out, at [11] and [12]; (1) The subscription agreement contained detailed provisions regarding what was to happen to G’s shares if his employment ended whilst he still owned them or if they were sold to a third party or bought back by the group whilst he was still employed. (2) The “evident intention” was that G “should participate disproportionately in growth in net assets occurring during his period of service”. (3) The purpose behind these provisions was shown by a provision in which shareholders acknowledged and accepted that G was to become an executive director and shareholder on the agreement that, if by reason of his efforts as such an executive director, net asset value plus the notional goodwill exceeds the target net asset value on a return of his investment by share buy-back or the consideration exceeds the target net asset value on a return of his investment on a sale, he would in certain circumstances be entitled to an agreed extra payment in addition to the return of his initial investment and, on such a sale, disproportionately greater than the amounts received by other shareholders or his percentage of the equity share capital of the group.

112. Lord Walker referred to the case law including Lynall and Gray and two authorities referred to with approval in Lynall , Attorney General v Jameson [1905] 2 IR 218 and Salvesen’s Trustees v Inland Revenue Comrs 1930 SLT 387 (“ Salvesen” ), as well as Inland Revenue Comrs v Crossman [1937] AC 26 (“ Crossman ”). He noted, at [23], that all the cases apart from the Gray case, were concerned with the valuation of shares in private companies, where the articles contained restrictions on transfer and rights of pre-emption. At [24], he cited this passage from the judgment of Lord Fleming in the Salvesen case, at 391, as follows: “The Act of Parliament requires, however, that the assumed sale, which is to guide the commissioners in estimating the value, is to take place in the open market. Under these circumstances I think that there is no escape from the conclusion that any restrictions which prevent the shares being sold in an open market must be disregarded so far as the assumed sale under section 7(5) of the Act of 1894 is concerned. But, on the other hand, the terms of that subsection do not require or authorise the commissioners to disregard such restrictions in considering the nature and value of the subject which the hypothetical buyer acquires at the assumed sale. Though he is deemed to buy in an open and unrestricted market, he buys a share which, after it is transferred to him, is subject to all the conditions in the articles of association, including the restrictions on the right of transfer, and this circumstance may affect the price which he would be willing to offer ” (Emphasis added.)

113. He commented, at [25], that the importance of identifying precisely the property to be valued was emphasised in the Crossman case (especially by Viscount Hailsham LC, at pages 39 and 40, and Lord Blanesburgh, at pages 49 and 50), and this emphasis is reflected in many of the later cases. He then identified the issues as being (1) whether G’s shares were to be valued simply as ordinary shares whose rights are set out in the articles or whether his special rights under the subscription agreement were to be taken into account as if they were set out in the articles, and (2) if Mr G’s special rights are treated as intrinsic in the shares to be valued, what effect (if any) that would have on the valuation exercise. The question was whether they were to be treated as enuring for the benefit of the hypothetical purchaser, or were to be disregarded as being, even though intrinsic, exclusively personal to G, and worthless to anyone else.

114. At [37] Lord Walker said he was in real doubt as to whether Parliament has, in Part 7 of ITEPA 2003, enacted a scheme which draws a coherent and consistent distinction between intrinsic and extrinsic rights attaching to shares and other financial instruments. He said, however, that was not the end of the matter, since some rights, “even if properly described as intrinsic to the property to be valued, are nevertheless worthless to the hypothetical purchaser posited by the statutory definition of market value”. He went on to consider the second question noting that it was implicit in the taxpayer’s contention that, on their acquisition, each of G’s shares had a market value about three times greater than each of the shares owned by the other shareholders

115. At [38] he set out that J agreed to buy the group for £6 million less a retention, and all the ordinary shares which it acquired were of equal value to it. It was not concerned with the division of the sale price between the vendors except so far as it might involve adverse tax consequences to the group’s subsidiary. He said that the same would have been true of any other open-market purchaser. HMRC submitted that precisely the same can be said here; CV was not concerned with the division of the sale price between the same shareholders.

116. Lord Walker continued, at [39], that: “[G’s] special rights were peculiar to his position as a director of Group and managing director of Timber Products, as was clearly acknowledged in clause 6.1 of the subscription agreement. His rights were not assignable…These rights would have been personal to [G] even if they had been set out expressly in the new articles…A right can be personal even though it is intrinsic in the sense previously discussed, since class rights can be enjoyed by a class with only one member. Such rights were quite common in the articles of family estate companies formed during the 1930s with a view to saving estate duty.”

117. At [40], Lord Walker explained that the taxpayer argued that G’s special rights must be taken into account and treated as enuring for the benefit of the hypothetical vendor. He explained that in the Court of Session ([2009] STC 889 (1) Lord Osborne accepted that submission, at [46], but Lord Walker considered he undermined his own conclusion when he referred, at [47], to the provision in the subscription agreement which made it plain that G was to get a special price for his shares, not because the shares themselves had a special value, but in recognition of his personal services as managing director, (2) Lord Kingarth, at [67] and [68], recognised the significance of that provision and considered that G’s rights were personal rights that did not attach to the shares, and (3) Lord Mackay of Drumadoon, at [87] to [89], took the same, or a very similar, view. He concluded that he was “in substantial agreement” with the majority of the Court of Session, except that he would reach the same conclusion even if the rights did in some sense attach to G’s shares: “whether attached or unattached, they were of no value to the hypothetical purchaser, and he would pay the hypothetical vendor nothing extra on account of them”.

118. He noted that the valuer is concerned with the position of the hypothetical purchaser immediately after the notional sale, rather than worrying about how that sale could take place (perhaps in contravention of the company’s articles), and the valuation does not have to take account of the actual sale of G’s shares at a special price enhanced for reasons related to G’s special position as managing director.

119. The rest of the panel agreed but only Lord Hope made his own comments. He said, at [49], that he agreed with Lord Osborne that the relevant provisions should be seen as conferring rights on G’s shares as regards the payment to be received on their disposal, and that the effect of the sale agreement was that the purchaser specifically agreed with each and every vendor that the payments specified would be made to the appropriate vendor. He thought, however, that this approach fails to address the crucial question under s 272 TCGA: “ In estimating the market value attention must be focussed on the asset that requires to be valued. In this case it is the rights attached to the shares acquired by the purchaser, no more and no less. I agree with the majority that what has to be considered, to determine their market value for the purposes of the statute, is what the hypothetical purchaser would pay to acquire those rights at the relevant date… Mr Gibson’s right to an enhanced payment had a value to him, but that right was not the subject of the transaction as it did not transmit to the purchaser. What the purchaser acquired and paid for was the rights attached to the shares themselves and nothing else. Mr Gibson’s rights under the subscription agreement between him and the other shareholders who were parties to it were given effect when the transaction was entered into, but for the purposes of section 446X of ITEPA 2003 they must be disregarded.” (Emphasis added.)

120. Lord Hope added, at [50], that no doubt G was assured that he would be entitled upon a sale of the company’s share capital to the enhanced price that the subscription agreement provided for. But: “that was, in essence, because of the agreement entered into between him and the other 83.8% shareholders. It was for this reason that the terms agreed with the purchaser extended to how the price was to be divided up between the shareholders. They were designed to give effect to the rights enjoyed by Mr Gibson. But those rights, which were extinguished by the payment which Mr Gibson received, were not part of the assets acquired by the purchaser.”

121. HMRC said that the same comment applies here; the payment of the price by CV to the different sellers gives effect to the agreement reached between the sellers as regards the division of the price and those rights were extinguished by the receipt of the sales proceeds and were no part of the assets acquired by CV. In effect, the higher price which the shareholders were able to command (compared with that which other selling shareholders received) was extrinsic to the value of the shares, which they were able to command for reasons personal to them.

122. Lord Hope said, at [51], that the terms on which the shares were issued to G were personal to him. They were not provided for in the articles of association of the company and they were of no interest to a hypothetical purchaser. He said, at [52]: “ It is the terms subject to which the purchaser will take and hold the shares that must be considered. In this case they did not include [G’s] rights under the subscription agreement, as they were extinguished on settlement of the transaction. Their purpose was to enable [G] to enhance the benefits available to him in recognition of his services as managing director of Timber Products. That purpose was served when he received the enhanced share of the consideration that he was entitled to. All the shares in Group that [J] acquired were of equal value to them from and after the date of settlement. ” (Emphasis added.)

123. HMRC submitted that all the shares in the appellant that CV acquired were of equal value to CV from and after the date of the purchase. The payments to the different sellers gives effect to the agreement between those sellers. Their rights under that agreement, as applicable between themselves, were extinguished by the payment of the purchase price to them and they are not part of the assets acquired by the purchaser. The only consideration for the purposes of the valuation exercise is the value of the shares to the purchaser who buys the entire share capital the moment after he acquires all of those shares.

124. On the general approach Lord Hope thought that the correct approach is to take each Chapter in Part 7 ITEPA according to its own terms without trying to draw conclusions from the way the common definition of market value is applied elsewhere in Part 7.

125. Mr Jones said that HMRC’s reliance on the decision in Grays Timber is misplaced on the basis that the circumstances of this case are materially different from those in Grays Timber . He said that in Grays Timber the emphasis was on the separate and personal nature of the right that G had under the subscription agreement as well as its character as an employment incentive. In his view, in this case, it is notable that by contrast Mr Wells was not managing director of the appellant and there is no separate right that is equivalent to the distinct contractual right that G had under his subscription agreement at the outset of his appointment to an additional share of the sales proceeds as an employment incentive. Rather, in this case, the prices arrived at for each seller’s shares derived solely from the shares sold pursuant to the negotiations which occurred at arm’s length between the different groups of sellers. No one bestowed gratuitous value on the shareholders. As set out in the evidence below, Mr Maynard was clear that neither he nor Mr Wells received the consideration for their shares as a result of any prior understanding or any particular good feeling towards them or any form of service.

126. Mr Nawbatt replied that (1) the decision in Anderson does not assist the appellant. In that case, there was an actual offer to purchase the shares from an actual purchaser. Other than CV, there is no equivalent in this case, and (2) Hawkings-Byass is also not material, as that did not involve a sale of all of the shares of the company and was not concerned with valuing a particular shareholding in the context of a sale of the entire share capital.

127. HMRC objected to the appellant seeking to adduce expert evidence on this issue from Mr Weaver of Kroll. It was decided at the hearing, however, as the parties both agreed, that (1) the admissibility of this evidence would be dealt with by the tribunal after the hearing on the basis of the parties’ written submissions, and (2) we would hear evidence from Mr Weaver at the hearing.

128. In short, as set out in further detail in the appendix to this decision, HMRC submitted that the tribunal should exclude Mr Weaver’s report on the basis that: (1) It is not reasonably required to resolve the market value issue. In these circumstances, the tribunal’s task is to decide whether the market value of the shares was (a) the total consideration paid by CV divided by the number of shares, or (b) the price received by the shareholders according to the division of sale proceeds said to have been agreed with the other shareholders. (2) Further or alternatively, it usurps the tribunal’s function as it sets out to answer the very question that the tribunal must answer in relation to market value. It purports to make extensive findings of fact, beyond mere assumptions, based on an incomplete view of untested evidence. It then applies the relevant statutory provision, read with valuation standards that simply reflect the relevant case-law principles, to the facts as found. In HMRC’s view, in any event the relevant valuation guidelines to which Mr Weaver refers do not apply to this transaction in the way that the appellant/Mr Weaver asserts.

129. Mr Jones submitted that: (1) Expert evidence is required as valuation is a matter of fact and of expert opinion; it is not a matter of law. HMRC’s case proceeds on the apparently simple basis that every share held and sold by the ten different sellers had exactly the same value. It is notable that HMRC have not provided an expert (from the many available to them internally in the specialist valuers division) to support this. It appears that HMRC could not find anyone to support their proposition or who disagreed with the opinion given by Mr Weaver. The tribunal should draw an inference to that effect. Whether to draw such an inference is a matter for the tribunal’s common sense: see Efobi v Royal Mail Group Ltd [2021] 1 WLR 3863 at [41]. (2) As supported by Mr Weaver’s expert opinion, the actual bargains struck between the sellers (and CV), as parties acting at arm’s length, are the best evidence of market value. The fact those negotiations were not technically between sellers and buyer is irrelevant for the reasons already given. It is highly material that each participant was a willing participant, as demonstrated by the fact that they did the deals. (3) It is implicit in HMRC’s case that the minority shareholders sold at a price below the market value of their shares but HMRC have provided no justification for the tribunal to assume that two private equity firms agreed to sell their shares for less than market value. It is material to note, taking into account the overall circumstances, that Mr Carter of Prism called Mr Maynard after the deal to say how happy he was with it and that Prism put on their website the press release from the Private Equity News. (4) The false nature of HMRC’s stance is shown by the common sense example that if a buyer purchases a parcel of shares which are key to controlling a company, those shares will almost certainly have a higher market value than a smaller parcel of shares which would only give the holder a small minority interest, even though all of the shares have exactly the same rights. (5) The test of market value is an objective one of fact and it is apparent from Stenhouse and other cases, that it is a matter of fact and of expert opinion. It does not turn on the subjective views of the seller. It is not relevant whether Mr Wells and Mr Maynard thought they were obtaining a market value price or not. In any event, Mr Wells and the Maynards thought they got what their shares were worth, and that was exactly the advice they had received from their advisers at the time. The fact Mr Wells wished to have an indemnity to cover off his risk on this issue is irrelevant to the valuation question. (6) The logical and commonsense conclusion is that each shareholder negotiated and achieved for themselves the best price for their shares in the open market. The fact that the different shareholders received different amounts is a product of the negotiations and the market and its dynamics. That is consistent with the case law, the guidelines as explained by Mr Weaver, and with the professional advice at the time. The position is not realistically different than that if CV had approached each shareholder individually and negotiated at arm’s length over a price for their holding. There is no reason to believe that the price, for which each shareholder agreed to sell their shares, would have been different if the negotiations had taken place in that way. Ultimately, the overall price paid by CV was a product of an arm’s length bargain. The division of that price between the shareholders in return for their respective shareholdings was likewise the product of arm’s length bargaining.

130. In summary, as explained in our conclusions below by reference to the evidence, our view is that the appellant’s approach to the market value test is fundamentally out of kilter with that test on its plain terms and how it has been interpreted and applied by the courts in the cases set out above. As HMRC submitted, on the facts of this case, the correct approach is essentially that set out in Grays Timber . Essentially, the test requires one to identify the highest price reasonably obtainable by the hypothetical seller/the highest price a reasonably prudent purchaser would pay for the asset in question (where the hypothetical parties have the attributes and information set out in the caselaw). As both Lords Walker and Hope recognised in Grays Timber , (1) the focus is firmly on the asset that requires to be valued, and (2) in the case of shares in a private company, that requires focus on the rights attached to the shares acquired by purchaser, no more and no less. Therefore, an essential and necessary part of determining the market value of such shares at the relevant time is to consider what the hypothetical purchaser would pay to acquire the rights attaching to the shares at the relevant date. It is also clear from the caselaw that where shares are actually bought and sold, the best evidence of what the hypothetical seller and purchaser would agree as a price for the relevant shares, may well be what the actual seller and purchaser agree, to the extent that the actions of the actual seller and buyer reflect those that may be expected of the hypothetical willing seller and buyer.

131. In this case, however, we cannot see that, as is the effect of the appellant’s argument, the sum any selling shareholder was prepared to accept, as its share of the £665 million price offered by CV, in their separate negotiations with Mr Maynard and Mr Wells, informs what price the hypothetical willing purchaser would pay for the rights attached to those shares. The fact is that the negotiations which the appellant relies on did not take place between parties who might be expected to act as an independent willing seller and buyer and, on the evidence set out in full below, it is clear that they did not act as such.

132. Our conclusions on the evidence are set out below, but we highlight in summary that it is plain that (1) CV agreed to buy all of the shares in the appellant for around £665 million (subject to an adjustment for debt) as negotiated with Mr Wells and Mr Maynard with no direct discussion/negotiation with the other shareholders, (2) CV was not concerned with the division of the sale price between the selling shareholders, (3) accordingly, the division of the total sale price between the selling shareholders was negotiated, without any involvement by CV, separately between (a) the minority shareholders and Mr Wells and Mr Maynard, and (b) the majority shareholders and Mr Wells and Mr Maynard, (4) as is not surprising, given that none of the parties involved in the negotiations between the selling shareholders was in the position of a purchaser of the shares, the factors which were taken into account in agreeing the allocation of the price in those negotiations were not ones which would be of interest to a hypothetical willing purchaser of the shares in the open market, and (5) in all the circumstances, it may reasonably be inferred that all of the shares acquired by CV were of equal value to CV from and immediately after the purchase. We can see no reason why a hypothetical purchaser in the open market should be taken to have any different view.

133. Moreover, on the evidence, there is no basis for the appellant’s assertion that the position resulting from the negotiations between the selling shareholders is, in reality, no different from the position if CV had approached each shareholder individually and negotiated, at arm’s length, a price for their holding. As set out in full in our conclusions on the evidence in section 2 below, such evidence as there is shows that the factors, which the selling shareholders had in mind when negotiating how the price would be shared between them, were ones which were essentially personal to them, and which would have no value to the buyer of the shares in the appellant from and immediately after the purchase.

134. We do not accept the narrow point of distinction which the appellant sought to make between the circumstances of this case and those in Grays Timber. The decision in that case requires the tribunal to approach the market value test (1) by looking at the value of the rights attached to the shares acquired by the purchaser, from and immediately after the purchase, and (2) by asking whether any rights/factors pointed to as affecting their market value are “to be treated as enuring for the benefit of the hypothetical purchaser”, or are “to be disregarded” even if they may be described as “intrinsic”, on the basis that they are “exclusively personal” to the relevant seller and worthless to anyone else. In Grays Timber , the right in question, which was held to be “exclusively personal” to G, specifically related to his employment with the company whose shares he sold. However, plainly other rights or factors, which are not employment related, may have characteristics/attributes which render them “exclusively personal” in the sense set out in that case.

135. For the reasons set out in full in the appendix to the decision (1) we have decided that Mr Weaver’s evidence is admissible in principle, (2) however, we have not in fact placed any reliance on his evidence, given he approached matters on the premise set out by the appellant, which we do not accept is correct under the legal test set out in the relevant legislation as interpreted by the courts, for all the reasons set out here and in our conclusions on the evidence in section 2 below. We do not accept the appellant’s stance that Mr Weaver’s evidence is not open to question or challenge or that an adverse inference should be drawn because HMRC have not provided their own expert evidence. On HMRC’s approach, which essentially we have accepted is correct, it is not necessary for expert evidence to be produced for the tribunal to make a conclusion on the market value issue. Moreover, it is plain from the caselaw on expert evidence set out in the appendix that the tribunal may evaluate and test such expert evidence as is admitted in proceedings and need not accept it in whole or part if the tribunal considers that it is not based on the correct legal principles and/or on sound reasoning and/or on correct factual assumptions.

136. We note that, when questioned at the hearing, Mr Weaver could offer no viable reason for why the allocation between the selling shareholders of the total price for all of the shares in the appellant is, on his/the appellant’s view, to be taken to reflect what the hypothetical purchaser would pay for the relevant shares. His view boils down to an assertion that that must be the case as (1) each selling shareholder actually signed up to receive the relevant sums under the documents entered into with CV, and (2) the deals struck between Mr Maynard and Mr Wells and (a) the minority shareholders, and (b) the other majority shareholders, were negotiated on “arm’s length terms”, such that for each £1 more Mr Maynard and Mr Wells were to receive the other selling shareholders would receive less, and (c) that somehow puts Mr Maynard and Mr Wells in the same position as a buyer of the shares, as regards their negotiations with the other shareholders. However, as set out in our conclusions, the evidence establishes that, in fact, Mr Maynard and Mr Wells did not act as an independent willing buyer would in the negotiations for the allocation of the price between the selling shareholders and the factors taken into account by the parties in agreeing the allocation were not based on factors which a hypothetical buyer would take account of. We have, however, included full details of his evidence in the appendix to the decision and given our views on his report on the basis that it may be relevant on any appeal against this decision. Section 2 - Evidence of fact on Valuation and Carelessness Issues

137. The evidential and factual findings in the section are based on the documents in the bundles and the evidence of Mr Wells, Mr Maynard and Mr Ricupati. Mr Ricupati made the decision on CV’s behalf not to operate PAYE on the consideration paid by CV to Mr Wells and Mr and Mrs Maynard for the acquisition of their shares in the appellant in 2014. In 2014, he had around 25 years’ experience as a tax professional most of which were spent in senior roles. Since joining CV in 2013, he had been involved in around 40 acquisitions.

138. We found Mr Ricupati to be an unreliable witness. Throughout his cross-examination, Mr Ricupati sought to advance the appellant’s case rather than to assist the tribunal by answering the questions he was actually asked. He adopted a combative approach to questioning. He said several times that counsel who cross-examined him was giving evidence after the tribunal had explained to him that was not the case. He gave evasive answers on a number of occasions which did not answer the question asked and would not accept propositions that were evidently correct. On his own evidence his recall of the actual events was limited. Mr Ricupati’s role

139. As set out below, Mr Ricupati first became aware of the PAYE and valuation issues around 10 or 11 June 2014. Much of his knowledge regarding the deal for the purchase of the appellant was obtained through verbal conversations among the core deal team members: Mr Albert White III, then Chief Strategy Officer of The Cooper Companies, Inc (of which CV forms part) (“ CC ”), who led the team; Mr Robert Weiss, then CEO; Mr Dan McBride, then President of CV and Chief Operating Officer of CC; Mr Randy Golden, then General Counsel; Mr Matt Topliff, then Director of Business Development; and himself. The core deal team worked out of the same offices in California, so their interactions were live and very fluid. It was common for them to discuss the deal in their offices, rather than sending an email. Also involved in some aspects of the deal was Mr Greg Matz, then Chief Financial Officer of CC and the individual to whom Mr Ricupati reported.

140. As accords with Mr Maynard’s evidence, Mr Ricupati’s recollection was that Mr White dealt exclusively with Mr Wells in the negotiations, and not with any other shareholders, and that Mr Wells had effectively negotiated on behalf of all the shareholders.

141. Mr Ricupati said that at the time he was in a support type of role. He was not directly involved in the negotiations and some of his knowledge regarding the negotiations was based on his conversations and interactions with other members of the deal team who were closer to the negotiations. He agreed that, if at any stage he had wanted further information about the negotiations, it would have been easy for him to find out from other people, such as Mr White, who he worked in close proximity to.

142. In his statement he said that in making the decision on the PAYE issue he was supported by and relied upon CV’s external advisors (1) Latham & Watkins (“ LW ”) (from a legal perspective), (2) a team from Ernst & Young (“ EY ”) in the US, who supported the deal team in undertaking tax due diligence of the appellant. Mr Jim Kim and Ms Kathryn Maki were, respectively, the lead relationship partner and senior manager who assisted in providing US tax advice and overseeing other EY team members in the UK, and (3) a team from EY in the UK, Mr Lawrence Hall and Ms Jennifer Cooper, an EY UK tax partner and senior manager respectively. They were M&A tax executives who worked in the international tax team. Ms Cooper was Mr Ricupati’s main point of contact and she reported to Mr Hall. Most of Mr Ricupati’s interactions with EY’s UK team were with Mr Hall and Ms Cooper and related to structuring issues. We refer to the EY team acting for CV as “ EY CV ”.

143. Mr Ricupati placed a lot of value in having a core group of trusted advisors. By 2014 he had a long-standing relationship with EY. Developing relationships with advisors over the long term allowed him to build up a lot of faith in their opinions and meant that they could support him in appraising advice on specific issues where input from specialised advisors was required. Mr Ricupati built a close relationship with Mr Sean Finn from LW. They talked regularly on the phone throughout the deal. There was a “Chinese wall” between EY CV and the EY team acting for the appellant (“ EY Sauflon ”) so as to maintain confidentiality and independence between the parties and their advisors.

144. Mr Ricupati’s roles with CC did not involve him having responsibility for routine payroll-related matters. However, he did deal with such matters where, as here, they arose in the context of undertaking due diligence as part of an acquisition. At that time he was the only CC executive on the deal team who was equipped to appraise the issue and make the relevant decisions in relation to it. In making a decision, he was supported by and relied upon LW and EY; EY were the experts in relation to the PAYE issue and his decision was to follow their advice. As set out below we do not accept that Mr Ricupati took appropriate advice on the PAYE issue.

145. At the hearing: (1) Mr Ricupati accepted that Mr Kim and Ms Maki were not experts or specialists in in relation to the PAYE issues. He said Mr Hall and Ms Cooper were not specialists but, in his view, (a) they were well aware of how PAYE works and operates, and (b) an adviser does not need to be a specialist to know how certain things work as when you are involved in “M&A”, “you do due diligence” which involves dealing with a variety of issues. He added that a partner or senior manager in a large firm like EY does more than one thing: “including, in their case, having a deep knowledge of PAYE…You don’t need to do that as a full-time job to be able to do your job...Part of their specialty included PAYE, PAYE is quite a broad area. You can have an awareness of PAYE…they were deeply involved and they had the necessary expertise to support me. That’s why we chose a UK team and not just a US team…When you do due diligence, you always use a complement of individuals to support you. Some are strategic, bigger picture, such as Mr Jim Kim and Kathryn Maki, which oversee the entire due diligence. Then you also select people….which have direct expertise in the specific country issues when you deal with a firm like EY, there is a million other people working the background.” (2) He continued that in the “M&A world, you deal with your direct contacts, and their job is to make sure that advice is correct, and they will go within the firm to seek that advice”. He said, in effect, that when he is dealing with reputable firms like LW and EY, he relies on the firms; it was not his responsibility to know who else they were using within their organisation to come up with their advice. In the due diligence world, “you rely on the firm advice. The individuals are just the link between ourselves and the firm”. He understands the importance, in that process, where there are specialist issues, of obtaining specialist advice. (3) It was put to him that he must have known that, due to the Chinese wall, EY CV would not be able to access EY specialist employment tax or PAYE advice that they would ordinarily be able to do. He said (a) that there were simply two different teams, (b) there are plenty of emails from Mr Finn showing he reviewed the advice and supported the conclusion reached. They did not need a formal opinion from another firm but simply to review the opinion that EY Sauflon had provided. Mr Finn was a tax specialist, which includes PAYE, and it was part of his responsibility. In the M&A world, people have a diverse background and cover different tax matters, (c) he relied on the firms. (4) He said there is correspondence between Mr Finn, EY and Mayer Brown International LLP (“ MB ”), the legal advisers to the sellers in respect of the sale of the appellant, about the PAYE issue, and it was discussed at length. His source of information was Mr Finn. Who Mr Finn used to get more advice or to support him in the firm was his prerogative. He relied on the firms to do their job and to provide advice, and these specific people were really his liaison to the firms. He did not regard himself as under a responsibility to investigate who LW or EY internally used. (5) He understood that (a) he would ultimately be responsible for deciding whether the appellant should operate PAYE post-completion, (b) it was, therefore important for him to seek support and advice from his circle of advisors, given he did not have specific expertise in relation to the PAYE issue, and (c) the advisors he sought support and advice from were Mr Finn, Mr Hall, Ms Cooper, and possibly Mr Kim and Ms Maki. When pressed he said he relied on the firms’ advice. Those were the individual people that he dealt with, and they provided support and opinion. Background to the sale of the appellant – investment by Prism and Bond

146. Mr Wells explained that (1) by 1999, the appellant had become the market leading solutions supplier in the UK, with enough cash and market presence to enter the contact lens market. Initially, they built a contact lens manufacturing plant in Southampton and then in 2007, in Budapest in Hungary, and began outselling their major multinational competitors particularly in the UK, (2) in 2007, Mr Holmes of Quester had decided that he wanted to retire and he found a purchaser of Quester’s shares, a private equity firm, CSP Prism LP Hollyport Management Ltd (“ Prism ”). They needed to raise additional funds for the business because they were running out of space and capacity: sales were taking off incredibly well. They needed assistance with funding the new plant in Hungary, (3) Prism introduced Bond Capital Partners I Limited (“ Bond” ), another private equity firm which was just starting up. Bond lent the appellant several million pounds. Bond wanted an option to acquire some shares as part of their financing deal. Initially, they wanted Mr Maynard and Mr Wells to give up some of their shares but they were not prepared to do that because this was their company. Hence, any shares acquired by Bond had to come from Quester’s shares (which were being acquired by Prism). They had to accept that Prism were coming in.

147. Mr Maynard explained that: (1) On 26 February 2007, (a) a new Shareholders’ Agreement was entered into by him and Mr Wells, the appellant and the Quester entities (“ the 2007 Shareholders” Agreement ”), and (b) the appellant adopted new articles of association (“ the 2007 Articles ”). These were adopted, because Quester wanted to close their investment fund and sell their ownership interest in the appellant to Prism, who specialised in acquiring time-expired funds. Prism’s agenda was always to try and find a way of selling their interest in the appellant at a profit, and (c) Bond agreed to provide loan finance to the appellant and an affiliated company acquired an option to acquire 31,943 of the “A” ordinary shares held by Quester. (2) On 22 June 2007 Prism acquired Quester’s interests and effectively stepped into Quester’s shoes, such that its shares were subject to Bond’s option. (3) The private equity transactions were conducted at an equity value of the appellant in 2007 of about £5.8 million. This figure is based on Bond being granted the option to acquire 31,943 shares, out of 292,815, for £630,000. (4) The 2007 Shareholders’ Agreement contained some provisions which gave Prism and Bond rights over some things, such as setting up new subsidiaries. It differed from the 1991 agreement in that, for instance, he and Mr Wells had the final say on the appointment of the “Investor Director”; the thresholds for management to have to consult the “Investor Director” were raised; and Mr Maynard’s shares were not subject to any “leaver” provisions. Also voting rights were introduced, in certain circumstances, for the shares that Quester had acquired in 1991 which prior to then were non-voting. The agreement also stated that it was the parties’ (non-binding) intention to sell the appellant after 30 March 2010 and in any event before 30 March 2013. (5) The 2007 Articles included the following provisions that on any sale: “Save as expressly set out in these Articles, the ‘A’ Ordinary Shares and the Ordinary Shares shall each rank pari passu as if all such Shares constituted one class of Share”, and “… in priority to the payment of any amount to or on account of any other class or series of share capital, from time to time, in the Company, the holders of the Preference Shares shall be entitled (equally in all respects pro rata as a class) to an aggregate sum equal to the greater of (i) The aggregate liquidation value; and (ii) The Arrears together with an amount per Preference Share equal to the consideration payable to a holder of an Ordinary Share in respect of such Sale (as adjusted in accordance with Article 3.2(l)” These were the rights attaching to the shares in the appellant on their sale to CV in 2014.

