Mercury Tax Group Limited v HMRC: Difference between revisions

{{cn}}In {{citer|Mercury Tax Group Limited and Darren Neil Masters|HMRC|2008|EWHC|2721}}<ref>https://www.bailii.org/ew/cases/EWHC/Admin/2008/2721.html</ref> is a leading case on [[contract execution formalities]]. Hey, wait! Where are you going? This is worth reading!

It concerned an alleged a [[tax avoidance]] scheme. At this point let us cite our common observation that [[Little old ladies make bad law|little old ladies, welsh hoteliers and, apparently, tax dodgers make bad law]], so ''en garde''.  

At the time of [[execution and delivery]] the agreement must be complete. You can’t just staple an old signature onto a revised document.  

If you purport to sign something as a deed even if, to be binding, it doesn’t ''need'' to be a deed, the formal requirements of deed execution apply, and you can’t fall back on it being a [[simple contract]].

The Her Majesty’s<ref>As she then was. The crown is a gender-ambivalent shape-shifter.</ref> Revenue & Customs believed the Mercury Tax Group was, tax-wise, up to no good. 

Tax ''avoidance'' being the right side of an [[Bright line test|unbright line]], and tax ''evasion'' the wrong side of it — and much of the distinction between the states being one of [[Substance and form|form and not substance]]<ref>Well: both have the ''substantive'' objective of “paying less tax”, after all.</ref> — HMRC sought to uncover ''formal'' flaws in Mercury’s schemes that might push them across that line.  

 

The best “fruits” of the dawn raids were formal shortcomings in the way Mercury’s clients executed their contracts.

 

 

 

 

 

 

 

This is somewhat challenging to the idea that a signatory should hold the four corners of the contract before her, and ideally have read it, before applying pen to paper. But that is an old fashioned idea, and does not really reflect the distributed network of a hive mind that best described a functioning multi-national corporation. The thing is that the corporation agrees to this thing. How, internally, it got to the point of formally designating assent is something that counterparties should be less concerned about. [[Ostensible authority]] is your friend here.

 

 

In the normal commercial case, the affixation of authorised signature to paper — this is [[Execution date|execution]], but not yet [[Deliver|''delivery'']] — may happen when the deal is in its final furlong, but yet in advance of pricing, and that final [[Blob|blob-removal]] sweep: our intrepid signatory may safely disappear to Geneva. But this is just a firm getting its internal governance ducks in a row, and its senior executives getting that first lift in the morning. Should those blobs never be removed — should the deal crater in the final stretch — the execution page can be destroyed without anyone outside the firm ever seeing it.

 

What happened in Mercury was quite different. Here the clients were individuals, not multinational corporations. There was no separation of deliberative and executory powers. And they signed developed but incomplete drafts, rather than all-but-final execution documents. That is, the missing parts were not mere [[Blob|blobs]]. Between these executed drafts and the final documents — which clients never executed — there were substantial changes, “unheralded by any blanks or square brackets in the drafts”. Instead of having the client sign the final versions, Mercury detached signature pages from the drafts and stapled them to the final versions “with the intention that that should constitute his signature to that version.”

 

This is a long way from the market practice outlined above. Mercury argued that it wasn’t. They pointed to correspondence indicating that the client knew about and implicitly, if not expressly, authorised the changes — and failing that, that the changes were, from the customer’s point of view, immaterial. {{quote|“He referred me to the decision of the Court of Appeal in {{cite|Raiffeisen Zentralbank Osterreich AG|Crossseas Shipping Ltd|2001|1 WLR|1135}}, which he said was authority for the proposition that in the case of written contracts an alteration to the contract after signature did not invalidate it unless it was material in the sense of being ‘potentially prejudicial to the legal rights or obligations of the affected party’: that, he said, was plainly not the case here.”}}