judgement:
This appeal concerns the interpretation of sections 103 and 106 of the Income and Corporation Taxes Act 1988 (ICTA) which imposed a charge to corporation tax on post cessation receipts from a trade, profession or vocation.
The provisions were later rewritten in the Corporation Tax Act 2009.
The receipts in question came about as follows.
Over many years companies within the Littlewoods corporate group paid the Commissioners for Her Majestys Revenue and Customs (HMRC) substantial sums as value added tax (VAT) on an incorrect understanding of the law.
HMRC later repaid the sums, which had been incorrectly paid, to a nominated member of the corporate group together with interest on those sums as required by sections 78 and 80 of the Value Added Tax Act 1994 (VATA 1994).
At earlier stages in the proceedings, the dispute concerned HMRCs claim to tax several companies within the group on both repayments and also interest on those repayments, which in aggregate amounted to over 630m.
Now the only question is whether a repayment of overpaid VAT of 124,963,600 is liable to corporation tax in the hands of the appellant, Shop Direct Group (SDG).
SDG challenges the judgment of the Court of Appeal, upholding the determinations of the First tier Tribunal and the Upper Tribunal, that it is liable to corporation tax on the receipt of that sum.
The prior law
In order to understand the purpose of sections 103 and 106 of ICTA it is necessary to look at the prior law.
In short, until Parliament intervened by enacting sections 32 34 of the Finance Act 1960, sums which a taxpayer received as income from his trade, profession or vocation after he had ceased to trade or carry on his profession or vocation escaped taxation.
Case law established that the sums did not change their character after the discontinuance; their source was unchanged.
The courts treated those sums as the fruit of the trade or profession or as its fruit or aftermath.
The sums were held not to be taxable under Cases I or II of Schedule D because the trade, profession or vocation was not being carried on in the tax year in which the sums were received.
As a result, an astute taxpayer might choose to retire so that he received such income post cessation and thus tax free.
Similarly, as the case law shows, if the taxpayer were unfortunate and died before he had received income arising from his trade, profession or vocation, the receipts were not taxed as income in the hands of his personal representatives, heirs or assignees.
In 1930 Rowlatt J set out the basic principle in Bennett v Ogston (1930) 15 TC 374, in a passage which the House of Lords approved in the later cases to which I refer below.
He said (at p 378): When a trader or a follower of a profession or vocation dies or goes out of business and there remain to be collected sums owing for goods supplied during the existence of the business or for services rendered by the professional man during the course of his life or his business, there is no question of assessing those receipts to income tax; they are the receipts of the business while it lasted, they are arrears of that business, they represent money which was earned during the life of the business and are taken to be covered by the assessment made during the life of the business, whether that assessment was made on the basis of bookings or on the basis of receipts.
Thus in Brown v National Provident Institution [1921] AC 222 the tax paying companies escaped tax on profits derived from transactions conducted in the preceding year because they did not carry on the trade in the tax year in which they received the profit generating sums.
In Stainers Executors v Purchase [1952] AC 280, 23 TC 367, after the actor and film producer, Leslie Howard had been killed by enemy action in 1943, his executors received income from films, which he had produced or in which he had acted.
The Crown argued that the sums had assumed a different character after his death and could no longer be treated as profits and gains of his profession.
The House of Lords rejected this argument and held that the source of the payments was Mr Howards professional activity.
Lord Simonds stated (at p 289) that they retained the essential quality of being the fruit of his professional activity and Lord Asquith of Bishopstone (at p 290) described the payments as the fruit or aftermath of the professional activities of Mr Leslie Howard during his lifetime.
The House of Lords confirmed this approach in relation to royalties received after the death of an author in Carson v Cheyneys Executor [1959] AC 412.
Tax legislation thus left the door wide open to tax avoidance so long as the taxpayer could, by choosing when to discontinue a business, escape tax on post cessation receipts.
The statutory provisions
Parliament sought to close that door by enacting the predecessors of the provisions which are the subject of this appeal, initially in sections 32 34 of the Finance Act 1960, and imposed a charge to tax on post cessation receipts primarily under Case VI of Schedule D. Later, sections 103 to 110 of ICTA became the relevant provisions for both income tax and corporation tax.
Since the statutory provisions relating to income tax were separated from those relating to corporation tax in 2005, the ICTA provisions were amended to relate only to corporation tax.
Section 103 of ICTA, as it was worded in 2007 2008 at the time of the relevant transaction, stated so far as relevant: (1) Where any trade, profession or vocation carried on wholly or partly in the United Kingdom the profits of which are chargeable to tax has been permanently discontinued, corporation tax shall be charged under Case VI of Schedule D in respect of any sums to which this section applies which are received after the discontinuance. (2) Subject to subsection (3) below, this section applies to the following sums arising from the carrying on of the trade, profession or vocation during any period before the discontinuance (not being sums otherwise chargeable to tax) (a) where the profits for that period were computed by reference to earnings, all such sums in so far as their value was not brought into account in computing the profits for any period before the discontinuance, and (b) where the profits were computed on a conventional basis (that is to say, were computed otherwise than by reference to earnings) any sums which if those profits had been computed by reference to earnings, would not have been brought into the computation for any period before the discontinuance because the date on which they became due, or the date on which the amount due in respect thereof was ascertained, fell after the discontinuance. (emphasis added) In this case sub section (2)(a) is relevant as the trading companies computed their profits by reference to earnings.
The only other provision which it is necessary to set out is section 106 of ICTA (as amended by section 882 of, and paragraph 85 of Schedule 1 to, the Income Tax (Trading and Other Income) Act 2005) which governs the charge to tax in some, but not all, of the circumstances in which the rights to receive payments which are post cessation receipts are transferred.
Section 106(1) addresses the circumstance of a transfer for value and provides: Subject to subsection (2) below, in the case of a transfer for value of the right to receive any sum to which section 103, 104(1) or 104(4) applies, any corporation tax chargeable by virtue of either of those sections shall be charged in respect of the amount or value of the consideration (or, in the case of a transfer otherwise than at arms length, in respect of the value of the right transferred as between parties at arms length), and references in this Chapter to sums received shall be construed accordingly.
The subsection quantifies the charge to tax on the transferor of the right.
Thus, for example, if a company, which was entitled to receive royalties from films or books, permanently discontinued its business and assigned the right to receive those royalties to a third party at full market value, the assigning company would be liable to corporation tax under section 103 on its profits calculated by reference to the value it received as consideration for the assignment.
Subsection (2) of section 106 addresses the circumstance where, under sections 110(2)(a) and 337 of ICTA, there is a deemed discontinuance of a trade caused by a change in the persons carrying on the business.
It provides: Where a trade, profession or vocation is treated as permanently discontinued by reason of a change in the persons carrying it on, and the right to receive any sum to which section 103 or 104(1) applies is or was transferred at the time of the change to the company carrying on the trade, profession or vocation after the change, corporation tax shall not be charged by virtue of either of those sections, but any sum received by that company by virtue of the transfer shall be treated for corporation tax purposes as a receipt to be brought into the computation of the profits of the trade, profession or vocation in the period in which it is received.
So, if the transferee, while it is carrying on its trade, receives sums which are post cessation receipts of the former trade, section 103 does not apply to the transferees receipt.
Instead, the subsection treats those receipts by the successor company as part of its trade, brings them into the computation of its profits in the period in which they are received and subjects them to a charge under Case I of Schedule D.
The effect of subsection (2) can be seen in relation to income tax on a partnership, before it was re worded to apply only to corporation tax.
It superseded the decision of the House of Lords in Crompton v Reynolds 33 TC 288, [1952] 1 All ER 888.
In simplified form the facts of that case were as follows.
A partnership of cotton brokers as originally constituted had as an asset of their business a debt owed by a customer incurred in the course of their trade.
A change in the membership of the partnership gave rise to a technical dissolution of the old partnership and the new partnership acquired the assets and liabilities of the old partnership.
The new partnership subsequently collected the debt and escaped income tax on it because the House of Lords held that the collection of the debt was not part of the new partnerships trading operation and thus was not assessable to tax under Case I of Schedule D. Section 106(2) closed the loophole by treating such collection of a prior partnerships debt as a trading receipt of the new partnership.
The factual background
As I have said, the case now concerns only one repayment of 124,963,600 of overpaid VAT which HMRC made in the tax year 2007 2008.
It was referred to as VAT Repayment 2 or VRP2 in the decision of the First tier Tribunal and the judgments of the Upper Tribunal (Asplin J) and of the Court of Appeal and I will use the same term to describe it.
The overpayments arose because VAT was wrongly calculated when goods were sold to agents of the supplier with a discount for commission.
The complex facts are set out in full in the decision of the First tier Tribunal (Judge Roger Berner and Miss Sandi ONeill) [2012] UKFTT 128 (TC)).
I can therefore present them briefly.
The relevant supplies were made by companies in the group of companies between 1978 and 1996.
In presenting the appeal counsel grouped the relevant supplies and the repayments relating to those supplies (which were components of VRP2) as follows.
