Deeny and others v Gooda Walker Ltd (in voluntary liquidation) and others (Inland Revenue Commissioners third party) QUEEN'S BENCH DIVISION (COMMERCIAL COURT) [1995] STC 439, 68 Tax Cas 458 HEARING-DATES: 12, 13, 14 December, 11 January 1995 11 January 1995 CATCHWORDS: Damages - Underwriting losses - Underwriting members of Lloyd's recovering damages for losses caused by agent's failure to exercise reasonable skill and care - Whether damages taxable in hands of members - Whether damages should be reduced by any tax saving achieved. HEADNOTE: The plaintiffs, who were underwriting members of Lloyd's (the names), were awarded damages in respect of failures by their managing agents (the defendants) to exercise reasonable skill and care in conducting the business of underwriting on their behalf. The principal source of the names' loss had been the defendants' failure to indemnify them against subsequential claims in respect of which the names had had to make substantial payments. Accordingly, the judge decided that they should recover such damages as would put them in the same position as if that exposure had been protected by reinsurance. Pursuant to the judgment the following issues arose for determination: (i) would the damages recoverable by the names be subject to tax in their hands -- if the damages were not taxable the amount of damages payable by the defendants would fall to be reduced by an amount equal to tax thereon; and (ii) should the damages be reduced by the amount of any tax saving which might be achieved by the names. The Commissioners of Inland Revenue (who were joined as a party in the proceedings on the first point) and the names contended that since the damages were to be paid as compensation for profits which would have been taxable as receipts of each name's business of underwriting the damages recoverable would also be subject to tax. The names further contended that no reduction fell to be made. The defendants contended that the damages would not be so taxable in the names' hands on the ground that the source of the cause of action under which the damages had been awarded was the rights and obligations between the names and their agents and not the trade of underwriting carried on by the names. The defendants further submitted that in any event a reduction fell to be made to the extent that a gross recovery might bring a windfall to individual names who had secured tax relief in the year of loss (or earlier) at a higher rate than the rate which would be chargeable on the damages received in the year of recovery. Held - (1) For tax purposes in determining whether the damages constituted revenue receipts of a name's business as an underwriter at Lloyd's the focus was not upon the rights and obligations which were the original source of the cause of action but rather on whether the sum of money which the damages replaced would have been credited to the amount of profits arising in any year from the trade carried on by him. In the instant case it was plain that the damages would be payable in respect of the individual name's loss as a trader. Moreover, for taxation purposes a name had one underwriting business only and there was no separate activity of employing the agent. Accordingly, the damages would be taxable in the names' hands. Dicta of Diplock LJ in London and Thames Haven Oil Wharves Ltd v Attwooll (Inspector of Taxes) (1966) 43 TC 491 at 515 applied. British Transport Commission v Gourley [1956] AC 185 considered. Baron Napier and Ettrick v R F Kershaw Ltd (14 May 1992, unreported) and Society of Lloyd's v Morris (15 March 1993; 28 May 1993, CA, unreported) distinguished. (2) As a general rule in a case where both the lost profits and the damages were taxable, no account was taken of taxation in assessing the damages -- subject to the proviso that in an exceptional case a departure from the rule might be required to do justice. In the instant case the apportionment of the award as between individual names would simply follow their syndicate proportions. If the court now had to examine the position of individual names (more than 3,000 of them) over several years taking into account such questions as residency and other reliefs the further calculations and arguments required would tend to increase the length and expense of the trials. Accordingly, while some names might have secured tax relief on the loss at a higher rate than the rate which would be charged on the damages received, the likelihood that individual names would receive such a tax benefit did not justify a departure from the general rule and no reduction of the damages fell to be made on that basis. Parsons v BNM Laboratories Ltd [1964] 1 QB 95 applied. NOTES: For the tax element in damages, see Simon's Direct Tax Service E4.822-823. For the taxation of profits of Lloyd's underwriters, see ibid E5.613 For the taxation of compensation or damages of Lloyd's underwriters, see ibid, E5.616 CASES-REF-TO: British Transport Commission v Gourley [1956] AC 185, [1955] 3 All ER 796, HL. Diamond v Campbell-Jones [1961] Ch 22, [1960] 1 All ER 583. Donald Fisher (Ealing) Ltd v Spencer [1989] STC 256, CA. Gliksten (J) and Son Ltd v Green (Inspector of Taxes) [1929] AC 385, 14 TC 364, HL. Herring v British Transport Commission [1958] TR 401. John v James [1986] STC 352. Julien Praet et Cie SA v H G Poland Ltd [1962] 1 Lloyd's Rep 566. London and Thames Haven Oil Wharves Ltd v Attwooll (Inspector of Taxes) [1967] Ch 772, [1967] 2 All ER 124, 43 TC 491, CA. Napier (Baron) and Ettrick v R F Kershaw Ltd (14 May 1992, unreported). Parsons v BNM Laboratories Ltd [1964] 1 QB 95, [1963] 2 All ER 658, CA. Shove v Downs Surgical plc [1984] 1 All ER 7. Society of Lloyd's v Morris (15 March 1993; 28 May 1993, CA, unreported). Spencer v Macmillan's Trustees 1958 SC 300, CS. CASES-CITED: American Leaf Blending Co Sdn Bhd v Director-General of Inland Revenue [1978] STC 561, [1979] AC 676, [1978] 3 All ER 1185, PC. Glenboig Union Fireclay Co Ltd v IRC 1922 SC 112, 12 TC 427, HL. Levison v Farin [1978] 2 All ER 1149. Lord Advocate v Gibb (1905) 5 TC 194, CS. Pennine Raceway Ltd v Kirklees Metropolitan BC (No 2) [1989] STC 122, CA. R v B C Fir and Cedar Lumber Co Ltd [1932] AC 441, PC. Reed (Inspector of Taxes) v Young [1986] STC 285, [1986] 1 WLR 649, 59 TC 196, HL. Reynolds and Gibson v Crompton (Inspector of Taxes) [1950] 2 All ER 502, CA; affd [1952] 1 All ER 888, 33 TC 288, HL. Russell (Surveyor of Taxes) v Aberdeen Town and Country Bank Ltd (1888) 13 AC 418, 2 TC 321, HL. Stoke-on-Trent City Council v Wood Mitchell & Co Ltd [1979] STC 197, [1980] 1 WLR 254, [1979] 2 All ER 65, CA. Vandervell's Trusts, re [1971] AC 912, 46 TC 341, sub nom Vandervell Trustees Ltd v White [1970] 3 All ER 16, HL. West Suffolk CC v W Rought Ltd [1957] AC 403, [1956] 3 All ER 216, HL. INTRODUCTION: Action Michael Eunan McLaren Deeny and the other 3,062 persons listed in Schs 1-71 of the reamended writ of summons (the names) claimed damages against Gooda Walker Ltd (in voluntary liquidation) and the 70 other defendants referred to in the titles to Schs 2-71 of the reamended writ of summons (the defendants) in respect of failures to exercise reasonable skill and care in conducting the business of underwriting on behalf of the names. By a judgment of 4 October 1994 Phillips J ((1994) Times, 7 October) awarded such damages to the names as would place them in the same position as if the underwriting carried out on their behalf by each syndicate had been competently performed. Two issues arose in relation to the effect of taxation on the measure of damages which it was agreed should be reserved for further argument, namely: (i) would the damages recoverable by the names be subject to tax in their hands; and (ii) should the damages be reduced by the amount of any tax saving achieved by the names in connection with their Lloyd's underwriting business. Pursuant to RSC Ord 15, r 6(2)(b)(ii) and Ord 77, r 8A the Commissioners of Inland Revenue consented to being joined as a party on the first point. The facts are set out in the judgment. COUNSEL: Andrew Park QC and David Lord for the names; David Goldberg QC, Simon Bryan and Hugh McKay for the defendants; Ian Glick QC and Launcelot Henderson for the Crown. JUDGMENT-READ: Cur adv vult 11 January 1995. The following judgment was delivered. PANEL: POTTER J JUDGMENTBY-1: POTTER J JUDGMENT-1: POTTER J: Introduction The taxation issues before