148. Mr Wells said he does not recall the statement of intention to sell the appellant. When he first went into the business, the whole idea was to build a company and sell it. But he had stayed with it for so long, and, by 2007, his three sons were all working in the company as well, and so in 2007 he had no real appetite to sell, unless of course a ridiculous offer came along. His attitude was build, build, build and see where they could go to from there. It was an option for this to be a multi-generational family business, and he nearly took that. He said that they changed things so Mr Maynard would not have to sell his shares if he left the appellant: it was not fair for him to have to do so as he was a founder member who had put money into the company from the start and the two of them controlled the company. 2012 to 2014 – approaches by buyers and dispute with Prism

149. Mr Wells and Mr Maynard said this about the period from 2007 to 2013/14 in their statements: (1) In 2007 to 2014, they had about 10 different people approach them to buy the appellant. From 2011 to 2014, three out of the four main companies in the contact lens industry (CV, Bausch & Lomb, Johnson & Johnson and Ciba Vision, now part of Alcon) expressed an interest. They first had detailed negotiations with CV in about 2011. Mr Wells said those negotiations failed mainly due to the price and CV’s plans for his sons. For him, the decision to sell required there to be a balance between the money from the sale and his boys’ future: he thought a sale to CV at that time meant that their future in the business was not secure. It remained a driving force that his children were alright. (2) Mr Maynard set out that (a) in March 2012 Mr Wells moved to Jersey and resigned all of his directorships within the Sauflon group of companies. The appellant was then run by his sons as joint managing directors and Mr Maynard as financial director, (b) in November 2011, Mr Maynard gifted half of his shares to his wife (Mrs Bridget Maynard), and (c) in the period from November 2011 to June 2012, due diligence and negotiations for the sale of the appellant to Bausch & Lomb were conducted. Mr Maynard and his wife were set to make about £20 million from the sale of their shares. The contractual documents were almost ready to be signed when Bausch & Lomb did something which upset Mr Wells so much that he refused to sign and they walked away from the deal in June 2012. (3) A revised shareholders’ agreement entered into in June 2013 (“ the 2013 shareholders’ agreement ”) records that (a) Mr Wells resigned his directorships and entered into a consultancy agreement with the company on 30 March 2012, and this and his ceasing to reside in the UK took place in anticipation of the sale of the appellant to Bausch & Lomb, and (b) under an earlier shareholders’ agreement, the parties acknowledged that if the deal with Bausch & Lomb did not occur, the strategic direction of the appellant would require the reinstatement of Mr Wells as an employee and his reappointment as managing director of the appellant and as a director of each of the relevant subsidiaries on the terms set out in the earlier agreement. (4) Mr Wells said that at that time he was willing to consider offers to buy the company, but on the basis that it had to be a spectacular offer for him to go ahead. At a very late stage of the negotiations with Bausch & Lomb in 2012, he discovered that they had no intention of doing what he thought had been agreed. He also wanted more money but it was this skulduggery that triggered him to pull out of the deal. Mr Maynard was very upset but he understood the reasons and they continued to back each other; that cemented their relationship even further. The other shareholders were totally furious with him. Mr Carter and his colleagues at Prism were particularly angry about it. It is apparent from the correspondence that in the event that the proposed Bausch & Lomb transaction did not occur, Mr Wells had the option to be reinstated as employee and managing director. The 2013 shareholders’ agreement records that the negotiations with Bausch & Lomb ended on or around June 2012. (5) Mr Wells was also in discussions in 2012 with Essilor International S.A., a major French public company operating in the eyecare market globally but in the end it was not such a good deal and those discussions were closed in 2013. (6) Mr Wells and Mr Maynard both set out that around 2013 there were various disputes with Prism. Mr Wells said he was still in a key position as regards negotiating any possible sale, as a major shareholder, and he was therefore heavily involved in dealing with the dispute. In his view Prism were doing whatever they could to make themselves a nuisance. In particular, they tried to block the appellant’s expansion into the United States of America (“ US ”) (see below). (7) The 2013 shareholders’ agreement records that on 13 February 2013 Rothschild & Co was engaged by the company, Mr Maynard, Mr Wells, Prism and Bond to act as their sole financial adviser in relation to the provision of financial advisory services in relation to the potential sale of the appellant. Mr Maynard explained that (a) they produced a package, which was effectively a business plan, and approached various parties, (b) this was part of the arrangement with Prism, and (c) their engagement was terminated in November 2013 as Mr Wells had threatened during the dispute with Prism. (8) In anticipation of a sale, on 26 February 2013, Bond exercised its option to acquire ordinary “A” shares from Prism which were simultaneously converted into preference shares (as recorded in the appellant’s accounts for the year ended 31st October 2013). Overview of the sale of the appellant to CV in 2014

150. Mr Wells set out that by early 2014: (1) There had been a big increase in the appellant’s value, as compared to 2012 which was mostly due to the success of the expansion into the US and the quality of their products. That is why CV ended up paying so much. For example, one of the biggest companies in the US had been doing deals of about $46 million with CV but due to US expansion, all of a sudden the appellant was over there, taking away CV’s business. That started to hurt. They had a programme of continuous product improvement, and had driven down the cost of manufacturing through the new plant. They were adding sales of 100% per annum and their manufacturing costs were lower than everyone else’s. (2) Prism were continuing to be a nuisance. He was aware that they had a timeframe for exiting the appellant. They could not force him and Mr Maynard to sell but they really did try. Prism started using privileged and classified information they had obtained as shareholders to market their shares for sale. They had to threaten to get an injunction to stop Prism from doing that. This dispute with Prism was still going on when CV approached them in early 2014. (3) Mr Wells met up with Mr White. He approached Mr Wells as he was the major shareholder and was in the key position in relation to negotiating any sale. They negotiated and gradually came to an agreement on a total price for the company that he and Mr Maynard thought was fair, taking everything into account. We note that it is apparent from this and the other evidence set out below that Mr Wells’ negotiations with CV were at all times for the sale and purchase of all of the share capital in the appellant in return for a single price. (4) When they advised Prism of the indicative offer received from CV, Prism indicated they were content for them to carry on the negotiations on that basis. Their eventual approach to Prism involved both Prism and Bond getting a lower price per share than the other shareholders, as was always the intention on a sale of the appellant. Prism and Bond were investors who had bought into the business at a very late stage and, in the case of Prism, had been very obstructive. In addition both he and Mr Maynard had to give guarantees and warranties to CV, they had built the business and they felt they deserved more than the other shareholders. It was always his intention to present a deal to Prism and Bond on the basis that, if they did not want to do that deal, then he and Mr Maynard would not sell. They always worked together as a team and had control by being together. Their strength was that Prism were extremely keen to sell and they were not. They were willing to sell but only if the price was “spectacular”. (5) With a lot of effort, he gradually talked up CV’s offer of around £400 million and ended up at £665 million. The major thing was that their costs of manufacturing were much lower than CV’s at the time. Once CV were satisfied that what they were saying about that was accurate, they were more open to negotiating the price upwards. Sometimes others, such as Mr Dickinson of MB, were used to act as a broker between them and Prism. Mr Maynard kept him totally informed about the negotiations with the other shareholders and he was happy with what he did. Mr Maynard also sometimes copied him into emails, or draft correspondence for him to sign or to be sent on his behalf after they had discussed it. The negotiations were lengthy, but everyone was very happy with where they ended up once the sale was finally agreed in June 2014. Bond “thought all their Christmases had come at once” when they took £50 million from the deal. He remembers that Prism were initially trying to hold out for more but they refused and said that they would not sell otherwise than on his/Mr Maynard’s terms. Prism eventually agreed and they did very well out of it. (6) The other majority shareholders were all ready to sell once they saw the money they could get. They could not believe how much they were getting compared to the previous deals that were on the table. For example, under the Bausch & Lomb deal Mr Erard would have received about £3 million for his shares; under the deal with CV he got about £13 million. Despite that, he complained, after the event, about not getting more money. Mr Wells could not understand that because in his view they went to extraordinary lengths to ensure they were satisfied with the deal. He sent an email to Mr Erard in November 2014 to explain why he really had no reason to be unhappy. He thought that the deal was incredibly fair to the other individual shareholders and they all signed up to exactly what they were getting. Mr Maynard negotiated the overall structure and they got more per share than Prism and Bond because they benefited from Mr Maynard’s negotiations with Prism and Bond. He and Mr Maynard had to give guarantees and warranties in relation to the business which the other majority shareholders did not have to give. Those included locking out his boys for 5 years from an industry that they knew so well and where they had so many contacts, which was a big concession on his part. That was something discussed with CV at length, which he only reluctantly agreed to.

151. Mr Maynard said: (1) Neither he nor Mr Wells had a particular desire to sell in 2014. However, that was tempered by the potential value of the company to bidders. Mr Wells’ reluctance to sell was evident and he was prepared to accept for his holding only an amount above £300 million. They knew that, as long as they stuck together, no other shareholders could sell out and leave them in a minority position. They had an idea of what CV would be prepared to offer and it was, therefore, a case of other shareholders being persuaded, through negotiations, to accept the difference between the overall offer price and the share of that overall offer price he and Mr Wells were willing to sell at. There were separate negotiations with the minority shareholders, Prism and Bond, and with the other majority shareholders, Mr Francis Erard, Mr Howard Griffiths, Mr Andy Broad, Mr Alan Duncan and Mr Steve McEvoy. (2) The final purchase price payable by CV was £665,000,000, minus (a) amounts equal to payments to certain US executives of the appellant (the amount depended on, among other things, whether a release letter was obtained from them prior to completion) (b) plus or minus a balancing payment in relation to an “Exchange Net Debt Amount”. If the Sauflon group’s net financial indebtedness as at the date of exchange of the agreement for the sale and purchase of the appellant was higher than £48.5 million the difference would reduce the amount payable by CV; and if it was less than £48.5 million it would increase the amount payable by CV. As it happened, a major customer paid a large bill a couple of days before exchange took place which reduced the net debt amount and thus increased the amount payable to all shareholders except for Prism, who chose not to participate in this mechanism. The transactions closed on 6 August 2014. (3) It was a condition of the sale of the shares that insurance in respect of warranties and indemnities would be taken out for the benefit of CV and paid for directly out of the purchase price. The premium for the insurance was £1,869,840. That cost was borne by him, his wife and Mr Wells in proportion to their respective entitlements to the sale proceeds. (4) Mr Maynard thought that Prism was very happy with the deal it obtained, as shown by the press report from Private Equity News, which appeared on Prism’s website for about two years. Mr Carter of Prism telephoned him after completion and said that he was very happy with the deal. In 2007, Prism bought its shares for around £2.2 million. In February 2014, Mr Carter was looking to sell Prism’s shares for around £50 million but, on the sale to CV in August 2014, Prism received almost £150 million. In Mr Maynard’s view, Mr Carter had concluded, correctly, that he got the best deal he could get. When looking back, Mr Maynard suspected that Mr Carter’s upset during their negotiations had been a negotiating position because Mr Carter was holding out for as much as he could. Dispute with Prism, negotiation with the minority shareholders and CV

152. In June 2013, the parties entered into the 2013 shareholders’ agreement. Under this (1) Mr Wells had the option to request to be reappointed to the directorships (including managing director) and reinstated as an employee of the appellant, if the proposed sale of the appellant did not occur, and (2) the shareholders agreed to take the relevant actions so that he would be reappointed on at least equivalent terms, salary and benefits (and with such powers and rights) as those to which he benefited at the time of the resignations in March 2012.

153. Mr Maynard set out further details of the dispute with Prism in the autumn of 2013 and into 2014 as follows: (1) Prism were frustrated by the loss of the Bausch & Lomb deal in June 2012. However, they recognised that Mr Wells was in a selling mood and they expected to sell their interest, so they had to be careful in how they dealt with that. Prism’s interaction with him and Mr Wells was run by Mr Carter. Mr Wells did not get along with him from the beginning. (2) The appellant had had a subsidiary in the US for a number of years. By 2013 they gained US Food and Drug Administration approval that allowed the appellant’s world-leading silicone daily disposable lenses to be sold in the US. They had secured £55 million in new funding and were able to manufacture hundreds of millions of these lenses on which they made a 65% gross margin. They had a big market advantage and had secured an excellent management team to take forward the US business. Mr Carter objected to the expansion on the basis, he said, it would require significant additional funding with uncertain prospects of a return. Mr Maynard and Mr Wells thought that this was a tactic to try and leverage them into a sale of the appellant. The proposed expansion involved offering the new executives equity in the appellant. As a shareholder, Prism’s consent was required for this to happen and Prism refused to give it. (3) With the help of MB they put together a very clever arrangement with the US team which meant that they could proceed without needing Prism’s consent. Having decided to expand into the US and grow the appellant and its value, rather than sell the appellant at this time, they terminated the appointment of Rothschild in November 2013. (4) In an email of 1 November Mr Wells raised with Mr Carter a number of issues with Mr Carter’s objections to the expansion into the US. He concluded by saying he did not understand as: “we have all agreed to sell the company via Rothschild and all of the shareholders are in agreement with this and many would wish to stay on to see the company to the next stage of its development, something a purchaser would require but which also meets the investors requirements of closing their funds. The bottom line is that I have given you what you asked for in so much as agreeing to employ Rothschild and to sell the company and now I expect you not to stand in the way of something that is exactly the right thing for the company to do when this should only increase the Company’s value. Not going to America will undoubtedly severely damage the company and I am not prepared to accept this. In view of all of the above if we have not closed the US deal with your full approval by Friday 9th November, I will not be selling my shares and will instruct Rothschild (or anyone else) to stand down. My expectations are that we will then regroup, do the USA in a much smaller way with the current management, miss the massive opportunity in front of us but accept that and run the company as we have done for the last 30 years and probably the next 30 years.” Following further correspondence with Mr Carter, Mr Wells sent an email to Rothschilds on 15 November 2013 terminating their appointment. Mr Wells informed Mr Carter of this on that day. (5) Mr Carter wrote to the directors of the appellant on 20 November 2013 setting out Prism’s opposition to the expansion. He said he thought it was likely to require additional capital over and above current budgets, the returns on the capital committed would not be evident for a number of years and for a company with a modest equity base, this represented a substantial risk to the business. He said that Prism wished to sell their investment in the appellant. (6) Mr Maynard and Mr Wells were concerned that any incoming investor could be hostile to management. On 2 December 2013, Mr Maynard replied noting that (among other things) Prism had no ability to block the expansion into the US or force a sale of the appellant and: “Alan and myself, as majority shareholders, remain keen to explore potential liquidity events. However, we will not be coerced into entering into a transaction which we do not believe fairly represents the true value of Sauflon and achieves the reasonable objectives of Sauflon’s shareholders. Indeed, for the directors not to pursue the opp ortunity with SUSA that we now have before us would in our judgement be to fail in their duties as directors to act in the best interests of the company and to delay would limit the company’s value. All Sauflon’s shareholders except you have recognised this and are prepared to facilitate the process. We continue to be committed to driving Sauflon to yet greater successes (as we have done over the last 28 years). Our track record speaks for itself. We see the development of SUSA as simply being another milestone on that journey”. Mr Maynard sees this is an example of him and Mr Wells using their combined majority interest (in which he includes his wife’s interest) in the appellant to dictate when and how a sale of the appellant would occur. (7) Prism were in a fairly weak position under the 2007 Shareholders' Agreement. For example, they had the right to nominate who sat on the board on behalf of the investors but he and Mr Wells could say no. Eventually, this post was given to one of the two people they had had as a non-executive director since 1987 (Mr Gowing). Prism’s rights and ability to stop them from doing things they wanted to do were therefore limited. But “they were determined to make themselves a nuisance” and the 2007 Shareholders’ Agreement gave them ways of doing that. (8) By 2014, they feared that Mr Carter was seeking to sell Prism’s shares to another private equity company and was using information that was confidential to the appellant in order to do so. Ideally, they would have bought Prism out and then sold to CV. However, Mr Carter rejected their proposals. He did not want to sell Prism’s shares to them specifically because he did not wish to benefit them. (9) On 24 December 2013, Mr Maynard wrote to Mr Carter expressing concern that Prism had informed them on 12 December 2013 that they were engaging Jamieson Corporate Finance LLP (“ Jamieson ”) to assist with selling Prism’s share in the appellant and concern about the use of confidential information in connection with any such sale and cautioning they would take all steps to protect such information. On 6 January 2014, Mr Carter sent a response in which he disputed that Prism were acting improperly. Mr Maynard responded on 7 January essentially maintaining the previous points. (10) Mr Maynard and Mr Wells entered into an agreement with Bond on 14 January 2014, which provided that (a) Bond could veto a sale by Prism of their shares to a person the directors reasonably determined to be a competitor with the business, and (b) in return, Mr and Mrs Maynard and Mr Wells would use their best endeavours to procure that the appellant did not exercise its right to buy back Bond’s shares. He considered this was a big financial concession on their part, but it stopped Prism selling their shares to someone who was even more aggressive and difficult to deal with than they were. February to March 2014 – Negotiations with Prism and CV

154. On 19 February 2014, Mr Wells wrote to Mr Carter at Prism, enclosing a letter from Mr White of CV regarding confirmation of their interest in purchasing all the capital of the appellant. Mr Wells stated that he was prepared to seriously negotiate a deal with CV subject to conditions including: “1. We agree the value attribution of the deal between the executive and investor shareholders upfront and before negotiations take place. This detail should be as originally requested by Rothschild and which was a condition precedent for them to lead a sale process (you will know that we were not a million miles away from that last time so it should be relatively easy).

2. We will appoint Rothschild to handle the negotiations on behalf of all the shareholders and the Company.

3. We will use Peter Dickinson, Mayer Brown, to handle the legal side on behalf of all the shareholders and the Company…. …5. As the offer becomes clear and of course provided it is significantly higher than you would be likely to obtain through the process you have running, we would look for a standstill on any other actions by Prism in respect of its minority interest for a period of 90 days and then review after that.”

155. Mr Wells concluded that (1) they had no intention of selling the appellant in the near future but he was prepared to negotiate this deal if the conditions were correct and they could obtain levels of proceeds higher than associated with the usual standard for trade sales of this nature and (2) if Prism did not agree to the terms, then he would inform CV that they were not interested at this stage.

156. Mr Maynard accepted that this correspondence shows that the whole basis of Mr Wells’ request for Prism to stop marketing their own separate shareholding was that he would be negotiating a deal with CV for all of the shares of the appellant. No price was contained in the initial offer letter from CV, which suggests that the price negotiations between Mr Wells and Mr White took place after 19 February 2014. There are no documents in the bundles in respect of the negotiations that took place between 19 February 2014 and 26 May 2014. Mr Maynard thought that, in that period, probably he was not sent any emails by Mr Wells; they probably only had phone conversations.

157. Mr Maynard explained that the letter to Mr Carter references the fact that agreements were reached previously with the minority shareholders as to how the sale proceeds from a sale of the appellant would be allocated between them and the majority shareholders. This was recorded in emails between him and Mr Carter on 11 July 2012 and 7 August 2012, as recorded in an email from Rothschild dated 13 September 2013: (1) The table included in the email dated 11 July 2012 records that: “ In 2011, [CV] had offered £190 million for the entirety of the shares in Sauflon, from which Prism and Bond would receive £72.5 million. On that basis, Prism and Bond would have received 38.2% of the purchase price in return for selling their 44% shareholding. In 2012, Bausch & Lomb had offered £204 million for the entirety of the shares, from which Prism and Bond would receive £76.7 million. On that basis, Prism and Bond would have received 37.6% of the purchase price in return for selling their 44% shareholding. For the proposed Essilor transaction - which was structured differently in that it involved Essilor initially acquiring 75% of the shares with the sale of the remaining 25% to follow - Alan and I proposed that Prism and Bond would receive £70 million for their 44% shareholding, representing 38.9% of the upfront purchase price of £180 million.” (2) Mr Maynard set out that, (a) as shown by Mr Carter’s email of 7 August 2012, Prism and Bond made a counter-proposal that they would receive £70.04 million for 75% of their shares, with the balance of their shares to be purchased in 2016 on the basis of a multiple of 2015 EBITDA, (b) in respect of each proposed transaction (with CV, Bausch & Lomb and Essilor), the minority shareholders were to receive significantly less than a pro rata share of the purchase price. This was a product of the negotiations that they had with them. In his view, the minority shareholders accepted that they needed to take a discount as the price of him and Mr Wells agreeing to sell.

158. Mr Carter replied to Mr Wells’ letter of 19 February 2014 on 21 February 2014. He said that for this to move ahead there needed to be an agreement about apportionment of the sales proceeds and they would require CV to confirm in writing the price it would offer for the business together with any material conditions attached. If those conditions were satisfied, they would instruct Jamieson to suspend their sale discussion with purchasers of Prism’s interest alone, for such period as was reasonably required to enable CV to conduct its due diligence and complete the acquisition.

159. On 25 February 2014, Mr Maynard had a meeting with a prospective purchaser of Prism’s interest in the appellant who lent him a copy of an information memorandum that had been prepared on behalf of Prism to solicit interest from buyers. Mr Maynard took notes from this memorandum which included this comment: “ Cleaned out Prism only one investment – Sauflon; Can be sold to avoid pre-emption rights”. Mr Maynard thought that this referred to removing all assets from Prism, aside from its shares in the appellant, so that Prism itself (as an entity) would be sold to an investor rather than the shares in the appellant, which was intended to avoid any issues with pre-emption rights in relation to Prism’s shares in the appellant.

160. Mr Maynard’s notes also recorded that the memorandum commented on the “views and preferences” of current shareholders and the fact that he and Mr Wells had control: “Analyses how can be less friendly to management, which things can be blocked - for examples: cannot form new subsidiaries; no acquisitions, etc. Looks at shareholding structure and analyses how an investor might increase stake; Advises limitation of opportunity to buy out Bond, although says they would prefer to sell offer would have to be limited as Company can buy Bond at 7 x EBITDA; Points to control in hands of Maynard and Wells families; Gives John Carter’s take on views and preferences of current shareholders. Makes clear Prism did not back US venture as believes this will take up more capital than management plan and Prism would not be able to support such requirements. They say their fund closes 7 years from start with hard stop in 9, do not want to be caught out so going for liquidity now. Say management offer would have to be at significant premium to financial institutions, they believe management will try to do deal at 8x EBITDA and sell on at 10x they do not want management to gain that benefit; Advises any investor should think in terms of a 5- year horizon.”

161. It appears therefore that, by this point in 2014, Prism wished to sell its stake in the appellant, Prism had a deadline to do that, Prism did not back the expansion to the US and Prism considered selling its interest in the appellant alone to an outside investor and was aware that “management” would want to gain a benefit on any sale which Prism did not want them to have. His notes recorded that Prism was looking for around £41 million to £55 million for its shareholding (see “Prism: (£41m)” and “(£55m) = 32.79%”), which was based on 8x and 10x EBITDA respectively.

162. Mr Maynard also set out in his witness statement that: (1) Court proceedings were issued against Prism in the spring of 2014 but, once it became apparent that the negotiations with CV were serious, they were put on hold. Negotiations with Prism and Bond then took place over March to June 2014. Those with Prism were more “difficult and extensive” than those with Bond. At the same time, negotiations with CV over the sale of the appellant were also ongoing. Mr Wells and Mr Carter were not on speaking terms, so Mr Maynard was largely responsible for handling the negotiations with Prism, whereas Mr Wells conducted the negotiations with CV. They had solicitors and advisers to assist them with these; Mr Dickinson from MB and from time to time, Rothschilds to assist with reaching agreement with Prism. (2) One of the roles that Rothschilds were engaged to carry out was evaluation of the appellant and a review of the business plan supplied by management. He had not exhibited any valuations or valuation advice provided by them. He said there is a schedule from Rothschilds on potential values going up to about £470 million but they cancelled their engagement, so it did not seem relevant - as that is nowhere near the value that they obtained. It was put to him that as, under the appellant’s 2007 articles, all of the shareholders were entitled to receive any sale proceeds on a pro rata basis, those who agreed to receive less than a pro rata share, in effect gave up what they were entitled to and gave it to the other shareholders. He said that they settled on a price for their shares and prices were agreed for transfers of shares. (3) By mid-May 2014, it was broadly agreed that: (a) the first £200 million of sales proceeds would be allocated between shareholders on a pro rata basis, (b) Prism and Bond would receive 75% of what they would have been entitled to receive on a pro rata basis of any consideration between £200 million and £400 million, and (c) Prism and Bond would receive 70% of what they would have been entitled to receive on a pro rata basis in relation to any consideration over £400 million. This was similar to what they had discussed previously with Prism and Bond, in relation to the previous potential sales (see above). He considers that the proposed discounts were the price Prism and Bond had to pay for him and Mr Wells to agree to the sale. They anticipated that any sale with CV would require them, as majority shareholders, to make concessions that would not apply to the other shareholders. The terms of the deal they eventually agreed with CV required him and his wife and Mr Wells to give various warranties and to place more than £14 million of their share of the consideration in escrow. (4) He emphasised these differences to the minority shareholders (particularly Prism) as reasons why he and Mr Wells should get more for their shares on a sale to CV than they should get for theirs. In his view that helped: it allowed them to present their offer in a way which was not as blunt as “take it or leave it” and it gave Prism and Bond a way to agree to it that saved face and did not require them openly to accept that they were in a weak negotiating position. But the reality of the situation, which he asserted everyone knew, was that he and Mr Wells had the dominant position in the negotiations by virtue of their majority shareholding and their ability not to agree to a sale unless the price was right for them. We note that this evidence is undermined by the fact that Mr Wells and Mr Maynard thought it necessary to seek to justify the price differential they sought to Prism by including in the proposed deal terms “forward-looking warranties”, which were of no real commercial interest to CV. This is set out in detail below. (5) In the light of the offer received from CV on 26 May 2014 of around £665 million (compared with £400 to £440 million originally), he and Mr Wells negotiated, and agreed, with Prism and Bond that (a) they would participate in the sale proceeds on the basis set out above subject to an overall cap of £558 million, and (b) the remaining £107 million would be shared between the majority shareholders as they agreed between themselves.

163. At the hearing: (1) On 22 April 2014 Jamieson wrote to Rothschild setting out that Prism was prepared to agree (a) to the US incentive plan being included as a deduction to equity value; and (b) to the additional transfer of value as detailed in the “New Proposal” they were sent by Rothschild; and would cease marketing its shareholding to third parties for a period of 60 days in return for a transaction fee of £2.5 million on successful completion of the transaction with CV. Around this time it was confirmed that the litigation against Prism and its related parties would cease (see below). (2) Mr Maynard was taken to an email of 30 April 2014 from him to Rothschilds in which he referred to Jamieson’s proposal in the email of 22 April and said he was pleased to see movement in Prism’s position but: “We do see the 2.5 million transaction fee as a substitute for [Prism] underwriting the US business plan, however, and that is not acceptable for two reasons.

1. It is the US venture proposed and initiated by the company and facilitated by its majority shareholders in the face of [Prism’s] opposition that has brought [CV] to the table; and 2.[Bond] supported the US venture and cannot be expected to pay transaction fees to [Prism]… The structuring document you presented to Jamieson already proposed a compromise on our previous position above an Equity Value of £400m. In the spirit of [Prism] moving their position, however, and as a final offer, we should be prepared to accept the 2.5 million transaction fee allocated as I have described above between Bond and [Prism] up to an enterprise value of £470 million only. Above an enterprise value of 470 million, and with no transaction fee, the Bond and [Prism] investors will see returns on their investments beyond their wildest expectations. Bond paid £630,000 for their equity interest last year and the new [Prism] investors bought into the company at a net equity value of £6 million pounds in 2007 or, for those with us since 1991, at nominal value. All this equity value will has (sic) been created by the executives and executive shareholders of Sauflon. We are simply not prepared to award them back the cost of the US participation in those circumstances . Bond, proportionate to their respective shareholdings, will need to agree to take the same discounts on value as Hollyport.” (Emphasis added.) (3) He accepted that in this email he was saying that the executive shareholders should have a greater share of the consideration for the sale of the appellant if that was above £470 million because the increase in value was attributable to their work. He said that Prism opposed the US venture entirely, having been presented with it as a business opportunity, they refused to back it, so he and Mr Wells did not want to allow Prism to take any benefit from that and this is part of the negotiation. It was Prism’s decision whether to accept the price in the end. Prism wanted to sell their shares, they could not have introduced drag-along rights with them. They were too big, and if they did, of course they would have been giving up value: “we had a price we wished to achieve, they had a price they wished to receive”. (4) In an email of 7 May 2014 between the advisers, it is stated that: “If your client agrees to the above conditions, our Client has agreed to cease their legal proceedings against [Prism].” Mr Maynard accepted that as part of the agreement reached regarding the allocation or division of the sale proceeds, he and Mr Wells agreed to discontinue those proceedings. (5) Mr Maynard was taken to an email from Prism’s adviser to Rothschilds of 12 May 2014 in which the adviser said they would like to understand the latest position with respect to CV noting that their last information on this subject was received some two months ago. He accepted that during the negotiations with CV after 19 February 2014, Prism, Bond and the other majority shareholders were not privy to the negotiations between CV and Mr Wells except that he had come across a letter from CV on 10 March 2014, which was passed on to Prism, which referred to a value in excess of £440 million. He said that “was up to them” and they did not embargo Prism talking to CV. In his view, it was not in Prism’s interest to be involved in that conversation; Prism was prepared to sell its shares for between £44 and £50 million at the beginning of that year. So any negotiations that were going to attract value were for the whole company, not for the individual shareholders. (6) He accepted that the basis for him requesting Prism to stop marketing its minority shareholding separately was that he/Mr Wells would negotiate a deal for all of the shares of the appellant. He did not accept that therefore it plainly was in the interests of the other shareholders to be kept up to date and provided with information about the negotiations with CV. He said, in effect, it was Mr Wells’ judgement as to what or when he told the other shareholders what was going on, but it seems that the out-turn was that it was a better deal because he was involved as the negotiator. He thought it was correct that, therefore, the other shareholders did not have access to and did not know the information regarding the negotiations between Mr Wells and CV. He could not now or at the time see any disadvantage to them in that situation. (7) He said, in effect, that there may have been other emails between him and Mr Wells in the period from February to May 2014 regarding the negotiations but a lot of the discussions were over the telephone and, if he did take file notes, he would have thrown them away a long time ago. He then said there definitely were not emails from Mr Wells forwarding on information/documents from CV and he does not recall receiving an email from Mr Wells setting out where he was in the negotiations. He also suggested it was unlikely there were emails between them regarding the negotiations between 26 May until June 2014, as the deal did not actually change after 28 May 2014; CV had by then offered the £665 million and that was the final offer. He noted that at the time this was going on he was running the company, dealing with due diligence enquiries and with a large number of other issues in the company.

164. On 23 May 2014 Mr Wells signed an engagement letter with EY Sauflon regarding the provision of tax advice and related services.

165. On 24 May 2014 Mr Andrew Clegg of Quercus Corporate Finance sent an email to Mr Maynard and copied in Mr Dickinson from MB. Mr Clegg referred to an upcoming meeting with Mr Carter of Prism “to discuss the offer you expect to receive from [CV]” and advised Mr Maynard not to send the offer to Prism in advance of the meeting as if he did that: “you may never get the opportunity to put it into context and outline the risks to all the shareholders should Prism choose to seek to renegotiate the terms of the deal. We think the key point is to leave John Carter in no doubt that Alan would seek to renegotiate the value apportionment matrix, given the exceptional value being offered if Prism seek to unwind the sums allocated to the forward-looking warranties. Needless to say this would significantly increase the risk of a deal not happening given the recent history with other offers and the tight timetable contemplated by [CV].”

166. Mr Clegg referred to a script he had sent earlier for Mr Maynard to use when negotiating with Prism the allocation of the sale proceeds offered by CV. Mr Maynard responded to Mr Clegg on 24 May 2014 and said he would take the advice. He attached (a) a draft of the letter he expected to receive from CV shortly, (b) a schedule showing the allocation of value/value transfer they believed they had agreed with Prism on 20 May 2014 and a paper Rothschilds put in front of Prism and Bond on 1 May 2014. He said they had agreed the basis of the allocation, and (c) a spreadsheet, which set out the amounts allocated to each of the “forward looking warranties” referred to in the draft offer letter from CV. Mr Maynard confirmed that these were allocations that he and Mr Wells determined (as set out below); they were not negotiated with the other majority shareholders or the minority shareholders. Offer letters from CV – “forward-looking warranties” structure

167. In his witness statement Mr Maynard set out that (1) the offer letter from CV at this stage included a proposal that £107 million of the total consideration for the shares in the appellant would be linked to the performance of “forward-looking warranties” to be given by the majority shareholders, on the basis that significant sums would be repayable by the sellers in the event that the warranties were not met, (2) that remained a proposal for a time, and it played a role in the negotiations with Prism and Bond. They would not have agreed to sign up to those warranties (Prism wanted to sell and walk away), so this was a difference that could usefully be presented to them in negotiations, and (3) ultimately the proposal was not taken forward and the warranties were not included in the final agreed deal. There was a concern that those warranties might cause complications from a tax perspective. CV did insist on Mr Wells giving an undertaking that he would get his sons to agree not to compete with the appellant. Mr Wells found that particularly difficult to accept, but agreed to it.

168. It became plain from the further evidence that (1) the “forward looking warranties” were a device inserted by the shareholders, in collaboration with CV, into the proposed terms of the proposed transaction for the sale of the shares in the appellant solely to enable the shareholders to seek to justify that the majority shareholders should receive a share of the overall price in excess of their pro-rata share (of a total of £107 million), (2) their inclusion was dropped due to tax concerns, and (3) in the circumstances, obtaining these warranties was not something in which CV had any real commercial interest (other than as regards the “non-compete” warranty regarding Mr Wells’ sons) and/or which CV regarded as of any value to it. Overall, we consider that CV and Mr Wells and Mr Maynard collaborated to enable Mr Maynard to present to the minority shareholders that CV had ascribed £107 million of value to the “forward-looking warranties” in order to enable them and the other majority shareholders to receive a portion of the sale price in excess of a pro rata share.