The supplies were made by: (i) SDG (then named John Noble Ltd) between 1 January 1986 and 31 December 1987 (VRP2A(i)); (ii) Reality Group Ltd (RGL) between 1 April and 30 September 1996 (VRP2A(ii)); (iii) Kay & Co Ltd (Kay & Co) between 1 January 1978 and 30 September 1996 and Abound Ltd (Abound) between 1 April 1978 and 30 September 1996 (VRP2B); and (iv) GUS plc or RGL between 1 January 1978 and 31 March 1996 (VRP2C).
The VAT had been paid in relation to those supplies by the representative member of the group of companies under section 43 of VATA 1994, which until 11 February 1992 was GUS Merchandise Corporation Ltd and between then and 6 August 1997 was Kay & Co Ltd. By the time VRP2 was paid in 2007, each of the companies which had made the relevant supplies had permanently discontinued its trade.
It is not necessary to set out the complex facts of the reorganisations of businesses within the group of companies in any detail.
The relevant transfers may be summarised as follows: (i) the trade of SDG was transferred to RGL on 1 June 1991; (ii) the trade of GUS plc was transferred to RGL on 1 April 1996 but the transferors right to receive a VAT repayment, which became VRP2C, was retained; (iii) the trades of Kay & Co and Abound were transferred to RGL on 1 April 1997 but the transferors rights to VAT repayments, which became VRP2B, were retained; (iv) the trade of RGL was transferred to SDG on 25 November 2000; and (v) finally, after March UK Ltd (March) had acquired from GUS plc various companies, including SDG, RGL, Kay & Co and Abound, on 27 May 2003, the trade of SDG was transferred to Shop Direct Home Shopping Ltd (SDHSL) on 28 October 2005.
No documentation vouching the transfers in (i) and (iv) above was available to the First tier Tribunal but the tribunal inferred and found as fact that in each case the whole of the trade was transferred, including the transferors right to VAT repayments.
On 24 June 2003 GUS plc, which had become the representative member of the VAT group on 20 May in that year, made a claim for repayment of VAT under section 80 of VATA 1994 from HMRC.
The claim included the various payments which led to the repayment which has been described as VRP2.
The person entitled to receive the repayments under section 80 of VATA 1994 was the representative member of the VAT group.
But the First tier Tribunal held that the benefit of the repayment was accepted as belonging to the appropriate companies acquired by March.
The tribunal did not have evidence of how the GUS group operated its treasury function but inferred that the trading companies had had to account to the representative member to fund the VAT due on their trading and that the representative member had to account to them for any repayments of VAT.
Argos Ltd (Argos) became the representative member of the VAT group on 9 October 2006.
Because, by the time HMRC paid VRP2 in September 2007, Argos had been transferred to another group of companies under Home Retail Group plc (HRG), it was necessary for the interested parties to enter into agreements to determine which entity within the corporate group which was not being sold should receive the repayments from Argos, which was acting as the groups representative member.
March, GUS plc and HRG agreed that the solicitors, Weil, Gotshal & Manges (WGM), be appointed agents of Argos and this was done.
WGM were also appointed the agent of SDG to receive VRP2 as part of the administrative arrangements for the receipt of this payment from HMRC.
Argos gave an irrevocable instruction to HMRC to pay all VAT repayments to WGM.
To secure its position, HMRC obtained (a) an undertaking from SDG that it would repay VRP2 and the statutory interest thereon in specified circumstances and (b) releases from Kay & Co, RGL and Abound in relation to their entitlement (if any) to receive any repayment when the GUS home shopping business was sold to March in May 2003.
On Marchs direction, WGM paid an amount equal to VRP2 to a Jersey registered company, L W Corporation Ltd (LWC), which March had made SDGs parent company on 25 October 2006.
SDG, which had been dormant since October 2005, had become an unlimited company on 30 January 2007 and so did not have to file its accounts in Companies House but only with HMRC.
This enabled it to avoid publicity regarding the receipt of VRP2 and the interest thereon.
Amounts equal to the sums paid to LWC were recognised as an exceptional item in the profit and loss account of SDG and as an inter company receivable due from LWC on SDGs balance sheet.
SDG thus received VRP2.
Consistently with this presentation in SDGs accounts, the First tier Tribunal held that SDG received VRP2 as beneficial owner at the time of receipt.
The tribunal interpreted Marchs agreed arrangements with GUS plc and HRG as an acknowledgement that SDG was entitled to VRP2.
There was no suggestion in the findings of fact that any other company ever questioned SDGs right to receive VRP2.
In my view the inference that SDG was beneficially entitled to VRP2 was obvious.
The proceedings below
After HMRC amended the corporation tax self assessments of the companies, including SDG, which received the various VAT repayments, the recipient companies appealed those assessments.
The First tier Tribunal in a decision dated 14 February 2012 dismissed each of the appeals.
On 19 April 2013 Asplin J sitting as a judge of the Upper Tribunal (Tax and Chancery Chamber) dismissed the appeal.
SDG alone appealed to the Court of Appeal in respect of its assessment to corporation tax on VRP 2 and the related statutory interest.
In a judgment dated 11 March 2014, which Briggs LJ wrote and with which Rimer LJ and Sir Stanley Burnton agreed, the Court of Appeal dismissed the appeal: [2014] EWCA Civ 255; [2014] STC 1383.
SDG applied for permission to appeal to this court and was permitted to appeal in relation to VRP2 only.
The issues now in dispute
Mr David Goldberg QC for SDG submitted that the maximum sum (if any) on which SDG should be charged corporation tax was the sum of about 200,000 which related to the supplies that SDG itself had made in 1986 and 1987 and which was VRP2A(i) in para 10 above.
He advanced three reasons in support of this contention.
First, he submitted that section 103 of ICTA imposed a tax charge only on the original trader (ie the person from whose pre discontinuation trading the sum arises).
As SDG did not carry on the trades which produced the bulk of VRP2, it was not liable to corporation tax on VRP2 except, possibly, for VRP2A(i).
Secondly, if the receipt of a sum equivalent to VRP2 arose from an intra group transfer to SDG without any assignment of rights to it, section 103 did not impose a charge.
Thirdly and alternatively, if the receipt of that sum were the result of a transfer to SDG of the right to the receipt, section 103 did not impose a charge and, in any event, section 106 precluded any charge to tax on SDG.
Mr Malcolm Gammie QC for HMRC challenged this analysis on every count.
He submitted (a) that it was illegitimate to read into section 103 any restriction that confined the charge to the original trader, (b) that section 106(1) applied only to transfers for value (which did not occur in this case) and (c) that section 106(2) did not apply unless the company to whom a trade was transferred received the transferors post cessation profits while it, the transferee, was trading (which also did not occur in this case).
He pointed out that SDG and the other group companies had led no evidence of the intra company transactions and had been content to rely on an agreed statement of facts.
It was not open to SDG to seek to undermine the First tier Tribunals findings of fact by inviting the court to make contrary inferences as to the nature of the intra group transactions.
Analysis
Section 6 of ICTA provided that corporation tax shall be charged on profits of companies.
Section 8 of that Act provided that a company shall be chargeable to that tax on all its profits wherever arising, and section 9 provided that the amount of any income shall for purposes of corporation tax be computed in accordance with income tax principles, all questions as to the amounts which are or are not to be charged to tax as a persons income being determined in accordance with income tax law and practice.
Section 18 of ICTA set out Schedule D which imposed a charge to tax on the annual profits or gains arising or accruing to any person residing in the United Kingdom from any trade, profession or vocation.
Section 18(3) set out the Cases of Schedule D. Case I charged tax in respect of any trade carried on in the United Kingdom or elsewhere.
Case VI, which section 103 brings into play, provided for tax in respect of any annual profits or gains not falling under any other Case of Schedule D .
Finally, section 18(4) of ICTA provided: The provisions of Schedule D and of subsection (2) above are without prejudice to any other provision of the Tax Acts directing tax to be charged under Schedule D or under one or other of the Cases set out in subsection (3) above, and tax directed to be so charged shall be charged accordingly.
Section 103 was one such provision.
Against this background the first question is whether section 103, which I have set out in para 6 above, contains an implicit restriction so that the charge to tax on post cessation receipts falls only on the former trader, whose trade was the source of the income, as Mr Goldberg submitted.
In my view the answer to that question is no, for the following three principal reasons.
First, there is nothing in the words of section 103(1) or (2) which necessitates such implication.
The charge to tax is clear: where a trade has been permanently discontinued, corporation tax shall be charged under Case VI on sums arising from the carrying on of the trade during any period before the discontinuance.
Section 103(1) required only that the sums are received after the discontinuance.
The section specified the source of the sums which fell within the charge but imposed no further restriction on the charge.
In particular, it imposed no limit on who was the recipient of the sums and thus liable to the charge.
Secondly, the mischief which section 103 addressed is clear.
Its predecessor, section 32(2) of the Finance Act 1960, contained the same phrase, sums arising from the carrying on of the trade .
The phrase referred in my view to the sums which the prior case law called the fruit of the trade.