me arise out of the judgment given by Phillips J on 4 October 1994 ((1994) Times, 7 October) when he awarded damages to the plaintiff underwriters (the names) against the defendants, their former managing agents, now in liquidation. The damages claimed and awarded were for a failure to exercise reasonable skill and care in conducting the business of underwriting on behalf of the names. The losses in respect of which damages were awarded were those suffered by members of syndicate 298 in the underwriting years 1988 and 1989, syndicate 299 in the same years, syndicate 290 in 1989 and 1990 and syndicate 164 in 1989. In giving judgment in relation to the assessment of damages Phillips J decided that the plaintiffs were entitled to that award of damages which would place them in the same position as if the underwriting carried out on their behalf by each syndicate had been competently performed. Having observed that such a basic test was easy to state but difficult to apply to the facts before him, he set out the methods which should be adopted and the matters to be considered and disregarded in applying the basic test when damages come to be assessed. He rejected the names' argument that he should first consider the results of a notional 'paradigm syndicate' over the relevant years and award such damages as would place the names in the same position as if they had been members of that syndicate, as being an artificial and unrealistic exercise. He pointed out that, in relation to the five central catastrophes of which complaint had been made in the action as the principal source of the names' exposure and damage, the losses had been suffered because the defendants had failed to put in place, whether on a first loss or reinstatement basis, cover that extended sufficiently high to cover the claims arising out of that catastrophe. Accordingly, he decided that -- '. . . the Plaintiffs should recover by way of damages such sums as will put them in the same position as if this exposure had been protected by reinsurance.' So far as the assessment of loss was concerned Phillips J ruled that the starting point must be to compare the claims relating to a catastrophe with the reinsurance cover available to meet those claims. However, he ruled that not all the shortfall would be recoverable, since it was not all attributable to the inadequacy of the vertical extent of the cover, deductions falling to be made for various categories of loss set out in his judgment, including reduction by a percentage to reflect the notional premium which would have been payable for the reinsurance which would have taken place. He also ruled that certain consequential losses would be recoverable, namely exchange losses, to the extent that they were consequential upon the primary losses; interest on primary losses from the dates they were sustained; personal expenses to the extent that they had been increased by primary losses; run-off costs, also to the extent only that they had been increased by the primary losses. Finally, he rejected the argument of the defendants, that those plaintiffs who had taken out stop-loss policies which had indemnified them in whole or in part for the losses sought to be recovered in this action should bring such proceeds into account. He ruled that in so far as any damages recovered relate to losses in respect of which names have already been indemnified by stop-loss insurers, such recoveries will be made for the benefit of the stop-loss underwriters. The issues The two issues which arise for decision at this hearing are: (i) Will the damages recoverable by the names be subject to tax in their hands (the taxability issue)? (ii) Should the damages be reduced by the amount of any tax saving achieved by the names in connection with their Lloyd's underwriting business, under the rule in British Transport Commission v Gourley [1956] AC 185 (the Gourley issue)? For the purposes of arguing the taxability issue, the Commissioners of Inland Revenue (the Revenue) have, by consent, been joined in these proceedings pursuant to RSC Ord 15, r 6(2)(b)(ii) and Ord 77, r 8A. It is the case for the Revenue, supported by the names, that the damages recovered will be subject to tax and that, if that is so, then they should not be subject to a Gourley reduction. The defendants contend that the damages will not be taxable in the names' hands and therefore a Gourley deduction falls to be made. Even if they are wrong on the taxability issue, they argue that a Gourley deduction will still fall to be made to the extent that a gross recovery may bring a 'windfall' to individual names who have secured tax relief in the year of loss (or an earlier year) at a higher rate than the tax rate which will be chargeable on the damages received in the year of recovery. The relevant tax provisions General Section 1(1) of the Income and Corporation Taxes Act 1988 (the 1988 Act) provides: 'Income tax shall be charged in accordance with the provisions of the Income Tax Acts in respect of all property, profits or gains respectively described or comprised in the Schedules . . . set out in sections 15 to 20 or which in accordance with the Income Tax Acts are to be brought into charge to tax under any of those Schedules or otherwise.' Section 18(1) provides that tax under Sch D shall be charged in respect of -- '. . . (a) the annual profits or gains arising or accruing -- . . . (ii) to any person residing in the United Kingdom from any trade . . . whether carried on in the United Kingdom or elsewhere, and (iii) to any person, whether a Commonwealth citizen or not, although not resident in the United Kingdom . . . from any trade . . . exercised within the United Kingdom . . .' Section 18(2) provides: 'Tax under Schedule D shall be charged under the Cases set out in subsection (3) below, and subject to and in accordance with the provisions of the Tax Acts applicable to those Cases respectively.' Section 18(3) provides: 'The Cases are -- Case I: tax in respect of any trade carried on in the United Kingdom or elsewhere . . .' Thus income tax under Case I of Sch D is chargeable on, inter alia, the annual profits of any trade carried on in the United Kingdom by any member of Lloyd's, whether he resides in the United Kingdom or not. The regime for Lloyd's underwriters Each of the names, as an underwriting member of Lloyd's is a sole trader conducting the business of underwriting through agents. The business of underwriting at Lloyd's is carried on by means of syndicates. Each member is liable only for his proportionate share of any expenses and losses of a syndicate to which he belongs and receives only his proportionate share of any profits. The syndicate, being unincorporated, is not a legal person. Indeed, its membership changes from year to year, as do the proportionate shares of its members. The profits of a syndicate go entirely to its members and the syndicate itself is not taxed. Because of these features and because of various trading requirements imposed upon syndicates and their members by Lloyd's, there is a special regime for taxing Lloyd's underwriters, currently to be found in Ch III of Pt II of the Finance Act 1993 (the 1993 Act), ss 171-184, and Schs 19 and 20 to which the Finance Act 1994 (the 1994 Act) made changes which are not material (prior to 1993 the regime was in ss 450 to 457 of and Sch 19A to the 1988 Act). Section 171(1) of the 1993 Act provides: 'Income tax for any year of assessment on the profits arising from a member's underwriting business shall be computed on the profits of that year of assessment.' Names are thus charged tax on their underwriting profits on a 'current year' basis. In this respect their position differs from that of other sole traders, who are at present charged to tax on a 'preceding year' basis. Section 184(1) of the 1993 Act (as amended by para 8 of Sch 21 to the 1994 Act) defines a member as: 'an individual who is a member of Lloyd's and is or has been an underwriting member'. It defines member's underwriting business as: 'underwriting business as a member of Lloyd's, whether carried on personally or through an underwriting agent'. Section 171(2) of the 1993 Act provides: 'As respects the profits arising to a member from his underwriting business for any year of assessment -- (a) the aggregate of those profits shall be chargeable to tax under Case I of Schedule D; and (b) accordingly, no part of those profits shall