169. In the offer letter from CV which Mr Maynard sent to Mr Clegg, CV said this as regards the offer to purchase the entire issued share capital of the appellant: “2. The consideration payable for the Acquisition would consist of a payment of £712 million….

3. We would also assume all outstanding debt of the Company (and its subsidiaries) as at exchange of contracts ("Exchange") up to a maximum of £47.0 million, but otherwise the Acquisition would proceed on a debt-free basis.

4. We would propose that £605 million of the acquisition price be allocated between the shareholders on such basis as the shareholders may agree between themselves…The balance of the acquisition price being £107 million, the additional warranty−related amount would be dealt with as described below .

5. As you are aware, due to the very accelerated timetable which we are working to, it will not be possible to carry out the level of due diligence in respect of certain key matters, which we would ordinarily expect to do. A material proportion of the value of our offer is predicated on certain matters having occurred by no later than the date which is 12 months following Exchange or Completion… Therefore, in order to justify or substantiate the Acquisition Price, in addition to the provision of market standard warranties, which would speak as our exchange of contract, our offer is conditional on the definitive sale and purchase agreement… containing the following additional forward−looking or prospective warranties, or in the case of paragraph (e) below, the additional undertaking detailed below, and in respect of which we have allocated a proportion of the consideration which we consider be out at “risk” . (Emphasis added)

170. The letter went on to set out the “forward-looking warranties”, each with a figure ascribed to it as liquidated damages in the event of breach: They were (a) for all the majority shareholders to warrant that (i) within a year of completion, manufacturing would transfer to Hungary to which £15 million was attributed, (ii) key employees would remain in employment post-completion, to which £10 million is attributed, (iii) within one year, all additional contact lens manufacturing lines would be put into production in Hungary, to which £12 million was attributed, and (b) for him and Mr Wells and Mrs Maynard to warrant that the relationship with Specsavers would remain the same on the first anniversary of completion, to which £60 million was attributed. Mr Maynard commented that these were set on the basis of the people who could influence the matter. So the other majority shareholders had really no direct link to Specsavers, and (c) for Mr Wells to undertake to procure that his sons would give restrictive covenants to which £10 million was attributed. 26 May 2014 – CV’s final offer letter

171. On 26 May 2014, CV provided its final offer letter in the same terms as the earlier letter except that the price was stated to be £665 million, the amount to be allocated to the shareholders was stated to be £558 million and the words “In order to justify the substantiation or substantiate the acquisition price” were removed. Mr Maynard said, in effect, that these changes were made probably as a result of discussions between CV and Mr Wells and he accepted that these words were removed as this version of the letter was to be shown to Prism and that wording would not be helpful. 27 May 2014 – Appointment of EY and meeting with Prism

172. On 27 May 2014, Mr David Kilshaw of EY Sauflon sent engagement letters to Mr and Mrs Maynard regarding personal tax advice. As Mr Maynard accepted, as at this date, the appellant had not yet engaged EY Sauflon.

173. It appears that the meeting with Prism in fact took place on 27 May 2014. At the hearing Mr Maynard gave the following evidence about that meeting: (1) There was an outline script for him to look at, which he modified and it was a negotiation. He asked Mr Clegg to assess or provide a framework evaluation for the “forward-looking warranties”, which he did, and later they had a conversation about presenting the deal to Prism. (2) (a) On the basis of Mr Clegg’s evaluation, they advised CV of the values they put on the “forward looking warranties” and that was incorporated into CV’s offer letter of 26 May 2014, (b) on Mr Clegg’s advice he and Mr Dickinson from MB took the offer letter to the meeting, and (c) he and Mr Wells in effect determined the allocations of sums to the “forward-looking warranties” shown in the spreadsheet; these were not sums they negotiated with the other majority shareholders or the minority shareholders. (3) He had in his mind a series of arguments for why Prism should accept the deal. This was a big stretch on where they had been in terms of the ratchets that had been agreed beforehand. So there was going to be £107 million of the £665 million that Prism were not going to share in at all “because these were seen as value from the deal that was delivered by the executives on the basis the executives would deliver it after the actual date of the completion of the deal, and Prism would not be doing that”. So, at that meeting Mr Carter had three or four individuals with him, the offer letter was presented to him and they took Mr Carter through their rationale for the allocations. He confirmed that before this this allocation had not been presented to Prism and/or Bond.

174. As regards the negotiations with CV and with Prism: (1) Mr Maynard accepted that the negotiations between Mr Wells and Mr White throughout were for the acquisition of the entirety of the appellant’s share capital rather than a portion of it; that was the only circumstance in which CV would complete the deal. (2) Mr Maynard said that the real reason for the inclusion of the “forward-looking warranties” was to provide an argument with Prism and they were not in the final deal as they were not considered important at that stage. He accepted that the discussions and structuring of the deal with CV took place on the basis that these warranties and the attribution of £107 million to them were needed to assist him and Mr Wells in their negotiations with Prism to justify the difference in value attribution and CV were aware of that; the purpose of setting this out in this offer letter and of structuring the deal in this way was to give him a bargaining position with the minority shareholders to justify the value attribution. He accepted that it is clear from the email from Mr Clegg on 24 May 2014 that in fact that justification was put forward in the negotiations with Prism. He said: “It was where we started from. I don’t think they believed us” and it was a futile effort but that was what it was intended to be. It was put to him that not only did he control the timing of the information provided to the minority shareholders, he worked with CV to provide them with misinformation. He said (a) he does not know whether it is misinformation, but at least it was an attempt to structure a deal that would hopefully influence on getting the price, and (b) it did not succeed; it was withdrawn. (3) The meeting of 27 May 2014 did not complete the deal with Prism. The deal then had to be referred onto Rothschild, and it was several weeks before Prism accepted the price that was put to them. This was a lengthy negotiation. They did not feel able to move from these discussions until about the middle of June. They started negotiations with the individuals on 19 June 2014 once they were convinced that Prism had accepted their price for their shares around 17 or 18 June 2014. (4) There may have been further correspondence between Mr Clegg and him/Mr Wells but he did not consider it relevant. He suggested there is no correspondence in the bundles for the period from 24 May to 18 June 2024 on this as this was turned over to Rothschilds to deal with. He said, in effect, that from time to time there was correspondence with Rothschilds but there would have been phone conversations as well, feedback of their conversations with Mr Carter and a discussion about testing where he and Mr Wells were. He had not found any emails with Rothschilds on these discussions. 26 May to 4 June 2014 – changes in structure

175. On 28 May 2014 Mr Maynard sent an email to Rothschilds and copied in Mr Wells and Mr Dickinson to which he attached the offer letter from CV of 26 May 2014. He said that this “followed several days last week of negotiations of an SPA assisted by CV’s desire to bring the transaction forward” and the letter was “presented to and discussed with Mr Carter and his advisers late yesterday afternoon [27 May 2014] and forwarded to Bond earlier this morning”. He accepted that this confirms that both the original undated offer letter and that of 26 May 2014 were the subject of discussion and collaboration between Mr Wells and CV. He said he very much doubted there would have been emails documenting those discussions but he would not know as it was between Mr Wells and CV. It was put to him that Mr Wells and he would have emailed each other with updates, including with information from Mr Clegg, in order to explain why changes were needed and/or how the figures were arrived at. He said he suspected that must be true, but he had not found any such emails.

176. Mr Maynard confirmed that the final offer letter of 26 May 2014 was provided by CV in these terms so that he could present it to Prism as part of his negotiation. He added it also confirmed the headline purchase price which was, of course, important and the assumption was that the allocation between the “forward-looking warranties” would help with the negotiation with Prism. It was put to him that is why he wanted the relevant words removed from the letter for presentation to Prism. He accepted those words would probably not have been helpful but he did not know whether it was him or Mr Wells or CV who removed them. He accepted that the bundles do not contain any written communications between him and Prism or Bond regarding this offer letter or its implications. He said he would not have had communications in respect of Prism and in respect of Bond he does not know.

177. On 28 May 2014 Mr Maynard also sent an email to Mr Wells and copied in his son and set out the apportionment of the relevant amount of the consideration between the “forward looking warranties”. He said he was not sure that he had sent him the deal values as presented to Prism and Bond. Removal of two of the “forward-looking warranties”

178. On 30 May 2014, Mr Maynard sent an email to Mr Kilshaw in which he said that MB had just told him that Mr Kilshaw had not got the “deal value attribution taking account of the conversation earlier this week and the reduced number of forward-looking warranties required by…[CV]”. He attached the latest table in which £107 million is shown as allocated to only three warranties; the previous first and final warranty/undertaking included in the offer letters had been removed: (1) Mr Maynard accepted that by this time conversations with EY Sauflon about the substance of the deal with CV had already been taking place and that this was the only email he had exhibited between himself and EY before 10 June 2014. As Mr Maynard also accepted, there is no email in the bundle showing the rationale for the removal of two warranties. He said he would have produced them had he found any. (2) When it was put to him that this change was not negotiated but was simply determined by him and Mr Wells, he said he suspected somebody advised them to change it but he does not know if it was MB or EY Sauflon. He added that it goes back to the question of how valid this was as a principle in the first place and noted that, eventually, all of these warranties were withdrawn. He said, in effect, that the sole purpose of the introduction of these warranties and the attribution of the £107 million of the acquisition price to them was to give him a better bargaining position with the minority shareholders but that purpose had passed by this stage because Prism had not accepted that rationale. He accepted that there is no evidence of that but said that eventually CV and Prism signed a sale and purchase agreement without these “forward-looking warranties” in it. Correspondence with Rothschild on 4 June 2014

179. On 4 June 2014, Mr Maynard sent an email to Mr Santos at Rothschilds in which he said that: “At the moment Target Net Debt at Exchange is £47 million, the Equity Value in total is £665 million including £107 million for delivery of forward looking covenants, total Enterprise Value £712 million” and that CV “intend that the £107 million goes to the people who can deliver the matters warranted, i.e. the executive shareholders who will stay on after completion”. (1) Mr Maynard accepted that in this email he did not tell Rothschilds that the £107 million attribution to the “forward−looking warranties” was only introduced in order to enable him to justify to the minority shareholders why there should be the difference in value attribution. It was put to him that he gave his advisors information that he knew to be incorrect. He said he does not think this is incorrect particularly; all it says, in his view, is £107 million goes to “people who can deliver the matters warranted,” and that is correct. He was asked if he meant that CV was willing to go along with this because of the value to them of the executives post-deal. He said he was not sure. He accepted that Rothschilds were reliant on the information that he provided to them to understand what was going on. He added: “To take that on to pick up the negotiation with Prism. Prism hadn’t really responded to the meeting…at that point…I wanted them to go in and negotiate with Prism to a conclusion. So I don’t know whether you call that withholding information. That was the structure of the document that was in front of Prism at that stage.” When pressed he said “that was the case, but it wasn’t fiction that the 107 million was allocated to those people”. (2) It is plain from the correspondence and the other evidence that, in order to obtain the share of the overall price that he and Mr Wells wanted, Mr Maynard was willing to present the minority shareholders with a misleading position. His stance to them and to his advisers who were involved in the negotiations was that CV wanted the “forward-looking warranties” and ascribed commercial value to them. However, in fact they were included at the request of Mr Maynard and Mr Wells and plainly CV did not regard them (certainly those other than the “non-compete” warranty) as essential and/or ascribe commercial value to them being given. Negotiation with Prism and Bond by 10/11 June 2014

180. It is plain from the correspondence that between 30 May 2014 and 10 June 2014 EY Sauflon advised Mr Maynard and Mr Wells that for £107 million to be attributed to “forward-looking warranties” would render that sum taxable.

181. Mr Maynard thought that by 10 or 11 June 2014 there was “some sort of agreement with Prism” on the basis of the relatively long-form draft sale and purchase agreements that had been prepared by that time. He accepted that there is no documentary evidence of the lengthy and complex negotiations that he says took place with Prism between 24 May 2014 and 17/18 June 2014 .

182. Mr Maynard said in his statement that (1) Mr Carter gave the impression of being quite upset by the division of the sale proceeds Mr Maynard and Mr Wells were offering to Prism. It was not easy to get Mr Carter and his colleagues to agree; they took their time, (2) ultimately, however, Prism were motivated to sell. They were in a compromised position in the negotiations because any industry player would want 100% of the shares and would not settle for less, (3) it was likely that Prism would get much more for their shares if they were sold as part of a sale of the appellant as a whole, as opposed to them being sold in isolation as a minority block, and Mr Maynard believed that Prism knew that, (4) Prism were in a weak position because they could not force a sale. Prism could either agree to what was on offer to them or risk losing that sale and having to try to sell their shares to another private equity house (which would likely mean they would get less for their shares), and (5) the breakdown of the sale to Bausch & Lomb in 2012 was well known to all the shareholders and, Mr Maynard believed, to CV. He was sure Prism knew that, if they held out for too much Mr Wells would walk away. In his view, Prism and Bond ended up doing extraordinarily well from their investment in the appellant, so they had a lot to lose if they rocked the boat with Mr Wells. In that respect, the fact that Mr Wells had walked away from the 2012 sale was very helpful. So, after a lot of effort, Prism agreed to the sale and the share of the overall purchase price on offer to them.

183. Mr Maynard said in his statement that (1) negotiations with Bond were more straightforward. As Bond was not a secondary financing organisation, it was not motivated to sell in the same way as Prism. He suspected that Bond thought that Mr Wells and Mr Maynard were not getting any younger, and since Bond wanted to cash in its investment at some stage, probably thought that this was a good time to do so, (2) at one stage, Bond had sought to make more from the deal than Prism, as it was more supportive of the business than Prism was. But at the time Mr Maynard could not see how that could have been made to work: it was difficult enough to get Prism to agree, and (3) Bond received slightly more because it decided to participate in the Exchange Net Debt Amount mechanism in the sale and purchase agreements which, in the end, proved favourable to the sellers.

184. Mr Maynard accepted that there was no complex and lengthy negotiation with Bond. He said that Bond essentially followed Prism as lead investor and, apart from suggesting late on that they ought to receive more than Prism (as set out in his statement), they accepted that this was a good opportunity to sell their shares at way above what they had subscribed for a year before. He did not think there was a detailed negotiation with Bond. We note that some of Mr Maynard’s evidence appears to be speculation as to why Prism and Bond accepted the price differential. There is little documentary evidence of what was discussed between the parties except as regards the use of the “forward-looking warranties”. 10/11 June 2014 - introduction of two sale and purchase agreements and EY CV/CV become aware of the PAYE issue

185. On 10 June 2014: (1) Mr Dickinson of MB wrote to Mr Ward a corporate partner of LW stating that the transaction would be effected by two sale and purchase agreements: one between the majority shareholders and CV and the other between the minority shareholders and CV. We refer to this as “ the two agreements structure ”. He said this: “Based on tonight’s call with EY, we anticipate two SPAs (one between the management shareholders and CV and one between Prism, Bond and CV). It has been proposed that there be a gap of a day or so between the signing of the two SPAs. Please note, one change which EY have proposed is the deletion of the forward looking warranties. As you know, these were introduced in order to assist in justifying the non-pro rata allocation of the purchase price. EY believe that in the context of the two separate SPAs, they are no longer necessary (and indeed may look contrived).” (2) Mr Maynard accepted that (a) this restructuring was based on the advice received from EY Sauflon, (b) he, Mr Wells and CV, introduced the “forward-looking warranties” and attribution of £107 million to them and that was contrived between them solely for the purpose of giving him a bargaining position with Prism and Bond, and (c) the final sale agreement did not contain them although Mr Wells did have to give “non-compete undertakings” regarding his sons. (3) As Mr Maynard seemed to accept, it is apparent that EY Sauflon, at some point between 30 May 2014 and 10 June 2014 changed their advice and advised him and Mr Wells, that the value transfer from the minority to the majority would be taxable as an income transaction. He added: “There you go, talking about ‘value transfer’. A ‘different price’, I would rather say, yes.” (4) Mr Maynard sent to Mr Mike Reade of EY Sauflon the spreadsheets which he had first provided to EY Sauflon on 30 May 2014. It was put to him that EY Sauflon said this in the advice they later gave: “Following the commercial negotiations between the relevant parties, we at present understand that this consideration is intended to be allocated between the shareholders as outlined on the [spreadsheet] provided by John Maynard on 10 June 2014.” He accepted (a) the spreadsheet referred to shows the sums being allocated in respect of the “forward−looking warranties”, which by the time of this advice were no longer part of the deal, and (b) there was no revisiting the basis for the allocation of the purchase price after their removal.

186. On 11 June 2014: (1) EY Sauflon was engaged to advise the appellant on any potential UK income and NICs charges and/or withholding obligations arising to the appellant as a consequence of the execution of the project. In their engagement letter they said they would “review deal documentation supplied by us to your lawyers to ensure it is consistent with the tax analysis and liaise with your lawyers as they require” and “provide valuation advice in connection with the Company’s PAYE obligations and, where necessary, to assist in negotiations with HMRC and/or Shares and Assets Valuation (“SAV”)”. (2) MB sent Mr Kilshaw of EY Sauflon drafts of the two share sale and purchase agreements. MB stated that it was anticipated that the agreement with the minority shareholders would be executed first and the other agreement would be executed on the following day. Mr Maynard accepted that he “understood that the reason for that was part of [EY Sauflon’s] restructuring advice as to how to ensure that what they had previously described as the ‘excess consideration’ would not be taxed”. It appears that MB and EY Sauflon discussed the revised structure later that evening. (3) Ms Cooper of EY CV forwarded to Mr Ricupati the email from Mr Dickinson at MB to Mr Ward dated 10 June 2014. She said: “Agostino – FYI. Were you aware of this? I’ll give Sean a call and update the team when I know more”. (4) Mr Ricupati replied to Ms Cooper as follows: “It was mentioned to me yesterday evening by Randy (our tax counsel); I did not realize that we were already drafting the two SPAs. My understanding is that it is happening for individual tax reasons, hence, the removal of any forward looking statements. Clearly, we need to understand if there are any negative tax consequences for us; I have instructed Tax counsel to make sure that we review the docs before anything is agreed on. Based on your email and what I was told, I don’t think that from a US tax prospective much will change (Jim, Michael, please comment); do you see any overall concerns with what they are proposing?” (5) Ms Cooper responded to Mr Ricupati noting that her understanding was obtained from Mr Finn that (a) as the majority shareholders were to receive more for their shares than the minority, there is a risk that the excess consideration (of around £100 million) could be taxed as employment income, and (b) the sellers had “therefore requested the two-SPA structure. They consider that this mitigates the risk, as the sellers consider that the higher price for the individuals’ shares is justified by” this structure on the basis that the minority’s shares are subject to a conditional sale, whereas the majority’s sale is unconditional and “the control premium, which is in the shares sold in the second SPA, and the fact that the individual sellers are the ones giving the warranties”. She also said: “Sean and I discussed what contractual protection [CV] should have, if HMRC successfully challenged that a portion of the £100m was employment income and taxable in the UK. We discussed the clause in the SPA that makes the vendors liable for any PAYE arising on or before Completion. I also asked whether there was anything in the SPA or Tax Deed…which would prevent us from applying for HMRC clearance post-signing, to get certainty over the treatment before the expiry of the escrow period. Sean thought we might need the vendors’ permission, but agreed that in principle clearance should be possible.”

187. This correspondence indicates, as Mr Maynard accepted, that the restructuring was done at the instigation of Mr Maynard and Mr Wells. He also accepted that (1) the advice he had received from EY Sauflon sometime in the period from 30 May 2014 and 10 June 2014 led to the restructuring of the deal, (2) the warranty element was removed from the deal on the advice of EY Sauflon. He added that it was no longer important and that he and Mr Wells wanted the two SPAs structure, (3) it was suggested that the £107 million would not be taxable under the new structure because the minority’s shares were to be subject to a conditional sale, whereas the majority’s share were to be subject to an unconditional sale but “the conditionality was itself simply a result of the revised structure being suggested by [EY Sauflon]”, and (4) the appellant only engaged EY Sauflon after the advice was given to him and Mr Wells as individuals, in their personal capacities, on the restructuring of the deal.

188. Mr Ricupati said that (1) he first became aware that Mr Wells and others were to receive more consideration for their shares than other shareholders and that there was a PAYE issue on 11 June 2014 on receipt of this email, (2) he was previously aware of the overall agreed price but not of how it was to be allocated between the sellers, and (3) he did not recall being surprised by the differences in price because he and the rest of the deal team were all aware, from their conversations with Mr White, that Mr Wells was prepared to “blow up” the whole deal (walk away from it) unless the other shareholders took what he offered as their share of the overall price paid by CV for the shares in the company. CV only wanted the deal if it involved buying all the shares in the company. The deal team was aware that Mr Wells had walked away from negotiations before.

189. Mr Ricupati was questioned about his knowledge of the negotiations regarding the price allocation at that time: (1) It appears that he was aware before 11 June 2014, from discussion with the deal team, that there were to be “forward looking warranties”. He said that at that time (a) he did not have any details on what was allocated to which or of their composition, (b) generally speaking, he knew what the warranties related to, but he did not have the details on the amounts associated with that, and (c) he was aware that the sellers were asking for their inclusion but he did not know if they were in the offer letter or not; he does not even know if he had the offer letter. (2) When asked if he was also aware that the sellers made the request for the inclusion of these warranties to assist them in their bargaining position with the other shareholders, he said it is a little hard to recall what he actually recalls and what was prompted by Mr Maynard’s evidence. (3) He did not agree that it was odd for the sellers to require the purchaser to include such warranties in an offer letter – given they are additional obligations on the sellers. He said that CV was interested in doing the deal to acquire the company and such a request did not have any impact on CV: all CV cared about was whether anything the seller asked for had an impact on the due diligence and the company but this did not change the way the company operated or the deal. He did not recall if he knew of the rationale for the request for the warranties. He only heard from general counsel and Mr White that there were potentially some such warranties. He said that conceptually it was correct that it would have been very easy for him to find out by asking Mr White or Mr Golden. (4) He accepted that prior to 10 or 11 June, he was not aware that (a) Mr White had agreed with Mr Wells to allocate £107 million of the acquisition price to “forward-looking warranties”, and (b) Mr White had agreed to structure the offer in this way to assist Mr Wells and Mr Maynard to justify to the minority shareholders why they and the other majority shareholders should receive a greater share of the sales proceeds. (5) He said that following receipt of this email of 11 June 2014 he asked EY CV and LW to obtain the allocation of consideration from MB. At this point he was not concerned with the size of the different allocation just that there was a difference. He accepted that (a) his response to Ms Cooper shows he understood that the re-structuring was for Mr Wells’ and Mr Maynard’s personal tax reasons. He thought in referring to instructing tax counsel he was referring to Mr Finn, (b) he and EY CV did not know at this point how the excess consideration of £107 million was to be allocated between the majority shareholders. (6) He did not accept that it is clear from this correspondence that from 10 or 11 June 2014 he knew that CV had agreed to include “forward-looking warranties” in the terms of the deal in order to assist Mr Wells in justifying to the minority shareholders the non pro rata allocation of the purchase price. This point was put to him repeatedly. He did not answer the question. He said this was a due diligence process, where things are fluid - they move and change: “You continue to basically get information, processing and digesting information and taking the next steps…we’re at the beginning phase of the due diligence and my major concern at that point was…extra consideration that…the individual shareholders were getting…that was my main focus. The warranties, the two SPAs and stuff, this is all insular information. Here, at this point, we identified it was a risk, and this was the beginning of us reviewing the risk. If the warranty wasn’t removed from the SPA, it went from one SPA to two SPAs. It’s just an analysis on the spectrum of the risk profile of the transaction. You have to look at this from a due diligence perspective, not as every word and every email. My job was to assess the risk, and this is when the risk arose, and from there on you’ll see that we're dealing with the risk and assessing the risk and getting the information. It’s as simple as that.” (7) It was put to him that on 11 June 2014, based on these emails, he knew that the removal of the “forward-looking warranties” and use of two agreements was intended to give the impression of there being separate sets of negotiations and agreements: (a) He said he would not use the word “impression – it was stated that was to mitigate the risk”. He added that he had a problem with the use of the word impression: “the two SPAs were considered to mitigate risk…I think we’re saying the same thing, I just…the word “impression” has a negative connotation. It’s clearly stated that this “has been considered to mitigate the risk”.” (b) He accepted that at this time he knew that the true position was that in the negotiations for the purchase of the entire share capital of the appellant Mr White had dealt exclusively with Mr Wells and not with any of the other shareholders. He said that he only knew that Mr White negotiated for the purchase of 100% of the appellant and: “everything else is just additional details floating around. To do a due diligence process, you're looking at, "Is there a risk ?", you assess the risk, you use your advisors to get support and you make a conclusion. This is how it works.” (c) He accepted that, as he said in his statement, Mr White dealt exclusively with Mr Wells in the negotiations and not with any other shareholders, and Mr Wells effectively negotiated on behalf of all of the shareholders. He said it was his impression that, after 11 June 2014, Mr White continued to deal exclusively with Mr Wells in the negotiations. He said it was correct to an extent that Mr Wells was still effectively negotiating on behalf of all of the shareholders, including the minority shareholders. He was aware that there were three groups, really, the shareholders, the other majority shareholders and the minority shareholders and it was clear that the negotiation was going on between them. He was not privy to this negotiation. He cannot pinpoint when he formed that impression but thought it was gained from the deal team. In his statement he referred to these as “three alliances of shareholders” throughout the negotiations. He was aware that Mr White negotiated with Mr Wells for the acquisition of the entire share capital. He said that he must have formed this impression from discussions with the deal team and that he had this impression while the dealings were going on. He did not accept that his recollection was incorrect in that there is no evidence of the alliances he referred to. (d) He said he was aware that the two sale and purchase agreements were done for individual tax reasons as proposed by the sellers and their advisers but he was not sure it was done to give HMRC an impression of negotiation. When it was put to him that it is obvious that was the reason, he said he cannot comment. (e) He accepted that he knew, at the time that, contrary to that impression, CV had not entered into two arm’s-length negotiations leading to two different arm’s-length agreements. It was put to him that therefore the two agreements did not reflect the reality of the negotiations that had in fact taken place. He said that it depends to which negotiation one was referring. CV negotiated “with Sauflon as a whole”. For CV: “it was irrelevant if there was one, two, three or four SPAs. We just want to buy 100 per cent of the company.”

190. We consider that Mr Ricupati was evasive in his answers to these questions. It is in any event clear from the correspondence and his evidence that (1) he knew that the “forward-looking warranties” were included in the terms of the deal to help the shareholders justify the price differential to the minority shareholders, (2) Mr Wells and Mr Maynard were prepared to use misinformation to achieve the price differential they sought to agree with the minority shareholders and therefore their interactions with them were not wholly genuine, (3) the removal of the “forward-looking warranties” and the replacement of a single sale agreement with two agreements was done to seek to avoid the income tax risk on the price differential, and (4) the use of the two agreements gives the impression of two separate sets of negotiations with CV (between the minority shareholders and CV and between the majority shareholders and CV) as regards the price agreed for their shares but that did not reflect reality, as CV had negotiated only with Mr Wells for the purchase of the entire share capital for a single sum.

191. As regards the two agreements structure, Mr Ricupati was also questioned about CV’s letter of 17 July 2020 to HMRC in response to HMRC’s warning letter dated 26 June 2020 . Mr Ricupati did not sign this letter but he believed he was involved in its preparation. The relevant passage of the letter states this: “In order to help you close this matter, we bring the following to your attention. The two separate agreements

1. The Cooper Companies, Inc (“TCC”) and CooperVision (UK) Limited (“CVHL” an indirect subsidiary of TCC who acquired the share capital of SPL) negotiated a separate agreement with Mr Wells, Mr, Maynard, Mrs Maynard and various other members of the management team (the “Majority Shareholders”) and the Private Equity shareholders (the “Minority Shareholders”).

2. The result of these two arm’s length negotiations led to two different arm’s length transactions: a. The sale to TCC by the Minority Shareholders of their shares concluded at 11:52pm on 30th June 2014; followed by b. The sale to TCC by the Majority Shareholders of their shares at 12:01am on 1 st July 2014.

3. The agreement reached between TCC and the Minority Shareholders was not contingent upon an agreement being reached with the Majority Shareholders. In effect, both TCC and the Majority Shareholders took a risk that a transaction with them would not be executed and TCC would end up being a minority holder in SPL.

4. The Minority Shareholders had no contractual or informal obligation to the Majority Shareholders and therefore no reason to do anything other than seek to maximise their own return from their own holding.” (Emphasis added.)

192. HMRC submitted that the statements in the letter highlighted above are incorrect, and Mr Ricupati knew that to be so when reviewing the letter. At the hearing Mr Ricupati did not accept that the letter means what HMRC state. He said: “That’s the result of the SPA and the closed deal. At the end, this is what happened…It’s just language…how things are expressed. Basically all we're trying to say is that there was two SPAs...I did not write this response...I relied on Mr Jackson and the advisors. Again, at the end of the negotiations, there was two SPAs that were drafted between the Cooper Company and the combined Sauflon…It depends how you look at this. The negotiations were among Sauflon, and we were indirectly part of the negotiation. It doesn’t mean we negotiated directly with the minority shareholders but we are party to the transaction, so whatever was decided becomes part of our process and our documentation…At the end of the day, there was two SPAs that the parties agreed to…No, there was negotiation. Mr Wells and Mr Maynard, they negotiated with the private equity on the deal. So, this just captures the outcome of the results…This is just how it’s written…It basically says that there was two SPAs: one between TCC and the minority shoulders and one, the majority shareholders. That’s what it states and that’s what it means to say…at the end of the day, there was negotiations…within the parties and this is capturing the negotiation. If it was TCC negotiating directly with minority shareholders or the majority with the minority, at the end of the day the result is what it says in here, are two SPAs, one between TCC and majority shareholders. That’s basically what the documentation shows and that's what happened. This is just the way the statement is written.”

193. The appellants submitted that, (1) as the letter said, there were two arm’s length negotiations in relation to the two separate agreements. Prism had its own lawyers (Macfarlanes LLP) acting on its behalf, for example. On the other side of the negotiation of the SPA was CV, with LW for it, and (2) the suggestion that Prism and Bond did not have their own arm’s length negotiations with CV in relation to the terms of an agreement pursuant to which they sold their shares for (collectively) £200 million is wholly unrealistic.

194. We do not accept that there is any support in the evidence for the appellant’s assertion. Moreover, in our view, Mr Ricupati’s credibility as a witness is undermined by him not accepting the clear meaning of the statement in the letter, namely, that CV was saying that it had negotiated separately, at arm’s length, with (1) the majority shareholders, and (2) the minority shareholders, and that led to different arm’s length transactions for different separately and directly agreed prices with the different shareholders. Mr Ricupati’s own evidence and that of Mr Wells and Mr Maynard is that CV was only interested in acquiring the entire share capital of the appellant for a single price, it only negotiated a single price for the purchase of the entire share capital of the appellant and those negotiations took place only with Mr Wells (and see [195] below). 16 June 2014 - Mr Wells’ concern with his tax position

195. On 16 June 2014, Mr Wells sent an email (via his PA) to Mr White of CV, copying in Mr Maynard and others, in which he said this as regards the re-structuring of the deal and his tax position: “As you will know from Graeme Ward at Latham, until last week, the advice I was receiving from my tax advisers Ernst & Young, was that the transaction structure would enable me to receive my entire share of the consideration as a capital transaction (which, because I have been resident in Jersey for a couple of years now, means on a tax free basis). At the very last minute, frustratingly, EY became concerned that under the original deal structure, there was a risk that the difference in value between the price per share paid to the private equity shareholders and the price per share to be paid to the management shareholders could be treated as an income transaction. As a consequence of this, we have had to develop the structure with two sale and purchase agreements (one between CV and the private equity and one between CV and the management shareholders)…”

196. Mr Maynard accepted that (1) it was clear from this email that Mr Wells had previously told Mr White that he had been advised that the structure he was working on with Mr White would enable him to receive the proceeds of the sale of the appellant on a tax-free basis, and (2) Mr White was the person with whom Mr Wells had been collaborating on the drafting of the 26 May 2014 offer letter.