Section 32 of the 1960 Act addressed the circumstance, which I have discussed in paras 3 and 4 above, of sums from an otherwise taxable source escaping tax as a result of the permanent discontinuance of a trade.
Like Briggs LJ (at para 29 of his judgment) I interpret the provision and its statutory successors as bringing into the Schedule D Case VI charge to tax the fruit of the discontinued trade not only in the hands of the former trader, his personal representatives and heirs but also in the hands of those to whom the rights to the post cessation receipts have been assigned or who are otherwise entitled to receive and keep the sums.
The mischief was the loophole created by the need for a continuing source in the year of receipt.
The purpose of section 103 was to make sure that sums which a person received, which arose from a discontinued trade and which were not otherwise taxed, were brought into a charge to tax.
The statutory innovation was to impose the Case VI charge, absent that continuing source, on the recipient of the sums.
No sound reason of policy has been suggested for confining the charge to the former trader and his personal representatives.
Thirdly, neighbouring provisions in ICTA drew a distinction between the person chargeable to tax and the person who had previously carried on the trade, giving rise to the inference that the former person was not confined to the latter.
Thus section 105, which provided for allowable deductions in the calculation of the section 103 charge, referred in subsection (1) in its pre 2005 form to computing the tax charge under section 103 in respect of sums received by any person and in its later form to sums received by any company.
It listed as the allowable deductions both losses and expenses which the former trader (the person by whom [the trade] was carried on) would have deducted if the trade had not been discontinued and also capital allowances to which the former trader (the person who carried on the trade) was entitled before the discontinuance.
Had Parliament intended that the section 103 charge should fall only on the former trader, there would have been no need to distinguish between any person on the one hand and the former trader on the other.
Section 105(4) before 2005 also used the phrase any person in relation to an analogous charge to tax after a change of basis under section 104.
Section 108 as initially enacted allowed the person by whom the trade had been carried on to elect to carry back the charge so that the sum in question was treated as if it had been received on the date of the discontinuance.
The way the opening of the section was worded is illuminating.
It provided the election was available: Where any sum is (a) chargeable to tax by virtue of section 103 or 104, and (b) received in any year of assessment beginning not later than six years after the discontinuance or, as the case may be, change of basis by the person by whom the trade, profession or vocation was carried on before the discontinuance or change, or by his personal representatives In my view again this wording suggests that there is a general charge to tax under section 103 and that the former trader (or his personal representative) is not the only recipient who falls within that charge.
Parliament had no reason to spell out in (b) that the sum had to be received by the former trader or his representatives if that was inherent in section 103.
Mr Goldberg also submitted that SDGs receipt of a sum equal to VRP2 did not have a former trade as its source but was the result of an intra group arrangement which was either a transfer for no consideration of that sum or a transfer for no consideration of the rights to VRP2.
He posed the question, what is the receipt from? and submitted that the correct answer was the transfer of either the sum or the right.
He referred to Hochstrasser v Mayes [1960] AC 376 and Abbott v Philbin [1961] AC 352 in support of the contention that regard must be had to the most proximate cause of the receipt.
I do not accept this submission.
In my view those cases have no bearing.
They concern the charge to tax under Schedule E on the remuneration of an employee.
I accept Mr Gammies submission that in the context of Schedule E the relevant statutory question focused on the character of the receipt in the employees hands.
Rule 1 of the Schedule spoke of a charge on a person having or exercising an office or employment in respect of salaries perquisites or profits whatsoever therefrom (emphasis added).
The question was whether the employee has received money or moneys worth representing remuneration for his services.
By contrast, under section 103 the focus was on the original source of the receipt.
The decisions and arrangements within the VAT group of companies about the specific company which was to receive the repayment did not alter the original source of the receipt.
The question was whether the sum received arose from the discontinued trade before its discontinuance.
Section 106(1), which I have set out in para 7 above, also supports a wide interpretation of the scope of the section 103 charge.
Contrary to Mr Goldbergs submission, I cannot read the subsection as covering all transfers whether for value or for no consideration (other than the transfer of the right to receive the post cessation payments when there is a deemed discontinuance of the trade under subsection (2)).
The opening words of subsection (1) show that the subsection relates to transfers for value.
Where the transfer is at arms length, the transferor is charged under section 103 by reference to the stipulated consideration.
The words in parenthesis substitute market value where the transfer is not at arms length.
It is true that it may appear anomalous that the subsection governs a transfer for a nominal value, say 50 pence, in a transaction otherwise than at arms length but not a transfer for no consideration.
But that is what the section says.
Further, the anomaly is more apparent than real if, as I consider, section 103 imposes a charge on the gratuitous transferee.
Thus, for example, section 103 when it extended to the individual taxpayer would have applied to an author who on his retirement assigned for value the future royalties arising from his work.
Having chosen to capitalise his future income flow, he would be taxed at the market value of that income flow as at the date of transfer rather than on his future receipts as and when received.
But where, on his retirement, he assigned the future royalties to his spouse or friend for no consideration, section 103 would tax the receipts when they are received by the transferee.
That to my mind is a rational regime.
Section 106(2), which I have set out in para 8 above, deals with the circumstance that a trade is treated as having been discontinued by reason of a change of the persons carrying it on and at the same time the right to receive the post cessation receipts is transferred to the company that carries on the trade thereafter.
The rule is set out in the phrase: corporation tax shall not be charged by virtue of either [section 103 or 104], but any sum received by that company by virtue of the transfer shall be treated for corporation tax purposes as a receipt to be brought into the computation of the profits of the trade in the period in which it is received.
I construe the words after the conjunction but as the trigger for disapplying sections 103 and 104.
Like Briggs LJ, I adopt a purposive analysis.
I do not accept that Parliament intended to create a large class of post cessation receipts which the transferee could release from a charge to tax by the simple expedient of discontinuing its trade or by creating a deemed discontinuation by transferring its trade to another person while reserving to itself the right to receive those receipts.
That was the mischief which led to the enactment of sections 32 to 34 of the Finance Act 1960 in the first place.
In my view this subsection takes effect only if the transferee receives those sums while it is trading.
If it does, the transferee is taxed under Case I of Schedule D.
If it does not receive the sums or if it receives them after it has ceased trading, section 103 applies to impose a charge on the recipient.
In summary, (i) the basic rule in section 103 is that sums arising from the carrying on of the trade before discontinuance are, if received after discontinuance, charged to tax under Case VI of Schedule D; (ii) there is no restriction in section 103 itself on who the recipient of those fruits of the trade may be; (iii) section 106(1) quantifies the section 103 charge at the amount of the consideration or the market value of the rights to such sums when the former trader transfers its rights to those future receipts for value and the subsection imposes the charge on the former trader; and (iv) section 106(2) disapplies section 103 and substitutes Case I of Schedule D only if the transferee company is carrying on the continuing business when it receives the fruits of the trade, which is deemed to have been discontinued.
It is necessary now to apply that analysis to the facts as found by the First tier Tribunal.
Before so doing, I record that SDG did not argue before the First tier Tribunal that section 106(1) had the effect of imposing a charge to tax on an entity other than SDG.
The Court of Appeal refused to allow SDG to run such an argument.
I also am satisfied that it would not be fair to allow the argument to be advanced at this late stage.
It involves SDG inviting the court to make inferences from findings of fact which were not directed to the argument it now wishes to advance.
SDG did not lead any evidence about the various intra group transfers.
It may be that SDG did not have the necessary evidence to explain how it was arranged that it should receive VRP2.
But SDG had the burden of overturning the challenged assessment and did not lead evidence to achieve that.
The court must therefore apply the law to the facts as found by the First tier Tribunal.
In any event, SDGs principal case before this court was that there must have been an intra group transfer or transfers of the component parts of VRP2 the sum of money to it for no consideration and that there was no transfer to it of the rights to repayment which made up VRP2.
If that is what occurred, or if there had been a transfer of the rights for no consideration, it would not assist SDGs appeal as section 106(1) would not apply to impose a charge on the transferor or transferors in the absence of a sale.
Turning to the First tier Tribunals findings of fact, it is clear from the summary in para 11(ii) above that on the transfer of the trade of GUS plc in 1996, the entitlement to a VAT repayment arising from the discontinued trade, which became VRP2C, was not transferred.
Similarly, Kay & Co and Abound retained their equivalent entitlements when their trades were transferred to RGL in 1997 (para 11(iii) above).
Those entitlements became VRP2B. There is no explanation as to how those entitlements resulted in VRP2C and VRP2B being paid to SDG.
There is no suggestion that either the transfer of the trade of SDG to RGL (para 11(i) above) or the later transfer of RGLs trade to SDG (para 11(iv) above), both of which may have relevance to the two components of VRP2A, was for value.
Accordingly, section 106(1) is of no relevance to these transactions and no tax falls to be charged on the various transferors.
Further, there was no evidence and no findings that any of the intra group transfers which may have occurred in order to transfer the right to receive VRP2 to SDG involved transfers for value.
Again, section 106(1) has no application.
Section 106(2) also is of no relevance.
While the trade of SDG was transferred to SDHSL in 2005 (para 11(v) above), none of the repayments of VAT were made to SDHSL.