be chargeable to tax under any other Schedule or any other Case of Schedule D; but nothing in this subsection shall affect the manner in which the amount of any profits arising from assets forming part of an ancillary trust fund is to be computed.' Section 172(1) of the 1993 Act (prior to amendment by para 2 of Sch 21 to the 1994 Act which disapplied paragraphs (a) and (b) below for the years 1994-95 to 1996-97 inclusive) provided as follows: 'Subject to the provisions of this Chapter, for the purposes of section 171 above and all other purposes of the Income Tax Acts the profits or losses in any year of assessment of a member's underwriting business shall be taken to be -- (a) in the case of profits or losses arising directly from his membership of one or more syndicates, those arising in respect of the corresponding underwriting year; (b) in the case of profits or losses arising from assets forming part of a premiums trust fund, those allocated under the rules or practice of Lloyd's to the corresponding underwriting year; and (c) in the case of other profits or losses, those derived from payments received or made in the corresponding underwriting year.' Section 173(1) of the 1993 Act provides that the tax on underwriting profits is to be assessed and collected in accordance with Sch 19 to the 1993 Act. Schedule 19, para 1, provides for the determination of a syndicate's profit or loss, defined as -- '. . . the aggregate amount of such of the profits or losses of all the members of the syndicate (taken together) as arise -- (a) directly from their membership of the syndicate, or (b) from assets forming part of the premiums trust funds . . .' To be determined on the basis of annual returns made by each syndicate's managing agent (see paras 2 to 5 of the Schedule). The syndicate profit or loss is then apportioned to the members of the syndicate and the determination of a syndicate's profit or loss is then conclusive against the member (see paras 6 and 7). The apportionment of the syndicate profits and losses to a member forms the basis of his assessment to tax on his Lloyd's activities. However, in this respect a name makes an individual tax return like any other taxpayer. It is the individual name, and not the syndicate, who is the taxable entity. The expenditure which the name may bring into account in computing the profit of the name's trade or business as an underwriter is that provided for by s 74 of the 1988 Act, which requires that such expenditure must be 'wholly and exclusively' laid out or expended for the purposes of his trade. In addition, in relation to stop-loss and quota share insurance, s 178(1) of the 1993 Act provides: 'In computing for the purposes of income tax the profits of a member's underwriting business, each of the following shall be deductible as an expense, namely -- (a) any premium payable by him under a stop-loss insurance, and any repayment of insurance money paid to him under such an insurance; (b) any amount payable by him into the High Level Stop Loss Fund, and any repayment of an amount paid to him out of that Fund; and (c) any amount payable by him under a quota share contract, irrespective of the purpose for which the contract was entered into. (2) Subject to subsection (3) below, each of the following, namely -- (a) any insurance money payable to him under a stop-loss insurance in respect of a loss in his underwriting business; and (b) any amount payable to a member out of the High Level Stop Loss Fund in respect of such loss, shall be treated as a trading receipt in computing the profits arising from that business for the year of assessment which corresponds to the underwriting year in which the loss arose.' So far as post-cessation receipts are concerned, these fall within the special statutory regime provided for in ss 103-110 of the 1988 Act. It is not necessary to refer to those sections in detail. Their purpose and effect is essentially to assimilate the taxation of sums received after cessation with the taxation of sums received before cessation and neither party has argued that the position of any of the names will differ according to whether or not their trade as underwriter has continued or been discontinued during the period to which the award of damages, once assessed, relates. The taxability issue The question whether the damages will be subject to tax in the hands of the names depends upon whether the damages will constitute revenue receipts of the name's business as an underwriter at Lloyd's. If they will, then they will be payments received within s 172(1)(c) of the 1993 Act and the name's profits or losses will be dealt with for tax purposes accordingly. The case for the Revenue, in which the names concur, has been simply stated. Mr Glick relies upon the well-known judgment of Diplock LJ in London and Thames Haven Oil Wharves Ltd v Attwooll (Inspector of Taxes) [1967] Ch 772 at 815, 43 TC 491 at 515, in which he stated: 'Where, pursuant to a legal right, a trader receives from another person compensation for the trader's failure to receive a sum of money which, if it had been received, would have been credited to the amount of the profits (if any) arising in any year from the trade carried on by him at the time when the compensation is so received, the compensation is to be treated for income tax purposes in the same way as that sum of money would have been treated if it had been received, instead of the compensation.' Diplock LJ went on to say ([1967] Ch 772 at 815-816, 43 TC 491 at 515): 'The rule is applicable whatever the source of the legal right of the trader to recover the compensation. It may arise from a primary obligation under a contract, such as a contract of insurance, from a secondary obligation arising out of non-performance of a contract, such as a right to damages, either liquidated, as under the demurrage clause in a charterparty, or unliquidated, from an obligation to pay damages for tort, as in the present case, from a statutory obligation, or in any other way in which legal obligations arise. But the source of a legal right is relevant to the first problem involved in the application of the rule to the particular case, namely to identify what the compensation was paid for. If the solution to the first problem is that the compensation was paid for the failure of the trader to receive a sum of money, the second problem involved is to decide whether, if that sum of money had been received by the trader, it would have been credited to the amount of profits (if any) arising in any year from the trade carried on by him at the date of the receipt, that is, would have been what I shall call for brevity an income receipt of that trade. The source of the legal right to the compensation is irrelevant to the second problem. The method by which the compensation has been assessed in the particular case does not identify what it was paid for; it is no more than a factor which may assist in the solution of the problem of identification.' That judgment was considered and instructively applied by Kerr LJ in Donald Fisher (Ealing) Ltd v Spencer (Inspector of Taxes) [1989] STC 256 at 260 and 261-262. In this case, submits Mr Glick, it is plain from the judgment of Phillips J that he identified what the compensation was paid for as being the liability of the names to make payments in respect of insurance claims for which they ought never to have been liable, under policies negligently written by the defendants as part of the syndicates' excess of loss business in the relevant years. None the less, the yardstick by which the damages will be assessed will, in effect, be such sums (less appropriate deductions) as will compensate for non-receipt of indemnity under reinsurances. Whether the object of the compensation is better regarded as extra expenditure incurred or non-receipt of indemnity, it is clear that both payments made in respect of insurance claims and reinsurance receipts are payments and/or receipts which must be brought into account in the computation of profits from an insurer's trade or business (see Spencer's case (at 260) per Kerr LJ). Further, Mr Glick submits that it is nil ad rem that, in suing, the names sue as individuals and not through or on behalf of the syndicates of which they were members so that, consequently, the damages awarded will be paid to them personally rather than through the relevant syndicate. That is because: (1) The