ID#: 407002394

Introduction

Statutory interpretation is the process by which the courts look at a statute in

question, interpret the relevant provisions applicable to the case, and then apply the

interpretation to the law. According to Easson,1 the basic principles of statutory

interpretation are developed from court decisions as opposed to the statutes

themselves, and are often referred to as “rules” of interpretation that the judges

deciding a case must follow. These rules of interpretation have changed over the years

with a view to keeping up with the changes in society and the legal atmosphere. Being

so largely based on statute, revenue law cases often require statutory interpretation.

This was the case in PR v. Income Tax Commissioner,2 where speaking to the

issue of statutory interpretation Blagden C.J. expressed: “I do not think that it is

necessary for me to elaborate in any detail on the canons which should be applied in

construing the relevant provisions of the Ordinance. Basically, I have to give effect to

the intention of the legislature as expressed in the Ordinance. I have to look primarily

to the Ordinance itself construing the words used in their ordinary and natural sense -

unless, of course, in the case of particular expressions there is something to the

contrary in the context or in the scheme of the Ordinance – and if those words are

clear and explicit, then they themselves are the best evidence of the intention of the

legislature. It is only when there are ambiguities, inconsistencies, omissions and the

like that recourse may be had to outside circumstances such as those comprising the

rule in Heydon’s case…” This quote is a reflection of the literalist approach to

interpretation. The literalist approach is best stated by Parke B in re Mickelthwait3 as

“ a well-established rule that the subject is not to be taxed without clear words for the

purpose, and also, that every Act must be read according to the natural construction of 1 Easson, Alexander J, Cases and Materials on Revenue Law, Chapter 3, pg. 362 (1959) 2 WIR 149 at 1543 11 Ex. 452 at 456

1

ID#: 407002394

the words.” Cases such as Tennant v. Smith4 and Cape Brandy Syndicate v. I.R.C.5

followed the literalist approach, with the judges often emphasizing or restating the

rule. In the latter case Rowlatt J stated the literal rule in his own words as: “In a taxing

Act one has merely to look at what is clearly said. There is no room for any

intendment. There is no equity about a tax. There is no presumption as to a tax.

Nothing is to be read in, nothing is to be implied. One can only look fairly at the

language used.” This highlights the strictness with which the literal rule was both

viewed and applied by the courts.

However, the literalist approach is no longer a reflection of the law of

statutory interpretation. The law as it stands today is an application of a purposive

approach to statutory interpretation, both under the common law and in the Caribbean

courts. No discussion of the purposive approach is complete without addressing its

development, difficulties of application, criticism of the approach and its advocates.

The Origins of the Purposive Approach

Oxford Dictionary defines the adjective purposive as “relating to, having, or

indicating conscious intention.”6 While this is not a legal term, the purposive

approach is used by common law courts to interpret statutes by looking at the

intention of Parliament when enacting the legislation. The development of the

purposive approach came about with the courts wanting to combat the taxpayers’

creation of schemes in an attempt to avoid taxes. A case that requires mentioning is

Commissioners of Inland Revenue v. Duke of Westminster7 in which the Duke sought

to reduce his liability to pay surtax by entering into a covenant to pay his gardener.

The House of Lords held that the Duke had a right to pay his gardener through a

4 [1892] A.C. 150 at 1545 [1921] 1 K.B. 64 at 716 The Oxford Study Dictionary, Oxford University Press 19917 [1935] All E.R. 259 (HL)

2

ID#: 407002394

covenant scheme in order to reduce his liability to pay surtax, and Lord Tomlin stated,

“Every man is entitled if he can to arrange his affairs so that the tax attaching under

the appropriate Acts is less than it otherwise would be. If he succeeds in ordering

them so as to secure that result, then, however unappreciative the Commissioners of

Inland Revenue or his fellow taxpayers may be if his ingenuity, he cannot be

compelled to pay an increased tax.” This became known as the Westminster Doctrine.