That is the end of the matter.
It is therefore not necessary to address Mr Goldbergs challenge to the finding by the First tier Tribunal that the transfer of SDGs trade to SDHSL did not include the entitlement to the VAT repayments, which was based on his construction of the transfer agreement between SDG and SDHSL in 2005.
What is clear from the findings (viz paras 13 and 14 above) is that March organised the groups affairs so that VRP2 would be paid by HMRC to SDG via the solicitors, WGM, and that HMRC protected itself against other possible claimants by obtaining releases.
SDG, as the First tier Tribunal found, received VRP2 as its beneficial owner.
It received sums arising from the carrying on of the trade of the companies enumerated in para 11 above during periods before the discontinuance and the sums were not otherwise chargeable to tax.
VRP2 accordingly is subject to a charge to corporation tax in the hands of its recipient, SDG.
Conclusion
Before concluding, I would like to acknowledge the admirable decision of the First tier Tribunal in this case, which involved grappling with many more factual and legal issues than this court has had to address.
I would dismiss the appeal.

summary:
This appeal concerns a repayment of overpaid value added tax (VAT) of approximately 125m (the VAT Repayment) received by the appellant, Shop Direct Group (SDG), a company in the Littlewoods corporate group (the Group).
Over a number of years, companies within the Group made substantial overpayments of VAT to HMRC.
These VAT overpayments were made on an incorrect understanding of law: the VAT was wrongly calculated when goods were sold to agents of the supplier with a discount for commission.
The relevant supplies were made between 1978 and 1996 by companies within the Group, including SDG.
VAT was paid to HMRC in relation to these supplies by the representative member of the Group under section 43 of Value Added Tax Act 1994 (VATA 1994).
By 2007, following a series of reorganisations within the Group, each of the companies which had made relevant supplies had permanently discontinued its trade.
In June 2003, the representative member of the Group made a claim for repayment of VAT from HMRC under section 80 of VATA 1994.
This claim included the various payments which led to the VAT Repayment.
In September 2007, HMRC made the VAT Repayment pursuant to arrangements which resulted in the VAT Repayment being received by SDG as beneficial owner at the time of receipt.
The issue before the Supreme Court is whether the VAT Repayment is liable to corporation tax under the Income and Corporation Taxes Act 1988 (ICTA, later rewritten in the Corporation Tax Act 2009).
Sections 103 and 106 of ICTA imposed a charge to corporation tax on post cessation receipts from a trade, profession or vocation.
These provisions and their statutory predecessors were enacted to prevent tax avoidance by businesses choosing when to discontinue a business in order to escape tax on post cessation receipts [1, 3 9].
In the proceedings below, the First tier Tribunal, Upper Tribunal and Court of Appeal all held that SDG was liable to corporation tax on the receipt of the VAT Repayment.
The Supreme Court unanimously dismisses SDGs appeal.
Lord Hodge (with whom Lord Neuberger, Lord Reed, Lord Carnwath and Lord Hughes agree) gives the judgment of the court.
Against the background of the other relevant provisions of ICTA [18], the court concludes that section 103 does not contain an implicit restriction so that the charge to tax on post cessation receipts falls
only on the former trader whose trade was the source of the income [19].
There are three reasons in support of this conclusion: First, there is nothing in the wording of section 103(1) or (2) which necessitates such implication.
The charge to tax is clear: where a trade has been permanently discontinued, corporation tax shall be charged on sums arising from the carrying on of the tradeduring any period before the discontinuance.
Section 103(1) required only that the sums are received after the discontinuance; it specified the source of the sums falling within the charge but imposed no further restriction [20].
Secondly, section 103 was designed to catch the fruit of the trade.
Its aim was to make sure that sums which a person received, which arose from a discontinued trade and which were not otherwise taxed, were brought into a charge to tax.
No sound policy reason has been suggested for confining the charge to the former trader and his personal representatives [21].
Thirdly, the neighbouring provisions of section 103 drew a distinction between the person chargeable to tax and the person who had previously carried on the trade.
This suggests that the former was not confined to the latter [22 23].
The court rejects SDGs submission that the sum it received equivalent to the VAT Repayment did not have a former trade as its source, but was the result of an intra group arrangement which was either a transfer for no consideration of that sum, or a transfer for no consideration of the rights to the VAT Repayment.
Under section 103 of ICTA, the focus was on the original source of the receipt; the arrangements within the Group as to the specific company that was to receive the VAT Repayment did not alter that original source [24].
Section 106 of ICTA also supports a wider interpretation of the scope of the section 103 charge to corporation tax: section 106(1) quantifies the section 103 charge at the amount of the consideration or the market value of the rights to such sums when the former trader transfers its rights to those future receipts for value and the subsection imposes the charge on the former trader [25]; and section 106(2) disapplies section 103 and substitutes another Case of Schedule D only if the transferee company is carrying on the continuing business when it receives the fruits of the trade which is deemed to have been discontinued [26].
Applying this analysis of sections 103 and 106 of ICTA to the facts of this case, the court concludes that the Groups affairs were organised such that the VAT Repayment was received by SDG as beneficial owner, receiving sums arising from the carrying on of the trade of the companies making relevant supplies during periods before the discontinuance and the sums were not otherwise chargeable to tax.
The VAT Repayment accordingly is subject to a charge to corporation tax in the hands of SDG [28 31].


judgement:
In this country, we are wary of giving too much power to the police.
We believe that we should be free to be out and about in public without being subjected to compulsory powers of the police, at least unless and until they have reasonable grounds to suspect that we are up to no good.
We have so far resisted suggestions that we should all have to carry identity cards that the police can demand to see whenever they want.
We have unhappy memories of police powers to stop and search suspected persons even with reasonable grounds.
We are even more suspicious of police powers to stop and search without having reasonable grounds to suspect that we are committing or going to commit a crime.
Nevertheless, there are a few instances in which our Parliament has decided that such suspicionless stop and search powers are necessary for the protection of the public from terrorism or serious crime.
The court can examine whether such a law is itself compatible with the rights set out in Schedule 1 to the Human Rights Act 1998.
However, if it finds that it is not, the most the court can do is to make a declaration of incompatibility under section 4 of the Human Rights Act, leaving it to Parliament to decide what, if anything, to do about it.
This is the primary remedy sought by Mr Southey QC on behalf of the claimant in this case.
But, under section 6 of the Human Rights Act, even a compatible law has to be operated compatibly with the Convention rights in any individual case.
There are many laws which are capable of being operated both compatibly and incompatibly, depending upon the facts of the particular case.
The compatibility of the law itself has therefore to be judged in conjunction with the duty of the police to operate it in a compatible manner.
The law in question is contained in section 60 of the Criminal Justice and Public Order Act 1994.
It is now common ground that the power of suspicionless stop and search which it contains is an interference with the right to respect for private life, protected by article 8 of the European Convention on Human Rights, although perhaps not at the gravest end of such interferences.
It is also common ground that the power pursues one of the legitimate aims which is capable of justifying such interferences under article 8(2), namely the prevention of disorder or crime.
The argument is about whether it is in accordance with the law as is also required by article 8(2).
In one sense, of course it is, because it is contained in an Act of the United Kingdom Parliament.
But the Convention concept of legality entails more than mere compliance with the domestic law.
It requires that the law be compatible with the rule of law.
This means that it must be sufficiently accessible and foreseeable for the individual to regulate his conduct accordingly.
More importantly in this case, there must be sufficient safeguards against the risk that it will be used in an arbitrary or discriminatory manner.
As Lord Kerr put it in Beghal v Director of Public Prosecutions (Secretary of State for the Home Department and others intervening) [2015] UKSC 49; [2015] 3 WLR 344, at para 93, The opportunity to exercise a coercive power in an arbitrary or discriminatory fashion is antithetical to its legality in this sense.
Section 60
offensive weapons in a particular locality at a particular time.
It provides: (l) If a police officer of or above the rank of inspector reasonably believes Section 60 is directed towards the risk of violence involving knives and other that incidents involving serious violence may (a) take place in any locality in his police area, and that it is expedient to give an authorisation under this section to prevent their occurrence, (aa) that (i) an incident involving serious violence has taken place in England and Wales in his police area; (ii) a dangerous instrument or offensive weapon used in the incident is being carried in any locality in his police area by a person; and it is expedient to give an authorisation (iii) under this section to find the instrument or weapon; or (b) that persons are carrying dangerous instruments or offensive weapons in any locality in his police area without good reason, he may give an authorisation that the powers conferred by this section are to be exercisable at any place within that locality for a specified period not exceeding 24 hours. (3) If it appears to an officer of or above the rank of superintendent that it is expedient to do so, having regard to offences which have, or are reasonably suspected to have, been committed in connection with any activity falling within the authorisation, he may direct that the authorisation shall continue in being for a further 24 hours. (3A) If an inspector gives an authorisation under subsection (1) he must, as soon as it is practicable to do so, cause an officer of or above the rank of superintendent to be informed. (4) This section confers on any constable in uniform power to stop any pedestrian and search him or anything (a) carried by him for offensive weapons or dangerous instruments; (b) to stop any vehicle and search the vehicle, its driver and any passenger for offensive weapons or dangerous instruments. (5) A constable may, in the exercise of the powers conferred by subsection (4) above, stop any person or vehicle and make any search he thinks fit whether or not he has any grounds for suspecting that the person or vehicle is carrying weapons or articles of that kind.