statutory definition of 'underwriting business' in s 184(1) of the 1993 Act recognises that the underwriting business of a member may be carried on 'personally or through an underwriting agent'. (2) The underwriting business is the member's personal business in respect of which he is personally and individually taxable, even though the rules of Lloyd's require that it be conducted on the member's behalf by agents. If a name incurs expenditure wholly and exclusively for the purposes of that business, or receives payments arising from that business, they are brought into account in the computation of his profits on the basis of his personal tax return, whether or not they pass through the hands of his agents (see s 18(1)(a) and s 74(1)(a) of the 1988 Act). (3) The legislation recognises that various expenses may be incurred and are allowable outside the scope of the business conducted through the syndicate, not only by reason of the general provisions of s 74(1)(a) of the 1988 Act, but also within the restricted context of the regime for Lloyd's underwriters set out in Ch III of the 1993 Act. In this respect Mr Glick referred first to s 172(1)(c), which contemplates the occurrence of 'other' profits or losses than the profits or losses arising from (a) membership of one or more syndicates or (b) assets forming part of a premium trust fund. His second example was the provision in s 184(2)(c) to the effect that any charge made to a member or any expense incurred on his behalf by the managing agent of a syndicate shall be treated as expenses arising directly from membership of that syndicate. Mr Glick pointed out that the provision is not directed to deductibility by the name under s 74 (which is assumed), but to ensuring that such expenses are treated as expenses arising 'directly from . . . membership of that syndicate' so as to enable and require them to be accounted for at syndicate level pursuant to s 173 and Sch 19. Mr Glick submitted that, if the regime within Ch III recognises that there are expenses deductible outside the business of the syndicate, it is plain that, in the tax context, the name's underwriting business is not regarded as confined solely to business conducted through an underwriting agent. (4) Finally, Mr Glick pointed out that, in past years, names have claimed tax relief for losses of the kind to which the damages will relate in past years in which those losses occurred, which reliefs have been granted by the Revenue. While Mr Glick acknowledged that such a practice is not definitive of that which the statutes provide or contemplate, he submitted that it would be extraordinary if compensation which the plaintiffs are to receive to indemnify them against those losses were not similarly to be brought into account for tax purposes. Mr Andrew Park QC for the names supported the arguments of Mr Glick in a most helpful manner, but it is not necessary for me to give his arguments separate treatment. For the defendants, Mr Goldberg took issue upon various details of Mr Glick's submissions. However, at both the beginning and end of the day, he relies upon a single point of principle and/or construction as to the true meaning and proper interpretation of s 171(1) of the 1993 Act in relation to its provision for the assessment of income tax on the profits 'arising from a member's underwriting business [emphasis added]'. Whilst he acknowledged that s 184(1) of the 1993 Act, in defining 'underwriting business' includes the phrase 'whether carried on personally or through an underwriting agent', Mr Goldberg pointed out that, in any sense relevant to the requirements and procedures of Lloyd's, the name carries on his underwriting business entirely through the underwriting agent who manages the syndicate of which the name is a member. Since it is clear that, in bringing this action, the names have acted personally and in no sense through or as part of the business of the syndicate, Mr Goldberg says it is equally clear that, in doing so, they are not in any sense pursuing the business of a Lloyd's underwriter, but are bringing actions in their personal capacity to obtain compensation which will be payable directly to them and in a form which is in no way part of or related to their underwriting business. As such, submits Mr Goldberg, the payments will be received outwith the provisions of the 1993 Act, in so far as they apply to Lloyd's underwriters. Mr Goldberg submits that, on that basis, the authorities of Attwooll and Spencer are distinguishable for three reasons. (1) Those cases acknowledge that the damages must, in order to be taxable, be 'from' the trade and no point of the kind raised by Mr Goldberg in this case arose; nor did the court purport to deal with it. There were no relevant limitations upon the manner in which the companies conducted their business, nor any separate basis or alternative capacity to be ascribed to the plaintiff's interest in suing. (2) Those cases also recognised that, in order for damages to be taxable they must, in addition to being from the trade, directly represent or replace something which would have been a trading receipt or a reduction in a trading outgoing; what Mr Goldberg described as a 'direct nexus' between an increased outgoing or a trading receipt forgone and the damages. He submitted that there is no such direct nexus in this case, in which the assessment of damages represents an artificial exercise, namely the calculation of receipts from putative reinsurance in order to compensate for loss to a business as a result of entering into insurance policies which should never have been written. He submits that, if the taxpayer in Attwooll's case had been asked 'what did you get the damages from?', he would have answered 'from our trade running a wharf: we should have had receipts of that trade, and the damages were paid to us in fact as receipts of that trade'. In this case, submits Mr Goldberg, the true source of the damages is not the trade at all, but the suit against the defendants for a wrong done to the names in connection with the arrangements originally made to enable the trade to be carried on. He suggests that in answer to the same question, the names would reply not 'from the trade of underwriting', but rather 'from my agent, pursuant to arrangements made with him outside my trade, for the purpose of enabling me to carry it on'. (3) Mr Goldberg points out that, the damages are compensation for losses and not the losses themselves. Since a loss is different from a debt or obligation, so he submits it is different from a receipt or outgoing. Not only does the loss arise from general wrongdoing in relation to the arrangements or conduct of the trade, as opposed to loss of a particular forgone receipt or group of receipts, but compensation for such loss will be paid to each name individually, outside the syndicate through which his business was/is carried on. Being personal rather than syndicate receipts, Mr Goldberg submits that they are not of a character which could ever have been received in such a way as to come into the syndicate's trading account (a point specifically made by Phillips J). Viewed in this light, he submits, they have no place in the economy of the names' underwriting business. Standing back for a moment, it is apparent that the question which arises on the basis of Mr Goldberg's submissions is whether for tax purposes, and by reason of the definition of 'underwriting business' in s 184(1) of the 1993 Act, there is a distinction to be drawn between business transacted by a name through the syndicate (to which business Mr Goldberg submits that definition is necessarily restricted) and an activity or transaction effected in the name's personal capacity and interest for the furtherance of that business (but not as part of it), to which separate activity or transaction the compensation in this case must be attributed. Thus stated, and bearing in mind that (i) the activity or transaction concerned relates to the actual arrangements for the conduct of the business by agents, and (ii) for taxation purposes a name is engaged in and taxed upon the profits of his own underwriting business in respect of which payments in respect of members' and managing agents' fees is a deductible expense, the proposition for which Mr Goldberg argues is a somewhat surprising one. In urging upon the court his restrictive interpretation of s 171(1) and 184(1) of the 