197. In the email of 16 June 2014, Mr Wells also said this: “As we’ve discussed when you first approached me to purchase Sauflon, as you know I had no intention of selling…I decided that if I could achieve a certain net figure and that all of the other conditions were right then it would be worth considering. From that time John and I have worked diligently to achieve that objective. First with yourself and with your help we achieved the figure we needed related to the selling price. Then followed some extremely difficult discussions and negotiations with the minority, non-working shareholders (you know the history of these people and how they came to be involved). From previous potential deals we always knew that they would reluctantly be open to a shift in value between us for all the reasons we have previously discussed. Finally we have got to where we need to be with them and what was and is required for us to hit our minimum selling target and therefore the net rewards we have earned for 30 years hard labour. I have to say this has been no mean achievement and has taken enormous effort to get it to where it needs to be. Now, the tax risk which is now inherent in the deal means that I cannot now be sure that I can achieve that certain net figure.”

198. The appellant submitted that this shows that Mr Wells informed Mr White that he and Mr and Mrs Maynard would be willing to sell their shares for around £430 million (as referenced in the advice from EY Sauflon set out below) and that Mr Wells and Mr White had agreed that figure as an indicative price for those shares. They consider this is also supported by the wording in EY Sauflon’s memo and by the fact that Mr White was plainly aware of the insertion of the “forward-looking warranties” to justify the price differential. We accept that this shows that Mr Wells did tell Mr White what he hoped to gain from the sale of his shares financially. This does not, however, of itself evidence that Mr White and Mr Wells negotiated and agreed the price Mr Wells had in mind. The clear evidence of Mr Wells, Mr Maynard and Mr Ricupati is that the negotiations between Mr Wells and CV were for a single price for the acquisition of all the shares in the appellant.

199. It was put to Mr Maynard that between February and June 2014, there must have been emails and communications between him and Mr Wells regarding the income tax and PAYE position regarding the sums to be received in connection with the sale. He said if they did anything, it would have been to do with the advice from EY Sauflon but he did not think so particularly. They worked together for 30 years and they had conversations and worked off those. It was put to him that it is inconceivable that advice of that importance would not have been reduced to writing. He said that may be right but he does not know. He cannot say what EY Sauflon or Mr Wells would do. He had searched for emails and had not found anything.

200. He said Mr Wells had used a shorthand way of talking about it, but they had other reasons to be very upset with Prism, and he is not sympathetic to private equity even now. It was put to him that they considered that the price differential represented the hard work that Mr Wells and he had put in for the appellant since their appointments as managing director and finance director in 1985. He said he did not know, he did not write this letter and these were not his words.

201. On 16 June 2014, Mr Ward of LW sent an email to Mr Finn of LW (copied to other colleagues at LW) in which he said that the approach seemed to be that CV’s only exposure relates to NICs “presumably on the basis that the appellant will get advice from E&Y pre signing that they don’t need to withhold anything”. He said that they had not seen the EY paper yet but would welcome Mr Finn’s comments and he asked whether, assuming they got that advice from EY that would “stop the revenue coming after us for failing to withhold” and stated that “presumably there is also a risk that E&Y could change their advice so we would need to include it as a closing deliverable”. 17 June 2014 - EY Sauflon advice - technical memorandum

202. On 17 June 2014, Mr Kilshaw of EY Sauflon sent Mr Wells and Mr and Mrs Maynard “the first draft of the technical note on the potential income tax charge on the sale of your shares” (“ the memo ”). His cover email included this: “i. if you sell your shares for more than "market value" (as that term is defined in the tax legislation) you may be subject to income tax and NICs on the excess; ii. you will argue that the price is "market value" as this is a price freely negotiated in an arm’s length transaction; iii. we consider the above to be a strong argument and we have worked with Peter and you to structure the transaction to support it ( in particular, we now have 2 sale contracts and the actual position is much more compatible with the argument that there is no value flowing from the PE houses to you but rather your having stated to the purchaser the consideration you require if the sale is to proceed ;) iv. EY will provide a letter to Sauflon to the effect that the actual sale consideration received by you is the “best reasonable estimate” of market value; v. Given the size of the aggregate transaction, you should proceed on the assumption that HMRC can be expected to examine it closely. One possible area of challenge is that the sale proceeds have not been allocated amongst the vendors on a pro-rata basis (you are selling your shares for a higher price per share than the PE houses); vi. While we have experience of HMRC accepting sales as being at market value where the sale proceeds are not received pro-rata, as we (and Mayer Brown) have explained the difference in this case is “aggressive” and we are not aware of a precedent case in line with the differences you have negotiated. The differentials may encourage HMRC to press a case that the allocation is in excess of “market value”; vii. Should they do so, we will argue strongly that this was a freely negotiated arm’s length transaction and that what you received was market value. While we anticipate that our arguments will be successful, we cannot guarantee such an outcome. viii. While any challenge is likely to depend on the interpretation of “market value” you may also have the founder’s argument…. ix. In conclusion, having reviewed the position in depth and in light of the commercial factors, we consider that the transaction is now structured in such a manner as to give you optimum protection given the commercial parameters and a credible case to establish that your sale is at market value. ” (Emphasis added.) Mr Maynard accepted that this shows that prior to 17 June 2017, both EY Sauflon and MB had advised him and Mr Wells as set out in the highlighted section above and reiterated that advice in the memo.

203. We note the following as regards the memo: (1) EY Sauflon stated that they acted for the appellant and acknowledged that they owed a duty of care to Mr and Mrs Maynard and Mr Wells but said: “To the extent that this Memorandum is shown to, or seen by, any other party, EY owe no duty of care to such party and they may not rely on this Memorandum”. (2) In the “Background” section the memo included this: “Following commercial negotiations between the relevant parties, we at present understand that this consideration is intended to be allocated between the shareholders as outlined on the “counter offer” tab of the Exec Value Allocation spreadsheet provided by John Maynard on 10th June 2014. We note that this allocation represents a departure from a pro rata allocation of the consideration and follows lengthy and complex negotiations between the parties. We note that CSP Prism LP and Bond Capital Partners I Ltd (together, the “PE Sellers ”) are not to provide any warranties or guarantees as part of the sale process. As the proposed allocation of consideration results in additional value (vis a vis a pro-rata, share) being realised by certain shareholders, there is a possibility that HMRC might seek to apply certain income-tax charges provided within [ITEPA].” As Mr Maynard accepted, the spreadsheet EY referred to showed sums being allocated to “forward-looking warranties” which by the time this memo was produced were no longer part of the deal. He also accepted that “there was no revisiting of the basis for the allocation of the purchase price after the removal” of those warranties. (3) The “Executive Summary” included this: “…we consider (based on our understanding of the factual position) that there is a tenable view that the “market price” is in fact the actual consideration paid to each shareholder . On this basis, EY will provide to the Company a letter to the effect that the sale consideration is genuinely its best reasonable estimate of the value of the shares. On this basis, in our opinion, the Company should not be required to operate PAYE and therefore should not be at risk to interest, penalties or NIC should HMRC subsequently establish that the value of the shares was higher than the Company’s estimate. HMRC may challenge the position and open an enquiry into the value of the shares. If they do so they may seek to argue that the market value of the individual shareholders’ shares was in fact the pro rata value. Any tax will then be collected from the individual vendors through self-assessment. The proposed modification to the deal structure (being the execution of two separate SPAs) should enhance the arguments that market value for tax purposes is the price actually received . In summary, we consider that there are persuasive arguments that the figure negotiated between the parties is market value for these purposes and will so argue if HMRC challenge the position. We cannot, however, guarantee that HMRC will not successfully sustain a challenge” (Emphasis added.) (4) In the “Technical Analysis” section dealing with a possible charge under chapter 3D, having set out details of that legislation EY Sauflon said this: “…it is necessary to establish the "market value" of the securities being sold. Market value is determined in accordance with s.272 TCGA 1992 and broadly summarised is as follows: Open market value is assessed based on the concept of a sale of shares by a hypothetical willing vendor to a hypothetical willing purchaser, both of whom are in possession of all the information that might reasonably be required in a sale of such shares by private treaty and at arm's length. On the basis that a hypothetical buyer of the Majority Sellers’ shares would be able to negotiate the same commercial agreement with the PE Sellers, there is an argument that the proposed reallocated consideration represents market value for these purposes. However, this position is not without risk, and whilst our understanding is that the reallocated consideration does represent a commercial deal freely negotiated between unconnected parties, HMRC could challenge the position on the basis that a hypothetical buyer would not be able to achieve the same deal ….. We believe that it is possible for the individual shareholders to advance the argument that the price they received for their shares is market value and have seen this approach accepted in the past. However, this will be regarded by HMRC as a high profile transaction. Further, the consideration and the difference between the price per share received by the different classes of shareholders are both significant. As such, we think there is a significant risk HMRC will enquire into the valuation. In the event they did, their starting point is likely to be that market value should be calculated on a price per share (pro rata) basis”. (Emphasis added.) (5) At the start of that section, they said that the factual position will be critical if the actual sale price is to be accepted by HMRC as market value. (6) In a section headed “Revised Structure”, having summarised the two agreements structure, EY Sauflon said: “It is our understanding that the terms of the PE Sellers’ SPA will include; the agreed consideration for these shareholdings only, a warranty to Title only and two conditions that will be met before completion can take place. The conditions will be that the individual shareholders sign their SPA within 5 days and that the individual shareholder SPA is completed (i.e. commercial conditions are met). The terms of the individual shareholders’ SPA will include the agreed consideration for these shareholdings only, details of warranties and indemnities to be provided by the Majority Sellers and the commercial conditions that will be met before completion can take place. This approach should, in our opinion, substantiate the different price per share consideration that has been commercially negotiated for the two different groups of vendor. From a tax perspective, we believe that it would be helpful if the two SPAs were independent of each other, i.e. not inter-conditional. That said, we recognise the Purchasers objective to acquire 100% of the shares and therefore understand that the PE Sellers’ SPA will need to be conditional on the completion of the individual sellers’ SPA. From a valuation perspective, it is our opinion, that this approach strengthens the argument that the Majority Sellers are receiving consideration not exceeding market value. That said, we note that there will remain a differential between the price received by Majority Sellers and the price received by other individual shareholders .” (Emphasis added) (7) As regards the appellant’s obligations under the PAYE system EY Sauflon said this: “ EY has provided to the company a letter, a copy of which is annexed to this report, confirming that, in our opinion, the company can proceed on the basis that the price stated in the sale and purchase agreement constitutes a best reasonable estimate of market value. If HMRC were successful in overturning the “best estimate” letter (which we consider a remote risk) and establish that this did not reasonably reflect market value they would likely then contend that the PAYE/NIC mechanism should have been operated. HMRC would then seek to recover the PAYE/NIC from the employer together with interest on the unpaid tax and NIC and penalties…” (Emphasis added.)

204. The memo included two appendices, one was headed “Commercial background and transaction parameters” and the other “Alternative approaches considered”. When the memo was later sent to CV, as Mr Maynard confirmed, these appendices were not included: (1) The factual assumptions in the first appendix included brief details of the dispute with Prism. This included that the appellant and, by extension, Mr Wells and Mr Maynard commenced legal proceedings against Prism and sought an injunction preventing disclosure of related information. Mr Wells was approached by CV and entered into discussions regarding the potential sale of the Company and the legal proceedings against Prism were currently on hold pending the proposed transaction and it is understood that if the proposed transaction completes they would be released. EY Sauflon then said this: “Over recent months AW and JM have had detailed discussions with the Purchaser and agreed an indicative price at which the Majority Sellers would sell their shares (c.£430m ). They have also been notified of the indicative aggregate price the Purchaser would be willing to pay to acquire 100% of the Company (c.£650m). It is likely that the Purchaser would only wish to undertake a transaction to acquire 100% of the Company (e.g. it would not acquire the Majority Sellers or the PE Sellers shareholdings in isolation). To date, PE Sellers have had no contact with the Purchaser . However, AW and JM have discussed the proposed transaction with the PE Sellers and established an indicative price at which the PE Sellers would sell their shares (c.£200m in aggregate). It has been agreed that the PE Sellers would provide no warranties or guarantees (except to title) in connection with the proposed transaction. The Majority Sellers will provide all warranties (with the exception of title in respect of PE Sellers shares) and indemnities as part of the transaction. It is understood that there would be limited commercial appetite for a sale by Majority Sellers to the PE Sellers (even if this was conditional on a subsequent sale to the Purchaser). It is understood that PE Sellers might be willing to sell to Majority Sellers (but this has not been explored with the PE Sellers at present). PE Sellers have confirmed that they might be willing to amend the Company’s Articles to reflect a commercially agreed allocation of aggregate sale consideration but they would require an indemnity against any potential PAYE/NIC obligations that might arise as a result (if the transaction did not subsequently complete). They would also expect all shareholders to have a legal right to require the articles be reinstated if the transaction is not completed within a certain timeframe.” (Emphasis added.) (2) Mr Maynard suggested that the information in appendix 1 did not necessarily come from emails between him and EY Sauflon; it may have come from meetings and Mr Wells might have been involved in the briefing too but he did not know. He accepted that it is not apparent from the evidence what information EY Sauflon were given other than as set out in the appendix. (3) He accepted that (a) this shows that EY Sauflon thought that he and Mr Wells were both involved in the negotiation with CV but in fact he had only minimal involvement, and (b) negotiations between Mr Wells and CV were always for the sale of the entire shareholding of the appellant, not just the majority shareholders’ shareholding and the underlined wording above is incorrect. He also accepted that “because of the absence of documentation, we don’t know what information was provided to” EY Sauflon and “we don’t know what this document is based on”. (4) We note that Mr Maynard’s acceptance in [(3)(b)] above also accords with (a) the terms of the final offer letter from CV, which states that the consideration payable for the acquisition would consist of a payment of £665 million….payable on completion” and CV would “propose that £558 million of the Acquisition Price be allocated between the shareholders on such basis as the shareholders may agree between themselves”, (b) Mr Ricupati’s evidence that Mr Wells and Mr White negotiated for the purchase of 100% of the shares in the appellant, and (c) Mr Wells’ own evidence. (5) Mr Maynard said he suspected the discussions referred to as regards changing the articles took place between MB and EY but he did not know the basis for this information or whether it is accurate. It was put to him that he must have understood that one of the reasons this document was sent to him was for him to review and satisfy himself that it was accurate. He said he thought he knew that draft articles were prepared, he does not know about the timing, but he has seen the email from MB dealing with that. He was asked if he understood when he received this, that it was partly sent to him for him to review it and ensure that he was happy that it was accurate. He said “I don't actually believe now, as opposed to - as included then, that this last paragraph is inaccurate”. (6) In the appendix dealing with revised structures EY Sauflon noted that: “In light of the uncertainty arising from the employment related securities legislation and the consequential risk of tax charges as discussed above, a number of alternative approaches have been discussed with Mr Wells, Mr Maynard and Mayer Brown” Mr Maynard accepted that these discussions would have taken place between 30 May 2014 and 10 June 2014 but said he suspected nearer to 10 June 2014 or the date of the advice. (7) As regards the two agreements structure, EY Sauflon said this: “From a tax perspective, we are of the opinion that this approach is helpful to an argument that the price received by the individual shareholders is market value for tax purposes as it captures the commercially agreed price at which the Majority Shareholders will sell their shares (which, based on the proposed aggregate consideration, is a departure from the provisions of the Company’s Articles). However, we note that this approach does not remove the risk of an income tax charge entirely. In particular, where there will remain a differential between the price received by Majority Sellers and the price received by other individual shareholders. Consideration has been given as to whether the introduction of a third SPA for individual shareholders other than the Majority Sellers would be helpful but this was not considered materially helpful and might give rise to other commercial/legal challenges . Ideally, from a tax perspective, we would prefer that the respective SPAs were not conditional on one another but appreciate that this is not commercially viable. From a commercial/legal perspective, we understand that this approach should prove to be the least challenging to implement.” (Emphasis added.) (8) EY Sauflon’s second suggestion was for the majority shareholders to sell their shares to the minority shareholders. They identified as a concern that: “…the risk that if HMRC were to review the position and request information from the PE sellers, their responses may not be entirely helpful given relations between the parties.” They also acknowledged that this proposal might be challenging from a commercial legal perspective. Their third option was for the minority sellers to sell to the majority shareholders and the fourth option was amending the company's articles to reflect the proposed allocation of consideration. (9) Mr Maynard accepted that this appendix shows that between 30 May and 10 June, there were very detailed discussions between EY Sauflon, MB, him and Mr Wells about the income tax position and the alternative structures that might be adopted. He did not accept that he and Mr Wells did not give full information to EY Sauflon. He accepted that he has provided no documentation recording what information he gave to them other than the spreadsheets. (10) He initially seemed to accept that he did not inform EY Sauflon that no negotiations or discussions had taken place with the other majority shareholders when they produced this memo. He then said he was not sure what he said on this because he does not have any record. He accepted that there is no evidence that he told EY Sauflon of that and seemingly accepted that was the case. (11) He did not accept the propositions that he did not tell EY Sauflon that (a) he had withheld information from the minority shareholders in his discussions with them, and/or (b) he and Mr Wells had worked with CV to put forward a contrived structure solely to justify to them the difference in price. He said it was a tough negotiation and he provided a detailed schedule, breaking it down into the warranties and would have described where they came from to EY Sauflon: “If it was contrived, I wonder how we would have taken it out in the final agreement, without the advice from [EY], of course, but I would have said that we put it forward originally with a view to it being a serious part of the negotiations with private equity” He said that he thought they would have told EY Sauflon that the warranties were inserted solely for the purpose of putting forward a justification to the minority shareholders for the difference in price. He accepted that there is no evidence that he told EY Sauflon that but said “I said somewhere in my evidence that I believed in informing advisers fully on any instruction, and I had found over 30 years of working with advisers in various forms, there was no point in holding back information from them that might influence - lack of which might influence their advice.” It was put to him that he did not tell EY Sauflon that the difference in price was not revisited or even discussed with the minority shareholders following the removal of the “forward-looking warranties”. He said that he could not comment on that. He saw no issue with taking the “forward-looking covenants” out on the basis of EY Sauflon’s advice because by then they were no longer relevant. 17 June 2014 – provision of memo to CV

205. On 17 June 2014 Ms Cooper forwarded Mr Ricupati and others the email from Mr Ward of LW to Mr Finn of 16 June 2014 (see above). In his witness statement Mr Ricupati said that (1) he was told that the appellant was expecting advice from EY that PAYE did not need to be operated. It appears that he learned this from this email of 17 June 2014, (2) as at 10 and 11 June 2014, he proceeded on the basis that the financial consequences of incorrectly failing to operate PAYE would be the responsibility of the sellers because of the standard indemnities which it is usual practice for the parties to agree in acquisitions such as this, and (3) by 19 June 2014, the parties had agreed that CV would take the risk of secondary NICs on the purchase price, but that the sellers would give a full indemnity on any other payroll taxes on purchase price which he understood to be the main bulk of the liability.

206. On 17 June 2014 MB sent Mr Ward and Mr Finn the memo, with the appendices removed. In his witness statement, Mr Ricupati stated that: “the fundamental point I took away from [the memo] was that PAYE did not need to be operated because the proceeds that Sauflon’s shareholders were to receive were the best estimate of market value, which meant there was no ‘excess’ which would trigger any PAYE obligations. That was consistent with my knowledge of the negotiations.”

207. In his statement Mr Ricupati said this as regards the review of the memo: (1) in emails to which Mr Ricupati was copied between Ms Maki and Ms Cooper there was some discussion around the meaning of the term “tenable” in the memo, and whether it was equivalent to “more likely than not”, (2) in addition to EY CV’s review of the memo, it was also important to Mr Ricupati that he had the support of Mr Finn, in reviewing the advice, (3) he thought that Mr Wells was using his willingness to “blow up” the deal as a means to negotiate with other shareholders for the division of the total price between them. He had the impression that these were hard-fought commercial negotiations and it therefore seemed right to him that the outcome of those negotiations was the best estimate of market value. That is a view he continues to hold, and (4) Mr Ricupati forwarded the memo to Mr Matz. Mr Ricupati could not recall whether Mr Matz spoke to him about this, but Mr Matz was comfortable with the approach Mr Ricupati was proposing to take.

208. At the hearing Mr Ricupati gave the following evidence: (1) He did not accept that the fact that CV initially only took the risk in relation to NICs is why he did not seek or obtain his own specialist PAYE employment tax advice. He said that (a) this was not relevant when he was considering the memo/valuation letter, (b) if a target has a liability, post-close that becomes CV’s liability. So they needed to bottom out this issue and if the recommendation had been to pay PAYE, then they would have complied. It does not change the standard of review because ultimately post-close it is CV’s liability, and (c) they did seek advice. They do not necessarily need a second opinion. The opinion was reissued in August, post-close. The common conclusion was that PAYE did not need to be operated as per the recommendation in the memo and the valuation letter. (2) Mr Ricupati accepted that (a) he was not privy to what instructions or correspondence had been given to EY Sauflon or to the correspondence between the sellers and EY Sauflon upon which their advice was based, and (b) he did not ask for that information. He said that it is not common practice to do so when dealing with a reputable firm: “We sought our own advice, and we did our own due diligence, and we conclude the same thing”. He said that the EY Sauflon advice was shared with CV, and he /CV engaged a separate team at EY and LW to review and to agree. In his view, the memo itself contained sufficient information for them to get comfortable with what knowledge EY Sauflon had of the transaction. He noted that the memo was then issued in August after closing by which time the Chinese wall was no longer in place and the teams became one . He said during the due diligence process, both from an operational and finance and tax perspective, there has to be some demarcation line because, if the deal does not go through, the target will think that too much information has been shared with the purchaser. So “this is a quantum of information and dynamics that evolve up to the point when you close and then some of those barriers fall”. (3) He accepted, in effect, that in the period between 11 June and 20 June 2014 he knew that EY Sauflon were not acting for CV and CV could not rely on their advice. He said that is standard practice when a firm is engaged by another party but it does not take away from the validity of the opinion in the memo/valuation letter and the fact that he/CV did their own diligence and review. (4) He said he did not think he could have asked for correspondence between the sellers and EY Sauflon because at that time there were still two separate teams and the memo itself contained sufficient information for them to understand the basis of the opinion. He did not ask EY Sauflon or the sellers what documents had been provided upon which the advice was based and he did not know or ask them what other advice had been provided by EY Sauflon to the sellers on the PAYE issue. He said that he was focusing on the corporate PAYE issue; he had no concerns about the shareholders’ individual tax situation (5) It was put to him that, therefore, he did not know that in the covering email which EY Sauflon sent to the seller with the draft memo, EY Sauflon advised that they considered the difference in the sales proceeds in this case was “aggressive” and that they were not aware of a precedent case in line with the difference in this case. He said this comment would not have changed his conclusion. When pressed he said: “point somewhere where they say that the advice that they provided was wrong. They’re just issuing warnings as any firm would do. No one is going to go out there and tell you that any type of transaction is risk free. They’re just telling you that this might be seen as aggressive. In the same email, they’re telling Mr Wells and Maynard that their position is clear, that the actual sale consideration we have received is the best reasonable estimate of market value.” (6) He said in effect that this comment would not have set alarm bells ringing or made him more cautious if he had been aware of it because he was relying on the memo and the valuation letter. He did not think this comment changes the advice/ the outcome. He accepted that if he had asked for all advice that had been received on the PAYE issue, the sellers might have refused and he would have known that he was not seeing the full advice or they would have provided this email and he would have seen that both EY and MB had advised previously and were reiterating this comment. He said again this would not have changed his opinion, thoughts or processes or mean he would have done things differently; this was just to make sure that the sellers were aware of the risk and, in his view, it does not change the outcome of the opinion. He said: “The advice was clear. It’s a market value transaction. If the difference is aggressive or less aggressive or stuff, it’s irrelevant… We critiqued the language on the opinion letter to make sure that E&Y was comfortable with their advice, and…the firm agreed with their advice, that it was solid, and it basically said in -the final letter…that was the best reasonable estimate ” (Emphasis added.) (7) He did not accept that, if he had been aware that was the advice, the reasonable course would have been for him to have sought and obtained his own independent specialist PAYE advice. He said that he took the approach that he thought was proper and did his own due diligence. He reviewed the memo, the valuation letter, he/CV provided input, they asked EY Sauflon to clarify what they meant and ultimately he was satisfied with the advice and followed the advice. (8) As regards his comment that he had the impression that these were hard-fought negotiations between the shareholders, he did not accept that he could not recall what impression he had in 2014. He said it was a deal between third parties. By default, there is a negotiation. People don’t just accept a lesser amount than the pro rata amount such that it feels it is clear there was a negotiation between the majority shareholders, the minority shareholders and CV. (9) He accepted that when he read this memo he did not have the spreadsheet referred to. He said (a) he asked for the breakdown of the consideration around 11 June 2014, the whole team wanted that, and (b) to review this memo, he did not need that level of information. The main thing was that the issue was identified, namely, that the majority shareholders were to get more than they were entitled to on a pro rata basis. (10) He accepted that (a) the correspondence shows that, on 19 June 2014, MB sent Mr Finn the simple schedule only so by that date he still had not received the detailed calculations, (b) when he read Ms Cooper’s email of 11 June, he would have known that prior to that, EY Sauflon had advised Mr Wells on his personal tax position, and “generally speaking” he knew that the deal was to be restructured with two agreements. He seemed reluctant to accept that he knew that EY Sauflon had advised Mr Wells, in his personal capacity, that in order to avoid the risk of the income tax charge the deal should be restructured in that way. (11) He accepted that the memo does not refer to the fact that the original structure involved the share proceeds being allocated by reference to “forward-looking warranties”. It was put to him that he would have known of that prior structure when he read the memo. He did not answer that. He said: “if you look at the entire memo, it’s kind of self -standing. As a background, it tells you that there was a negotiation between the parties, and that basically the proposal...could give rise to potential risk of income tax. Then it goes through…the summary. So, when I read this, I'm not going back to the week before, two weeks before…We all know what the prior correspondence is. This is basically a memo that summarises what has transpired up to date, the double SPA structure and the summary of the risks associated with the transaction and their recommendation.” When pressed he said the “memo is opining on the current structure and it is not usual that in a memo you go back and say, “a week ago the structure was A and now it’s B.” This is a technical memo. It’s not a memorandum of facts.” He was asked if, when reading this memo, he considered it irrelevant that he knew that the purpose of the introduction of this revised structure was to give the impression of two separate negotiations between CV and two sets of shareholders which did not reflect the reality. He essentially gave the same answer: “When I review a technical memo, I review the memo and what it’s opining on, and if you read this memo, adjust the revised structure and the consequences of the structure. There’s no way that it requires to go back and compare to the prior structure and the change in structure. That’s a totally different prerogative. This is a memo that says, “As of today, there is two SPAs and here is the recommendation that E&Y is providing.” I continue to struggle to understand what is your point.” (12) He accepted that the memo was clear and he understood that EY Sauflon did not owe CV a duty of care and he could not rely on the memo. He confirmed that he understood the advice is only as good as the factual information that had been provided. When it was put to him that he did not know what the factual position was he said it is stated at the beginning of the memo and: EY “basically say that there was a…full negotiation, and based on the information they have, that’s what the recommendation is.” He added that he was not auditing EY’s record and “it is a memo not a book, it sets out the facts, the assumptions and the conclusion”. It was put to him that at the start of the technical analysis EY Sauflon stated that the factual position is critical as regards the market value issue. He said that was pretty standard to say this in such an opinion. When it was put to him that he did not know and did not ask what facts or instructions had been put to EY Sauflon he said: “There is only one fact that you needed to know…Was this a market value transaction, and was this basically a deal between unconnected parties that basically agreed to a price?” That is the only material factual assumption in here and we…knew that there was a negotiation…I didn’t need to see the detail instructions. Was this a third party transaction? Was there a negotiation between the parties? Did they agree on our price? Yes, they did. Based on that, here is the advice.” (13) He did not accept that it may be relevant that, at the date of the memo, there had not yet been any negotiations with the other majority shareholders. He said (a) all that matters is that there was an excess price; which shareholder it was paid to is irrelevant, (b) it was not correct to focus on a subset of the shareholders. The issue, as he sees it, was that there was $100 million more allocated to certain shareholders, and that is what the opinion covers, and (c) counsel is not a tax expert and Mr Ricupati understands this better. It is all very clear as he had already said and a comprehensive opinion. He asked on what expertise counsel was criticising EY’s opinion. (14) As regards the technical analysis section, it was put to Mr Ricupati that there is no indication of the strength of the argument noted in the analysis that the excess consideration represents market value. He suggested that the important part of the memo is the conclusion. He accepted that, in the following comments, EY Sauflon were not opining on the strength of the argument they set out and that the technical advice was simply that there is an argument which EY Sauflon said it is possible to advance and there was a significant risk that HMRC would enquire into the valuation. (15) He accepted that (a) the revised two agreement structure is key to the EY Sauflon advice. He said it improves the risk profile, (b) the revised structure was what EY Sauflon had advised Mr Wells and Mr Maynard to adopt, in their personal capacity, in order to avoid the income tax risk which arose from what Mr Wells had negotiated with Mr White, and (c) he knew that CV had not in fact negotiated the different price per share with either the minority shareholders or the five other majority shareholders. He did not accept that he knew that the two agreements structure did not reflect the reality of the negotiations and agreement that had taken place. He said the negotiation EY Sauflon referred to is that within the Sauflon group: “ We only want to acquire 100 per cent of the company. You’re conflating the two things. This is a different statement. This is basically referring to the negotiation among the shareholders of Sauflon.” (Emphasis added.) (16) It was put to him that if this was right, this would have been structured not in this way but by, for example, the minority shareholders acquiring the shares from the majority shareholders and then selling them to CV. He said he did not review “speculation” but the memo and that is what he used to make his decision together with the valuation letter. It was put to him that he understood that EY Sauflon considered that this structure strengthened the argument because it gave the impression that there had been commercial negotiations between CV, and the other party to it, the minority shareholders, that resulted in the purchase price under that agreement. He said: “ Cooper company negotiated the purchase of 100 per cent of the shares of Sauflon. Within Sauflon, there was internal negotiations to decide who gets what. That’s as simple as that. So this is based on the existence of those two sets of negotiation.” (Emphasis added.) (17) It was put to him, in effect, that EY Sauflon identified as a problem that there is no separate agreement that provides any justification for the difference in share price as between the shareholders and the other majority shareholders. He said there is an agreement with eight shareholders, and an agreement with the minority shareholders. He accepted that EY Sauflon were saying the position is strengthened regarding the minority shareholders due to the separate agreement. He then accepted that counsel’s point is technically correct but said counsel was again conflating two different things: “Did the other shareholders accept the price? Yes, so that’s evidence of a negotiation. Why would the other remaining five shareholders, majority shareholders, accept our price? So, at one point or another, it’s clear that they agreed to the price and negotiation between the majority shareholders…must have happened, and those guys accepted the price they were getting. So it is clear that the price was not imposed to them. They’re part of the negotiation and they agreed to take a lower share than the other majority shareholders. It’s a fact. They agreed and they got paid for what they agreed to . So, you're trying to link a direct negotiation from Cooper to every set of shareholders. Again, the Cooper Company was interested in buying 100 per cent of the company, of Sauflon. How the pie was divided among the shareholders was their doing, their negotiation. It had nothing to do with us. We just want 100 per cent of the company. I don't care if I paid you $10 or him 5, I just want to buy the company. So, you're looking for something that doesn't exist and nor is it necessary. You're trying to look for negotiation from the corporate company with all the A shareholders. That is not needed, no, that does (sic) exist. We bought 100 per cent of Sauflon, and the Sauflon shareholders negotiate among themselves how to divide the proceeds…. ” (Emphasis added.) He added that in the relevant sentence EY Sauflon were just pointing out a risk: “This is just how a technical memorandum is written. You highlight any potential hypothetical risk.” (18) It was put to him that in the technical analysis EY Sauflon did not provide any explanation of the “credible” case they referred to. He suggested there was no need for them to explain what the basis was. He said that the final memo was accompanied by the valuation letter and that letter: “clearly states that this is the best estimate of market value, with none of these alerts or disclaimers or risk profile. On the other hand this is an analysis. When you do an analysis in a technical memo, you cover all hypothetical risks irrespective if the risk is remote…from a legal perspective, they cover themselves by pointing out all potential risks irrespective of the likelihood of the risk…to materialise…It doesn’t mean that [EY Sauflon] doesn’t believe in our opinion, this is how technical memos are written and, again, this is why I was asking if you were giving tax advice earlier.” (19) He did not accept that the introduction of the two agreements structure was a key factor in EY Sauflon giving this advice. It was put to him that the reference to a remote risk has to be read in the context of what EY Sauflon said before, and also the fact that, as he knew, the agreements did not reflect the reality of the negotiations that were taking place with CV. He said: “How do you read the remote risk in connection to the prior statement? Where does it say that? That’s your opinion again…It doesn’t say it. The risk is remote.” When pressed, he said it was one of the factors to reduce the risk. He was taken to the final version of the valuation letter in which EY Sauflon gave their “indicative view on the basis that they had regard to the key factors described which included the terms of the sale and purchase agreements.” He then accepted that this was one of the key factors. 17 to 19 June 2014 – finalisation of the valuation letter 18 June 2014 – provision of draft to CV

209. On 18 June 2014: (1) Mr Finn asked to see a copy of the spreadsheet and the “EY best reasonable estimate letter”. He said that the valuation letter should be “a deliverable for the closing”. (2) Mr Dickinson then sent the first draft of the valuation letter to Mr Finn and he shared it with Mr Ricupati, EY CV and colleagues at LW. Mr Finn said: “I do not like how the opinion is expressed - ‘it is possible to argue on a reasonable best estimate basis…’ Aren’t we seeking opinion that in EY’s opinion the price paid for the shares is a reasonable best estimate of their MV for UK tax purposes.” (3) Mr Ricupati replied: “I totally agree with you; the statement defeats the purpose of the letter.”