Dangerous instruments are defined in section 60(11) as instruments which have a blade or are sharply pointed.
Offensive weapons have the same meaning as in section 1(9) of the Police and Criminal Evidence Act 1984 (PACE), that is, any article (a) made or adapted for use for causing injury to persons; or (b) intended by the person having it with him for such use by him or by some other person.
If an incident of serious violence has already taken place (as contemplated by section 60(1)(aa)), it includes any article used in the incident to cause or threaten injury to any person or otherwise to intimidate .
Thus it will be seen that the individual police officers powers in section 60(4) and (5) depend upon a general authorisation (a) given by an officer of the rank of inspector or above, (b) for a period of up to 24 hours, although renewable for one further period of 24 hours, (c) within a particular locality, and (d) where the senior police officer reasonably believes that one or more of the three grounds set out in section 60(1) exists.
Section 60(5) makes it clear that the individual police officer operating under such an authorisation does not have to have any grounds for suspecting that the person or vehicle stopped and searched is carrying offensive weapons or dangerous instruments.
But section 60(4) makes it clear that his or her purpose must be to search for such things.
The exercise of the powers set out in section 60 is subject to a number of safeguards and restrictions, including those contained in section 2 of PACE and in the Code of Practice for the exercise of such powers, issued under section 66 of that Act.
In the Metropolitan Police area, it is also subject to the Metropolitan Police Services published Standard Operating Procedures, both on the general Principles for Stop and Search and on Section 60 of the Criminal Justice and Public Order Act 1994 in particular.
It is well established that failure to comply with published policy will render the exercise of compulsory powers which interfere with individual freedom unlawful: R (Lumba) v Secretary of State for the Home Department [2011] UKSC 12; [2012] 1 AC 245.
It is also likely to expose the individual officer to disciplinary action.
It will therefore be necessary to return to these additional constraints in some detail later.
The facts
The events which gave rise to these proceedings took place on 9 September 2010.
There was then a significant problem of gang related violence in the London Borough of Haringey, resulting from tensions between two rival gangs, and the risk that gangs from outside the borough would come to their aid.
Between 1 and 9 September there were many police intelligence reports relating to violent crime and the use of firearms, knives and other offensive weapons.
There was an attempted murder and a stabbing on 4 September and another stabbing on 5 September.
On 8 September there were intelligence reports about the use or storage or movement of firearms.
These indicated a risk of further violence on the afternoon, evening and night of 9 September.
In the morning of 9 September, Superintendent Barclay, Superintendent (Operations) in the Borough of Haringey, formed the belief (under section 60(1)(a)) that further incidents of serious violence were likely to take place that day and also (under section 60(1)(aa)) that people would be travelling to Haringey in possession of weapons that had been used in the incidents which had already taken place.
Accordingly at 11.20 am he completed Form 5096, which constituted the authorisation.
This authorised searches between 1.00 pm on 9 September 2010 and 6.00 am on 10 September in the whole Borough of Haringey apart from the wards of Fortis Green, Highgate, Bounds Green, Alexandra, Muswell Hill and Woodside.
Under Grounds he checked the boxes corresponding to section 60(1)(a) and (aa).
Under Additional notes was stated There are increasing tensions at present between gangs in this borough and boroughs beyond those neighbouring ours.
A section 60 in the terms requested would support the aims of the tasked resources [to tackle Most Serious Violence, Serious Youth Violence and Knife Enabled Crime] and be a visible presence to deter the commission of offences in this borough.
There followed details of the numerous intelligence reports, many to do with rivalry between the Wood Green Mob and the Grey Gang, which had led to this belief.
The form concluded that In respect of the Human Rights Act 1998 Authorisation is Proportionate, Legal, Accountable and Necessary, in order to protect members of the public from being involved/surrounded by serious unlawful violence between opposing gang members.
There is a history of violence between rival gangs on the borough which has previously resulted in serious assaults and criminal damage.
Officers on duty were notified of the authorisation either in their daily briefing packs or over their radios.
At the time of these events, Mrs Roberts was 37 years old, and working as a support worker providing in class support for young people with disabilities and learning difficulties.
She had no convictions or cautions for criminal offences.
She is of African Caribbean heritage.
On 9 September 2010, shortly after 1.00 pm, she was travelling on the No 149 bus in Tottenham.
She had not paid her fare.
A ticket inspector read her Oyster card and found that, not only had it not been validated for that journey, but also that it did not have enough funds on it to pay the fare.
When questioned, Mrs Roberts gave a false name and address and also falsely stated that she did not have any identification with her.
The police were called and Police Constable Jacqui Reid attended.
Mrs Roberts again denied having any identification with her.
She appeared nervous and was keeping a tight hold upon her bag.
PC Reid considered that she was holding her bag in a suspicious manner and might have an offensive weapon inside it.
It was not uncommon for women of a similar age to carry weapons for other people.
Earlier that day PC Reid had been involved in the search of such a woman who had been found to be in possession of a firearm and an offensive weapon and arrested.
PC Reid explained her powers under section 60 of the 1994 Act and that she would search Mrs Roberts bag.
Mrs Roberts said that she would prefer to be searched in a police station.
PC Reid said that this was unnecessary and she would do it there and then.
As she went to take Mrs Roberts bag, Mrs Roberts kept tight hold of it and began to walk away.
She was restrained and handcuffed but continued to walk away.
Eventually the police succeeded in restraining her.
PC Reid searched her bag and Mrs Roberts gave her correct name and address.
Inside the bag were bank cards in Mrs Roberts name and in two other names.
She was arrested on suspicion of handling stolen goods, but no further action on that matter was taken once it was confirmed that the cards were indeed her own, in her maiden name, and her sons.
PC Reid completed Form 5090, which recorded when and where the search had taken place, and gave the following reasons: Area is a hot spot for gang violence and people in possession of knives.
Subject kept holding tightly onto her bag and appeared nervous and as if trying to conceal something she didnt want police to find.
Mrs Roberts was handed a copy of this form after she was arrested and interviewed at the police station for the offence of obstructing the search.
She was later cautioned for that offence but the caution was quashed by consent following the institution of these proceedings.
Mrs Roberts explains that she did not want to be searched on the street because she was concerned that some of the young people with whom she worked might see it.
But it is now conceded that PC Reid acted in accordance with section 60 of the 1994 Act, and indeed that the interference with Mrs Roberts article 8 rights was proportionate to the legitimate aim of the prevention of crime.
Mrs Roberts brought judicial review proceedings alleging breaches of article 5 and of article 8 and of article 14.
Both the Divisional Court ([2012] EWHC 1977 (Admin)) and the Court of Appeal ([2014] EWCA Civ 69; [2014] 1 WLR 3299) held that there was no deprivation of liberty within the meaning of article 5 (and there is no appeal against that).
Both courts rejected the claim that the section 60 power was used in a manner which discriminated on grounds of race, contrary to article 14 (and there is no appeal against that).
Both courts held that there was an interference with the right to respect for Mrs Roberts private life in article 8, but that it was in accordance with the law.
That is the issue in this appeal.
The case law
As it is admitted that the interference with Mrs Roberts rights was, in the circumstances, proportionate to the legitimate aim of preventing crime, her claim can only succeed if the power under which it was done is in itself incompatible with the Convention rights because it does not have the character of law as required by the Convention.
As Lord Reed explained in R (T) v Chief Constable of Greater Manchester Police [2014] UKSC 35; [2015] AC 49, at para 114, for the interference to be in accordance with the law, there must be safeguards which have the effect of enabling the proportionality of the interference to be adequately examined.
Whether the interference in a given case was in fact proportionate is a separate question.
The T case, as Lord Hughes explained in Beghal, at para 31, was concerned with a rigid rule which did not have the flexibility to ensure that interferences with article 8 rights were proportionate.
In Beghal, as in this case, on the other hand, the court was concerned with the reverse situation, where safeguards may be required to guard against a broad discretion being used in an arbitrary, and thus disproportionate manner.
This is the first case in which the power in section 60 has come before this court or before the European Court of Human Rights in Strasbourg.
But two other powers of stop and search have come before this court or its predecessor, the appellate committee of the House of Lords, and one of those cases has gone to the Strasbourg court.
We will deal with these, and another relevant Strasbourg decision, in chronological order.
R (Gillan) v Commissioner of Police of the Metropolis [2006] UKHL 12; [2006] 2 AC 307, concerned the powers in sections 44 to 46 of the Terrorism Act 2000.
Section 44(4) empowered a police officer of at least the rank of assistant chief constable to grant an authorisation for a renewable period of up to 28 days covering a specified area or place, which could be the whole of a police area.
The practice was to grant successive 28 days authorisations covering the whole Metropolitan Police area.