1993 Act, and in characterising damages in a case of this kind as arising outside the name's underwriting business (in the sense of syndicate business), Mr Goldberg has relied fairly and squarely upon two decisions in earlier Lloyd's cases, relating to the provisions of the Lloyd's Premium Trust Deed (LPTD). The LPTD is a deed made between the name, the members' agent and Lloyd's in a form approved by the Secretary of State under s 83(2) of the Insurance Companies Act 1982. That section requires that: 'Every underwriter shall, in accordance with the provisions of a trust deed approved by the Secretary of State, carry to a trust fund all premiums received by him or on his behalf in respect of any insurance business.' The LPTD contains a definition of the word 'Underwriting', as used in the provisions of the deed which reads: 'The Underwriting business (whether current or past or future) of the Name at Lloyd's carried on through the agency of the Members' Agent or under arrangements made by or through the Members' Agent but excluding any long term business of the Name.' It also contains provisions as to the funds of the members to be paid into the trust fund and/or to be held subject to its provisions which, by cl 2(a) are defined as including: '(i) all premiums and other monies whatsoever (except as provided in sub-clause (b) of this Clause) now belonging or payable or hereafter at any time belonging or becoming payable to the Name in connection with the Underwriting [emphasis added] . . . (iv) all investments and other assets now or hereafter for the time being representing any such premiums or other monies . . .' In the case of Baron Napier and Ettrick v R F Kershaw Ltd (14 May 1992, unreported) (of which judgment a transcript is before me), Saville J (as he then was) rejected a claim made on behalf of Lloyd's that certain settlement moneys payable under a compromise agreement between various names and their members and managing agents, whom the names had sued in respect of alleged negligent underwriting, were caught by the provisions of the LPTD and should be paid into the trust fund constituted under it. It was submitted for Lloyd's that the settlement money fell within the definition under cl 2(a)(i) of 'other monies now payable to the Name in connection with the Underwriting'. Saville J held that the argument failed to take account of the meaning of the word 'Underwriting' in the LPTD which, in an obvious reference to the definition contained in cl 1, he referred to as -- '. . . the underwriting business of the Name at Lloyd's carried on by or through the Members' Agent and not just the underwriting in a more general sense.' He went on to say: 'The money in question is clearly not a receipt of the underwriting business, for the business is one of underwriting at Lloyd's and not one of compensating Names for mistakes allegedly made by their agents in conducting the Names' business of underwriting at Lloyd's. The money can hardly be described as an expense of the Names' business of underwriting for it is a receipt and not an expense of the Name. As an expense, it is incurred by the Agent and not the Name and it is the Names' business with which we are concerned. The money is not a loss of the underwriting business since it represents compensation for losses and is not the losses themselves. It is not a profit of the underwriting business for the same reason, nor would it feature in the accounts of the Names' Syndicate: and it should be remembered that a Name is only allowed to conduct underwriting business at Lloyd's through Syndicates. Thus the money is neither a receipt, nor an expense, nor a loss, nor a profit, nor even an item in the accounts of the underwriting business of the Name carried on at Lloyds. What, to my mind, the money has to do with is not the Names' business of underwriting at all, but the rights and obligations existing between the Name and his Members and Managing Agents: and those rights and obligations are not part of the Names' business of underwriting at Lloyd's either, but part of the internal arrangements made between these parties as a means of enabling the Names' business of underwriting at Lloyd's to be conducted. That business is business with third parties and not business between the Name and his Agents. In my judgment, the money is payable in connection with the latter and not the former business within the meaning of the Deed.' It is upon those passages that Mr Goldberg founds his submissions. He has, however, properly acknowledged that Saville J expressly stated that he saw no necessity, in connection with his decision, to venture into revenue law. He said in this connection -- '. . . I am not persuaded by the fact that under the revenue laws the money is, or may have to be, taken into account in assessing a Name's liability for tax, for this depends on the meaning and effect of tax statutes and regulations with which the present case is not concerned and which (to adopt the words of Viscount Dunedin in Gliksten & Son v Green [1929] AC 385) represent a quagmire into which one should avoid treading unless absolutely necessary. I see no such necessity in the present case.' In the later case of Society of Lloyd's v Morris (15 March 1993, unreported) (in relation to which I have also been supplied with a transcript), Tuckey J was concerned with a claim by Lloyd's that recoveries under personal stop loss policies (PSL) taken out by names at Lloyd's were subject to the LPTD. He also rejected that claim. He referred to and relied upon the passage from the judgment of Saville J which I have just quoted. Having stated that he accepted its reasoning, he said: 'Looking at the statutory and contractual background to the deed it is clear that its primary purpose is to provide a fund for the payment of policy holders and to this end the premium which a name receives from his underwriting, which he can only do as a member of a syndicate, becomes subject to the trust. I think that the words "other monies whatsoever . . . payable in connection with the underwriting" are directed to other receipts of this underwriting such as reinsurance recoveries, salvage and the like. In other words they refer to all monies received by or on behalf of the name as an underwriter on a syndicate. PSL recoveries do not fall into this category. Such recoveries are not receipts of the names' underwriting business but the product of a personal voluntary arrangement which the name has effected in order to soften the blow in the event that his underwriting business goes badly. I think this case is a fortiori Napier v Kershaw where the damages at least represented the proceeds of the underwriting business which, but for the negligence, the name would have received or been credited with.' On appeal, the Court of Appeal (28 May 1993, unreported) approved both decisions at first instance, and expressly approved the reasoning of Saville J in the passages I have quoted. Sir Thomas Bingham MR summarised the arguments of counsel for Lloyd's and, in particular, the submission that 'in connection with' meant 'substantially related in a practical business sense' or 'having something to do with', and stated as follows: 'It seems to us that the argument advanced on behalf of Lloyd's stretches the language of clause 2(a)(i) beyond the limits which the context will allow. It must be remembered that a Name is a passive participant in the business of a syndicate. The managing agents and active underwriter take all underwriting and investment decisions. They are not obliged to take into account the individual wishes and circumstances of the Name but they must be guided by the best interests of the syndicate as a whole. All moneys derived from the business transacted by the managing agents and active underwriter in and about the affairs of the syndicate fall within the trust fund unless expressly excepted by the deed. In contradistinction, the taking out of a personal stop loss policy by a Name is not syndicate business. The Name is not obliged to take out a stop loss policy. The managing agent or active underwriter cannot require him to do so . . . It is an essentially personal decision by the Name for his own protection . . . Moreover, he is entitled to arrange such personal stop loss insurance outside Lloyd's. All moneys derived directly or indirectly from the underwriting business clearly fall within clause 2(a)(i). It follows that