The purposive approach to statutory interpretation is said to have began some

47 years later with the formulation of the Ramsay principle. This principle originates

from the historical tax case of WT Ramsay v. Inland Revenue Commissioners8, which

is said to be a limitation on the aforementioned Westminster Doctrine that involved a

single tax avoidance step. The facts of Ramsay are briefly that the taxpayer company

farmed land and sold the freehold of the farm, realizing a chargeable gain. The

taxpayer for the sole purpose of reducing their capital gains tax payable, entered into

the “capital gains scheme” which created artificial capital losses on the share

transactions to combat against the chargeable gains. There was no commercial

justification for the scheme but instead the purpose of it was for the taxpayer company

to have their profit from the sale of the loan exempted from creating a chargeable gain

under the finance Act 1965. The taxpayer was assessed on chargeable gains that arose

from the sale of the farm. Lord Wilberforce stated in his judgment that the court was

not required to follow under the rule in the Duke of Westminster case, that each step in

the scheme is to be looked at separately, because in the present case each individual

step was legitimate, however, the entirety of the scheme was for no other purpose than

the avoidance of tax. Lord Wilberforce, on deferring from the Westminster Doctrine

expounded,

8 [1981] 2 W.L.R. 449

3

ID#: 407002394

“While obliging the court to accept documents or transactions, found to be

genuine, as such, it does not compel the court to look at a document or a

transaction in blinkers, isolated from any context to which it properly belongs.

If it can be seen that a document or transaction was intended to have effect as

part of a nexus or series of transactions, or as an ingredient of a wider

transaction intended as a whole, there is nothing in the doctrine to prevent it

being so regarded; to do so is not to prefer form to substance, or substance to

form. It is the task of the court to ascertain the legal nature of any transaction

to which it is sought to attach a tax, or a tax consequence, and if that emerges

from a series, or combination of transactions, intended to operate as such, it is

that series or combination which may be regard.”9

Moreover, Lord Wilberforce restated the construction of interpretation by saying:

“The subject is only to be taxed on clear words, not on the intendment or equity of an

Act. Any taxing Act of Parliament is to be construed in accordance with this principle.

But what are clear words is to be ascertained on normal principles. Those words do

not confine the courts to literal interpretation. There may, indeed should, be

considered the context and scheme of the relevant Act as a whole and its purpose

may, indeed, should, be regarded.” 10 This latter quote from Lord Wilberforce clearly

encompasses the shift from the literal to the purposive approach to interpreting

statutes.

The next case in the lineage of cases supporting the Ramsay principle is Inland

Revenue Commissioner v. Burmah Oil Co. Ltd.,11 in which Lord Diplock espoused:

9 Revenue Law – Principles and Practice, 28th Edn. General Editor: Natalie Lee, Chapter 2, pg. 1810 Ramsay v. I.R.C. [1981] 2 W.L.R. 449 at 45611 [1982] S.T.C. 30 (HL)

4

ID#: 407002394

“It would be disingenuous to suggest, and dangerous on the part of those who

advise on elaborate tax avoidance schemes to assume, that Ramsay’s case did

not mark a significant change in the approach adopted by this House in its

judicial role to a pre-ordained series of transaction (whether or not they

include the achievement of a legitimate commercial end) into which there are

inserted steps that have no commercial purpose apart from the avoidance of a

liability to tax that, in the absence of those particular steps, would have been

payable.”12

This further enhances the argument that Ramsay marked a shift from the literal to the

purposive approach in that cases following Ramsay applied it’s principle in their

judgments. Lord Diplock in Burmah Oil expressed the requirements for the Ramsay

principle to be applied in a case. These requirements were that there must be: (1) a

series of transactions; which are (2) pre-ordained; and (3) into which there are

inserted steps that have no commercial purpose, apart from tax avoidance.13 It is

important to note here that unlike Duke of Westminster, where there was a single

scheme, the transactions involved in both Ramsay and Burmah Oil were circular

schemes.

To conclude the discussion on the Ramsay line of cases, it is good to mention

that the case of Furniss v. Dawson14, which involved a linear scheme, expanded the

Ramsay principle. In this case Lord Brightman said of the previously mentioned

requirements in applying the Ramsay principle, that they should be redefined to: “ (1)

a pre-ordained series if transactions (or one single composite transaction); into which

there must be; (2) steps inserted which have no commercial (business) purpose (as

12 Ibid. at Para. 2 of Lord Diplock’s Judgment13 Ibid.14 [1984] 2W.L.R. 226

5

ID#: 407002394

distinct from a business effect) apart from the avoidance (or deferral) of a liability to

tax.”15

Pepper v. Hart and the Difficulties Raised

In any discussion on the purposive approach to statutory interpretation, it is

essential to include a discussion of the landmark decision in Pepper v. Hart16 and it’s

contribution to the shift in the construction of interpretation. The facts of the case are

not essential and so a brief recitation will suffice. The case involved Hart and others

who were teachers at a school, and who benefited from a “concessionary fee” scheme

by which their children would attend the school at only a fraction of the regular

tuition fee. The Inland Revenue tried to tax them for this benefit under the Finance

