What do tax lawyers talk about at lunch? In my case, it’s been the UK Supreme Court's majority decision (4:1) in Royal Bank of Canada. My colleague, Zoe Andrews, has covered the facts and decision in outline here.

It seems so unusual these days to have a split Supreme Court decision that it is worth delving deeper into Lord Briggs’ dissent – not least because it’s on the scope of something that has become a fundamental tenet of tax law, the Ramsay principle of statutory construction. 

In summary, Lord Briggs’ dissent (and how that reflects on the majority judgment) brings uncertainty into a concept that, up until Royal Bank of Canada, would otherwise have been considered as well established and settled. That is to say, prior to Royal Bank of Canada, there was almost no question that the Ramsay principle was a general principle of statutory interpretation (and application) not limited to certain areas of law (such as tax) and from which no statutory concept was immune. Following the majority’s judgment given by Lady Rose in Royal Bank of Canada, that position is no longer as clear cut. 

This is, however, not the end of the story as it were. The Supreme Court has yet another case involving the Ramsay principle waiting to be heard – with HMRC in HFFX having been granted permission to appeal to the Supreme Court.

What was Lord Briggs' dissenting judgment about?

Lord Briggs' "lonely disagreement" with the majority stems from what Lord Briggs characterises as a philosophical disagreement around how the Ramsay principle ought to have been applied in Royal Bank of Canada. The Ramsay principle is a principle of statutory interpretation which, broadly, holds that statutes should be interpreted purposively and applied to a realistic view of the facts at hand. The application of the Ramsay principle is well established and I have previously written about that here and here.

Putting aside Lord Briggs' conclusion on the facts themselves, it appears that Lord Briggs interpreted Lady Rose's judgment as narrowing the scope of the Ramsay principle. Specifically, Lord Briggs’ concern is that Lady Rose’s judgment relegates the Ramsay principle to a tool to be used to combat tax avoidance schemes and nothing more. Lord Briggs made this clear when he expressed his disagreement with Lady Rose as follows: 

"But I cannot agree with Lady Rose that the task of deciding whether the Payments fall within the confines of Article 6(2) is not illuminated by taking a realistic view of the transaction pursuant to which they were made, merely because its parties were not engaging in tax avoidance."

Lord Briggs rightly points out that whilst the application of the Ramsay principle is usually in the context of tax avoidance schemes, the application of Ramsay is by no means limited to those circumstances. No doubt, Lord Briggs had his relatively recent lead judgment in Cobalt Data Centre in mind given that it was an example of the Ramsay principle being applied in a scenario (like Royal Bank of Canada) where a matter of tax avoidance was not at issue. 

Did Lady Rose’s judgment really narrow the Ramsay principle?

The short answer is that it is possible. That itself is a surprising answer given that the Ramsay principle is well established and, until this judgment, there was no reason to question the application of the Ramsay principle (in a domestic statutory context at least).

Indeed, if the answer were “yes” that would mean undoing decades of precedent (thereby leaving the application of Ramsay in limbo), and that Lady Rose's opinion on the application of the Ramsay principle changed (arguably quite drastically) since the end of 2024. Only a few months ago, she agreed with Lord Briggs, Lord Sales, Lord Burrows and Lord Richards in Cobalt Data Centre that the Ramsay principle ought to be applied in a non-tax avoidance scenario. It is also worth noting that other than Lady Rose and Lord Briggs, none of the judges in Royal Bank of Canada sat on Cobalt Data Centre and both Lady Rose and Lord Briggs have a background in tax. 

Lady Rose refers to Ramsay precisely twice and makes two broad-brush statements which are likely to have given rise to Lord Briggs’ concerns: first, that none of the parties suggested the Ramsay principle was relevant and, second, that nothing in the judgment "casts doubt on the efficacy of those principles where they apply" (my emphasis). 

One can therefore sympathise with Lord Briggs’ position here in that, if the Ramsay principle must always apply then, by definition, the Ramsay principle is always relevant (regardless of whether anyone suggests that it is relevant). Any suggestion, even implicit, that the Ramsay principle may not apply has the effect of narrowing the principle to some extent. 

Could Lady Rose’s judgment be interpreted another way?

It is also possible that Lady Rose did not seek to limit the Ramsay principle in this way – after all, Lady Rose did specifically state that nothing in the Royal Bank of Canada majority judgment casts doubt on the efficacy of Ramsay. 

The difficulties, however, are not limited to Lady Rose’s (short) discussion of the Ramsay principle but also the framing of the majority judgment more generally. It would likely be far less a cause of concern if the majority judgment had concluded that the Ramsay principle must be applied but nonetheless, on a realistic view of the facts, decided to dismiss HMRC’s appeal. Admittedly, that would have resulted in a split majority decision on what the appropriate realistic view of the facts was in Royal Bank of Canada – which itself would not be without its own issues. However, that would have been a disagreement perhaps more easily characterised as applying to the specific facts of Royal Bank of Canada with the upshot being that it would not have opened fresh questions as to the application of the Ramsay principle itself. 

Equally, the majority could have concluded that the Ramsay principle was not engaged because Royal Bank of Canada involved the interpretation of a double taxation treaty rather than domestic legislation, with Lord Briggs applying Ramsay by way of analogy in his dissent. That would have been an interesting discussion, pulling together arguments around the intended function of double taxation treaties and how judicial interpretation should be carried out in light of that. 

Those alternate realities are, unfortunately, not how Royal Bank of Canada played out. 

Where does this leave the Ramsay principle?

Overall Royal Bank of Canada opens up questions on the limitations of the Ramsay principle in non-tax avoidance scenarios where, previously, no such uncertainty existed. After a string of cases applying the Ramsay principle making clear that the principle is not limited to matters of tax avoidance, the idea that it is so limited is certainly a novel one. 

Indeed, this majority judgment may end up providing a hook in non-tax avoidance scenarios to argue that the Ramsay principle should not apply to the facts at hand. In that vein, it is worth remembering the argument that the Ramsay principle should not be applied to particular statutory concepts was (unsuccessfully) made before the Court of Appeal in Hargreaves  where the Court of Appeal firmly set out that no statutory concept was “immune” from Ramsay. 

At least for now, it would be most sensible for taxpayers to continue to apply Ramsay in the ordinary course of organising their tax affairs as they would have prior to the judgment in Royal Bank of Canada. 

The Supreme Court does have a chance to clarify the position on the application of the Ramsay principle in HFFX. In HFFX, HMRC argue that a partner incentive plan formed part of the partnership’s “profit sharing arrangements” on Ramsay grounds. HMRC have lost this argument at all stages to date (although they have won on a subsidiary argument), and the Supreme Court will be asked to review the lower courts’ view that the separate nature of the partner incentive plan had to be respected for tax purposes. It will be interesting to see whether the Supreme Court makes use of the opportunity to address some of the fallout from Royal Bank of Canada. Permission to appeal to the Supreme Court was granted in November 2024 and as at this blog post’s publication no hearing date(s) have been set.