the proceeds of syndicate reinsurances, reinsurances to close, salvage, and the like, form part of the trust fund. But the proceeds of the personal stop loss insurances are not money derived directly or indirectly from "the Underwriting". Such moneys can only be said to be payable "in connection with the Underwriting" if one gives to that phrase the very wide meaning "having something to do with". Taken in isolation the words are capable of bearing such a meaning but the context suggests otherwise. Postulate, for example, the case where a Name recovers damages from a financial adviser outside Lloyd's who negligently advised him to join a particular syndicate. It is rightly conceded that such a recovery could not be caught by clause 2(a)(i). Yet such a recovery may in a sense be said to "have something to do with" the Underwriting . . . Properly construed it seems to us that the words "in connection with the underwriting" import the idea that the underwriting business must be the source of the funds. And plainly the underwriting business was not the source of the stop loss recoveries . . . we believe that the interpretation of Saville J, and the distinction between business transacted at syndicate level and at a personal level, is valid and applicable to the present case. In agreement with Saville J we also do not consider the fact that the Inland Revenue allow tax relief on stop loss insurance premiums is significant. It follows that we also respectfully endorse the reasoning of Tuckey J in his judgment in the present case.' Based on those decisions, Mr Goldberg has argued that, different though the context may have been, their reasoning is applicable in this case and that, in relation to the statutory definition of 'underwriting business', I should follow the construction accorded by the Court of Appeal to similar words in the LPTD. Mr Glick and Mr Park have robustly asserted that such is the difference of context between this case and the task of construing the LPTD, the terms of which are in any event not identical, that the views expressed in the judgments from which I have quoted need not concern me. However, in the light of the clarity with which they were pronounced, and the observations made upon the nature of underwriting and/or syndicate business, those decisions have much concerned me. None the less, after careful consideration, it does seem to me that Mr Goldberg can derive little assistance from them. First, the definition in the LPTD related to the term 'underwriting' simpliciter, which was in turn expressly defined as 'the Underwriting business . . . of the names at Lloyd's carried on through the agency of the Members' Agent . . . but excluding any long term business'. The italicised words were emphasised by Saville J, who expressly contrasted their limiting effect with 'the underwriting in a more general sense'. It was in that context that he made his remarks about all the things which the money in question was not. Further, his decision related to a deed the primary purpose of which he described as: 'To provide a fund for the benefit of policy holders: i e those third parties who have done underwriting business with the Name at Lloyd's . . . It is also clear from the deed that another purpose is to provide a fund from which the administrative expenses of the Names' business of underwriting at Lloyd's can be defrayed, obviously in order that the business can be efficiently and properly run . . . the trust fund is expressed to be held in trust for, among other things, the payment of losses, claims and other outgoings payable in connection with the Underwriting and any expenses whatsoever incurred in connection with or arising out of the Underwriting.' In the context of the LPTD, one can readily see why the term 'monies . . . payable . . . in connection with the Underwriting', taken in conjunction with the definition of 'underwriting', was held to relate to moneys from business (in the sense of underwriting transactions) carried on by or through the members and managing agents rather than underwriting in a more general sense. The same may be said of the decision of Tuckey J (an a fortiori case), which related to stop loss insurances taken out for the personal protection of the names, quite independently of the underwriting business carried on upon the names' behalf by members and managing agents. The Court of Appeal in Lloyd's v Morris also considered the matter as essentially one of construction of the terms of the LPTD against its background and apparent purpose. The distinction drawn by Sir Thomas Bingham MR was between -- '. . . business transacted by the managing agents and active underwriter in and about the affairs of the syndicate [and] the taking out of a personal stop loss policy by a Name [which] is not syndicate business.' His conclusion was -- '. . . the distinction between business transacted at syndicate level and at a personal level is valid and applicable to the present case.' He did not purport to cover, and indeed expressly refrained from venturing into, the field of revenue law. Accordingly, none of his observations was directed to the question whether the distinction between business transacted at syndicate level and at a personal level is valid and applicable in that field. So far as the field of revenue law is concerned, I consider that the submissions of Mr Glick must prevail. It seems to me that the principles enunciated by Diplock LJ in the Attwooll case are applicable. In the cases of Napier and Lloyd's v Morris, the exercise of identifying the source of the sums, i e whether the sums came from the activity of underwriting as defined and contemplated by the LPTD or whether, as Saville J put it, the money had to do with the rights and obligations which were not part of the names' business of underwriting (which he characterised as business with third parties and not business between the name and his agents), was regarded as definitive. In relation to revenue law the approach appears to be different. There, it seems that the court does not focus upon the rights and obligations which are the original source of the cause of action and/or compensation awarded, in order to determine under what (if any) provision the compensation is taxable. Rather, it looks to see whether there is a 'hole' (and if so what hole) in the accounts of the taxpayer's business which the compensation is intended to fill. That appears to be the effect of the approach propounded in Attwooll's case by Wilmer LJ ([1967] Ch 772 at 809-810 and 812, 43 TC 491 at 511-512 and 513) as well as Diplock LJ (see the passage previously quoted). Albeit there was no issue in Attwooll's case as to whether the action was brought and the compensation received in the course of the plaintiff's trade, it seems to me implicit in the reasoning of that case that where, as here, the taxpayer (the name) is in fact engaged in trade (underwriting business) as part at least of his activities, and the question is whether a sum received is compensation for a non-receipt or for an additional expense which has in fact reduced his profit in that trade, the source of the legal right to compensation is not definitive of whether the sum is taxable. The source is relevant to (but not decisive of) the problem of identifying what the sum is paid for. However, if the answer to that problem is that it is paid for the failure of the trader to receive a sum of money (or in this context an increased liability to pay out money), then the source is irrelevant to the question whether that money or additional payment would have been credited to (or debited against) the amount of the profit. Thus, if the source of the legal right of the trader to recover the money is a relationship or cause of action arising from circumstances preliminary or collateral to the carrying on of his underwriting business, that is not definitive of whether the damages are intended to compensate for a trading loss. If, the relationship is relied on for the purpose of recovering damages which in truth and in fact represent compensation for lost profits from the business of the taxpayer/underwriter, then, for tax purposes, that is how they are to be treated. In the instant case, whether one looks at the points of claim setting out the case of the names, or at the judgment of Phillips J, it is plain that the compensation will be payable for the individual name's loss as a