Act 1976, and an issue was raised as to what exactly the Act meant. It was suggested

and later determined, that the meaning of the Act could be ascertained by using

Hansard. The use of Hansard was not permitted at the time and was opposed by both

the High Court and the Court of Appeal. However, when the case went to the House

of Lords, Lord Browne-Wilkinson, in his landmark judgment on point, found in

favour of Hart and held that the exclusionary rule should be relaxed and the use of

Hansard and other Parliamentary material would be permitted under certain

circumstances. These circumstances are where: (a) Legislation is ambiguous or

obscure, or leads to an absurdity; (b) The material relied upon consists of one or more

statements by a Minister or other promoter of the Bill together if necessary with such

other Parliamentary material as is necessary to understand such statements and their

effect; (c) The statements relied upon are clear.17

15 Revenue Law – Principles and Practice, 28th Edn. General Editor: Natalie Lee, Chapter 2, pg. 1816 [1992] STC 898; URL: hhtp://www.bailii.org/uk/cases/UKHL/1992/3.html.17 Ibid. (Bailii pg. 9-35) The judgment of Lord Browne – Wilkinson

6

ID#: 407002394

At the House of Lords level, the judges were a part of a seven-member panel,

of whom six judges were of the majority, with one judge, Lord Mackay, dissenting on

the issue of permitting the reference to Parliamentary materials. It should be noted

however, that Lord Mackay agreed with finding in favour of Hart, but said that he

reached to that conclusion without the use of Hansard. The judgments of both Lord

Browne-Wilkinson and Lord Griffiths are in favour of the purposive approach to

statutory interpretation and the case in its entirety is an important step in the further

development of the purposive approach. Lord Griffiths spoke to the importance of

Parliament’s purpose in resolving ambiguities in the statutes and in particular said:

“ The object of the court in interpreting legislation is to give effect so far as

the language permits to the intentions of the legislature. If the language proves

to be ambiguous I can see no sound reason not to consult Hansard to see if

there is a clear statement of the meaning that the words were intended to carry.

The days have long passed when the courts adopted a strict constructionist

view of interpretation, which required them to adopt the literal meaning of the

language. The courts now adopt a purposive approach which seeks to give

effect to the true purpose of legislation and are prepared to look at much

extraneous materials that bears upon the background against which the

legislation was enacted.”18

It is evident from this excerpt of Lord Griffiths’ judgment that he is in favour of

utilizing Parliamentary materials as an aid to the applying the purposive approach to

statutory interpretation. His words “The days have long passed when the courts

adopted a strict constructionist view of interpretation” emphasizes the point that the

law is no longer a reflection of the literal approach to interpretation but that a

purposive approach is now taken.

18 Ibid. (Bailii pg. 5) The judgment of Lord Griffiths

7

ID#: 407002394

The leading judgment of Lord Browne – Wilkinson is further proof of the shift

in the law away from literal interpretations to that of purposive. He says of his

holding:

“ My main reason for reaching this conclusion is based on principle. Statute

law consists of the words that Parliament has enacted. It is for the courts to

construe these words and it is the court’s duty in so doing to give effect to the

intention of Parliament in using those words. It is an inescapable fact that,

despite all the care taken in passing legislation, some statutory provisions

when applied to the circumstances under consideration in any specific case are

found to be ambiguous...The courts are faced simply with a set of words which

are in fact capable of bearing two meanings. The courts are ignorant of the

underlying Parliamentary purpose. Unless something in other parts of the

legislation discloses such purpose, the courts are forced to adopt one of the

two possible meanings using highly technical rules of construction…in a few

cases it may emerge that the very question was considered by Parliament in

passing the legislation. Why in such a case should the courts blind themselves

to a clear indication of what Parliament intended in using those words? If the

words are incapable of bearing more than one meaning why should not

Parliament’s true intention be enforced rather than thwarted?”19

Not much needs to be commented on this remarkable judgment by the learned judge,

except to once again state that his judgment emphasizes the use of the purposive

approach and its importance.

At this point it is important to move on to the criticisms raised in Pepper v.

Hart 20and by commentators on the subject of the purposive approach to statutory

19 Ibid. (Bailii pgs. 9-35) Judgment of Lord Browne - Wilkinson20 [1992] STC 898; URL: hhtp://www.bailii.org/uk/cases/UKHL/1992/3.html.