Under section 46(3) to (7), authorisations were subject to confirmation by the Home Secretary within 48 hours, failing which they ceased to have effect.
But such confirmation had never been refused.
Under section 44(3), authorisations can be given only if the person giving it considers it expedient for the prevention of acts of terrorism, a very broad ground.
Terrorism is widely defined in section 1 of the 2000 Act.
Under section 44(1) and (2) an authorisation allowed any uniformed police officer to stop a vehicle in the area and search it, the driver and any passenger, and to stop a pedestrian in the area and search the pedestrian and anything carried by him.
Under section 45(1), the power could be exercised only for the purpose of searching for articles of a kind which could be used in connection with terrorism, but whether or not the constable has grounds for suspecting the presence of articles of that kind.
Under section 45(4), he could detain the person or vehicle for such time as is reasonably required to permit the search to be carried out at or near the place where the person or vehicle is stopped.
Two people, a student and a journalist, who had been stopped and searched on their way to a demonstration, complained of breaches of several Convention rights, including article 8.
rights in question, Lord Bingham said this, at para 34: In considering the Convention requirement of legality common to all the The lawfulness requirement in the Convention addresses supremely important features of the rule of law.
The exercise of power by public officials, as it affects members of the public, must be governed by clear and publicly accessible rules of law.
The public must not be vulnerable to interference by public officials acting on any personal whim, caprice, malice, predilection or purpose other than that for which the power was conferred.
This is what, in this context, is meant by arbitrariness, which is the antithesis of legality.
This is the test which any interference with or derogation from a Convention right must meet if a violation is to be avoided.
He went on to hold, at para 35, that the power in question did meet these requirements.
That the constable need have no suspicion cannot, realistically, be interpreted as a warrant to stop and search people who are obviously not terrorist suspects, which would be futile and time wasting.
It is to ensure that a constable is not deterred from stopping and searching a person whom he does suspect as a potential terrorist by the fear that he could not show reasonable grounds for his suspicion.
He had earlier, at para 14, when rejecting the argument that expedient must be read down to necessary identified 11 constraints on the abuse of the power.
The other members of the committee agreed with him on this point, while adding observations of their own, in particular that race or ethnicity could never be the sole ground for choosing a person to stop and search.
In Gillan v United Kingdom (2010) 50 EHRR 1105, the Strasbourg court took a different view.
The authorisation could be given for reasons of expediency rather than necessity.
Once given, it was renewable indefinitely.
The temporal and geographical restrictions were no real check.
Above all, the court was concerned at the breadth of the discretion given to the individual police officer, the lack of any need to show reasonable suspicion, or even subjectively to suspect anything about the person stopped and searched, and the risks of discriminatory use and of misuse against demonstrators and protesters in breach of article 10 or 11 of the Convention.
In particular, in the absence of any obligation on the part of the officer to show a reasonable suspicion, it is likely to be difficult if not impossible to prove that the power was improperly exercised (para 86).
Hence the applicants article 8 rights had been violated.
Despite this, it cannot be concluded from Gillan that the Strasbourg court would regard every suspicionless power to stop and search as failing the Convention requirement of lawfulness.
In Colon v The Netherlands (2012) 55 EHRR SE45, it declared inadmissible a complaint about a Dutch power which in some respects was more comparable to the power at issue in this case than was the power in Gillan.
Acting under the Municipalities Act, with the authority of a byelaw passed by the local council, the Burgomaster of Amsterdam designated most of the old centre of Amsterdam as a security risk area for a period of six months and again for a further period of 12 months.
Under the Arms and Ammunition Act, this enabled a public prosecutor to order that, for a randomly selected period of 12 hours, any person within the designated area might be searched for the presence of weapons.
The prosecutor had to give reasons for the order by reference to recent reports.
The applicant refused to submit to a search when stopped and was arrested and prosecuted for failing to obey a lawful order.
The applicants complaint that this interference with his article 8 rights was not in accordance with the law was limited to the ineffectiveness of the judicial remedies available, in particular that no prior judicial authorisation for the order was necessary (para 74).
The court pointed out that the Burgomasters designation had to be based on a byelaw adopted by an elected representative body, which also had powers to investigate the Burgomasters use of the power.
There was also an objection and appeal mechanism.
The criminal courts could then examine the lawfulness of the use made of it.
Hence the power was in accordance with the law (paras 75 79).
The court went on to find that the interference was necessary in a democratic society.
The legal framework involved both the Burgomaster and the prosecutor, hence no single executive officer could alone order a preventive search operation.
These preventive searches were having their intended effect of helping to reduce violent crime in Amsterdam.
These reasons were sufficient to justify the unpleasantness and inconvenience to the applicant.
Mr Southey suggests that the reference, in the Dutch governments observations, to the individual police officers being given no latitude in deciding when to exercise their powers (para 68) must mean that they had to stop everyone in the designated area during the 12 hours in question and that therefore there was no risk of arbitrary decision making.
That cannot be right.
Old Amsterdam is a sizeable area frequented by many people both for business and for pleasure purposes.
His better point is that the applicant limited his complaint to the lack of prior judicial sanction.
The fact remains that the Strasbourg court held that particular suspicionless stop and search power compatible with article 8.
More recently, in Beghal, the Supreme Court has considered a rather different power, under Schedule 7 to the Terrorism Act 2000.
This allows a police or immigration officer to question a person at a port or in the border area whom he believes to be entering or leaving the United Kingdom or travelling by air within it.
It also applies to a person on board a ship or aircraft which has arrived anywhere in the United Kingdom.
The object of the questioning is to determine whether the person appears to be a terrorist within the meaning of that part of the Act.
But the officer does not have to have grounds for suspecting that he does.
This core power is supplemented by additional powers to stop, search and detain the person for a short time, and to require the production of documents.
The claimant was stopped and questioned for an hour and three quarters on returning to this country from a visit to her husband in France where he was in custody in relation to terrorist offences.
She was prosecuted for refusing to answer some of the questions.
By a majority, Lord Kerr dissenting, the Supreme Court declined to hold that the prosecution was an unjustified interference with her Convention rights.
Lord Hughes (with whom Lord Hodge agreed) pointed out that there is a distinction between port controls and street searches.
The former are a lesser intrusion than the latter.
We expect people to be searched at airports, for the safety of all.
He listed, at para 43, a number of effective safeguards which he considered sufficient to meet the requirement of legality: They include: (i) the restriction to those passing into and out of the country; (ii) the restriction to the statutory purpose; (iii) the restriction to specially trained and accredited police officers; (iv) the restrictions on the duration of questioning; (v) the restrictions on the type of search; (vi) the requirement to give explanatory notice to those questioned ; (vii) the requirement to permit consultation with a solicitor and the notification of a third party; (viii) the requirement for records to be kept; (ix) the availability of judicial review if bad faith or collateral purpose is alleged, and also via the principle of legitimate expectation where a breach of the code of practice or of the several restrictions listed above is in issue;
Lord Neuberger and Lord Dyson agreed, adding that in considering whether the legality principle was satisfied, one must look not only at the provisions of the statute or other relevant instrument which gives rise to the system in question but also at how that system actually works in practice (para 86).
The differences from the system in Gillan showed that these powers were more foreseeable and less arbitrary (para 87).
They could only be exercised (i) at ports and airports; (ii) against those passing through the UKs borders; (iii) for a limited purpose (para 88).
Unlike the powers in Gillan, they were not extraordinary; they were used against a tiny proportion of passengers; and they yielded useful results.
Nor could they be used against demonstrators and protesters (para 89).
They also pointed out that it was important to the effectiveness of these powers that they be exercised randomly and therefore unpredictably.
If this were not permissible the valuable power would either have to be abandoned or exercised in a far more invasive and extensive way, by questioning everyone passing through ports and airports (para 91).
Mr Southey points out that there are other ways of securing the benefit of random and thus unpredictable searches than leaving the choice of whom to search to individual police officers.
He himself has experienced a system in Mexico where passengers were randomly given a red or a green light: those given a red light were searched, those given a green light were not.
It is, however, rather hard to see how this would work with searches conducted on the street or even on the No 149 bus.
The other constraints
In addition to the limited scope of the power in section 60 itself, it is necessary to take into account the other constraints upon the exercise of these powers.
Those constraints arise both from the legal protection of the citizen from the misuse of police powers, and from the mechanisms designed to ensure that the police are accountable for their actions.
In relation to legal protection, we have mentioned section 6 of the Human Rights Act, to which it will be necessary to return.
In the event of a breach of that section, the victim of the unlawful act is entitled to seek a judicial remedy under section 8, which might in an appropriate case include an award of damages (as, for example, in H v Commissioner of Police of the Metropolis (Liberty and another intervening) [2013] EWCA Civ 69; [2013] 1 WLR 3021).
But the legal protection of the citizen pre dates the Human Rights Act.
In relation to searches, the starting point is the common law, under which it is contrary to constitutional principle and illegal to search someone to establish whether there are grounds for an arrest (Jackson v Stevenson (1897) 2 Adam 255).
Powers of stop and search therefore require Parliamentary authority.