210. Mr Ricupati said in his witness statement that (1) this first draft of the valuation letter did not do what it said it would in the memo as it was expressed in terms of it being “possible to argue”, (2) CV has a standard, which he enforces as part of his job, which this draft did not meet in his view (and in LW’s view), (3) he wanted EY to express their opinion, and to do so clearly, to meet CV’s standards. He was not interested in what it was “possible to argue”; he wanted to know what EY’s opinion was, and (4) he therefore agreed with Mr Finn’s comments on the first draft. In his comment to Mr Finn he thought he had in mind that the “purpose” of the letter was to support the recommendation in the memo.

211. In the draft valuation letter, EY Sauflon set out the following main points: (1) Following commercial negotiations, they understood that CV would enter into a sale and purchase agreement with Prism and Bond for the acquisition of their shares and separately would enter into such an agreement with the majority shareholders. (2) They set out the market value test in brief terms from the statutory test. (3) They said they relied upon the information provided by and their discussions with Mr Wells and Mr and Mrs Maynard and their advisors. They did not seek to investigate independently or otherwise verify the accuracy or completeness of the information and explanations provided, for which Mr Wells and Mr and Mrs Maynard were solely responsible. (4) Based on the information provided and the limitations set out, their opinion was that: “it is possible to argue on a best estimate basis that the Gross Consideration payable to [Mr Wells and Mr and Mrs Maynard] for their holdings of the Ordinary Shares is not more than the open market value for UK tax purposes.”

212. Mr Finn then sent Mr Dickinson his comments on the first draft with an annotated copy of the draft. Mr Finn’s comments were: “1. If we are to go with option 1) outlined in the EY paper we need a robust opinion from EY. I am sure you agree that this is a reasonable request in the circumstances. For example, I do not think it is sufficient to say “it is possible to argue on a reasonable best estimate basis that the gross consideration payable to the majority sellers is not more than the open market value for UK tax purposes”. What the client is really expecting to see is: (i) brief analysis setting out the company’s obligation to operate PAYE on any part of the consideration (similar to their note); (ii) a brief explanation of the ‘reasonable best estimate’ concept within the legislation/regulations/PAYE code (similar to their note). (iii) a conclusion from EY that, in their opinion, the total price paid to the majority seller is a ‘reasonable best estimate’ of their MV for UK tax purposes and that if this is sustained with HMRC no payroll or NICs liability arises for the company/employing entity

2. All these points need to be set out in the Opinion so that it hinges together properly. At the moment, it doesn’t really make sense as a self-standing document. The opinion needs to be made clear that it can be relied upon by SPL or any group company that might have PAYE obligations for these purposes. I’m also concerned that the Opinion is subject to an engagement letter dated 11 June which we have not seen - can we please see this or at least it key terms so that reliance can be properly understood.

3. The opinion needs to be reissued on completion on terms reasonably satisfactory to the Purchaser and as a completion deliverable as that in the relevant point at which the purchase price gets paid.

4. Other comments (attached) are self-explanatory.”

213. Mr Dickinson sent Mr Finn’s comments to Mr Kilshaw. Mr Kilshaw said that he did not envisage any problems with the changes requested “(although it is unusual to rehearse the tax law in a valuation opinion) but we will check it with our valuation colleague and revert asap”.

214. Between 17 and 19 June 2014, there were emails in which there was discussion of the quantification of possible income tax and NICs exposure. By 19 June 2014 it was agreed that the sellers would be financially responsible for all PAYE liabilities in respect of the consideration for the shares except secondary NICs. Mr Ricupati said in the context of the deal, he did not regard that financial risk as material and was not concerned about it. It was a relatively small number compared with the deal price and EY’s advice was clear. On that basis he had moved on to other aspects of the due diligence process and the quantification exercise was not finalised at this stage because it was deemed no longer necessary. 19 June 2014 - provision of revised valuation letter to Mr Maynard

215. On 19 June 2014: (1) Mr Reade of EY Sauflon provided Mr Stanger of MB with a copy of the spreadsheet (which Mr Maynard had provided on 10 June 2014) together with a second draft of the valuation letter. Mr Reade referred to the spreadsheet and said: “As you know, we’ve not been party to the discussions relating to these figures.” Mr Maynard accepted that this showed that, on 19 June 2014, EY Sauflon were still operating on the basis of the spreadsheet of 10 June 2014 and that they were entirely reliant on information provided to them by Mr Maynard. (2) Mr Reade said EY Sauflon deferred to Mr Maynard as to whether or not it was appropriate to share this with the other side and: “one other thing I would highlight is that I believe we agreed on a subsequent call that proceeds would not be specifically attributable to the forward-looking warranties etc., presumably a total gross consideration figure will be shown for each in the SPA, rather than a breakdown of how these numbers were agreed. Therefore, it may be sensible to simply share the agreed allocation spreadsheet which has the headline numbers only.”

216. Mr Maynard accepted that this shows that EY Sauflon was concerned about sharing the full spreadsheet with CV because it shows that the allocation of £107 million was made by reference to the “forward-looking warranties” that were no longer part of the agreement and that there is no evidence of any revisiting with the minority shareholders of the value allocation following their removal. He did not know if they informed EY Sauflon that they had not yet even started discussions with the other majority shareholders when they were advising him on this. He said he expected that there was a telephone conversation and there is no evidence that shows there was not. He added that they would be pretty confident that the majority shareholders would end up where they did on price. When it was put to him that, at this point, the other majority shareholders’ assumption would have been that they would receive the same price per share as him and Mr Wells, he said he thought that at that stage they did not understand the value of the deal; everybody was thinking of a deal valued in the £400 millions, not £558 million/£600 million or even £665 million. There was a negotiation “to a level of price that nobody, outside of Alan and myself expected to obtain…it’s most likely Alan would have wanted to get back into negotiation. That would have happened in the final term…I had no certainty that Alan would sign on this deal.” 19 June – provision of revised valuation letter to CV

217. Also on 19 June 2014: (1) Mr Stanger of MB forwarded the revised valuation letter and the spreadsheet to Mr Finn of LW, Mr Ricupati and others, including EY CV. Mr Ricupati stated that he appreciated, at or around this time, the amounts each of the sellers would each receive for their shares. In the revised letter the opinion given was that the price paid to Mr Wells, Mr and Mrs Maynard “is a reasonable best estimate of the market value” of the shares sold by them for PAYE purposes and that if this opinion is sustained with HMRC no PAYE or NICs liability should arise for the appellant. (2) Ms Cooper emailed Mr Ricupati and the rest of the EY CV team indicating that the overall amount involved as regards the PAYE issue was in the region of $35.9 million, with employer’s NICs amounting to $14.1m of that. From this and the later correspondence it appears that at this point Ms Cooper had not seen the spreadsheet. Mr Ricupati replied that they had agreed to bear the risk of this item and the sellers had made a concession as partial compensation and he thought that at this stage “all we need is the final version of the [EY] letter that gives us the filing position.” (3) Mr Finn emailed Mr Ricupati and Ms Cooper, and others, forwarding an email chain between LW and MB in relation to the draft tax deed, which confirms the position was as set out by Mr Ricupati above. (4) A short time later, Mr Finn commented on the second draft valuation letter to Mr Stanger that he thought the opinion in it needed to be clearer along the lines they discussed. He said that he had suggested some language (which is the language used in the final draft) and that they need a reliance statement for the benefit of the company and its subsidiaries. (5) Mr Ricupati forwarded the memo to Mr Matz stating “this is the technical analysis that E&Y (on behalf of [the appellant]) has prepared. It contains a lot of technical data and scenarios, but please focus on option 1 which is the position we would be taking.” (6) Mr Kilshaw sent an email to Mr Wells with advice on his personal position which was consistent with the position set out in the memo and valuation letter. He referred Mr Wells to the memo which he noted was written in the knowledge that it would be shared with CV and was therefore a technical note to provide an overview of the issues that could arise for the company. “…..our advice is as set out below (which I hope accords with your understanding of our prior discussions).

1. We consider the purchase price paid to John, Bridget and you to represent market value for UK tax purposes and if HMRC were to accept that position there would be no further tax to pay by you as a non-resident.

2. If HMRC were to challenge the position, we would argue persuasively and expect to be successful in arguing that there was no tax charge on you. We expect to win this argument but cannot guarantee that HMRC will not successfully sustain a challenge. As you know, we are confident that the deal is structured in the best possible way to minimise this risk.

3. If HMRC were to be successful in their arguments, your position would be as follows…… ….v. The Earlier Report set out a review of complex penalties and double tax (s.222 charge) charges that may arise if the Company did not meet its withholding obligations. We needed to explain these to the Company and Cooper Vision (as their advisers would doubtless have otherwise pointed out their omission). EY has now agreed with Cooper Vision that a valuation letter will be provided by EY and so these risks will be removed.” (7) Mr Kilshaw sent a similar email with advice to Mr and Mrs Maynard. (8) Various documents were finalised ready for signing (which was envisaged to take place either that day or the following day). Final valuation letter

218. On 20 June 2014 the revised final valuation letter was produced. Mr Ricupati said that the final version was clearer and they were happy with it. He said that this was the view that he had understood to have been expressed in the memo and it was now expressed in the valuation letter with the clarity he expected, based upon what the memo had said the letter would say.

219. The final version contained the same comments as set out above and the opinion now read as follows “Based upon the information available to us and subject to the limitations set out above, we are of the opinion that the Purchase Price paid to the Majority Sellers pursuant to the terms of the sale and purchase agreements is not more than the open market value of the Ordinary Shares for UK tax purposes. Accordingly, the best estimate that can reasonably be made of PAYE income in respect of the Purchase Price is nil and if this opinion is sustained with HMRC no PAYE or NICs liability should arise for the Company or its subsidiaries (as listed in the SPA) in respect of the Purchase Price. In arriving at this indicative view we have had regard to the key factors described below:

1. The aggregate consideration payable in respect of the Ordinary Shares held by the individual shareholders was negotiated with an unconnected third party on arms’ length terms.

2. The PE Sellers are unconnected to the individual shareholders and have no intention to confer any benefit to the Majority Sellers.

3. The PE sellers are not to provide any warranties or guarantees as part of the sale process.

4. The terms of the sale and purchase agreements.”

220. Mr Ricupati was questioned about the valuation letter: (1) It was put to him that he could have requested the information supplied to EY Sauflon for the purposes of this letter. He said that it is not necessarily the standard process to ask for that information, he was dealing with a reputable firm, and they know what to ask in order to provide an opinion. (2) He did not accept that as EY Sauflon referred to this as an “indicative view” this was not their final view. He said that is why he does not see it that way. He focused on the fact that it says it is the most reasonable estimate of the market value. In his view the word “indicative” explains the factors set out below. It was put to him that it is clear from the wording that is not the case. He asked what the concern is with the word “indicative” and said that he was basing his thoughts on the paragraph in the final version where it states clearly that this is the best reasonable estimate of market value; he just relied on the opinion in the paragraph above. (3) When it was put to him that he was saying that he solely relied upon the first paragraph and disregarded what followed, he said that he read the entire memo and the letter. It was put to him that this would or should have highlighted to him that EY Sauflon, as is consistent with the language they had used in the memo, were only putting this forward as an indicative view. He said that there is no such thing as an indicative view and it is an opinion. The opinion was that this was the best estimate of fair market value: “Again, you are now familiar with the language of technical memorandums and opinion. You’re sitting here, picking apart one word in the context of the entire letter…EY came out and said, “This is the best estimate, therefore you don’t need to operate PAYE.” That’s the recommendation and the opinion of a reputable firm, one of the biggest in the country, in the world…You read entire document and the opinion’s very clear in the final version.” (4) He did not accept that (a) the reasonable course for him to have taken, at that point, would have been to get independent specialist employment tax advice, given all of the knowledge that he had at that time, (b) given the reference to an “indicative view”, at least he should have gone back to EY Sauflon and asked for the information supplied to them that they identify as a limitation on the scope of their advice, and (c) the reason he did not get his own PAYE advice and sought to get instead an amended letter, even though the memo would stay the same, was because at this stage, other than the relatively small NICs liability, the sellers were to be responsible for the financial consequences of a failure to operate PAYE correctly. He said that it still became CV’s liability after post-close and they would have to deal with that; it is irrelevant whether the sellers had agreed to an indemnity or not. That does not change the standard that one applies. (5) He was asked what third party EY referred to in the highlighted wording above. He said there was a combination; they negotiated between themselves and some of them negotiated with different parties and: “We have established that there was a negotiation between the corporate company and the shareholders. You keep separating the majority versus the other individual shareholders from the company perspective that this is irrelevant. So, when the statement said that the negotiation with individual shareholders is taken in an umbrella view that if, in reality, the negotiation was two or three of them, it’s not relevant.” (6) He accepted, in effect, that the only negotiation that CV had was for the entire share capital of the company. He said that was the ultimate goal, to acquire 100% of the company and “we were looking to acquire 100% of the company.” It was put to him that he knew that this key factor of having two agreements did not reflect the reality of what had taken place. He disagreed and said Mr White negotiated with Mr Wells for the acquisition of the entire shareholders’ shareholding which includes the individual shareholders. He said it does not say otherwise. Mr Wells and Mr Maynard are individual shareholders. There was a negotiation with them. So: “again, even separating the remaining of the individual shareholders versus the majority shareholders, they’re still shareholders of the company. Again, the language used in things are more generic...The Cooper company negotiated with Mr Wells and the rest of the individual shareholders in one fashion or another. Everyone agreed to the price and that was the outcome of the negotiation and the deal. So, if you want to say that they negotiated with shareholder A, B and C, that’s your prerogative.” When pressed he said: “I already told you it’s in the review.” (7) It was put to him that EY Sauflon viewed the fact that only the majority shareholders were to give warranties as a key factor justifying the difference in price but, as he knew, those warranties were very limited following the removal of the “forward looking warranties”. He initially said that the minority shareholders were never to give warranties/guarantees. He then suggested that this was a significant difference as the majority shareholders were liable for insurance, an escrow and everything else, so they still had “skin in the game” and there was a non-compete agreement regarding Mr Wells’ sons. He accepted that the five other majority shareholders only gave limited warranties. He said: “that’s irrelevant…to the analysis and to the conclusion…the memo looks at the fact that certain shareholders received more than the pro-rata shares, and it…opines on that. If it is five of them, two of them or four of them will receive more, it doesn’t change the fact that this is a market value transaction and a negotiation within a connected body are like transactions...We have established that the memo is not looking at individual shareholders. It’s looking at is there some shareholders who receive more? −yes. Is there a…risk issue? It was discussed, assessed and concluded .” (8) He accepted that (a) he was aware that the individuals were also to receive significantly in excess of the price per share that the minority shareholders were to receive and in this part of the negotiation they gave up some value, and (b) previously the “forward-looking warranties” had been put forward to justify the £107 million excess. It was put to him that clearly it was not felt that the other warranties justified that difference in price; under the original structure there was no attribution of any of the £107 million to the other standard warranties. He said the “forward-looking warranties” were specific to certain tasks and milestones that the company was supposed to achieve and the attribution of value to them does not mean that the other warranties did not have value. It was put to him that if standard warranties were considered as justification for the price allocation, there would have been no need for the “forward−looking warranties” and attribution of the full £107 million to them. He said there was a change in strategy; those were dropped and the two agreements approach was taken. This memo advises on that strategy and not on the prior one: “Here’s two SPAs, here’s the factors that you have read, and here’s their opinion. Their opinion is that this constitutes a market value transaction and the price paid was the best reasonable estimate. You’re linking it, this current analysis, to prior facts, but they’re no longer relevant.” (9) It was put to him that it is clear that EY Sauflon, Mr Wells and Mr White were of the view, as he knew, that the standard warranties and escrow did not justify the price difference and, and that is why they had introduced the “forward−looking warranties”. He said that they are not tax people and they follow the advice from their advisors. He pursued this point at length. He said this was not an easy negotiation but a very tough negotiation, convincing them to sell and convincing them of the price that they wanted: “So, I think you have lost the sense of reality. This is a deal where a US multinational paid £665 million to acquire this company, and one of the…due diligence components, out of the hundreds of due diligence items that came up out of this, was this PAYE issue. EY provide advice, we follow, and that’s it. It’s very simple when you stop looking at every little word and detail to understand. So, the EY advice is clear…Here, it says that…according with the best estimate, a reasonably made PAYE income in respect to the purchase price is nil - simple. Clear and to the point - nil, nil, zero.” (10) It was put to him that his view seemed to be that it did not matter if the key factors that EY identified as the basis of their opinion do not stand up to critical scrutiny. He did not really answer this. He said: “That’s your opinion again. I’ve never agreed to that and that’s what you’re saying…” It was put to him that at the time he just took the letter at face value and did not even test it by reference to the facts as known to him then. He said: “No, I didn’t know directly. You weren’t in my shoes when I did this. So, you want me to accept your opinion as mine. I’m just a little bit puzzled.” (11) In his witness statement he said that the advice from EY Sauflon was “based upon a view on market value that he understood and agreed with based upon his knowledge of the negotiations”. It was put to him that his knowledge of the negotiations was limited to him knowing they had taken place exclusively between Mr Wells and Mr White, and that they were not for a proportion of the entire share capital but for the entire share capital of the company. He said he was aware of that and also that, in the background, Mr Maynard was negotiating with the other shareholders: “this is a third−party deal contest. Negotiations are happening. You don't sell a company for $665 million without negotiation among the purchaser and the seller, and within the purchaser, when there is multiple levels of shareholders…At the end of the day, they sold a company for $665 million, and all shareholders agreed to their share irrespective whether it was below the pro rata or not. That’s, again, as simple as that. This is the essence of the transaction, period.” (12) Mr Ricupati accepted that one of the key factors identified by EY in their valuation letter was the two agreements structure. It was put to him that when he was reviewing and considering that letter he knew that the two agreements structure had been introduced on EY’s advice to give the impression of two arm’s length negotiations as set out above. He said again that the two agreements were intended to mitigate the risk: “They did not mean to give any impression on anything. They stated that two SPAs will mitigate the risk and that's what ultimately the parties agreed to and that's what was reflected…I was not a direct party to the negotiation in either SPA… I was aware that two SPAs were done to mitigate the tax risk at the request of the sellers. That is what I could confirm directly. The rest is what the consequences of their own negotiation discussions, which resulted in two different SPAs.” 19 June 2014 - Negotiations with the other majority shareholders

221. Mr Maynard gave the following evidence as regards the negotiations between him (acting for Mr Wells and Mrs Maynard also) and the other majority shareholders which began after the negotiations with Prism and Bond, described above, had concluded: (1) On 19 June 2014 he met with the other individual shareholders at the appellant’s factory in Fareham, Hampshire. He travelled there direct from Jersey, where he had met with Mr Wells to discuss the position they would take in the negotiation. Just before he took his flight, he sent to them by email drafts of the sale agreement and a deed of contribution which included the price that he and Mr Wells had agreed to present to them as the price they were going to have to accept for their shares. Although he had provided them with these documents in advance of the meeting, he does not think they fully realised that they would be receiving a lower price per share than him and Mr Wells until he explained it to them. Their initial reaction was, broadly, that they thought they should get the same price. Mr Broad was the most upset by what they were offering. He had been a key individual who had been responsible for the chemical formulation of the market-leading contact lens. But Mr Maynard emphasised to them that they were in a minority position in terms of their shareholdings and that the deal involved him and Mr Wells giving various warranties and undertakings which they did not have to give. He thought that helped them to accept what they were offering them in a way which allowed them to save face. In his mind it was also relevant that whilst they were not motivated to sell in the same way as Prism, these individuals did want to share in the value of the company by selling their shares. If he and Mr Wells were to say no to the deal, he expected that they might have questioned whether they would ever sell. Accordingly, he and Mr Wells had a strong bargaining position. Although it was a difficult meeting, they agreed to what was offered. The documents were duly signed and exchanged. (2) At a meeting in Jersey which took place probably a week or so after the factory meeting, Mr Erard raised the argument that it was not fair that he and Mr Wells were getting a higher price per share than he was. But that was the deal that was on the table and it was made clear that they would not be forced to enter into it. In the end, everyone accepted it and the deal was done. (3) In effect, he and Mr Wells knew that they (including Mrs Maynard) had a better bargaining position as against all the other shareholders. He believes that the other shareholders recognised that too. The minority shareholders’ exit depended on them selling. There were various differences to the commitments they were making to CV in the form of warranties and they were also deferring some of their purchase consideration due to escrow arrangements. They of course emphasised those differences. However, in the end, it was a simple matter of other shareholders, for whatever reason, being prepared to accept the consideration they were being offered. (4) Neither he nor Mr Wells received the consideration as a result of a prior understanding of any sort with any other shareholder, nor any particular good feeling towards them by the other shareholders. Nor was it tied to them agreeing to serve the buyers of the business in any way. The difference was the product of hard fought negotiations between a number of independent parties, each trying to maximise their own position. In the event, Prism were very happy with the deal they obtained (as set out above).

222. In some of the correspondence there are references to a “value transfer” or “transfer of value” from the minority shareholders to the majority shareholders. Mr Maynard said that was used as a shorthand label for the financial value of the “discount” (as against a pro rata division of the sale proceeds) reflected in the specific allocation of the sale proceeds that they negotiated with the minority shareholders in respect of their shares. He said that in substance there was no value flowing from the minority shareholders (or the other majority shareholders) to him Mr Wells and Mrs Maynard. The amount they received was the product of them stating to CV and to the other shareholders the consideration they required if the sale was to proceed. That was what their shares were worth and what they were able to sell them for. 24 to 30 June 2014 - Tax indemnity for Mr Wells

223. On 24 June 2014, Mr Golden wrote to Mr Finn and Mr Ricupati about Mr Wells’ personal tax exposure on this deal: “Apparently, he remains very unsettled with the strength of his EY advice which he reiterated to Al again today…Is there any way we can provide him some comfort on his tax condition through you and MB… However, in talking with Agostino, the Chapter 3D, Part 7 risk is probably the most concerning because Alan’s Jersey residence is not a safe harbor. It appears thought that that part of the tax code is the least likely to be triggered as it was meant for stop-loss situations. Plus, to challenge the individuals’ position of receipt of “open market value,” the HMRC would have to argue that the individual sellers’ negotiations with the institutional investors, not those with us, were not arms-length. From our view, the negotiations Alan had with the institutions were hard fought and the parties strongly dislike each other. This would seem to demonstrate fair value at arm’s-length . ……if there’s a manner to ease Alan’s concern, we should consider it.” (Emphasis added.)

224. On 25 June 2014: (1) Mr Ricupati emailed Mr Finn and asked: “What is your realistic view on Mr. Wells’s exposure?”. Mr Finn replied: “I think there is a medium level risk for him – I would not put it lower than that. I’m not sure how that equates in percentage terms, but less than 50pc but at least a 20pc risk I would suggest I spoke further with MB earlier this afternoon. There is no suggestion coming from anyone that things could be done any better and although Alan appears to be waivering on this the latest intel I have is that he appears to be satisfied that all that can be done has been done. (2) Mr Ricupati replied: “Forgot to mention that I had told Randy that the risk was around 30%, glad to see that you are on the same page.”

225. Mr Ricupati said in his witness statement that (1) after receiving the final valuation letter on 20 June 2014, the PAYE issue was resolved in his mind, (2) later he heard whispers, before the email of 24 June 2014, that Mr Wells was complaining about his tax position. On 16 June, Mr Wells said in an email that he was “confident” but that his advisors had not been able to give him “absolute certainty”. He wondered why he was complaining, given the advice that had been received, and investigating what they could do to provide him with comfort, and (3) at the time he was unclear on Mr Wells’ own personal exposure; his focus had been on the question of whether there was an obligation on the company to operate PAYE. He recalls giving some thought to Mr Wells’ exposure in the context of considering whether they could provide reassurance to him. He remembers believing that Mr Wells had some risk and he expects the 30% number was his way of expressing that. Based on that, he believed they had done all they could to help Mr Wells given that he was seeking absolute certainty. That is not an easy thing to give in the tax context.

226. We note that (1) Mr Finn’s view of the risk regarding the PAYE issue was brief, high-level and not accompanied by any reasoning, (2) it is clear from the communications set out below that at this time Mr Ricupati was aware that he needed specialist employment tax advice, and (3) whilst he did then ask EY CV for advice from specialists there is no evidence that he obtained substantive advice, as regards the correct analysis.

227. On 27 June 2014, Mr Wells (via his PA) wrote to Mr White requesting an indemnity against income tax liability arising in respect of the consideration he received for the sale of his shares. He stated: “…extremely late tax advice from our tax advisors has added to my frustration and concerns. This in turn has meant that the minimum target I set myself (in terms of money for the business) has been gradually chipped away… I do need your help in addressing the risk balance…I understand that part of the requirement is that [EY] send CV a letter relating to a particular tax issue and that letter has stated that in their opinion no PAYE is due to the IR. John and myself in turn are required to give tax warranties that in the most unlikely event (judging by the letter and [EY’s] advice) tax is due that we will pick up any PAYE tax due. That is the one area where the risk is too imbalanced and therefore in order to complete the deal we need to address it…”

228. Shortly after, MB sent to LW a side letter which provided for CV to indemnify Mr Wells, Mr and Mrs Maynard in the event that any part of the sale consideration was or was to be regarded as employment income for UK tax purposes. In their witness statements: (1) Mr Wells said that despite this very strong advice from EY Sauflon, he felt that he wanted to cover off even “a slight outside risk” that things could go wrong and he knew that he could as they were in such a strong negotiating position given they had been approached by one of their competitors to buy the appellant. He told CV of that approach and said that he was prepared to go ahead with the deal with CV because they were so far down the line, as long as they satisfied him with an indemnity. He said that CV knew that he did not really necessarily want to sell. He added that they had a good team around them to advise them. They took advice from EY and he had a lot of respect for Mr Kilshaw. EY looked at the employment-related securities point and said that in their view there was no issue but there was an outside risk. He took the view that if he could get rid of that outside risk then why wouldn’t he do so. That is why he asked for the indemnity letter. (2) Mr Maynard said that before receiving the written advice (on 17 and 20 June 2014) Mr Kilshaw had explained to him and Mr Wells that “there was a possibility that our share of the sale proceeds could be subject to income tax if they were employment-related securities, but he reassured us that those rules would not apply in this case”. Even though they had been advised in writing by EY that they would expect to be successful in any dispute with HMRC (and the risk was described as “extremely remote”) EY could not give them a guarantee to that effect. Mr Wells perceived there to be a risk and he did not want to take it on. He was satisfied by Mr Kilshaw that the risk was so remote that they should not have to worry about it. Mr Wells took it much further than he would have done in requiring the indemnity: “It was Alan exercising ultra-caution, as far as I was concerned.” Mr Ricupati’s report to management

229. Mr Ricupati said that he received this news of Mr Wells’s request “shortly before boarding a flight” and that the day this happened was “a bit of a blur” to him. Everyone was suddenly looking to him for a view on his exposure so that the deal team could put a figure on the possible value of the requested indemnity. This is the first time they had to focus on Mr Wells’ personal risk in earnest and he was scrambling to find all the information he could from old e-mails whilst he was on this flight.

230. He accepted that when this indemnity was requested, he did not seek to revisit the PAYE issue but rather set about feeding into the cost/benefit analysis that the deal team carried out to assess whether to accede to the request for an indemnity. He did not accept that the fact that Mr Wells raised concerns and made this request was a further reason which should have caused him to revisit the PAYE issue and seek his own specialist employment tax advice or revisit the EY Sauflon advice.

231. Before Mr Wells requested the indemnity Mr Ricupati was asked to report to his senior management on the PAYE tax exposure as a result of the concerns that Mr Wells had raised with Mr White. In his report of 27 June 2014 to senior management Mr Ricupati’s comments include this: “ …Greg has asked me to summarise...and quantify the Employment Tax issue...that is causing Target’s shareholders to ask for further reassurances. The majority shareholders are individuals who reside in the UK except Mr Wells who moved his residence to Jersey a few years ago in anticipation of a possible divesture of his investment. In light of that, it would be reasonable to assume that Mr Wells is seeking to fully escape UK taxation… Target engaged E&Y to prepare a technical memo and also to provide a letter (to TCC) stating that it believes that the value attributed to the shares of the key shareholders is based on an open market valuation and that it should not be tied to past employment or future conditions. However, the memo concludes that there is only a “tenable” position that market price was paid to the shareholders, hence, PAYE should not apply. Clearly, “Tenable” (able to be maintained or defended against attack or objection) is not a strong endorsement of the conclusion reached, but this matter is fairly complex for any firm to provide a higher level of assurance… [He set out a summary of the risks with quantification which seems to be based on what he had received from Ms Cooper.] …If we cannot agree with Target on what the best protection mechanism is, we could potentially seek HRMC clearance on this issue and bring certainty to both sides. Clearly, in doing so, we are increasing the risk of paying such taxes but it is a risk that it is out there already. It is hard to speculate in regards to the risk level, the detection risk is probably lower than 50% but higher than 20%. Those percentages are pure speculations and should only be considered as such.”

232. Mr Ricupati was questioned about this: (1) He accepted that he knew that Mr Wells’ primary motivation throughout was to pay no UK tax on the disposal of his shares. He did not accept that he knew that the adoption of the revised two agreements structure was driven solely by that motivation. He said that had a broader scope; it was not just to satisfy Mr Wells’ wishes. The advice from EY Sauflon was that it would reduce the risk profile of the entire transaction. It was put to him that the advice was given to Mr Wells in his personal capacity. He said “there is no such thing as personal capacity. The SPA is…between the two companies. Mr Wells is part of the shareholders and part of the transaction”. He accepted that the appellant did not instruct EY Sauflon until after the advice had been given to Mr Wells, and they were only instructed on 11 June 2014 as part of implementing that restructuring advice. (2) He said, in effect, that in his report he only relied on the memo because it contains more details and the technical analysis which the valuation letter did not contain. He accepted that he knew that the memo only referred to the market value argument as being a possible argument. He said this was just an update and a snapshot of the situation at this point. This was not the conclusion of the due diligence process or of the communication from management. He did not accept that (a) he did not refer to the final valuation letter because he knew he could not reasonably rely on the opinion in it. He said he just used the memo as a more comprehensive document to provide more background as an update to management; it was the main source of information. He added that he had no obligation or no concerns about sharing the letter. It was just that this email was based on sharing the contents of the memo, and his thought as of a specific day, and (b) he did not base his view on the final version of the valuation letter because that letter was obtained solely for the purposes of being shown to HMRC if the matter was enquired into.