8

ID#: 407002394

interpretation. Lord Mackay raised the issue that making use of Hansard will

increases the cost of litigation.21 However, I do not believe that this is necessarily so,

because Hansard does not have to be applied in every case, and with the

developments in modern technology, hopefully a system will be devised whereby

Hansard will be organized in a detailed manner so as to save time in searching for the

appropriate Parliamentary debate. Lord Harwich cements the view of modern

technology and combated Lord Mackay’s issue with the increased costs of litigation

by saying that while he acknowledges that in some cases lawyers will incur additional

costs looking for an answer that may not be in Hansard, in other cases where Hansard

does contain an answer, it may be the situation that litigation will be avoided on the

whole.22

It has been argued that the role of judges is to apply the law not to make the

law. However, judges should not be seen as trying to make the law, but instead to

better interpret and apply the law by looking at what the purpose of the statute was,

and what Parliament was trying to achieve.23 In my opinion, the judiciary is not

overstepping their boundaries and doing the legislature’s job for them, but instead is

ensuring that Parliament’s intention is properly applied in the cases. They are not

making the laws, but are trying to better understand what Parliament meant when

enacting legislation, by looking to the underlying purposes of the enactment. One

critic of the purposive approach stated, “It is easy to use ‘Parliamentary intent’ as a

fig-leaf to conceal what is ultimately judicial manipulation.”24 However, as stated

above, the judiciary is attempting to do nothing other than to better interpret the

statutes. 21 Ibid. (Bailii pg. 3)22 Ibid. (Bailii pg. 5)23 URL: http://ww.helpwithlawexams.co.uk/statutoryinterpretation.html.24 A Purposive Approach to the Interpretation of Tax Statutes? Natalie Lee. Statute Law Review, Volume 20, Number 2, pp. 124-143, 1999, at pg. 128.

9

ID#: 407002394

Advocates of the purposive approach, on the other hand, say that literalist has

become something of a term of abuse.25 Moreover, when speaking of the literalist

approach it was said that the judge looks at the statutory provision which he has to

construe in isolation and interpret it in accordance with the natural meaning of the

words used regardless of the context and the scheme of the legislation and the purpose

to be inferred from it, then the literalist approach is wrong.”26This in my opinion

cannot always lead to a fair result and what is beneficial in using the purposive

approach is that it allows the statute to be properly construed and for the courts to put

it into context of Parliament foresaw for the future, just as in the Pepper v. Hart27

case. Further support of the purposive approach was espoused by Lord Reid in the

case of Stenhouse Holdings v. IRC,28 where he said: “to consider the…general

intendment of the provisions…more recently courts have tended to give at least equal

weight to more general consideration, because a strict literal interpretation has been

found often to lead to a result which cannot really have been intended, and the object

of statutory interpretation must be to find what was the intention of the legislature.”29

Once again, the abovementioned quotation is reiteration of the functionality of the

purposive approach to statutory interpretation in tax cases. This concludes the

discussion of Pepper v. Hart and both the critics and advocates of the purposive

approach.

The UK and Caribbean Case Law Approach

25 Easson, Alexander J., Cases and Materials on Revenue Law. Chapter 3. The Decision Making Process in Tax Cases: The Hon. Mr. Justice Vinelott, “Interpretation of Fiscal Statutes” pg. 40 at 42.26 Ibid.27 [1992] STC 898; URL: hhtp://www.bailii.org/uk/cases/UKHL/1992/3.html.28 [1972] AC 66129 Ibid. at 682 Within: A Purposive Approach to the Interpretation of Tax Statutes? Natalie Lee. Statute Law Review, Volume 20, Number 2, pp. 124-143, 1999, at pg. 128.

10

ID#: 407002394

The United Kingdom approach has been elaborately discussed in the previous

sections of this paper, and it is well settled that the law with regards to statutory

interpretation in tax cases is that a purposive approach is to be applied. However,

there are a few more cases that are worth being mentioned. Theses are the cases of:

IRC v. McGuckian30, MacNiven v. Westmoreland Investments Ltd31. and Barclays

mercantile Finance Ltd. v. Mawson.32 In IRC v. McGuckian33, the taxpayer and his

wife sought to avoid paying income tax on the company B Ltd, by developing a

scheme through which they would transfer the assets of B Ltd. abroad. The revenue

sought to tax them on the ground that they tried to avoid tax. It was held by the House

of Lords that the principle in Ramsay applied as the taxpayers created a scheme, the

sole purpose of which was to avoid tax, and that according to the Ramsay principle,

the steps of the transaction were to be disregarded the language of the taxing Act was

to be applied to the transaction once the artificial steps had been removed. It was

further held that the Ramsay principle was developed as an interpretation rule and that

the approach to the interpretation of tax legislation did not depend on general anti-

avoidance provisions. Lord Steyn stated the law of statutory interpretation as being

the purposive approach when he said: “ During the last 30 years there has been a shift

away from literalist to purposive methods of construction. Where there is no obvious

meaning of a statutory provision the modern emphasis is on a contextual approach

designed to identify the purpose of a statute and to give effect to it.”34 One

commentator said that “McGuckian is therefore as sure a confirmation as we are

30 [1997] STC 90831 [2001] STC 23732 [2004] UKHL 5133 [1997] STC 90834 Ibid.