trader. That being so, I accept the submissions of Mr Glick upon the taxability issue. I consider that the scheme of the tax statutes is to treat Lloyd's underwriters like other traders save to the extent that, under Ch III of the 1993 Act, there is provided a machinery specially adapted for computing each name's profit and losses from each of the syndicates of which he is a member, against the background of the manner in which Lloyd's business is conducted and so as to provide for effective and convenient assessment and collection of tax on underwriting profits in accordance with the procedure laid down in Sch 19. It is not the purpose of s 184(1), nor does its wording require, that a distinction should be made of the kind made in Napier's case between syndicate underwriting business and the separate and/or preliminary arrangements made between a name and his agent for the purpose of running that business. For taxation purposes a name has one underwriting business and there is no separate business activity of employing the agent. The agent is employed under Lloyd's requirements to run the underwriting business of the name and what he is paid is statutorily assumed to be a deductible expense of that business. I accept the general and numbered arguments of Mr Glick as set out above in this judgment though I make clear, as he acknowledged, that argument (4) relating to past practice cannot assist in the task of construing the true effect of the statutory provisions. Conclusion on the taxability issue Accordingly, the answer to the taxability issue is that the damages recoverable by the names will be subject to tax under Sch D in their hands. The Gourley issue I have already indicated that it was conceded for the names that, if Mr Goldberg succeeded in his submission that the damages would not be taxable in their hands, a Gourley reduction from the damages would fall to be calculated. However, there is no reverse concession made for the defendants. It is Mr Goldberg's submission that, even though the damages are taxable, they should still be reduced on Gourley principles to the extent that individual names may have secured tax relief in the relevant year of loss (or an earlier year) at a higher rate than the tax rate which is charged on the damages received in the year of recovery. The affidavit of Mr Wolstenholme, a tax partner with Touche Ross, accountants, on behalf of the defendants states as follows: '14. . . . For many names claiming in respect of the 1988 to 1989 underwriting years of account who will have been able to set at least some of their losses off against tax charged at a maximum marginal rate of 60%, tax will only become payable on the compensation they receive at a maximum top marginal rate of 40%. Thus, there is likely to be a tax benefit to some names even if the compensation payments are themselves fully taxable in accordance with the Inland Revenue's guidance note. 15. Secondly, the compensation payments are to be treated (according to the Inland Revenue) as a receipt of the business. They will therefore count as Lloyd's income against which (otherwise unrelieved) losses stemming from the Gooda Walker, or indeed other Syndicates, may be carried forward and set against [sic]. To the extent of such losses, therefore, compensation payments may in effect be tax free even if in principle they are taxable.' The plaintiffs concede that, in the case of some names, the defendants may well be correct. However, they assert that there are but few cases where the situation arises. They point out (on the distaff side) that in some cases (though I assume even fewer) a plaintiff name in the year of loss may have had some other income, but not enough to bring him into the top income tax rate of 40%, whereas in the year of recovery he may be in the 40% tax bracket. Whatever the position of individual names in this respect, it is the submission for the names as a whole that any such incidental effects of a general award of damages made without deduction under the Gourley principle should be ignored. Mr Goldberg has sought to rely upon the general principle of damages that the successful claimant is entitled to have awarded to him such sum as will so far as possible make good the financial loss he has suffered as a result of the wrong done. He also urges that, in the present case, it was plainly within the contemplation of the parties that in the event of a loss at Lloyd's, such loss would give rise to the right of individual names to reduce their liability to taxation on other profits and that, if the name's trading were later successful, the amount of the reduced taxation would be retained and enjoyed by him. Mr Goldberg submits that such benefit should be taken into account by reducing the damages recoverable on the grounds that the benefit is neither wholly collateral nor too remote. In that respect he has relied upon the decision in Shove v Downs Surgical plc [1984] 1 All ER 7 in which Sheen J, in a wrongful dismissal case and in relation to the difficulties created in such cases by s 187 of the Income and Corporation Taxes Act 1970, applied Gourley in a manner anticipated (obiter) by Pearson LJ in Parsons v BNM Laboratories Ltd [1964] 1 QB 95. In answer to this submission, Mr Park for the plaintiffs relies upon the well-established general rule that, if damages are taxable in the plaintiff's hands, they are awarded in the full amount of the loss and the courts do not generally take into account the differences between the tax as it applied or would have applied to the plaintiffs at the time of the loss and the tax as it is expected to apply at the time of recovery. In other words, damages are generally awarded in the full amount of pre-tax loss, the incidence of tax on the damages being left to lie where it falls. Mr Park relies in particular upon the judgment of Mocatta J in Julien Praet et Cie SA v HG Poland Ltd [1962] 1 Lloyd's Rep 566 at 593 et seq and the judgment of the Court of Appeal in Parsons v BNM Laboratories [1964] 1 QB 95. In the former case, Mocatta J was confronted with a position where lost premiums which would have been earned by the plaintiffs would, under Belgian law to which they were subject, have been taxed in one way, while the damages awarded would be taxed in another way, giving a different and more favourable result. In giving judgment, Mocatta J stated (at 495) as follows -- '. . . the underwriters say that the authorities . . . establish that once it is agreed or proved that the damages awarded will be subject to tax, the Court inquires no further and does not consider whether the tax liability on the damages would be heavier or lighter than the tax liability on the lost income. In support of this argument it is pointed out that no Gourley point is raised . . . in so far as the United Kingdom tax is concerned, both heads being clearly subject to such tax . . . In my judgment, the underwriters are right in their analysis of Gourley's case, as it has subsequently been interpreted and applied. I do not think the dichotomy of assessment under Belgian tax law, even if established, is sufficient justification for departing from what has been said in the three authorities I have cited [i e Spencer v Macmillan's Trustees 1958 SC 300, Herring v British Transport Commission [1958] TR 401, 37 ATC 382, Diamond v Campbell-Jones [1961] Ch 22]. To do so without making allowance for the increased burden of United Kingdom taxation that the individual underwriters will have to discharge due to the damages being received in one year, would be manifestly unfair, while to make such allowance would be both unprecedented and complicated. In addition, if I accepted the defendants' argument, either (a) I would be led into still greater complexities and of a character for which again, there would be no precedent, in that I should have to increase my award of damages by an amount equal to what I thought, on an extremely difficult point of Belgian tax law, would be the final Belgian assessment of the tax on the damages . . . or (b) I should have to make a declaration that the defendants do indemnify the underwriters against their future liability to Belgian tax on the damages awarded. Such an indemnity . . . would be a novel departure in post-Gourley developments. I, therefore, apply the law as it has been stated . . . notwithstanding that its application may in this, as in other cases, be open to the theoretical