233. Mr Golden responded on 27 June 2014: (1) He said that the timing was appropriate “as we are now dealing with a surprise” that Mr Wells had now asked CV to indemnify him and Mr Maynard for their personal tax exposure. Mr Ricupati did not accept that this should have set alarm bells ringing. (2) Mr Golden asked him“is the handicapping of 50%-20% the risk of HMRC initiating an investigation or of an ultimate finding that the excess consideration was income and not capital gains?” When it was put to Mr Ricupati that this referred to what he said in his report about the “detection risk”, he said: “ We were just looking at the risk profile of the transaction. If you want to call it detection risk, it’s not at this point we were dealing with this and we were trying to understand what the potential exposure was to Mr Wells and the Maynards because they were asking for an indemnity letter and our job was to understand their concern, assess it and quantify the exposure.” (3) Mr Golden then said: “We are trying to get as much colour as we can on the likelihood not just of HMRC challenge but of reversal of the capital gains tax treatment by Alan and Maynard” and: “Obviously, this presents a big, new wrinkle we need to address and throws everything uncertain again.” (4) Mr Ricupati accepted that Mr Golden plainly wanted to know the merits of the market value argument. It was put to him that Mr Golden was asking him to revisit the PAYE tax issue. He said this is an email at a point in time, they continued to review the PAYE issue and to assess the level of exposure, to understand the multiple scenarios and that was the momentum. This was not the end of the diligence process. At this point the concern was raised and it was addressed in the following days and weeks. They continued to review the advice and the quantification of the risk. In light of the overall evidence, we do not accept that Mr Ricupati and his advisers carried out any substantive analysis as regards the PAYE issue whether in this period or otherwise. (5) He accepted that at this point there was a concern that it could jeopardise the deal if CV did not agree to indemnity as Mr Wells might start speaking to other potential buyers. He said for CV this was another item of due diligence that they need to investigate and assess in a commercial transaction to see if it was worth taking this risk. That is what they did at the time - on the basis of the opinion of EY Sauflon that PAYE was not applicable. He seemed to accept that he and CV were under pressure to close the deal quickly given the concern about Mr Wells. He said: “That is a risk in all acquisitions. You close the deal as soon as you can to make sure that the deal is closed. That is pretty standard practice in the commercial negotiation of deals. You just try to close as soon as possible. We were all ready to send documents. This kind of reopened the door but we took our time to identify the issue, quantify, communicate to management in the commercial organisation if they want to take the risk…we took our own time to do that. And when we did, then we communicated and the deal closed. So if you want to say we were under pressure, that is your opinion. We continued our process as a normal due diligence process.”

234. Mr Ricupati responded to Mr Golden also on 27 June 2014 : “In regards to the likelihood of Mr Wells to be liable; we need to go back to the employment specialists and ask a frank opinion . I will take the E&Y side if you want to tackle the Latham side” (emphasis added): (1) When it was put to him that this shows that he was expressly asked to revisit the PAYE tax issue, he said again that the due diligence was on-going and an issue is not resolved until it is concluded, until the deal is closed. So “we went back to try mainly to quantify the exposures because we are trying to figure out what this is worth”. He did not accept it is clear from this that (a) he was not satisfied with the valuation letter or the memo and did not feel able to rely on them when asked to give a view to his senior management, and/or (b) he did not think that EY Sauflon had provided a frank opinion in those documents. He said that his comment in the email does not mean that he thought the opinion was incorrect. He was just saying they should go back and ask again, which is part of the review process. This is exactly what he is supposed to do: look at the advice, critique, and if he has issues of concern, raise it with the adviser so they could respond, (b) so asking for further advice or a frank opinion is part of the due diligence process: “I reviewed the opinion, I addressed the developing facts, such as the request for certain items, I went back to the adviser discussed it, we quantified and then we concluded that the opinion stands and we move forward”. (2) He did not accept that given the increased financial risk to CV he did not feel able simply to rely on the valuation letter and/or memo. It was put to him that in fact he did not raise any further questions or seek any further clarification from EY Sauflon. He said he did not recall exactly what he did on the day. They went back to EY and it was discussed and the final letter was issued with the language that made sense. So, this event is mainly a quantification exercise because “we owed a responsibility to management and the board that if we have taken on a risk, we need to understand what the risk is…”. He said that they already had sought specialist advice and the point was mainly to quantify the exposure to report for management purpose as Mr Wells asked for an indemnification. He was asked to provide his thoughts and quantify because they needed to report back to the board if they wanted to take on this risk, as with any other risk that is addressed in due diligence.

235. On 27 June 2014 Mr Ricupati also emailed Ms Cooper at EY CV and asked “ is it possible to get a frank opinion from your employment tax team on what is the likelihood that we would lose if HMRC contested the position and what is the likely outcome (60% of the excess distribution)?” (emphasis added): (1) It was put to him that it is clear from this email that he knew that Ms Cooper/the international team were not able to provide the specialist employment tax advice which was necessary for him to be able to reach an informed view. He said again that (a) his consultants were the firms (EY and LW) and his request is part of the standard process. It is the firms’ responsibility to make sure that the proper resources and the specialists are allocated, and (b) he cannot speak to 50/60 people: employment specialists, payroll, commercial, legal. CV hired the firms and they have the specialty regarding PAYE. (2) It was put to him that the fact that the Chinese wall was still in place was a problem as it would limit Ms Cooper’s ability to get the specialist advice. He said his EY team and LW had their own specialist. He noted that in Mr Wells’ statement, he clearly says that he thought the risk to himself was remote, almost zero, but due to his age, and his health problems, he wanted absolute certainty and that is why he asked for indemnification. This did not change the collective opinion and the strength of the opinion. This is a quantification exercise because, “even if you think that the risk is zero or minimal, you still have to quantify it because that is what is done in due diligence, to allow the board and the executive team to say: yes, we will take this risk. No one thought that the risk was any more than remote”.

236. On 28 June 2014, Ms Cooper sent two emails in response. (1) In the first she said: “DRAFT worst−case exposure ... based on the allocation of consideration circulated on 19 [June]... assuming the whole amount is NIC and PAYEable for Alan Wells and the Maynards (the other individuals are actually receiving less for their shares than on a strict pro rata basis now) ... Please note that the columns from J inwards haven’t been reviewed by anyone yet, but I am sharing my draft with you in the interests of time. I’m also trying to get hold of our employment tax specialists to get a steer on the likely level of risk .” (Emphasis added.) It was put to Mr Ricupati that a steer is not an opinion, at best it is an indication. He said Ms Cooper was trying to quantify the exposure and that is what she meant. She was going back to the specialist to review all the scenarios. He said that he formed his opinion based on the memo and the valuation letter, not this email. He did not know who the employment specialists were; as he had said he hired the firm. (2) In her later email she said this: “….we have calculated a most likely exposure amount of £45m (including penalties at 30%) and a 'worst case' of £81m (excluding penalties). This is significantly more than the...35.9m we estimated last week, for the following reasons: At the time we calculated the $35.9m, we hadn’t seen the allocation of consideration - we assumed that all individual shareholders would be receiving an equal portion of the £100m, and that the £100m was the total excess the shareholders would receive over the institutional investors. In fact, the current allocation shows that [Mr Wells] and the Maynards will receive £91m over what would have been the pro-rata share price - the amount they will receive in excess of the institutional investors is significantly higher (c195 m for those three; 204m total for the individuals)…” (3) It was put to him that it is clear that EY CV only had limited information on 19 June 2014 when the memo and the valuation letter were being considered. He said that (a) the opinion does not need to get into this level of detail of who was getting what, whereas (b) this was a quantification exercise and they went back to make sure the quantification was correct. There were two different processes. EY Sauflon had information when they wrote the memo and the valuation letter. This is a separate concern; a quantification exercise for management purposes. It was put to him that when he and EY CV were considering the EY Sauflon advice it was relevant for them to know the size of the difference in value of the price per share. He said that EY Sauflon was aware of those details and this is a different process as a quantification exercise. This is trying to figure out “what it is in case we need to operate PAYE. There are two different things; they are related, but two different things”. (4) He accepted it is clear that Ms Cooper/EY CV was surprised by the size of the difference in price per share as it was significantly more than she had understood the position to be a week previously. He did not accept it was news to him. He did not directly answer if he knew the size of the difference before he received this email. He said again this is a separate issue than that dealt with in the memo and valuation letter. This correspondence shows they were trying to quantify what the exposure is: “so you get to a different level of review and assessment…This is a quantification exercise. It has nothing to do with the opinion…This is basically saying what is the risk that we are taking as a company, could we agree to this? And that is why you get to this level of details…this gets very technical…This is a pure quantification exercise. So management in a commercial organisation could look and say, “We understand the risk is remote but we want to still understand what is the maximum exposure”. That is what this is doing…we perfected a computation in about a week or three or four days, whatever. But this is two different things, and that is exactly what we are discussing here…” (5) He did not accept that it is clear from this email that prior to 27 June 2017, EY CV did not appreciate the size of the difference in price per share. He said “this is one person” or that, prior to receiving this email on 28 June 2014, he also did not know and had not appreciated the size of the difference. (6) In the email Ms Cooper said: “The qualitative analysis to get us to these numbers is as follows: • Based on the valuation letter issued to the sellers, there remains a filing position that employment taxes need not be withheld from Alan Wells and the Maynards . • There is a very high chance that HMRC will scrutinise the transaction, given the amounts involved – ie ‘detection risk’ of challenge is high. • If the transaction is audited, it is likely that HMRC will start from a ‘worst case’ position, being that the individuals’ shares (including AW’s shares) are employment related securities and that the whole excess is therefore taxable • From this starting point, the company is likely to reach a negotiated settlement, based on the arguments set out in the advice provided to the sellers and documented elsewhere (control premium etc). We have assumed 50% in the attached, for indicative purposes only. • If picked up on audit, penalties of between 15% and 100% will apply. We have assumed penalties of 30% as a ‘most likely’ outcome based on our experience.” (Emphasis added.) (7) He accepted that Ms Cooper was not giving fresh advice or her own advice in the highlighted wording above. When it was put to him that Ms Cooper did not provide an opinion on the likelihood of HMRC successfully challenging the market value treatment of the difference in value, he said it was not her job to do that. Someone else already provided a memo and an opinion. In his view, here she was quantifying the exposure. It was put to him that there is no reference to her having obtained any input from the employment tax team. He said again counsel was conflating two different processes and this was a quantification exercise: their job was to calculate the overt potential exposure under certain scenarios as regards what they would take on if they agreed to the indemnification letter, which did not require them to revisit the opinion. (8) It was put to him that he did not receive a “frank opinion” from the employment taxes team on the likelihood of the excess consideration being liable to tax, as he had requested. He said that the quantification exercise focused on Mr Wells because he received the largest share. So Ms Cooper and the CV team were focusing on quantifying the exposure, considering Mr Wells’ position. When pressed he said: “We requested someone to make sure that this quantification exercise was corrected, and that is what happened, that is what we are discussing here.”

237. We note that Mr Ricupati in effect accepted that Ms Cooper did not give him substantive advice on the PAYE issue and her advice was confined to quantification of the possible tax exposure.

238. On 28 June 2014 Mr Ricupati sent an email to Mr Golden, Mr White and Mr Mazi in which he said: “just got off the phone with EY UK, it looks like the exposure is substantially higher than what it was anticipated. Upon further review of the allocation schedule, it has been determined that the disproportionate amount is higher than originally thought I have asked EY to check those figures with Latham, I will revert back to you later today.”

239. He did not accept when put to him repeatedly that it is clear from this that he did not know until then the size of the price differential: (1) He said was well aware that there was £100 million of excess consideration and here they were taking that knowledge to a different level for a quantification exercise. This level of granular detail is only needed for a quantification exercise regarding the exposure that the company was signing on. In a due diligence exercise “you keep going to a lower level”. Both EY CV and LW were working together to quantify that. (2) He did not accept that this shows that he did not carefully consider even the limited information that was requested from EY Sauflon during the review of the advice, as, had he done so, he would have known the amount of the difference in price per share. He said that this was not the team that provided the memo/opinion but a separate team with a single task to quantify the exposure so management could decide if it wanted to proceed or renegotiate. (3) It was put to him that this reflects that when he went through the process from 17 to 20 June 2024 of changing the wording of the valuation letter, all he was concerned about was having a letter in a form that he would be able to show HMRC and he was not concerned with establishing the correct PAYE treatment. He did not answer this as such but said: “You are telling us we pretended to do the diligence just to create a charade for HMRC; that is what you are saying. And you are accusing a company in a public forum of that.”

240. On 28 June 2014 Mr Ricupati also sent some thoughts to Mr White, Mr Golden and Mr Matz, as he was travelling and so had to miss a tax call. In the email he said that when they calculated the £35.9 million, EY CV had not seen the allocation of consideration: “we assumed that all individual shareholders would be receiving an equal portion of the 100m, and that the 100m was the total excess the shareholders would receive over the institutional investors.” In this email he repeated the “qualitative” factors set out by Ms Cooper in her earlier email. (1) It was put to him again that this shows that before receiving the emails of 27 and 28 June 2014, he did not know the size of the difference in price per share. He did not answer but said again, in effect, that two different things were involved. His focus here was on quantifying this and they continued to perfect that as this email shows: “So $100 million here was then allocated more precisely. That is all that is happening here.” (2) It was put to him that when, in the period from 17 to 20 June 2004, he reviewed the memo and valuation letter, he proceeded on the incorrect assumption that all of the majority shareholders would be receiving an equal portion of the £100 million excess consideration. He said due diligence does not end until the deal is closed and he cannot “recall every little thing I knew, what day, ten years ago”. The opinion was issued by EY Sauflon and it was then perfected and reissued in August and: “This is something different. For this purpose, we needed to get to a level of detail that at the time, the EY team had not done and the others were doing a quantification exercise. Two different processes, two different sets of people, two different sets of issues” (3) It was put to him that in his email his analysis is not based on an assessment of the likelihood that the excess consideration is taxable; but rather on the basis that if HMRC challenged this, there would be a negotiated settlement. He said, in effect, that to consider what a negotiated settlement might be is standard practice “when you do due diligence. You assess your risk and then, okay, is there a scenario where settlement could come out and that is just a speculation of what could happen in the future. Just for quantification purposes.” (4) He was asked if this was all for the purposes of a cost/benefit analysis of weighing the potential tax cost against the financial consequences of losing the deal. He said: “This is a quantification or the potential exposure including scenarios where there would be a negotiated settlement.”

241. On 28 June Mr White updated various persons at CV including Mr Ricupati. He said: “….Agostino is summarising the risk and will circulate it in a separate email. Based on the latest information the risk is slightly less than $100M in a 'most likely worst case scenario'. That’s obviously strange wording but more info will follow… Brad Wells and John Maynard had a meeting with Alcon… Alan [has] said he’ll stick with our deal if we can get the tax issues resolved in the next few days ... Given I’m comfortable paying upwards of $1.5 B for this deal I strong believe we should accept this tax risk and close the transaction. I believe we should attempt to negotiate today and tomorrow to try to get as much protection as possible but get it done with a Monday signing and announcement.”

242. It was put to Mr Ricupati that this shows he and the CV team were under time pressure to get the deal done. He did not answer this. He said (1) initially that was not for him to decide. His job was to quantify the exposure and provide it to management for them to make the decision. After the quantification exercise and the discussion about the risk profile Mr White made the decision to continue, and (2) this had nothing to do with the opinion from EY not to operate PAYE; it is a quantification exercise. It was provided to Mr White for management to decide if they were going to take the risk. The pressure has nothing to do with that - they just finished the computation. When pressed he said essentially the same things. He accepted that there was nothing to stop him obtaining specialist employment tax advice after the deal was signed.

243. Mr White also sent an email on 28 June 2014 in which he reported back on the tax call which Mr Ricupati was not able to participate in. He said: “Latham is preparing a counter-memo where we accept the tax exposure of Alan and John on the extra compensation they are receiving. We will be extremely clear about the details. We’re targeting sending that to them tonight subject to everyone’s review. From an exposure standpoint, there’s no perfect answer. Based on the facts for this tax exposure, best guess is somewhere around: What are the odds the HMRC evaluates this transaction - 100% given its size. What are the odds the HMRC evaluates and challenges this transaction - probably a 35% chance. What are the odds that HMRC evaluates the transaction, challenges it and once completing its investigation, decides against us - again, probably around a 35% chance. If the HMRC does investigate it, and does decide against us, and we go to settlement discussions, what’s the 'most likely worst case” - 45M pounds Given all this, we’ll work towards finalising the deal tomorrow and signing very soon.” (Emphasis added.)

244. It was put to him that a best guess is not a reasonable basis for an employer to decide whether or not there is a tax liability in respect of which they ought to operate PAYE. He said Mr White “is not a tax person; he was the chief strategic officer” and he summarised his view. Again, he said this was a quantification of exposure which had nothing to do with the opinion provided by EY Sauflon that the appellant should proceed not operating PAYE because it was a market value transaction and that was the best estimate of the market value at the time.

245. When it was put to him that there is no reference to the valuation letter in any of the communications of 27 and 28 June 2014, he said: “Do we need to formalise in an email that we are following that advice…that should have been captured on email and saved for HMRC for later use?...The memo is there, the advice was there, it has been reviewed by myself and my standard consulting team and we followed E&Y advice which is clearly stated that this was a market value transaction and PAYE was not to be operated.”

246. It was put to him that after the final valuation letter was received on 20 June 2014, he did not obtain any further or any specialist employment tax advice on the PAYE issue. He said that if there was something to be changed, it would have happened before the deal closed and that the opinion was reissued in August 2014, with the same position: “So, again, we are looking at a sequence of events that eventually culminated in the final issuance of the opinion letter which the company and myself have relied on.” He then said that there was no additional official memoranda but that does not mean they did not look at this again. In his view, there is no other official documents because the opinion was valid and they relied on it

247. There was a further chain of emails on 29 June 2014: (1) An email from Mr Golden in which he said: “Sean [Finn] mentioned that you and EY may be visiting excess deal consideration to Alan and the Maynards for non-competes to mitigate potential tax exposure (for Alan). It would be difficult to introduce this change now, but was there any outcome or conclusion that this is something we should explore.” It was put to him this shows that there was sufficient concern about the PAYE position that even at this late stage, consideration was being given to reverting back to the original structure. He said: “you continue to look at the structure of the deal to continue to improve it and minimise tax risk. This was a conversation, a discussion if there was any need to change the structure and the conclusion there was not. This is again how due diligence operates. You continue to look and to structure the deal, not just in this case, in any case…to make sure you have optimised your position. There is nothing sinister about this. This is basically the company, the advice is looking and saying is there something else that should be changed, and the conclusion is there was not.” (2) A response from Mr Ricupati in which he said: “I am not aware of us changing anything. It was mentioned…as a defence mechanism we could take different approaches but no one was contemplating changes to the spa. Let me know otherwise.” (3) A reply from Mr Finn copying in Ms Cooper: “To close the loop on this we had a brief discussion at the weekend with EY. Given that the income tax risk on the 'excess' purchase price element reverts to CV, there was a suggestion that we should perhaps reconsider the original proposal which was to make payments for restrictive covenants/non−competes. These would certainly be subject to income tax and NICs for the Maynards (and of course they would expect to be paid whole for any taxes) but my understanding is that [Alan Wells] would have a better argument that these payments would not be subject to income taxes/[NICs] ... So the trade-off would be a certain immediate cost and a lower ongoing risk for [Alan Wells]... vs taking the future risk on the current structure. However, given that there would need to be changes to the SPA and essentially a reintroduction/negotiation of this with the Maynards and [Mr Wells] ... it would obviously add delay and process. I’ve copied the EY team who may want to add something.”

248. As regards this correspondence: (1) Mr Ricupati confirmed that these discussions had taken place without his knowledge but said he was updated in this email. He was reluctant again to accept that this shows that the team were under pressure to close the deal. He said “this is just a simple, additional step in assessing until the last minute the structure of the deal. This was given consideration and it was passed on, like we passed on other structures, other changes and everything else. This is what a consulting team does, it continues to review the structure and provides advice, alternatives…it is just part of the due diligence process so that the teams continue. That is what they get paid for.” He accepted that at this point reverting to the original structure was not simply part of the due diligence; it would be a fundamental change. He added this was just a brainstorming exercise. It was brought up and everyone moved on. He did not accept that everyone moved on because there was no time to revert to the original structure. He said EY’s position never changed during the process. Those are just additional thoughts given to potentially improving or addressing issues. The EY advice always remained firm and has never changed. This is just “a last minute thought if there was something that could be done to improve the structure…this is standard process in any due diligence. You continue until the last minute to incorporate any last information that you have received”. (2) It was put to him that he received no further advice from EY employment tax specialists after 20 June 2014. He said: “That is exactly my point. The opinion was crystallised on June 20 when we received the final opinion letter and it was issued under the name of the company on August 20.” (Emphasis added.) (3) He did not accept that this shows that even at this stage the advisers had serious concerns about the PAYE position and it should have prompted him to revisit the PAYE question after the deal was signed. He said: “This is not how due diligence and how the real world operates…you analyse…you make a conclusion and you continue to see if you can improve things.” He said the EY Sauflon advice was issued in August, it was followed and there was no indication that they should revisit the opinion. This is just additional information, additional things that were done for a quantification exercise. The opinion stands as it was. “We had no reason to doubt that opinion and we followed that opinion. This is how things are done. The opinion was clear: no PAYE should be operated for the reasons that are given in the memo and the annexed opinion letter. We had no reasons to doubt that opinion and we proceeded accordingly.”

249. He did not accept that for all of the reasons counsel had put during his cross-examination, if he had been acting reasonably, there were a number of reasons why he should have sought his own specialist advice and/or raised further questions in order to be able to reach a conclusion as to whether or not PAYE should be operated on the excess consideration. He said: “We had our own advice. We had a memo we followed. Since when it’s not reasonable to follow an opinion from a Big Four firm supported by one of the largest law firms in the country?...this is just because you are limited in your world and you are disconnected from how things work. A reputable firm gives you an opinion. The opinion was reviewed by my team, including Latham. We relied on the opinion. We had no reasons to believe their opinion is not to be followed.”

250. It was put to him that there is no evidence that his advisers gave him advice on the PAYE issue. He said that “there was a point of communication and discussions. It doesn’t have to be a formal advice”. He added that they reviewed the advice of EY Sauflon. He did not accept that if Mr Finn or Ms Cooper had provided him with advice on an issue that gave rise to such substantial tax exposure, that advice would be documented. He said the memo was reviewed by the collective team, they agreed with the conclusion of the memo, and “if someone was uncomfortable with the EY opinion, that would have been raised. If you are following advice and reading advice and you agree with that advice, that’s as simple as that”. When it was put to him that if those parties had given undocumented advice on the PAYE issue they would have been called to give evidence, he pointed out that Ms Cooper is deceased but said that anyway they did not believe that that was needed. In his view the evidence is in the email flow that shows the teams have reviewed and critiqued the advice.

251. He was taken to correspondence of 25 June 2014, in which he asked Mr Finn what his “realistic view” was on Mr Wells’ exposure and his response that he thought “there is a medium level risk for him - I would not put it lower than that. I’m not sure how that equates in percentage terms, but less than 50pc but at least 20pc risk I would suggest”. When it was put to him that Mr Finn is not an employment tax specialist, he said he is a tax attorney and is knowledgeable and is backed up by the LW firm.

252. He was taken to emails of 28 and 29 July 2014, between Ms Cynthia Wallace (the director of legal services and compliance), Mr Mark Drury (assistant general counsel), Ms Amy Kurokawa (tax counsel), and Ms Cindy Buckley (legal in the UK): (1) One of the questions Mr Drury asked was: “how do you feel about the tax side letter not being reviewed by the CVHL board? I’m guessing that is something that Lathams feel we need approved at the CVHL level, but Agostino would really like to see it left out of the meeting if possible.” (2) Mr Ricupati said that he took this view at the time as: “those are complicated tax matters that we typically do not bother the board level to discuss. There was no financial consequence for this. There was no financial accrual for this. It had no impact over our P&L. We keep things simple for the board and that is the reason. Again, in the real world, you limit the information given. You keep simple. You make sure that you don’t overburden the board with information and this is a specific tax issue that really had no financial consequence for the company.” (3) He was asked how it could have no financial consequence given that CV was to provide an indemnity for a very substantial tax liability. He said: “there was no immediate financial consequence” and this was “a future risk that had no impact to the board at the time”. He explained that there are different levels of board: the discussion of the side letter happened at the TCC board with the executives. “What happens at the statutory level, it’s much simpler and much more restrained”. He said he did not know if this board was the board that approved the signing of the deal/the closing of the transaction. He noted that he was not included in any of those emails. (4) He did not accept that he wanted the side letter not to go before the board because he knew that if the board saw it they would ask questions about the PAYE issue, given the potential tax exposure. It was put to him that he was worried that they would not be happy to simply proceed on the basis of a best guess and he knew they would have wanted him to obtain his own specialist employment tax advice before proceeding with the signing of the deal. He said: “Keep in mind Greg Matz was part of the board and he was part of this process and he was aware of everything that was happening”. It was put to him that that would have delayed the signing which the deal team wanted to sign immediately. He said that the board knew about it because Mr Matz was a director and CFO of the company at the time. He did not accept that this demonstrates that he knew he could not reasonably rely on the valuation letter. It was pointed out by Mr Jones that the side letter is signed by Mr Matz and Mr Golden. Mr Ricupati thought Mr Matz was a board member of all of the companies. Section 3 – Conclusion on the valuation issue

253. For the reasons set out above and here, our view is that, as HMRC submitted, on the basis of the caselaw, the appellant’s approach to an assessment of the market value of the shares at the relevant date under the market value test is incorrect. In circumstances where the sellers of a company divide the sale proceeds between them by agreement amongst themselves, (1) it cannot be said that, in the negotiations between them, one seller is “acting like a hypothetical buyer” of another’s shares for the purposes of the market value test in TCGA (or of the International Valuation Standards which Mr Weaver gave evidence on), and (2) in fact such evidence as there is shows that the selling shareholders did not act as a hypothetical willing seller and buyer in the open market may be expected to act. On that basis, Mr Weaver’s evidence is irrelevant given it is premised on the basis adopted by the appellant. Moreover, even if, contrary to our view, the appellant’s approach is permissible, as HMRC submitted, there are a number of difficulties with Mr Weaver’s evidence as set out in the appendix.

254. Precisely how and why the allocation of the overall price for the shares in the appellant was agreed between the selling shareholders is not clear given that (1) we only have Mr Wells and Mr Maynard’s account which is not supported by much documentary evidence, (2) some of their evidence as to why the other sellers agreed to the price differential is speculation on the intents and thought processes of the other sellers, and (3) the position as regards the minority shareholders can at best be described as confused given that for some time they were presented with a justification for the price differential which was not based in commercial reality. However, on the evidence, the only factors which it is clear were considered as part of the negotiations between the selling shareholders as regards the allocation of the price between them are not matters which would be material to a hypothetical purchaser who is focussed on the nature of the asset acquired, in this case, the rights attaching to the shares acquired in the appellant.

255. In forming our conclusions, we rely on all the circumstances set out above, but in summary we note, in particular, that the evidence establishes the following: (1) CV was only interested in acquiring all of the shares in the appellant. Throughout Mr Wells and CV negotiated for the purchase of all the shares in the appellant for a single price. The minority shareholders and other majority shareholders did not have any direct contact with CV as regards the price negotiations and subject to one email were not aware what information passed between CV and Mr Wells as part of the negotiations. (2) By the end of May 2014, Mr Wells had agreed with CV an overall price for all the shares in the appellant of around £665 million (subject to the adjustment regarding the debt position). We do not accept that, as the appellant submitted, as part of that, these parties had also agreed an indicative price of around £430 million for the shares of Mr Wells, Mr and Mrs Maynard. CV were aware from Mr Wells what he and Mr Maynard sought to achieve for themselves in the negotiations with the other sellers. That is apparent from the fact that CV assisted them in their negotiations with the minority shareholders by agreeing to include the “forward-looking warranties” in the offer letters produced in May 2014. However, there is no evidence of any agreement of a price of around £430 million with CV. Moreover, that there was any negotiation/agreement to that effect is counter to the clear evidence referred to in (1). (3) The negotiations with the minority shareholders took place from February 2014 (in earnest from around late May 2014) until around 17/18 June 2014 (although Mr Maynard suggested at one stage they may have concluded earlier on 10/11 June 2014): (a) Mr Maynard’s and Mr Wells’s evidence was that they always intended that, on a sale of the appellant, Prism and Bond should get a lower price per share than the majority shareholders, as they were investors who had bought into the business at a very late stage and, in the case of Prism, had been very obstructive in particular as regards the expansion into the US. That this was their stance and that Prism and Bond were prepared to entertain it is backed up by the fact that as regards the earlier possible sales of the appellant there were discussions for them to receive significantly less than a pro rata share of the purchase price. (b) It was part of the negotiation with Prism that Mr Maynard and Mr Wells should benefit from the fact that the value of the appellant had increased significantly as a result of the US expansion, which Prism had attempted to block. Mr Maynard accepted that this was his view at the time. (c) Mr Maynard and Mr Wells presented the deal to Prism and Bond on the basis that if they did not want to do that deal then they would not sell. They worked together and considered this gave them a strong position. Mr Maynard considered that everyone was aware that he and Mr Wells had the dominant position in the negotiations by virtue of their majority shareholding and their ability not to agree to a sale unless the price was right for them. It is plausible that, as Mr Maynard said, Prism were conscious of the breakdown of the sale to Bausch & Lomb in 2012 due to Mr Wells walking away from the deal. It is speculation, however, as to how much of a real threat Prism considered that to be in this case and hence what role that factor played in the negotiations. (d) Mr Maynard and Mr Wells thought their position was also strong because Prism were extremely keen to sell and they were not. The evidence that Prism were motivated to sell is plausible as Prism had a timeframe for an exit due to the closure of the fund and in early 2014 Prism had looked to sell its shares separately for around £41 million to £55 million (which was based on 8x and 10x EBITDA respectively). On the basis of that evidence it is also plausible that as Mr Maynard said, it was likely that Prism thought that it would get much more for its shares if they were sold as part of a sale of the appellant as a whole, as opposed to them being sold in isolation as a minority block. Mr Wells and Mr Maynard were willing to sell but only if the price was “spectacular”. They considered that the price differential was the price the minority shareholders had to pay for them to agree to the deal. (e) The only documentary evidence of what was discussed in negotiations with the minority shareholders relates to the use of the “forward-looking warranties” in the negotiations. The evidence is that these were inserted into the deal structure and were set out in the offer letters from CV at the instigation of Mr Maynard and Mr Wells purely to convince Prism and Bond that there was a justification for the price differential. In fact CV had no commercial interest in obtaining these warranties (except it seems as regards the “non-compete” provision). Mr Maynard put this justification forward at the meeting with Prism on 27 May 2014, the offer letter was sent to Bond on 28 May 2014 and he, in effect, instructed Rothschild to continue with that stance in the negotiations on 4 June 2014. The “forward-looking warranties” were dropped from the deal on 10/11 June due to tax concerns and the two agreements structure was adopted as advised by EY Sauflon. Mr Maynard said that Prism were not convinced by the “forward-looking warranties” anyway so by this time they were in any event not of any use. This aspect shows that the price eventually agreed by Prism and Bond did not result from wholly genuine negotiations. CV and Mr Wells (with Mr Maynard’s help) had collaborated to present the minority shareholders with misinformation regarding the allocation of a portion of the price to the “forward-looking warranties”. We note also that whilst those “forward-looking warranties” were subsequently removed from the transaction structure, the basis for the allocation of the purchase price was not revisited. (f) There is no material documentary evidence of what was discussed in the period from 4 June 2014 onwards. From Mr Maynard’s and Mr Wells’ evidence it appears that they then sought to use the fact they were giving warranties and guarantees albeit they were much more limited than the “forward-looking warranties”, which Prism were not required to give, at least as partial justification for the price differential. (g) Mr Maynard accepted when it was put to him that as part of the agreement regarding the allocation or division of the sale proceeds, he and Mr Wells agreed to discontinue the legal proceedings they had started to take against Prism. (h) We accept Mr Maynard’s evidence that it was not easy to get Mr Carter and his colleagues to agree to the price differential and that negotiations were difficult. That is plausible in light of the strained relations with Mr Carter/Prism culminating in a legal dispute and that they involved Rothschild/MB in the negotiations. However, that of itself sheds no material light on Prism’s reasons for agreeing to the price it eventually received. (i) On Mr Maynard’s evidence (a) negotiations with Bond were more straightforward, they were not lengthy, detailed or complex, (b) as Bond was not a secondary financing organisation, it was not motivated to sell in the same way as Prism, and (c) Bond essentially followed Prism as lead investor and apart from suggesting late on that they ought to receive more than Prism, they accepted that this was a good opportunity to sell their shares at way above what they had subscribed for a year before. (4) The evidence as regards the negotiations with the other majority shareholders which took place from 19 June 2014 onwards is that (a) Mr Maynard presented the price he and Mr Wells had agreed they were to get as the price they would have to accept only a day before the meeting with them on 19 June 2014 and they did not realise the differential until he explained it to them at the meeting, (b) they were initially of the view they should get the same as Mr Wells and Mr Maynard but were ready to sell once they saw the money they could get, (c) Mr Wells and Mr Maynard put to them that they had to give guarantees and warranties in relation to the business which the other majority shareholders did not have to give, (d) he thought they were influenced by the fact that if Mr Wells were to say no to the deal, they might have questioned whether they would ever sell. In effect he and Mr Maynard had a better bargaining position, and (e) Mr Erard objected a week later but ultimately agreed (although he complained after the deal was done as well). (5) We do not accept that, as the appellant submitted, there were three distinct sets of alliances. It is clear that Mr Wells and Mr Maynard worked together to achieve the best result they could for themselves. There is no evidence that Bond and Prism were allied as such in the negotiations albeit that Bond followed what Prism did nor that the other majority shareholders were allied with Mr Wells and Mr Maynard or between themselves. The other majority shareholders seem to have been in ignorance about the share of the pricing Mr Maynard had negotiated with Prism and Bond until 18/19 June 2014. (6) We accept that, as the appellant submitted, on the evidence the negotiations were likely to have been “hard fought”. The appellant also asked us to make a finding that each set of negotiations was conducted at “arm’s length” between parties acting independently. In our view, they were conducted on that basis only in the sense that it is reasonable to suppose that each party would have had in mind maximising their own share of the total single price agreed with CV and different reasons for the share they felt justified which may have conflicted with the view of one or more of the other sellers. However, the sellers were not wholly independent of each other, in the same way as an unrelated seller and buyer are. As they were all shareholders in the appellant, and the majority shareholders were all directors/executives, they had a relationship (in different capacities) in operating the appellant/its business which would have been on-going had the sale of the appellant to CV not taken place. As makes sense in the context of the dynamics of that relationship, and as is borne out by such evidence as there is, none of the sellers acted as a buyer of the shares would. (7) The appellant submitted that there is no evidence to suggest that there was any gratuity being offered between the various groups of shareholders, nor is there any suggestion that Mr Wells, or Mr Maynard, or any of the shareholders, were getting any kind of employment-related benefit in relation to their shares. We accept that the minority shareholders and other majority shareholders (possibly to varying extents) may not have been keen to provide Mr Wells and Mr Maynard, in effect, with an extra reward for their role as directors/managers of the appellant. However, there is evidence that Mr Wells and Mr Maynard thought that is why they deserved the price differential and that they presented it to the other shareholders at least as part of the justification for the price differential.