11

ID#: 407002394

likely to get that the literal approach to statutory interpretation is now dead and

buried.”35

The next case to be discussed is the case from 2001 of MacNiven v.

Westmoreland Investments Ltd36. What is important in this case is that while the court

did not apply the Ramsay principle in this case because the transactions were not

artificial, Lord Nicholls recognized that the purposive Ramsay principle would be the

statutory interpretation mechanism to apply when trying to resolve ambiguities. Lord

Nicholls said that the need to consider a document or a transaction in its proper

context, and the need to adopt a purposive approach when construing taxation

legislation, are principles of general application.37 Lord Hoffman in this case also

summarized that the court decisions did not lay down factual prerequisites before the

court might apply the purposive approach in the interpretation of tax legislation.

However, it is necessary to note that it was acknowledged that the purposive approach

is the correct approach to be applied.

Lastly from the UK, in the case of Barclays Mercantile Finance Ltd. v.

Mawson38 the issue in this case was whether the taxpayer was entitled to capital

allowances when there was a defeased finance sale and leaseback of plant and

machinery where it was effected through the deposit of cash back with the lessor

group at the level of the parent company bank. The Revenue in this case challenged

the availability of capital allowances to the lessor. The court examined the case using

a purposive construction, i.e. the purposive approach, to determine what the statute

really required, and the court found in favour of the taxpayer lessor, that he was

entitled to capital allowances under the statute. Lord Nicholls in this case said that the 35 A Purposive Approach to the Interpretation of Tax Statutes? Natalie Lee. Statute Law Review, Volume 20, Number 2, pp. 124-143, 1999, at pg. 13236 [2001] STC 23737 Ibid.38 [2004] UKHL 51

12

ID#: 407002394

modern approach to interpreting statues was to regard the purpose of the provisions

and to interpret its language as much as possible in a way, which bests suits, that

purpose.39

It is now important to look at examples of the purposive approach being

utilized in the Caribbean courts. In the recent case of Carreras Group Ltd v. The

Stamp Commissioner, J’ca,40 and the facts are briefly that Carreras entered into a

written agreement to transfer all of its issued share capital and most of its preference

shares in Jamaica Biscuit Co. Ltd. to Caribbean Brands Ltd. The consideration was

expressed to be a debenture for issued by Caribbean Brands Ltd, and the terms were

that the debenture would be neither secured nor transferable. The payable debt would

carry no interest and it would be repayable by cheque by 7 May 199 9. The debenture

was not redeemed until 11 Mat 1999, when Caribbean Brands Ltd paid and Carreras

accepted par payment in US and part in Jamaican. The question was whether the

shares were subject to transfer tax, and in coming to the decision, Lord Hoffman said

that “ …ever since WT Ramsay v. IRC the courts have tended to assume that revenue

statutes in particular are concerned with the characterization of the entirety of

transactions which have a commercial unity rather than the individual steps into

which such transactions may be divided. This approach does not deny the existence or

legality of the individual steps, but may deprive them of significance for the purposes

of the characterization required by the statute. This has been said so often that citation

of authority since Ramsay’s case is unnecessary.”41 This is evidence enough that in

the Caribbean the view is that the approach first set out in Ramsay, that being a

purposive approach is the law today, and therefore in the words of Lord Hoffman in

39 Ibid.

40 (2004) 64 WIR 22841 Ibid. at 231

13

ID#: 407002394

the aforementioned case, “this has been said so often that citation of authority since

Ramsay’s case is unnecessary.”42

Conclusion

In summary, the law as it was before the Ramsay case was that a literalist

approach was taken to statutory interpretation in tax cases. However, since the

Ramsay case and the saga of cases that came to follow, the law as it stands today can

be described as that of a purposive approach to statutory interpretation, whereby the

true, underlying purpose of the legislature when enacting a statute is looked to in

order to interpret provisions of tax statutes. Moreover, it was expanded in Pepper v.

Hart, that the use of extrinsic aids such as Hansard and other Parliamentary materials

are permitted when taking a purposive approach to statutory interpretation, so as to

better equip judges with a view to parliament’s intention at the time of enactment. The

advocate of this approach far out way the critics, and the purposive approach to

statutory interpretation of tax statutes is applied in the UK as well as the Caribbean.

42 Ibid.

14