The 1994 Act is one of a number of statutes which provide such authority.
Like other aspects of the relationship between the citizen and the police, however, the exercise of the powers conferred by the 1994 Act is subject to detailed statutory regulation by PACE.
Where there is a failure to comply with PACE, rendering the search unlawful, the victim can in principle bring an action for damages against the chief constable (or, in the case of the Metropolitan Police, the Commissioner), who is vicariously liable for the unlawful acts committed by his or her officers (as, for example, in OLoughlin v Chief Constable of Essex [1998] 1 WLR 374 and Abraham v Commissioner of Police of the Metropolis [2001] 1 WLR 1257).
Legal remedies before the courts are not, however, the only mechanism for protecting citizens against the misuse of police powers and ensuring the accountability of police officers.
At a national level, a variety of powers are possessed by the Home Secretary, including the power to issue Codes of Practice under section 66 of PACE, and the power to appoint Her Majestys Inspectors of Constabulary and to direct them to carry out inspections and report to her, under section 54 of the Police Act 1996.
A wide range of policing matters, including operational decisions by chief constables, are also examined in Parliament by the Home Affairs Select Committee.
At a local level, police and crime commissioners, directly elected by the communities they serve and subject to scrutiny by local police and crime panels, are responsible for holding the chief constable of their area to account for the way in which he or she, and the people under his or her direction and control, exercise their functions: Police Reform and Social Responsibility Act 2011, section 1(7).
In relation to the Metropolitan Police, the equivalent function is performed by the Mayors Office for Policing and Crime, an office occupied by the Mayor of London: section 3(7) of the 2011 Act.
At the time of the events with which this appeal is concerned, a broadly similar function was performed by police authorities established under the Police and Magistrates Courts Act 1994, and, in relation to the Metropolitan Police, by the Metropolitan Police Authority established under the Greater London Authority Act 1999.
In individual cases, complaints about the misuse of police powers can be made to the chief constable (or, in the case of the Metropolitan Police, to the Commissioner), to the police and crime commissioner (or, in the case of the Metropolitan Police, to the Mayors Office for Policing and Crime), or to the Independent Police Complaints Commission, an independent body established under the Police Reform Act 2002.
Provision is made under that Act for the determination of complaints and for a system of appeals.
That general explanation forms the background to the constraints and safeguards applying specifically to the powers with which this appeal is concerned.
First there are the requirements of sections 2 and 3 of PACE, which apply to most stop and search powers, including those under section 60 of the 1994 Act.
Under section 2, before the officer begins the search, he must take reasonable steps to tell the person being searched his name, the station to which he is attached, the object of the search and the grounds for making it, and that the person can only be detained for the time reasonably required to carry out the search.
Breach of section 2 would render the search unlawful (Osman v Director of Public Prosecutions (1999) 163 JP 725).
Section 3 requires the officer to make a record in writing unless this is not practicable, either as part of the custody record if the person is arrested and taken to a police station or on the spot or as soon as practicable after the search if he is not.
The person searched is entitled to a copy of the record if he asks for one within three months.
This was the Form 5090 handed over to Mrs Roberts after her arrest (see para 12 above).
Next there are the statutory Codes of Practice, issued under section 66 of PACE.
Code A relates to the exercise by police officers of statutory powers of stop and search.
This governs both the authorisation and the search itself.
It is not practicable to cite all the relevant paragraphs of the 2009 version in force at the time of this encounter.
But the flavour may be gleaned from para 1.1: Powers to stop and search must be used fairly, responsibly, with respect for people being searched and without unlawful discrimination.
The Race Relations (Amendment) Act 2000 makes it unlawful for police officers to discriminate on the grounds of race, colour, ethnic origin, nationality or national origins when using their powers.
Mr Southey complains that this does not in terms tell police officers that they must not select people on grounds of race or ethnicity alone.
But that is what discrimination means.
If anything, this paragraph is clearer than the one in the current (2015) version, which has been updated to refer to all the characteristics now protected by the Equality Act 2010, without listing them.
The current Code does contain a helpful paragraph, para 2.14A, which was not present in the earlier version: The selection of persons and vehicles under section 60 to be stopped and, if appropriate, searched should reflect an objective assessment of the nature of the incident or weapon in question and the individuals and vehicles thought likely to be associated with that incident or those weapons.
The powers must not be used to stop and search persons and vehicles for reasons unconnected with the purpose of the authorisation.
When selecting persons and vehicles to be stopped in response to a specific threat or incident, officers must take care not to discriminate unlawfully against anyone on the grounds of any of the protected characteristics set out in the Equality Act 2010 (see para 1.1).
Nevertheless, the earlier Code explains and stresses the importance of explaining and recording the reasons for the stop (paras 3.8 3.11 and section 4).
Supervising officers must monitor the use of stop and search powers and should consider in particular whether there is any evidence that they are being exercised on the basis of stereotyped images or inappropriate generalisations (para 5.1).
They must keep comprehensive statistical records so as to identify disproportionate use either by particular officers or against particular sections of the community (para 5.3).
As to the authorisation, both the period of time and the geographical area defined in the authorisation must be the minimum necessary to achieve the legislative aim (para 2.13 and Notes for Guidance, para 13).
Thus the authorisation in this case was for less than the maximum 24 hours permitted and the area, although substantial, excluded quite large areas of the borough of Haringey.
The Notes for Guidance, at para 10, stress that: The powers under section 60 are separate from and additional to the normal stop and search powers which require reasonable grounds to suspect an individual of carrying an offensive weapon (or other article).
Their overall purpose is to prevent serious violence and the widespread carrying of weapons which might lead to persons being seriously injured by disarming potential offenders in circumstances where other powers would not be sufficient.
They should not therefore be used to replace or circumvent the normal powers for dealing with routine crime problems.
Paragraph 11 points out that authorisations require a reasonable belief that must have an objective basis, of which examples are given.
Then there are the applicable policies and instructions of the police force in question, in this case, the Metropolitan Police.
The Metropolitan Police Standard Operating Procedures are published on their website.
These largely repeat the requirements of the legislation and the Code, but with some additional features.
They are designed to be relatively simple to use and easy to remember.
The Principles for Stops and Searches, current at the time, contains a section on the Race Relations (Amendment) Act 2000, which extended the duties in the Race Relations Act 1976 to public authorities including the police.
This reminds officers of their general duty to have due regard to eliminating unlawful discrimination.
More to the point, it states that Officers must be aware that to go beyond their powers and search somebody solely on grounds of race, colour, or otherwise treat someone unfavourably on such grounds is unlawful and the individual officer, in addition to the Commissioner, may face legal or disciplinary proceedings.
The Principles also contain a section on Human Rights, instructing officers to apply the PLAN B checklist to all their decision making.
Their actions must be Proportionate, have a Legal power or purpose, Accountable (through record keeping and scrutiny), Necessary in the circumstances and use the Best information available.
The specific Standard Operating Procedures on Section 60 Criminal Justice and Public Order Act, current at the time, instructed senior officers giving the authorisation that these must be justified on the basis that the exercise of the power is, in all circumstances a proportionate and necessary response for achieving the purpose for which Parliament provided the power.
It reminds officers that they must have a reasonable belief in the grounds and that there must be an objective basis in intelligence or relevant information.
It suggests that the use of section 60 should be considered where there has been a significant increase in knife point robberies in a limited area and also, for example, for gang related violence or disorder, football related violence and events such as demonstrations and music concerts that typically include a large scale gathering of people which, combined with other factors, indicate a likelihood of violence or the commission of offences.
It stresses the importance of engagement with local community groups and of feedback.
Briefings should be the rule, if practicable.
For individual officers carrying out the stop and search, it provides guidance on filling out Form 5090 and about the encounter.
The mnemonic GOWISELY (Grounds, Object, Warrant, Station, Entitlement to a copy, Legal power, and tell the person You are being detained) applies, with some additional guidance.
These instructions are regularly reviewed.
Since the encounter in question they have been updated to take account of the Best Use of Stop and Search Scheme (BUSS), issued by the Home Secretary and College of Policing in April 2014 following reports prepared by Her Majestys Inspectors of Constabulary, under the direction of the Home Secretary, on the use of stop and search powers.
Announcing this to Parliament, the Home Secretary explained that she had long been concerned about the use of stop and search by the police.
Although an important police power, when misused it could be counter productive.
It was an enormous waste of police time.
And when innocent people were stopped and searched for no good reason it was hugely damaging to the relationship between the police and the public.
Nevertheless, adopting the scheme was not compulsory.
Police forces in this country are not subject to direction from the government.
They are operationally independent.
But in fact all of them have adopted it, including the Metropolitan Police.
BUSS covers all kinds of stop and search powers, but in relation to section 60 it specifically provides: (i) that Forces in the scheme will raise the level of authorisation to Assistant Chief Constable (or the equivalent in the Metropolitan Police and City of London Police); (ii) that authorisations must only be given when the officer believes it necessary, rather than merely expedient, for any of the statutory purposes; (iii) that in relation to future serious violence, the officer must reasonably believe that it will, rather than may, take place; (iv) that authorisations should be for no more than 15 hours in the first instance; and (v) that Forces must communicate with the public in the area in advance where practicable and afterwards.