256. The appellant submitted that it is notable that their stance on the market value issue reflects the advice of EY Sauflon. In our view, as set out below in detail in relation to the carelessness issue, the advice provided by EY Sauflon in the memo and valuation letter is unreliable, for a number of reasons, but notably because it is based on factual premises that are not correct.

257. The factors which, as a factual matter, it is possible to identify as having had some bearing on the selling shareholders’ agreement to the price their respective shares were sold for, were all exclusively personal to the sellers, with no enuring benefit for, and worthless to, CV or to a hypothetical buyer of the shares in the appellant, from and immediately after, the purchase. In all the circumstances, we consider that it is reasonable to infer that the value of all the shares to CV, from and immediately after it purchased the appellant, viewed at the time at the point of purchase, was the same on a pro rata basis. CV made a global offer of £665 million for all of the shares in the appellant. CV did not care how that global price was divided up between the sellers; that was left for negotiation between the sellers and the factors they considered in those negotiations simply do not inform what a hypothetical buyer would pay for the shares. Hence, the only relevant evidence of the market value of these shares to a buyer is the global price paid on a pro rata basis. We accept that is the best evidence of the market value of the shares sold by the shareholders. Section 4 – Validity of the determination

258. To recap the appellant submits that HMRC has not discharged the burden of showing that the determination was validly issued under regulation 80 of the PAYE Regulations and, even if it was, it was not issued within the applicable time limits.

259. Regulation 80, under which the determination was issued, reads as follows: “80. — Determination of unpaid tax and appeal against determination (1) This regulation applies if it appears to HMRC that there may be tax payable for a tax year under 67G, as adjusted by regulation 67H(2) where appropriate, or regulation 68 by an employer which has neither been - (a) paid to HMRC, nor (b) certified by HMRC under regulation 75A, 76, 77, 78 or 79. (1A) In paragraph (1), the reference to tax payable for a tax year under regulation 67G includes references to – (a) any amount the employer was liable to deduct from employees during the tax year, and (b) any amount the employer must account for under regulation 62(5) (notional payments) in respect of notional payments made by the employer during the tax year, whether or not those amounts were included in any return under regulation 67B (real time returns of information about relevant payments) or 67D (exceptions to regulation 67B). (2) HMRC may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employer…. (5) A determination under this regulation is subject to Parts 4, 5, 5A and 6 of TMA (assessment, appeals, collection and recovery) as if– (a) the determination were an assessment, and (b) the amount of tax determined were income tax charged on the employer, and those Parts of that Act apply accordingly with any necessary modifications.” Test in regulation 80(1)

260. The appellant submitted that, by analogy with the position in relation to discovery assessments, the test in regulation 80(1) involves (1) a subjective element, whether an officer has formed the opinion that tax may be payable which has not been paid or certified, and (2) an objective element, whether that opinion is reasonable: see Jerome Anderson v HMRC [2018] STC 1210 at [25] to [30].

261. HMRC submitted that the appellant’s submissions, insofar as they seek to elide the requirements of regulation 80 and s 29(1) TMA on this issue, are misplaced. The threshold under regulation 80(1) is different from, and lower than, that in s 29(1): see Paya v HMRC [2019] UKFTT 0583 (TC) at [657] “where the tribunal said that regulation 80(1) contains its own threshold requirement for HMRC to be able to make a determination; namely, that it “appears” to an officer that there is a shortfall of tax…. it would be most odd for regulation 80(5) then to impose in effect a different threshold requirement”. That reasoning was endorsed in RALC Consulting v HMRC [2019] UKFTT 702 (TC) at [77]. Mr Nawbatt said that the determination itself and the related correspondence make clear that it appeared to HMRC that tax was payable which had not been paid: (1) The determination stated that “This determination shows the amount of tax we consider is due from you as an employer”. (2) The covering letter to the determination stated that: “Our decision is that [the appellant] is liable to pay PAYE income tax in respect of Coopervision (UK) Holdings Limited’s 6 August 2014 acquisition of [the appellant]…” (3) The covering letter expressly referred to earlier letters from HMRC dated 26 June 2020 and 24 November 2020. All three letters were written by the same HMRC officer, Balint Foszto. In the 26 June 2020 letter, the officer stated: “Upon checking your employer records and the documentary evidence accompanying your 29 March 2019 letter, I found that employment related securities have been disposed [of] ... for more than their market value. The difference between the disposal proceeds and the market value should have been subjected to income tax and NIC and returned to HMRC under PAYE in 2014-15”. (4) In the 24 November 2020 letter, following a response from the appellant, the officer stated that “my view on the securities being within the scope of the employment-related securities regime is unchanged” and, on the market value issue, concluded that: “The Articles of Association state that the shares rank equally when a Sale occurs and therefore my view remains that the shares should be valued on a pro rata basis in this case”.

262. The appellant submitted that the essential question is whether the relevant officer formed the opinion that the appellant had not made the “best estimate that can reasonably be made” of the amount of income likely to count as employment income at the relevant time for which it should have accounted under the PAYE system. This is on the basis that the obligation on the appellant to account for income tax under that system arises as follows. (1) Part 11 of ITEPA provides for the assessment, collection and recovery of income tax in respect of “PAYE income” (s 682 ITEPA), which includes “any taxable specific income from an employment for the year (determined in accordance with section 10(3))” (ss 683(1)(a) and (2)(b) ITEPA) (less certain deductions) which includes such sums which by virtue of Part 7 counts as employment income for that year in respect of the employment” (under s 10(3) ITEPA). Hence it includes income which is counted as employment income under Chapter 3D of Part 7. (2) In this case, “taxable specific income” arising under Chapter 3D is dealt with under the following provisions: (a) Section 696 ITEPA 2003 relevantly provides as follows as regards “readily convertible assets” (as defined in s 702 ITEPA) which the shares in this case would be: “(1) If any PAYE income of an employee is provided in the form of a readily convertible asset, the employer is to be treated, for the purposes of PAYE regulations, as making a payment of that income of an amount equal to the amount given by subsection (2). (2) The amount referred to is the amount which, on the basis of the best estimate that can reasonably be made, is the amount of income likely to be PAYE income in respect of the provision of the asset .” (b) Section 698 ITEPA applies, amongst other circumstances, where “by reason of the operation of…(f) section 446Y… , in relation to employment-related securities, an amount counts as employment income of an employee” on the basis that certain provisions including s 696 have effect as if “(a) the employee were provided with PAYE income in the form of the employment-related securities by the employer on the relevant date, and (b) the reference in subsection (2) of section 696 to the amount of income likely to be PAYE income in respect of the provision of the asset were to the amount likely to count as employment income.” (c) The deemed payment is treated as having been made on the “relevant date”, which in a case within s 446Y, is the date of the disposal of the securities (s 698(6)(e) ITEPA). (d) Hence, under Part 11 of ITEPA, the employer is required to operate PAYE by reference to the “best estimate that can reasonably be made” at the “relevant date” (the date of disposal of the shares) of the amount that is likely to count as employment income (see R (oao UBS) v HMRC [2024] STC 1510 (“UBS”) at [5] to [8]). The terms “best estimate” and the reference to the amount of income “likely to be” PAYE income foreshadow the fact that it is possible that the amount for which the employer is liable to account will not necessarily correspond to the correct amount of tax for which the employee would be liable: UBS at [8]. (e) There are detailed rules about how an employer who makes a “notional payment” of PAYE income of an employee, which includes a payment treated as being made under s 698 ITEPA must deduct income tax and/or account for income tax in respect of the payment (under s 710 ITEPA and regulation 62 of the PAYE Regulations).

263. The appellant submitted that there is no evidence that the officer, Mr Foszto, considered the correct issue, namely, whether the appellant had made the best estimate that could reasonably have been made of the amount that was likely to count as employment income. HMRC rely on the relevant letters and the determination as showing that Mr Foszto considered that tax was payable which had not been paid. However, that is not the question. The natural inference is that Mr Foszto did not turn his mind to the actual question and, therefore, HMRC have not discharged their burden of proof on this point (see R (oao UBS) v HMRC [2024] STC 1510 at [8] and [71]). This is not a case like that in Paya Ltd and ors v HMRC [2019] UKFTT 583 (TC) (“ Paya ”), where the tribunal was able to conclude that the determination was competent by reference to documentary evidence in the bundle. Paya did not involve consideration of the “best estimate” provisions of the PAYE Regulations, so this point did not arise in Paya . Moreover, in fact, for the reasons set out below the appellant did make the best estimate that could reasonably have been made.

264. In HMRC’s view there is no requirement that HMRC must adduce witness evidence to satisfy the requirement under regulation 80(1). They noted that in Paya at [669] the tribunal determined the validity of a regulation 80 determination solely on the basis of the documents in the hearing bundle. They submitted that there is no need for the tribunal to take a different approach in this case. The appellant said that Paya did not involve consideration of the “best estimate” provisions of the PAYE Regulations, so this point did not arise in Paya .

265. On our view, on its plain and natural meaning the requirement in regulation 80(1) is not intended to provide a high threshold for an HMRC officer to be able to issue a valid determination that an employer is liable to account for income tax under the PAYE rules. The condition is simply that “it appears” to an officer that there “may be” tax payable for a tax year, in which case HMRC may determine the amount of that tax to the best of their judgment, and serve notice of their determination on the employee. The correspondence demonstrates that this is in fact what occurred. Validity issue – time limit and carelessness

266. As set out above, the stipulation in regulation 80(5) means that the time limits applicable to assessments under the TMA apply equally to determinations made under regulation 80. The determination was not made within the ordinary four-year time limit (in s 34 TMA), such that HMRC must establish the conditions are satisfied for the longer six-year period to apply pursuant to s 36 TMA. In summary the longer time limit applies if the determination involved a “loss of income tax…brought about carelessly by” the appellant where, under s 118(5) “ a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation”.

267. The appellant submitted that: (1) The broad approach to be taken in relation to the carelessness issue is set out in Moore v HMRC [2011] STC 1784 at [8] (“ Moore ”), citing M M Anderson v HMRC [2009] UKFTT 258 at [22]: “The test to be applied, in my view, is to consider what a reasonable taxpayer, exercising reasonable diligence in the completion and submission of the return, would have done.” Strictly, Moore was a case dealing with “negligent” conduct rather than “careless” conduct, but it is common ground that the test is the same. (2) The concept of “negligence”, and now “carelessness”, has been borrowed from the common law of negligence. Under that law, to establish that the conduct in question fell below the standard of a reasonable person (and thus amounted to negligence) it must be established that no reasonable person in the position of the defendant would have acted as the defendant did: Saif Ali v Sidney Mitchell & Co [1980] AC 198 at 220D (Lord Diplock). It follows that for HMRC to establish careless behaviour, they must satisfy the tribunal that no reasonable taxpayer would have acted as the taxpayer did. (3) In order to succeed, HMRC must prove, in addition to a breach of the duty to take reasonable care, that the breach has “brought about” the loss of tax. What HMRC have to prove as a matter of causation has been considered by the UT in a number of cases such as Atherton v HMRC [2019] STC 575 (“ Atherton ”), Hicks v HMRC [2020] STC 254 (“ Hicks ”), Bella Figura Limited v HMRC [2020] STC 922 (“ Bella Figura ”) and Mainpay v HMRC [2024] STC 1587 (“ Mainpay UT ”)

268. Both parties referred to the tribunal’s decision in Alan Anderson where the tribunal considered if the taxpayer was careless in taking the view that the market value of shares for the purposes of ss 272 and 273 TCGA corresponded to the sum offered by a third party purchaser for the shares days before the date on which the shares were disposed of. The tribunal said, at [123], that the correct approach is that “of assessing what a reasonable hypothetical taxpayer would do in all the applicable circumstances of the actual taxpayer” on the basis that this follows from the wording of the provision which looks at a failure to take reasonable care by the person in question and: “The ‘reasonable care’ which should be taken is to be assessed by reference to what a reasonable and prudent taxpayer would do looking at an objective hypothetical standard. But what that reasonable and prudent taxpayer would do is not assessed in a vacuum but by reference to the actual circumstances of the taxpayer in question.”

269. At [126], the tribunal said that as they must look at a hypothetical taxpayer but one in the particular circumstances of the appellant, they considered it “reasonable to attribute to the hypothetical taxpayer, the knowledge and understanding which could reasonably be expected of a taxpayer with the appellant’s background” which in that case was that for many years he had owned shares in and acted as director of a substantial business with responsibility for its financial affairs.

270. At [128], the tribunal noted that the appellant’s evidence was that he relied on the advice of PwC that it was appropriate to use the figure of £36 million as the market value of his shares in the relevant company on the basis of an offer of £72 million for the purchase of all the shares in the company received from an independent third party only ten days before the sale of the shares which was “still on the table” at the disposal date. At [129], it is recorded that (1) the appellant stated that he was advised by the PwC corporate finance team that there was no evidence as to who at PwC provided the advice and what their precise qualifications were, (2) the appellant recalled attending a meeting at PwC at which there could have been as many as 15 professionals from PwC present at which he was advised that using the £36 million figure was the correct thing to do, and (3) he stated that it did not occur to him to seek any other advice given the level of professional advice he was taking from such a reputable firm as PwC.

271. At [131], the tribunal said that, in these circumstances, it is reasonable for a taxpayer to rely on the advice provided by the corporate finance team of a leading firm of accountants engaged to advise on the sale of the shares in question: “We expect a reasonable taxpayer, in the context of a sale of shares generating a substantial gain, to ensure that he fully understands the basis of the advice, mindful of the fact that it is his obligation to ensure the correct capital gain is included in the return. Where, as here, the hypothetical taxpayer is to be attributed with the level of knowledge and understanding we would expect of a person of the appellant’s background, we would not expect such a taxpayer blindly to accept advice, even though provided by highly reputable professionals, without giving due consideration to understanding fully the advice and to some extent, depending on the type of advice and what can reasonably be expected, assessing whether it makes sense. A person who is not himself a qualified professional in the type of advice sought clearly cannot be expected to be able fully to evaluate the advice given and indeed hence why he is taking professional advice. However, a person with the understanding and knowledge that may reasonably be attributed in this case, may be expected to question advice if there is a reason to do so which ought to be apparent to such a person. We note that the Special Commissioners in AB seem to have taken a similar approach in the context of the negligence test as they concluded that it is reasonable for a taxpayer to rely on professional advice if is not ‘obviously wrong’.”

272. At [132] to [134], the tribunal concluded that the appellant was not careless to rely on the third-party offer made for the purchase of shares only days before the disposal date, as the best evidence of the market value of the shares at that date. In their view, the taxpayer did what could be expected of a person acting reasonably and diligently, attributed with the knowledge and understanding that could reasonably be expected of him, when selling a substantial asset: (1) whilst the appellant relied on PwC advice, he did fully consider the basis for the advice he was being given and whether it made sense and there was no reason for a person in the appellant’s circumstances, acting reasonably and diligently, to question the advice received, (2) they would not expect such a taxpayer to question the credentials of those at the professional firm who were selected to provide him with the advice unless there is any reason of which the taxpayer ought reasonably to be aware to do so (and they could see no reason because the advice was provided by members of the corporate finance team at PwC), and (3) they would not expect such a taxpayer to obtain another professional opinion again unless there is reason to do so, of which the taxpayer ought to reasonably be aware, such as that any qualification put upon the advice by the firm may limit its reliability.

273. At the hearing there was much debate about how the “brought about” requirement in s 36 is to be interpreted, as there are conflicting views given on that in the UT cases cited above. Since the hearing the position as to how that test is to be applied in principle has been resolved by the decision of the Court of Appeal (“ CA ”) in Mainpay Ltd v HMRC [2025] EWCA Civ 1290 (“ Mainpay CA” ). In that case: (1) A company had deducted expenses from temporary workers’ earnings for the purpose of income tax and NICs on the basis that it had a single continuing contract of employment with each worker covering multiple assignments, rather than a separate contract for each assignment (see [17] to [19] of Mainpay CA ). The tribunal held that the expenses were not deductible because (among other things) each worker had not been working under an “overarching contract of employment” (see [29], [44], [52] and [53] of Mainpay CA ). (2) The UT agreed, and the appellant did not challenge that aspect of the decision before the CA (see [72] and [73] of Mainpay CA ). At [141] of Mainpay UT , in upholding the tribunal’s decision on this point the UT said that the extent to which taking advice provides a reasonable care defence: “depends on the facts, in particular whether the relevant questions were the subject of advice by someone with appropriate expertise who had knowledge of all the relevant facts, including the relevant documentation.” (3) As in this case, the further question was whether, for some of the tax years in issue, the appellant had brought about a loss of tax carelessly for the purposes of s 36(1) TMA (see [57] of Mainpay CA ). The tribunal held that the taxpayer’s failure to take reasonable care to ensure that the contract was an overarching contract of employment had caused the loss of tax (see [70] an [71] of Mainpay CA ). The UT upheld the tribunal’s decision (see [89] of Mainpay CA ). (4) On this issue, at [148] of Mainpay UT , the UT said that HMRC advanced (amongst other arguments) a “knockout” argument that: “ because s 118(5) TMA provides that “a loss of tax or a situation is brought about carelessly by a person if the person fails to take reasonable care to avoid bringing about that loss or situation”…once a failure to take reasonable care is established, it inevitably follows that the taxpayer brought about the loss or situation”. In that regard HMRC relied on the UT’s decision in Atherton . The argument was, that given s 118(5) “there is no need to establish a separate causal link between the alleged carelessness and the loss of tax’ and causation could not be approached as a ‘but for’ test”. (5) The UT, in effect, decided that this was not the correct interpretation of s 118(5) (see [152] to [158] of Mainpay UT ). The UT observed that: (a) Although HMRC bore the burden of proof in relation to establishing that the careless behaviour brought about the loss of tax, that did not carry with it “an obligation to prove a particular counter-factual outcome”. Where carelessness was said to result from deficient advice, HMRC were not required to establish on the balance of probabilities what the result of remedying the deficiency would have been. HMRC did not have to establish that, if the deficiency in the advice had been remedied, there would have been no loss of tax (see [159] of Mainpay UT ). (b) On the facts found by the tribunal, what the appellant should have done differently was to ask the appropriate question of an appropriately qualified adviser. In those circumstances, HMRC was not required to establish “what course of action [the appellant] would have taken if that had been done”, including, for example, whether the appellant would have amended the relevant contract (see [161] of Mainpay UT ).

274. In the Court of Appeal, Laing LJ gave the leading judgement with which the rest of the panel agreed in upholding the decisions of the tribunal and UT that the taxpayer was careless and such carelessness “brought about” the loss of tax in question. As regards the “brought about” test she noted, at [105], that HMRC had not cross-appealed against the UT’s decision on the interpretation of s 118(5) and could not revive that argument but set out that, for the avoidance of doubt, that argument is wrong: (1) She noted that the term “brought about carelessly” is also used in s 29(4) TMA and it must mean the same in s 36 TMA as it means in s 29(4). (2) She explained that (a) the tax authorities may make an assessment under s 29(1) when they discover that income which ought to have been assessed to tax has not been so assessed, and (b) they may do only where certain other conditions are satisfied including under s 29(4) if the “situation” described in s 29(1) has been “brought about carelessly” (or deliberately) by the taxpayer or his agent. She commented that: “The phrase “brought about” is a synonym for “caused” (see [106]). (3) She then, at [107], set out how s 36(1) operates and said that in s 36(1): The phrase “brought about” is, again, a synonym for “caused” and: “Section 118(5) must be read as a whole. It simply repeats the phrase 'brought about'. That makes it clear that section 118(5) endorses, and does not qualify, still less contradict, the apparent meaning of the phrase 'brought about' in section 36(1). The focus, rather, is explaining what 'carelessly' means for the purposes of the TMA. Section 118(5) explains that there is the relevant lack of care if 'a person fails to take reasonable care to avoid bringing about that loss or situation' .” (Emphasis added.) (4) Laing LJ explained, at [108], that paragraph (2) of the headnote of R (PACCAR) v Competition Appeal Tribunal [2023] UKSC 675; [2023] 1 WLR 2594 articulates a general rule of statutory construction, that when a statutory definition is read as a whole, the ordinary meaning of the word or phrase being defined can be used to throw light on the meaning of the phrase as defined. She had “reached a clear view about the meaning of sections 29 and 36(1) without resorting to this rule, but if that view requires support, this general rule provides it”. (5) She added that if any further support is needed for her interpretation of s 118(5) TMA, she relies on the taxpayer’s submission that: “ if section 118(5) has the meaning for which HMRC contended in the UT, it had a profound and unheralded effect on the position under the previous legislative provisions, which clearly required a causal link between the loss and the acts or omissions of the taxpayer. Such a change would have required very clear language. There are no words to show that any such causal link has been removed by section 118(5). On the contrary, the words 'brought about', which are used in the heading and in the text of section 36, and in section 118(5) show the very opposite.”

275. Laing LJ held, at [111] to [113], that the tribunal was correct to hold that the taxpayer was careless: “The point about the advice sought from, and given by, Mishcon de Reya, is that its premise was that the expenses in question were deductible business expenses…Mr Hugo knew that the question whether expenses can be reimbursed tax-free is itself complicated…It was not 'reasonable' for him to rely on a vague assurance that the form of the contract would not affect Mainpay’s ability to reimburse expenses. He could not have expected Mishcon de Reya to do that, since they did not have the relevant information…The fact that Mainpay had a different adviser who advised on expenses and who did not appear to have been consulted on that point confirmed the [tribunal’s] view that it was not reasonable to rely on vague assurances from Mishcon de Reya, when they did not have full background facts…”

276. Laing LJ held that the tribunal and UT had correctly decided that the “brought about” test was satisfied on the facts of that case: (1) At [114] and [115], Laing LJ said that the tribunal clearly understood that ss 36(1) and 118(5) require a causal link between carelessness of the taxpayer and the loss of tax and there is nothing to suggest that the tribunal did not apply a test of causation in deciding that that failure to take reasonable care did bring about, or cause the relevant loss of tax. The tribunal did apply a causal test. Its conclusion was that it was: “clear that the failure to take reasonable care to ensure that the contract in question was an overarching contract of employment led directly to the loss of tax as a result of Mainpay treating the expenses as deductible when in the absence of an overarching contract, they were not.” (2) At [116], she explained that the loss of tax was that part of the workers’ pay was treated as tax-free when it should have been subject to the deduction of tax. On the tribunal’s findings, it is obvious that had Mainpay taken reasonable care, the contracts would have been overarching contracts of employment and the reimbursement of the relevant expenses to workers would not have been liable to tax. Mainpay did not take reasonable care to ensure that the contracts were overarching contracts but reimbursed the expenses free of tax, as if they had been, when, in law, those payments were liable to tax. Had Mainpay taken reasonable care, therefore, on the tribunal’s findings, that loss of tax would have been avoided. She concluded that on these particular facts HMRC had “done enough” and it was not necessary for the tribunal to make any more findings about what would have happened if Mainpay had taken reasonable care. The tribunal nevertheless considered what would have happened if Mainpay had asked for specific advice even though that was not necessary on these facts. Laing LJ did not consider that the tribunal was required: “to speculate about what might have happened if further advice had been sought, all the more so because a taxpayer cannot be required to waive legal advice privilege, so that the [tribunal] would not necessarily have and in this case did not have all the relevant evidence”. (3) She agreed with the UT’s analysis on the “brought about” point in [159] and [161] of their decision in Mainpay UT and said that is reinforced by what she then said about the burden of proof. She summarised [159] and [161] of Mainpay UT , at [87] to [89], as follows: “ What HMRC had to show 'to establish that a taxpayer has failed to take reasonable care to avoid the loss of tax' would depend 'entirely on the facts'. If the relevant lack of care was a deficiency in advice, HMRC needed to establish that the relevant deficiency could have been avoided by the taxpayer. How would depend on the facts and on the nature of the deficiency in the advice. The UT gave examples in paragraph 157. To that extent, HMRC needed to show what the taxpayer 'should have done differently' (paragraph 158). But the burden of proof did not entail that HMRC had 'to prove a particular counter-factual outcome'. If the carelessness was a failure to take advice, HMRC was not obliged to show, on the balance of probabilities, what the result of remedying the deficiency would have been. HMRC did not have to prove that if the deficiency in advice had been remedied, 'a failure in the arrangement to achieve its intended purpose, which led to a loss of tax, would have been remedied'. Not all problems can be fixed. The [tribunal] should not be required to speculate about the taxpayer's response to adequate advice (paragraph 159). Nothing in section 118(5) removed the need for a ' connection (to use a more neutral term) between the carelessness and the loss of tax'. Carelessness was not enough; it the carelessness must have been a failure to avoid bringing about the loss of tax'. A general lack of care 'which did not contribute to the loss of tax is not enough' (paragraph 161) (my emphases). The [tribunal] was entitled to reach the conclusions which it did on 'the causation issue'. It was entitled to conclude that Mainpay’s 'failure to take reasonable care to ensure that the 2010 Contract was an overarching contract of employment which caused the loss of tax' (my emphasis). On the facts found, Mainpay should 'have done differently'. It should have asked 'an appropriately qualified adviser whether the 2010 Contract as drafted (including a provision stating that it was not a contract of employment) was an overarching contract of employment, or otherwise effective to achieve the aim of the arrangements in relation to reimburse expenses'. The [tribunal] was not required to go further to put HMRC to proof of what Mainpay would have done if it had taken that advice, such as amending the contract, introducing a retainer so that there was mutuality in the gaps between assignments or deciding not to claim the deductions which gave rise to the loss of tax (paragraph 161).” (4) As regards the burden of proof she noted that it was not in dispute that HMRC has the burden of proving that section 36(1) applies (as the UT accepted at [153] of Mainpay UT ): “ On the facts of this case HMRC had made out a prima facie case that Mainpay had been careless, and that that carelessness had brought about a loss of tax. There was then an evidential burden on Mainpay, if it wished to contradict that prima facie case, to adduce evidence to show, on the balance of probabilities, that it had taken reasonable care, and/or that any lack of care did not bring about the loss of tax. Mainpay did not do that…” Did the appellant take reasonable care ?

277. Our view is that, as set out in Anderson and as accords with the approach in the other cases referred to above, we must assess whether Mr Ricupati, as the person who acted for the appellant in making the relevant decision not to account for income tax and NICs in respect of the price differential, took reasonable care: (1) on the basis of the actions a hypothetical taxpayer, who is appropriately mindful of his obligation to account for UK tax, may be expected to take in these particular circumstances, and (2) by attributing to the hypothetical taxpayer, the knowledge and understanding which could reasonably be expected of a taxpayer with Mr Ricupati’s background and experience, as the head of a global multinational with many years of experience in a senior tax role. In our decision below, we refer to a hypothetical taxpayer in such circumstances and with such attributes as a “reasonable taxpayer”.

278. In summary, for all the reasons set out below, we consider that, as HMRC submitted, the evidence establishes that, applying the carelessness test in this way, Mr Ricupati, and hence the appellant, failed to take reasonable care in making the decision not to account for income tax and NICs on the price differential under the PAYE system. In particular, a reasonable taxpayer would have questioned the advice produced by EY Sauflon in the memo and the valuation letter and would have sought further information on the basis for that advice and separate specialist advice from CV’s own advisers, whether from EY CV and/or LW or another suitably qualified adviser.

279. HMRC’s further submissions are reflected in their questioning of Mr Ricupati set out above and in our decision below. The appellant’s submissions are set out in the discussion below where relevant. We do not accept the appellant’s suggestion that HMRC did not properly plead their case on carelessness and/or that allegations made in this respect were not put to Mr Ricupati fairly. As regards Mr Ricupati’s evidence, it is evident how he was questioned from the detailed account of his evidence set out above.

280. We do not accept the appellant’s stance that the memo and valuation letter contained clear, cogent and detailed advice which it was reasonable for Mr Ricupati to rely on and that he acted entirely reasonably in reviewing it alongside his advisers. Mr Ricupati relied on the opinion stated in the valuation letter without, as we consider a reasonable taxpayer would, taking any action to subject it to critical scrutiny, as read in the context of the technical analysis, the key factors and the actual assumptions which the opinion and advice in the memo were stated to be based on. Hence, he failed to take the further action such an exercise would have prompted any reasonable taxpayer to take, namely, to seek more information on precisely what information and instructions were given to EY Sauflon and to obtain specialist advice from CV’s own advisers.

281. We note, in particular, the following matters which, in our view should have alerted Mr Ricupati to the need to take further action: (1) The technical analysis in the final memo, which supported the opinion, was couched in much more cautious terms than the opinion itself. EY Sauflon stated in the memo that (a) there was a “tenable view” and a “persuasive argument” that the market price is in fact the actual consideration paid/the figure negotiated between the parties but they could not guarantee that HMRC would not successfully sustain a challenge, (b) “on the basis that a hypothetical buyer of the Majority Sellers’ shares would be able to negotiate the same commercial agreement with the PE Sellers, there is an argument that the proposed reallocated consideration represents market value for these purposes”, (c) the position is not without risk and whilst their understanding was “that the reallocated consideration does represent a commercial deal freely negotiated between unconnected parties, HMRC could challenge the position on the basis that a hypothetical buyer would not be able to achieve the same deal”, and (d) they believed that it is possible for the shareholders to advance the argument that the price they received for their shares is market value, they had seen this approach accepted in the past but this is a high profile transaction and the consideration and the difference between the price per share received by the different classes of shareholders are both significant. (2) We note that in the memo (a) other than, in effect, paraphrasing the wording of ss 272 and 273 TCGA, EY Sauflon did not give any details on how the market value test operates and is applied in practice, and (b) despite having made the point that there was some doubt that the hypothetical transaction would be taken to correspond to the actual transaction, they did not indicate what factors were for or against the “tenable view” or “persuasive argument” prevailing. They appear to have based their view that there was such a tenable view/persuasive argument and the resulting more robustly expressed opinion entirely on the basis that (i) the proposed modification to the deal structure (the execution of two agreements a day apart) should enhance the argument that market value for tax purposes is the price actually received, and (ii) the two share sale agreements would contain different terms in that (A) the agreement to be made between CV and the minority shareholders would include the agreed consideration for their shares only, a warranty to title only and conditions that the other share sale agreement was signed within 5 days and was completed, and (B) the agreement to be made between CV and the majority shareholders agreement would include the agreed consideration for these shareholdings only, details of warranties and indemnities to be provided by those sellers and the commercial conditions that would need to be met for completion to take place. They concluded that this approach “should, in our opinion, substantiate the different price per share consideration that has been commercially negotiated for the two different groups of vendor”. They said from a tax perspective it would be helpful if the two SPAs were not inter-conditional but recognised that was not commercially feasible and that, from a valuation perspective, this approach strengthens the argument that the majority sellers were receiving consideration not exceeding market value. They then identified that there was an issue in that there was a differential between the price to be received by the shareholders and the price to be received by other majority shareholders. In the memo sent to Mr Ricupati/CV and their advisers they did not mention any solution to that issue. (3) Despite this caution in the advice given and the reference to the unsolved issue regarding the difference in price per share between the shareholders’ shares and those sold by the other majority shareholders, in the memo EY Sauflon referenced the more certain opinion they were going to give in the valuation letter and described the risk of HMRC overturning “the best estimate letter” as “remote”. (4) In the valuation letter, EY Sauflon highlighted that they were reliant on the shareholders for information and had not verified that and, following the opinion, they said that in arriving at this “indicative view” they had regard to “the key factors”, namely: “1. The aggregate consideration payable in respect of the Ordinary Shares held by the individual shareholders was negotiated with an unconnected third party on arms’ length terms.

2. The PE Sellers are unconnected to the individual shareholders and have no intention to confer any benefit to the Majority Sellers.

3. The PE sellers are not to provide any warranties or guarantees as part of the sale process.

4. The terms of the sale and purchase agreements.” (5) It is apparent from the memo and the valuation letter, therefore, as Mr Ricupati accepted, that EY Sauflon considered that it was a key part of the argument that market value of the shares was equal to the price paid to the shareholders that there were two sets of share sale agreements containing the terms which they set out. In our view, any reasonable taxpayer reading these documents would discern (as this is the only rational explanation) that the reason that having two such agreements, rather than one as originally drafted, would, as EY Sauflon put it, in their opinion “substantiate the different price per share consideration that has been commercially negotiated for the two different groups of vendor” was because that would show/evidence in documentary terms that there were separate commercial negotiations between (a) CV and the majority shareholders, and (b) CV and the minority shareholders, for the sale and purchase of their respective shares and two different deals made direct between them, in particular, as regards the price shown in each agreement. The two separate agreements were duly signed by the relevant selling shareholders a day apart, as the correspondence shows was the intention. It is reasonable to suppose that the selling shareholders were aware of the terms of the agreement they each signed. However, it is clear that there were in fact no such direct commercial negotiations between the minority shareholders and CV and/or the other majority shareholders and CV regarding the price for their respective shares. CV throughout negotiated with Mr Wells for a single price for the entire share capital of the appellant and left it to the sellers to allocate that agreed single sum by agreement among themselves. It is also clear from the evidence that Mr Ricupati knew that when he reviewed the memo and the valuation letter in the period from 17 to 20 June 2014. (6) It is clear also from the terms of the share sale agreements, which are highlighted in the memo, and the list of key factors in the valuation letter that EY Sauflon considered it was of importance to their advice that only the majority shareholders were to give warranties and guarantees under the terms of their agreement with CV. On all the evidence it is clear that Mr Ricupati was well aware that (a) earlier in the negotiations, at the instigation of Mr Maynard and Mr Wells, and with the assistance of Mr White, the “forward-looking warranties” were introduced into the deal (as set out in CV’s offer letters) and the full price differential was shown as attributable to them, (b) their introduction into the terms of the deal was what may fairly be described as an artificial contrivance, which was done purely for the purpose of justifying the price differential to the minority shareholders; these warranties were not included at the insistence of CV and indeed it appears CV had no real commercial interest in whether they were given at all (except as regards the “non-compete” warranty), (c) as is apparent both from MB’s email of 10 June 2014 and from Ms Cooper’s follow-up on 11 June 2014, the removal of “the forward-looking warranties” and the replacement of the single agreement with two share sale agreements was introduced to seek to avoid the income tax risk in connection with the price differential, and (d) as noted, the two agreements structure which replaced the “forward-looking warranties” structure did not reflect the reality of the negotiations that had taken place, which was that CV had negotiated with Mr Wells for the entire share capital of the appellant and left it to the sellers to allocate the proceeds among themselves.

282. Mr Ricupati was clear that he relied on the opinion in the valuation letter and that essentially his/his advisers’ review of it took place in the period from 17 to 20 June 2014. When challenged he referred to having read the whole memo and said his team of advisers advised on the issues. However, he was consistent in coming back to the insistence that it was the opinion that mattered and he could simply rely on the EY Sauflon team to have obtained all relevant information, involved the correct specialists and formed the correct view. He said the memo was reviewed by the collective team, they agreed with the conclusion of the memo, and “if someone was uncomfortable with the EY opinion, that would have been raised. If you are following advice and reading advice and you agree with that advice, that’s as simple as that”. He emphasised that EY is one of the “big four” accounting firms and a globally renowned firm and that LW are a large global firm. For the reasons set out below we do not accept that the evidence establishes that either Mr Ricupati or his advisers subjected the memo to an assessment of the kind a reasonable taxpayer would.

283. In our view, it is not the actions of a reasonable taxpayer, as the party ultimately responsible for accounting for UK tax due in the correct way, in these particular circumstances, simply to rely on a headline opinion given by an adviser, whoever the adviser is, whether in a large organisation or small, globally renowned or otherwise without any concern (1) to understand the technical legal and valuation basis on which it is given, and (2) to check the factual assumptions on which it is based. We consider that is particularly so given that (a) some of the factual assumptions on which the advice/opinion was based were matters within Mr Ricupati’s/CV’s own knowledge as was certainly the case regarding the negotiations between the shareholders and CV, and (b) the advice relied on is given by a party (EY Sauflon) with whom CV did not have an advisor/client relationship at the time the advice was given and, therefore, was not involved in the instructions given to the adviser or the process of providing information to the adviser.

284. When reviewing the memo and the valuation letter: (1) A reasonable taxpayer who, as we consider is to be expected, would subject the valuation letter and memo to critical scrutiny would have seen, on a detailed reading, that it was subject to the caution, limitations, lack of analysis and very differing levels of certainty in the advice given in the memo and the opinion in the valuation letter. We accept that, as the appellant submitted, the fact that EY Sauflon said they could not guarantee the desired outcome would not of itself necessarily lead a reasonable taxpayer to consider that further scrutiny is required. It is rather the discrepancy between the high level of certainty in the opinion and low level of certainty in the body of the advice in the memo, which underpins that opinion that, of itself, would cause a reasonable taxpayer to seek further information/advice as set out below. (2) As part of that critical scrutiny a reasonable taxpayer, who can be attributed with Mr Ricupati’s knowledge of the commercial background and negotiations, would have realised that (a) EY Sauflon were advising in the memo and letter on a basis which did not reflect the actual commercial negotiations on pricing which took place between the parties, and (b) as set out above, the analysis in the memo and valuation letter was highly reliant on a factor, the two agreements structure, which, like the previous structure which used the “forward-looking warranties”, was introduced by Mr Wells and Mr Maynard, and did not accord with the actual underlying commercial negotiations. (3) This initial critical review would have given a reasonable taxpayer reason to suppose, and be concerned that, (a) the minority and other majority shareholders were negotiating without knowing what discussions were actually taking place and what information was actually passing between Mr Maynard/Mr Wells and CV, (b) EY Sauflon were not fully cognisant of the actual negotiations which had been and were taking place between the various shareholders and between Mr Maynard/Mr Wells and CV at the time the memo was produced and possibly on an on-going basis, and (c) these factors could invalidate the opinion given by EY Sauflon or at least require it to be revisited on the basis of the actual factual position. Whilst it is appreciated that Mr Ricupati is not an expert in this field, he is a tax professional with many years of experience of working in a global company and he knew the commercial background to this deal. It is reasonable to expect such a person to realise, as a matter of professional common sense, that such factors are likely to affect the advice given. In particular, a reasonable taxpayer would realise that there is cause for concern when the negotiations in the actual transactions which are sought to be used as evidence of market value are not based on open, transparent dealings with the provision of full information by each party to the other. Mr Ricupati and Mr White were plainly well aware that Mr Maynard and Mr Wells had sought to utilise the “forward-looking warranties” to justify their stance on pricing even though most of those warranties were of no commercial interest to CV. (4) In light of all of these issues, which would be readily apparent to a reasonable taxpayer on a detailed and careful review of the memo and valuation letter, a reasonable taxpayer would have had reason to subject the advice to further critical scrutiny (a) by asking for information on the technical and factual basis for the views set out by EY Sauflon, including what information EY Sauflon had been provided with and what their instructions were, and (b) by seeking the taxpayer’s own advice from their own team of specialists by providing them with the full information known to CV (which did not accord with the position set out in the memo and valuation letter). (5) We do not accept that the notion that EY Sauflon were properly instructed is apparent from the memo/valuation letter and Mr Maynard’s evidence that he would usually keep his advisers fully informed or from the fact that MB, a highly regarded and reputable firm of solicitors were also involved in instructing EY Sauflon. It is a matter of speculation precisely what EY Sauflon were told by Mr Maynard and Mr Wells. It is clear, however, that they were advising on the basis of an assumed position which did not reflect commercial reality and that Mr Ricupati knew that.

285. Mr Ricupati did not take these actions when reviewing the memo and valuation letter between 17 to 20 June 2014 or at any point after that time. In the period from 17 to 20 June 2024 there is correspondence showing that, as Mr Ricupati said, there was some debate about the meaning of the term “tenable”. Mr Finn of LW commented on the draft valuation letter, which appears to have led to it containing the wording it contained in the final draft produced on 20 June 2014. However, it is apparent from the nature of the comments made that Mr Finn and Mr Ricupati were concerned simply with the opinion being given by EY Sauflon in terms they considered demonstrated a sufficient level of certainty as to the view expressed. No-one involved appeared to think it was their remit to conduct any substantive analysis, whether as regards understanding the legal analysis or how the market value test was in fact applied by CV Sauflon, or as regards testing the factual assumptions underpinning the advice.

286. Striking features of Mr Ricupati’s evidence which demonstrate his lack of concern with any critical appraisal of the memo/opinion during the period from 17 to 20 June 2014 include the following: (1) He was unconcerned that his advisers, who were involved at that time, were not specialists in the area of tax law in question. We accept that a reasonable taxpayer may take the view he is relying on the firm he has engaged to assist on the tax issues arising in the sense that it is for his contact at the firm to source the relevant specialist to deal with particular issues. However: (a) For the reasons set out above, we would expect a reasonable taxpayer, in these circumstances, to realise that specialist input is required to conduct the necessary critical appraisal of the advice and expressly to instruct his contact that that is what he is looking for on a review of the advice in question and/or check with his contact that a suitable specialist was involved in the review of the advice. (b) Mr Ricupati was aware that Mr Finn and Ms Cooper were not specialists in the relevant area but suggested it was sufficient they had an awareness of PAYE issues for the due diligence exercise he considered was of paramount importance. He does not appear to have taken any interest in whether any actual specialists were involved by Mr Finn or Ms Cooper in the review of the memo and valuation letter at this time and there is no evidence that they were. (c) Moreover, such indications as there are show that Ms Cooper and Mr Finn did not consider it was their remit to undertake a substantive analysis of the advice in the memo and valuation letter such that they were not likely to seek assistance from their colleagues. This is apparent from the highly limited nature of their comments and the fact there is no evidence that they were at all concerned by EY Sauflon stating in the memo that there was an issue regarding the price differential between the price to be paid to the shareholders and the price to be paid to the other majority shareholders. It is reasonable to infer that Mr Ricupati in fact knew that this was the view they were taking as, later on, he expressly asked Ms Cooper to seek advice from her employment tax colleagues. (d) In the circumstances, therefore, we can see no reasonable basis for Mr Ricupati’s assertion and the appellant’s submission that Mr Finn and Ms Cooper would have said if they did not agree with the advice/opinion in the memo. All the indications are that they did not consider that subjecting it to a substantive review was part of their remit. (2) Mr Ricupati was dismissive of the suggestion that he/CV should have had an interest in, or concern, with, the highly odd fact that the shareholders requested the “forward-looking warranties” be included in the deal terms (given that they were asking for additional obligations/liabilities to be imposed on themselves). He repeatedly said that he was only concerned with the terms as presented in the memo (on the basis of the two agreements). For all the reasons set out above, the shareholders’ willingness to use the “forward-looking warranties” as a negotiating device should have triggered concern for a reasonable taxpayer mindful of the need to comply with his UK tax obligations. (3) Mr Ricupati would not directly answer the question whether he was aware or not of the size of the difference in price per share as between the shareholders and the other majority shareholders when he reviewed the memo/valuation letter. It is plain from the correspondence, however, that he/CV and the advisers had not taken this on board, or at least were not aware of the size of the difference, until after 20 June 2014. His answer was that this simply was not an issue; all that mattered was that an overall price differential was identified as between the minority and majority shareholders and that was the subject of the memo and the opinion. However, EY Sauflon had flagged this up as an issue in the memo (albeit CV/their advisers did not at this point have the figures) but provided no solution to it. It was simply left hanging as an issue. It is apparent that no information was sought on this price differential when the memo/valuation letter were reviewed as the size of it plainly took the advisers by surprise when they were provided later with the spreadsheet showing the figures.

287. We do not consider it the actions of a reasonable taxpayer to assume as, on his own evidence, Mr Ricupati did, that EY Sauflon’s advice required no critical examination because it was consistent with his own view that the prices for which the shares were sold were the product of hard-fought commercial negotiations such that it seemed right that the outcome of those negotiations was the best estimate of market value. It is obvious to a reasonable taxpayer that the fact that negotiations may be described as hard fought does not of itself necessarily inform whether the parties involved were acting as a hypothetical willing seller and willing buyer, with all reasonable information, would act. The further obvious question of highly material relevance is precisely what the discussions were about and what information was provided to each party. In that context, there is no evidence that Mr Ricupati had much knowledge of what was discussed between the sellers amongst themselves apart from that he knew that Mr Maynard had presented the minority shareholders with a contrived, artificial position as regards the “forward-looking warranties”. As already noted, it was a striking feature of Mr Ricupati’s evidence that he had no regard for that as a matter of any relevance.

288. We do not accept the appellant’s submission that the facts that the advisers did not raise any material concern on the advice in the memo and valuation letter means that they considered it to be reliable and that is a factor showing that Mr Ricupati acted reasonably in relying on the opinion. We do not accept that, as is the effect of this argument, it is reasonable for the taxpayer to devolve responsibility for a review of the memo and valuation letter to the taxpayer’s advisers as regards the factual assumptions underpinning it. As noted, CV were in the best position to assess the factual assumptions as a party to the transaction and the direct negotiations with the individuals. At least to an extent, EY CV and LW were dependent upon CV/Mr Ricupati to check the factual basis so far as within their own knowledge and, if necessary (as we consider it was, given what knowledge Mr Ricupati/CV had of the negotiations), to inform them of the correct facts and/or instruct them to obtain further information. Moreover, as already noted, there is no evidence that EY CV or LW considered the advice in the memo/valuation letter to be reliable in the sense that it was in substance correct as a matter of law/valuation practice and based on correct factual assumptions. For all the reasons set out above, the available evidence indicates that their concern was to make sure that the opinion was reliable in the sense simply that it was given in terms which would give the appellant recourse to EY Sauflon should it turn out that the appellant is in fact liable to account for income tax and NICs on the price differential. That is not the same as conducting a critical examination of the advice.

289. For the reasons already given we do not accept that Mr Ricupati took advice on the PAYE issue during the review of the memo and valuation letter in the period from 17 to 20 June 2014. We also do not accept that he/his advisers kept the advice in the memo and valuation letter under review after 20 June 2014 (when the transaction was initially intended to take place) and/or that his advisers provided any substantive advice on the advice/opinion in the memo/valuation letter after that time. Mr Ricupati said in general terms that the due diligence was on-going and the position was kept under review. However: (1) The only evidence of any further examination of the relevant issues is that shown by subsequent emails relating to the quantification of the potential liability in respect of the PAYE issue which appears to have been debated from around 20 to 29/30 June 2014 when the discussion intensified due to Mr Wells requiring to be indemnified by CV for his potential liability. (2) In the course of the earlier discussions on 25 June 2024 when asked for his realistic view on Mr Wells’s exposure, Mr Finn replied that he thought there is a medium level risk for him, less than 50% but at least a 20% risk. Mr Ricupati replied that he had told Mr Golden that the risk was around 30% and said that he was glad to see that Mr Finn was “on the same page”. In his witness statement he said that he remembers believing that Mr Wells had some risk and he expects the 30% number was his way of expressing that. We note that Mr Finn’s view of the risk was brief and not accompanied by any reasoning and there is no discernible basis for Mr Ricupati’s own percentage risk evaluation of 30%. (3) Following Mr Wells’ request for an indemnity, Mr Ricupati asked EY CV for a frank opinion from their employment tax specialists. The response from Ms Cooper was focussed on quantifying the potential liability and the likelihood of challenge and she advised that a negotiated settlement was the likely outcome in the event of challenge by HMRC. We do not accept that, as the appellant submitted, Ms Cooper gave her own/EY CV’s advice when she commented that there was still a filing position. That statement was premised on the basis that EY Sauflon would give the opinion in the valuation letter. It is clear, as Mr Ricupati accepted, that in making this comment, she/EY CV were not giving their own advice on the PAYE issue and the likelihood of a successful challenge to the stance taken by EY Sauflon. The comment was, in effect, that provided that EY Sauflon were prepared to give the opinion, there was a filing position. (4) Moreover, Mr Ricupati was insistent that the exercise carried out at this time was confined to quantifying CV’s potential liability were CV to indemnify Mr Wells and Mr and Mrs Maynard for any income tax/NICs found to be due on the price differential (as CV did), and that this was (a) an entirely separate exercise to that carried out earlier in reviewing the memo and valuation letter, and (b) it required a more granular, detailed approach than the earlier exercise in reviewing the memo and valuation letter did. He referred several times to the fact that there was no need to revisit the advice in the memo/valuation letter; he was relying on the opinion and on EY Sauflon, as part of the globally renowned firm, to have obtained the right information required to give that opinion. When it was put to him that Ms Cooper did not provide an opinion on the likelihood of HMRC successfully challenging the market value position, he said it was not her job to do that. Someone else (EY Sauflon) had already provided a memo and an opinion. In his view, here she was quantifying the exposure. He did not answer directly when it was put to him that there is no reference to her having obtained any input from the employment tax team, but he implicitly accepted that was the case. He said (as he repeated a number of times) that counsel was conflating two different processes and this was a quantification exercise: their job at this point was to calculate the overt potential exposure under certain scenarios as regards what they would take on if they agreed to the indemnification letter, which did not require them to revisit the opinion. (5) On 28 June 2014 Mr White circulated an email to the team setting out the “best guess” in percentage terms of HMRC evaluating this transaction. He concluded that given all this “we’ll work towards finalising the deal tomorrow and signing very soon”. As with the previous assessments of the risk of successful challenge in percentage terms, there is no basis provided for what Mr White described as a best guess. (6) On 29 and 30 June 2014 Mr Golden and Mr Finn and EY CV had discussions about reverting to the “forward-looking warranties” structure. Mr Ricupati said this was just a last minute thought - if there was something that could be done to improve the structure and this is standard process in any due diligence. He accepted at this point that he received no further advice from EY employment tax specialists after 20 June 2014. He drew the distinction again between what he considered was just additional information/additional things that were done for a quantification exercise and the opinion which stood as it was and said they had no reason to doubt that clear opinion and followed it. He was insistent that he/CV had their own advice. He said “We had a memo we followed” and he questioned how it is not reasonable to follow an opinion from “a Big Four firm supported by one of the largest law firms in the country” and said that it was reviewed by his team, including LW and they had no reasons to believe their opinion was not to be followed. He said the memo was reviewed by the collective team, they agreed with the conclusion of the memo, and “if someone was uncomfortable” with the opinion, that would have been raised. If you are following advice and reading advice and you agree with that advice, that’s as simple as that”. We note our comments above on why we consider the advisers did not regard it as their role to provide substantive advice albeit they were plainly concerned about the potential liability.

290. In our view, it is not the action of a reasonable taxpayer to ignore the clear signals that there was a concern about the PAYE issue on the basis that, as Mr Ricupati repeatedly suggested, the quantification exercise was somehow entirely separable from and different to an assessment of whether the appellant was liable to account for income tax/NICs on the price differential. It is not reasonable to take the view that the EY Sauflon opinion sufficed no matter what doubts or concerns were expressed about the position, albeit in the context of assessing whether CV would give an indemnity to Mr Wells and the Maynards regarding their potential tax exposure. It is possible, as HMRC submitted, that CV/Mr Ricupati were not focussed on this issue, as at this time CV were plainly under time pressure to get the deal done and there were concerns that Mr Wells would go to other possible purchasers if it was not done quickly. However, a reasonable taxpayer would have sought to follow up on this issue and sought further information/advice following completion of the sale and purchase of the shares in the appellant. That did not occur and, on his own evidence, Mr Ricupati plainly did not at any stage think it was necessary to do that. We do not accept that he had no reason to believe the EY Sauflon advice was not to be believed. For all the reasons set out above, there were multiple reasons to investigate the position further on the terms of the memo and valuation letter alone and that was exacerbated by the later evident concern of the advisers. Was the loss of tax brought about by the failure to take reasonable care?

291. HMRC made written submissions that they have established that the failure to take reasonable care brought about the loss of tax: (1) It is clear from Mainpay CA that, while HMRC have the burden of proving that a loss of tax was “brought about” carelessly, HMRC need only to make a “prima facie” case that the taxpayer’s carelessness caused the loss of tax. The CA confirmed that HMRC do not have to prove what would have happened “but for” the carelessness, and there is no requirement on HMRC to prove a particular counter-factual outcome (see [117]). (2) HMRC have made a prima facie case that Mr Ricupati was careless in relying upon EY (Sauflon)’s advice and what Mr Ricupati should have done differently; instead of relying upon EY (Sauflon)’s advice, he should have (a) obtained his own specialist employment tax advice based on all the relevant information about the transaction and/or, (b) insofar as he was going to rely on EY (Sauflon)’s advice, he should have requested all the information on which that advice was based and raised further questions based on his own knowledge of the relevant facts. HMRC do not need to establish (even on a prima facie basis) what Mr Ricupati would have done following receipt of that advice. The appellant has not then discharged the evidential burden (which shifts to it) of showing that Mr Ricupati’s carelessness did not bring about the loss of tax. (3) The appellant is wrong to suggest that a relevant distinction can be drawn between the facts of Mainpay and those of this case with the result that, unlike in Mainpay , HMRC have to prove a particular counter-factual outcome. The CA’s reasoning in Mainpay CA was not based on the degree of complexity in the issue of law that arose in that case. In any event, as HMRC have consistently maintained, resolution of the issue in this case was straightforward in light of Grays Timber . (4) In the alternative, even if HMRC are required to make out a prima facie case as to what would have happened but for the carelessness, HMRC have shown, prima facie, that there would then have been no loss of tax: (a) but for the carelessness, Mr Ricupati would have obtained specialist employment tax advice, (b) he would have requested relevant information from the sellers and/or EY Sauflon before seeking that advice and would have provided all relevant information to the adviser, and/or raised further questions of EY Sauflon and set out the information received, (c) accordingly, he would have obtained Mr Kilshaw’s email in which he stated that the price differential was “aggressive”, (d) it would have been apparent that Mr Wells held such a dominant position that he was able to dictate that he did not wish to pay tax on his sale proceeds and, when he was advised that the original structure of the transaction involving “forward-looking warranties” would not achieve that aim, to secure a change in the structure with the adoption of two agreements, (e) it would have been apparent that the two agreements structure was adopted specifically to give the impression that there had been separate negotiations when it was known that was not the case, (f) it would have been apparent that a number of special circumstances influenced the allocation of the consideration between the shareholders: (i) M r Wells’s dominant position included the ability to “blow up the deal”, (ii) Prism, by contrast, was eager to sell its stake in the appellant, (iii) as part of the agreement on allocation, Mr Maynard and Mr Wells had agreed to discontinue legal proceedings against Prism, (iv) part of the price received by Mr Wells and Mr Maynard for their shares represented a reward for work that they had done, and (g) it would have been clear to the adviser from appendix 1 of the memo that EY Sauflon’s advice was based on a misstatement of the factual position. (5) HMRC have made out a prima facie case that, on the balance of probabilities, the adviser would have advised, on the basis of all the relevant information, including that set out above, that the price actually received by the shareholders did not represent market value, and that income tax and NICs were payable on the excess over their pro-rata share of the consideration pursuant to the applicable statutory provisions. HMRC essentially repeated their submissions as regards the market value test. They added that the fact that the transaction was structured in an attempt to reduce the tax liability of Mr Wells in particular, by way of the features identified above, and that EY Sauflon’s advice was based on a misstatement of the factual position, (as revealed by appendix 1 of the memo) would have made the adviser more inclined to question whether the allocation of the consideration between the selling shareholders reflected the market value of their respective shares. Further and in any event, the adviser would have concluded that the amounts actually received by the shareholders for their shares did not represent the market value” for the purposes of guidelines to which Mr Weaver referred.

292. In written submissions the appellant made the following main points in support of their stance that any carelessness did not cause any loss of tax: (1) As regards what HMRC is required to prove, it is notable that in Mainpay the taxpayer argued that it was “necessary for HMRC to establish with precision the “counter-factual” situation in order to prove causation” (see Mainpay UT at [147(1)] and Mainpay CA at [84]) and that HMRC had “failed to explain at all or in sufficient detail”: “(1) What was it that HMRC were alleging Mainpay should actually have done or known? (2) When is it said that Mainpay should have done or known that? (3) Why is it said that Mainpay should have done or known that? (4) If Mainpay had done or known the thing in question, how would matters have been any different in relation to the loss of tax?” (see Mainpay UT [146]). That is what the CA referred to (using the words of the UT in Mainpay UT ) as “a particular counter-factual outcome”. The CA held that the burden of proof on HMRC does not extend to them having to prove all of those particulars. Thus, for example, HMRC do not have to go as far as to prove what, in the counterfactual scenario, the taxpayer’s subsequent response to consulting an appropriate advisor would have been (see Mainpay CA at [117]). (2) Hence, what HMRC are required to prove by way of satisfying the causation requirement will differ depending on the facts and the nature of the conduct which HMRC allege was careless. The fact-sensitive nature of the causation analysis is referred to throughout the judgment. That is because the hypothetical scenario that must be examined in order to test causation depends on the particular facts. (3) In this context, there is a difference between a failure to consult a lawyer in relation to a particular form of contract, which any competent lawyer could produce if asked to do so (as in Mainpay ), and a failure to obtain a (further or other) opinion on a complex issue of valuation in respect of which reasonable minds can differ (as here). HMRC allege that any reasonable and prudent taxpayer in the position of the appellant would have taken further or other advice on the issue. To establish that careless conduct of that nature caused the relevant loss of tax, HMRC must prove that: “Had [the taxpayer] taken reasonable care [i.e. taken further or other advice] … that loss of tax would have been avoided” (see Mainpay CA at [116]). (4) However, HMRC have not proved that (a) even if further advice had been sought from EY Sauflon, the advice would have been any different to the advice actually given, and/or (b) that a different advisor would have given any different advice. There is no feasible argument that, if such advice had been sought, any competent advisor would have advised in a different way. For example, EY and LW can be taken to have been aware of Grays Timber (as it is a Supreme Court case from 2010); it (rightly) had no bearing on their advice. Moreover, Mr Weaver’s valuation opinion, based on the facts and evidence in this case, is essentially the same as the valuation opinion given by EY Sauflon in 2014. Accordingly, the only evidence before the tribunal on the point is that another advisor would have advised in the same way as EY Sauflon did.

293. Mainpay CA has established that, for the carelessness test in s 36 TMA to be satisfied, HMRC must make a prima facie case (on the balance of probabilities) that (1) the appellant failed to take reasonable care as regards the tax charges in question (as for all the reasons set out above we consider they have) and (2) that that failure to take reasonable care caused the relevant loss of tax. As the appellant emphasised, it is apparent that precisely what HMRC must prove as their prima facie case, to satisfy this causation requirement, will differ depending on the facts and the nature of the conduct which HMRC allege was careless. HMRC may not necessarily have to prove all the particulars of a counter factual or hypothetical outcome. The parties’ differing views of what HMRC are required to prove in this case reflects their differing views of how the market value test is to be applied and of the factual conclusions to be made on the PAYE issue.

294. In our view, in light of our findings on the PAYE issue set out above, on the facts of this case, HMRC have made a prima facie case that the appellant’s failure to account for income tax and NICs in respect of the price differential was brought about by the appellant’s/Mr Ricupati’s failure to take reasonable care. As set out in our conclusions above, we consider that, in all the circumstances, a reasonable taxpayer would have sought its own specialist advice on the PAYE issue from a suitably qualified professional adviser, on providing the adviser with all relevant information known to the taxpayer regarding the negotiations on (a) the price for all the shares in the appellant between CV and Mr Wells, and (b) on the allocation of that price between the selling shareholders. We recognise that the appellant itself obtained advice from EY Sauflon. However, Mr Ricupati/CV did not know the basis on which the advice was provided, as they were not privy to the instructions and information given to EY Sauflon, given that, when the advice was given, the appellant was in the ownership of the sellers. Moreover, for all the reasons set out above, a reasonable taxpayer would have conducted a critical scrutiny of the memo and valuation letter and, in doing so, would have realised from their terms that there was cause for concern that the advice in the memo and valuation letter was not reliable.

295. In our view, the view of the market value test taken by the appellant is not one which any reasonable suitably qualified professional adviser would take. In light of the case law on how the market value test is to be applied, in particular, the decision in Grays Timber , which any such adviser can be taken to be aware of, and of the factual position, as known to Mr Ricupati/the appellant, (1) we can see no viable basis for such an adviser, apprised of those facts, to take the view that the best evidence of what the hypothetical seller and buyer envisaged in the market value test would agree for the shares is the agreed allocation of the total price for the shares negotiated between the selling shareholders, and (2) it is reasonable to infer that, had Mr Ricupati consulted such an adviser on that basis, he would have advised that (a) the best evidence of market value of the shares for this purpose is the price paid by CV for the shares on a pro rata basis, and (b) accordingly, the appellant should account for income tax and NICs in respect of the price differential.

296. As set out in our conclusions above, we consider that a reasonable taxpayer also would have asked EY Sauflon/the selling shareholders for further information on their negotiations and precisely what instructions and information they had provided to EY Sauflon. However, we do not consider it is necessary or appropriate to speculate as to what information EY Sauflon/the selling shareholders may or may not have provided in response. In our view, (1) a reasonable taxpayer in any event would have sought its own specialist advice in these circumstances for the reasons summarised in [294], and (2) the matters which were within Mr Ricupati’s/CV’s own knowledge (as highlighted in our conclusions on the carelessness issue above), which a reasonable taxpayer would have informed its adviser of, would have sufficed to alert any such adviser to the fact that there is no reasonable basis for the opinion given in the memo/valuation letter and to inform the correct view.

297. On that basis, if the appellant wishes to contradict the prima facie case made by HMRC, there is an evidential burden on the appellant to bring evidence to show that (on the balance of probabilities) it/Mr Ricupati did not fail to take reasonable care or that any such failure did not bring about the loss of tax in this case. The appellant has not done so. Conclusion and right to appeal

298. For all the reasons set out above the appeal is dismissed except so far as it relates to the consideration received by the shareholders for the Fourth Shares.

299. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. RELEASE DATE: 02 nd MARCH 2026