Mr Southey argues that these improvements show that section 60 as enacted does not contain sufficient safeguards.
On behalf of the Secretary of State, Lord Keen QC argues that BUSS is irrelevant.
The Home Secretarys determination to seek improvements in the operation of all stop and search powers in order to promote better community relations does not prove that the previous use of the power was not in accordance with the law.
However, it is worth bearing in mind that there has been a very significant reduction in the use of these powers in recent years.
Discussion
Any random suspicionless power of stop and search carries with it the risk that it will be used in an arbitrary or discriminatory manner in individual cases.
There are, however, great benefits to the public in such a power, as was pointed out both by Lord Neuberger and Lord Dyson in Beghal and by Moses LJ in this case.
It is the randomness and therefore the unpredictability of the search which has the deterrent effect and also increases the chance that weapons will be detected.
The purpose of this is to reduce the risk of serious violence where knives and other offensive weapons are used, especially that associated with gangs and large crowds.
It must be borne in mind that many of these gangs are largely composed of young people from black and minority ethnic groups.
While there is a concern that members of these groups should not be disproportionately targeted, it is members of these groups who will benefit most from the reduction in violence, serious injury and death that may result from the use of such powers.
Put bluntly, it is mostly young black lives that will be saved if there is less gang violence in London and some other cities.
It cannot be too often stressed that, whatever the scope of the power in question, it must be operated in a lawful manner.
It is not enough simply to look at the content of the power.
It has to be read in conjunction with section 6(1) of the Human Rights Act 1998, which makes it unlawful for a police officer to act in a manner which is incompatible with the Convention rights of any individual.
It has also to be read in conjunction with the Equality Act 2010, which makes it unlawful for a police officer to discriminate on racial grounds in the exercise of his powers.
It might be thought that these two additional legal restraints were sufficient safeguard in themselves.
The result of breaching either will be legal liability and probably disciplinary sanctions as well.
It is said that, without the need to have reasonable grounds for suspecting the person or vehicle stopped to be carrying a weapon, it is hard to judge the proportionality of the stop.
However, that is to leave out of account all the other features, contained in a mixture of the Act itself, PACE and the Force Standard Operating Procedures, which guard against the risk that the officer will not, in fact, have good reasons for the decision.
The result of breaching these will in many cases be to render the stop and search itself unlawful and to expose the officers concerned to disciplinary action.
First, as to the authorisation itself: (i) the officer has reasonably to believe that the grounds for making an authorisation exist; (ii) those grounds are much more tightly framed than the grounds in Gillan; (iii) the officers belief clearly has to be based on evidence; (iv) he has to record in writing, not only what his grounds are, but the evidence on which his belief is based; (v) he has expressly to consider whether the action is necessary and proportionate to the danger contemplated; (vi) that is why, in reality, he has to believe that an authorisation is necessary rather than merely expedient; (vii) the authorisation can only be for a very limited period of time; (viii) it can only be renewed once for a limited period of time; rolling renewals are not possible; (ix) it can only cover a limited geographical area; (x) it is subject to review.
Second, as to the operation itself: (i) there should be prior briefing if possible and certainly de briefing afterwards; (ii) there should be prior community engagement if possible and certainly afterwards; (iii) where the authorisation is given by an officer below the rank of superintendent, it is subject to review by a superintendent; (iv) after the authorisation is over, the operation should be evaluated, in terms of whether its objectives were met, numbers of searches, number of arrests, number of weapons seized, disproportionality etc, and community confidence and reassurance.
Third, as to the actual encounter on the street: (i) the officer must be in uniform and identify himself by name and police station to the person stopped; (ii) the officer must explain the power under which he is acting, the object of the search and why he is doing it; (iii) the officer must record this in writing; (iv) the person searched is entitled to a copy of the form; (v) the purpose is limited to searching for offensive weapons or dangerous implements.
All of these requirements, in particular to give reasons both for the authorisation and for the stop, should make it possible to judge whether the action was necessary in a democratic society for the prevention of disorder or crime.
No system of safeguards in the world can guarantee that no one will ever act unlawfully or contrary to orders.
If they do so act, the individual will have a remedy.
The law itself is not to blame for individual shortcomings which it does its best to prevent.
It is not incompatible with the Convention rights.
It would not, therefore, be right to make a declaration of incompatibility in this case.
Neither would it be appropriate to make a declaration that the Guidance current at the time, or now, was inadequate or that this particular search was not in accordance with the law.
We would dismiss this appeal.

dataset_name: UK-Abs

summary:
This appeal involves a challenge to the compatibility of the police power contained in s 60 Criminal Justice and Public Order Act 1994 (s 60), with the right to respect for private life protected by article 8 of the European Convention on Human Rights (ECHR).
S 60 permits a police officer to stop and search any person or vehicle for offensive weapons or dangerous instruments, whether or not he has any grounds for suspecting that the person or vehicle is carrying them, when an authorisation from a senior police officer, which must be limited in time and place, is in force.
On 9 September 2010, in response to a period of gang related violence in Haringey, Superintendent Barclay authorised the carrying out of searches under s 60 for 17 hours in parts of the borough, concluding that it was a proportionate response to protect members of the public from serious violence.
That day, Police Constable Jacqui Reid was called to an incident in Tottenham involving a passenger who had not paid her fare on the no. 149 bus.
The passenger was the appellant, Mrs Roberts.
She had denied having identification with her and kept a tight hold on her bag.
PC Reid used the power under s 60 to search her bag, which enabled Mrs Roberts name to be established from a bank card.
Mrs Roberts brought judicial review proceedings against the police alleging breaches of a number of her rights under the ECHR.
Both the High Court and Court of Appeal rejected her claims.
The only claim pursued in her appeal to the Supreme Court was the alleged breach of article 8.
She sought a declaration of incompatibility under s 4 Human Rights Act 1998 on the ground that the power is not in accordance with the law.
Article 8 requires the law to be sufficiently accessible and foreseeable for an individual to regulate his conduct accordingly and to have sufficient safeguards against the risk that it will be used in an arbitrary or discriminatory manner
The Supreme Court unanimously dismisses Mrs Roberts appeal, holding that the safeguards attending the use of the s 60 power, in particular the requirements to give reasons both for the authorisation and for the stop and search, make it possible to judge whether the power has been exercised lawfully.
Both the power and the particular search of Mrs Roberts were in accordance with the law.
Lady Hale and Lord Reed give the only substantive judgment with which the other justices agree.
The power found in s 60 is one of the few instances where Parliament has decided that stop and search powers without reasonable grounds to suspect the commission of an offence are necessary for the protection of the public from terrorism or serious crime.
It was common ground in the appeal that the power interferes with the right to respect for private life but that it pursues a legitimate aim which is capable of justification under article 8(2).
The issue was whether it also satisfied article 8(2) by being in accordance with the law [3].
S 60 is directed towards the risk of violence involving knives and other offensive weapons in a particular locality.
It depends on an authorisation by an officer of the rank of inspector or above, who reasonably believes that incidents involving serious violence may take place in any locality in his police area, and that an authorisation of up to 24 hours (renewable once) is expedient to prevent their occurrence by allowing stops and searches in order to discover offensive weapons.
The exercise of the powers is subject to numerous safeguards and restrictions in the Police and Criminal Evidence Act 1984, the Code of Practice and the Standard Operating Procedures of the Metropolitan Police.
Failure to comply with these safeguards renders the exercise of compulsory powers which interfere with individual freedom unlawful [7, 28 37].
The authorisation made on 9 September 2010 followed police intelligence reports indicating a risk of further violence in connection with rival gangs.
When PC Reid attended the incident she considered that the appellant was holding her bag in a suspicious manner, and her experience was that it was not uncommon for women of a similar age to carry weapons for other people.
She therefore conducted a search of the appellants bag exercising the s 60 power, and provided the appellant with a form explaining these reasons [10 13].
This is the first challenge to the s 60 power to come before the court.
Previous case law concerning similar stop and search powers establishes that some but not every suspicion less power would fail the requirement of lawfulness under the ECHR.
It is often important to the effectiveness of the powers that they be exercised randomly and unpredictably.
The question is whether the legal framework permits the court to examine the propriety of the exercise of the power [15 26].
Whatever the scope of the power, it must be operated in a manner which is compatible with the ECHR rights of any individual and be free of discrimination [42].
These constraints, together with disciplinary sanctions against police officers, guard against the risk that the s 60 power will be exercised when the officer does not in fact have good reasons for the decision [43].
The requirements attaching to the authorisation [44], the operation [45] and the actual encounter on the street [46], in particular the requirement to give reasons, should make it possible to judge whether the action was necessary in a democratic society for the prevention of disorder or crime.
The law itself is not incompatible with article 8 [47].
Accordingly, a declaration under the Human Rights Act should not be made.
Nor should there be a declaration that the guidance current at the time was inadequate or that the particular search of the appellant was not in accordance with the law [48].