objections that it achieves but rough justice and does not provide a completely satisfactory solution to all the consequences flowing from the breach of contract . . . I accordingly take no account of Belgian tax.' In Parsons case, the Court of Appeal was concerned with taxation provisions applicable to an award of damages for wrongful dismissal. The details need not be recited. In that case, in the course of a long judgment in which he analysed all the relevant authorities, Pearson LJ (at 132-134) reviewed the authorities and (at 134-135) referred to the fact that in the cases which followed the decision in Gourley -- '. . . it has been stated or assumed that the principle of the Gourley case is applicable only if the lost earnings or profits are taxable and the damages are not . . . In my opinion the view stated in those later cases as to the requisites for application of the Gourley principle is clearly correct . . . The practice also has been consistent with that view. On the one hand the Gourley principle has been applied regularly in accident cases, which are very numerous, and normally it does not cause any difficulty or complication . . . On the other hand, Mr. Roskill from his wide experience has confirmed my impression that in the assessment of damages in commercial cases or cases of breach of contract other than wrongful dismissal the Gourley principle has not been applied, and the incidence of taxation, whether on the lost profits or on the damages to be awarded, has been ignored. In such cases both the lost profits and the damages to be awarded have the character of taxable subject-matter, and rough justice is done and a great expenditure of time and costs is saved by ignoring the tax on both sides so that in effect the tax on the lost earnings is set off against and cancelled out by the tax on the damages. The actual amounts of the tax (if any) to be paid on the one side and the other would depend on the special circumstances of the particular case and might differ widely, but no attempt is made to ascertain the actual difference and adjust the damages accordingly.' He then went on to cite with approval the judgment of Mocatta J quoted above, and continued (at 136): 'Having regard to what was said in the House of Lords in Gourley's case and . . . what has been said in the later cases, and to the practice, I consider it impossible to maintain that there can be derived from Gourley's case any principle requiring taxation to be taken into account in assessing damages in a situation where both the lost earnings or profits and the damages are taxable.' He then went on to consider the argument that taxation should be taken into account on both sides, that is to say both the notional taxation on the lost profits and the expected taxation on the damages, so that an award of damages could be made of such sum as would, after deduction of tax, leave a net sum equal to the plaintiff's net financial loss (the approach adopted and applied by Sheen J in the case of Shove, to which I have already referred). In that respect he stated (at 137) that the argument 'has the attraction of appearing to produce perfect justice. Nevertheless there are serious objections to it.' He then set out (at 138) some five reasons by way of objection, including, as the second reason, the fact that -- '. . . the further calculations and arguments required would tend to increase the length and expense of trials, and that is an important consideration because the assessment of damages is an everyday matter.' He continued (at 139): 'In my judgment these objections are sufficient to show that, as a general rule at any rate, in a case where both the lost earnings or profits and the damages are taxable, no account should be taken of taxation in assessing the damages. The present practice of ignoring the taxation in such a case is sound and should not be disturbed. That is my conclusion, subject to a proviso that there may be exceptional cases in which a departure from the practice may be required for the doing of justice in special circumstances. The present case is not exceptional . . . I am inclined to think the right evaluation of Gourley's case is to say that it was dealing with a very special case of tax discrepancy or tax anomaly, and was not intended and should not be construed as generally requiring or authorising the incidence of taxation to be taken into account in the assessment of damages. The tax discrepancy, or tax anomaly is that, whereas the lost earnings or profits would have been taxable, the damages which are provided in replacement of them -- as counsel vividly said, to fill the hole made by the wrongful act -- are free of tax. The facts of Gourley's case show that, if the notional taxation of the lost profits or earnings had not been taken into account in assessing the damages, the plaintiff would have received an enormous fortuitous windfall in addition to compensation.' It is apparent that for reasons elucidated in less detail, Sellers LJ (at 114-116) and Harman LJ (at 128-130) agreed with the views of Pearson LJ. As Harman LJ put it (at 130) -- '. . . I would incline to the view that, as seems to be the practice in commercial loss of profit cases, no account should be taken of tax at either end. This may be a matter largely dictated by expediency but it strikes me as preferable in an imperfect world to an over-assiduous search after perfection.' The difference between Mr Goldberg and Mr Park concerns the question of whether or not it is appropriate to regard the likelihood that certain individual names will receive the tax benefit or 'windfall' which I have described, as bringing this action within the proviso of Pearson LJ concerning exceptional cases in which a departure from the general rule in commercial cases may be required in order to do justice. Mr Goldberg says it is. He submits that, although the action is collectively brought by the names, it is in fact nothing but a large number of individual claims and that, in respect of those names who may receive a tax benefit, not to apply the Gourley principle would produce injustice. Mr Park, on the other hand, points out that the exercise of quantification anticipated by the judgment of Phillips J (and which will no doubt be appropriate unless Mr Goldberg's submission finds favour) will be one which simply involves examination of the position of a number of individual syndicates and the making of a global award in relation to the affairs of each. The court will not need to concern itself with the apportionment of the award as between individual names (which will simply follow their syndicate proportions and/or any sharing arrangement made inter se within the Names Action Group), nor will it examine the individual tax position of each name in order to ascertain whether the name has enjoyed any tax benefit and, if so, to what extent. Looked at in the round, as Mr Park says it should be, the extent to which individual names (and it is by no means clear that there are many of them) may enjoy certain tax benefits, involves no more than the 'rough justice' which the court, in Parsons case, regarded as an acceptable incident in the application of the general rule. I consider that Mr Park is right, for the reasons advanced in the judgment of Pearson LJ from which I have quoted at length. The authority of Shove's case does not assist Mr Goldberg. It was a case of wrongful dismissal, in which category of case the approach adopted by Sheen J had for some time been followed as an appropriate formula to meet the frequent and obvious anomaly raised by statutory provisions which involved the application of the Gourley principle to one part of an award but not to another. Mr Goldberg has urged that the tax position of any name who had set off losses at a tax rate higher than the rate applicable to the award at date of recovery can be readily ascertained. However, it is clear that in the event of dispute, the scope of investigation by the court on the issue of damages will be vastly increased if, in relation to an action which has hitherto properly proceeded on the basis of duties owed to, and losses sustained by, the syndicates concerned, it must now start to examine the position of individual names. If not agreed, analysis would have to be made of the tax position of over 3,000 different names in past years as well as the year in which the recovery of damages is made. A number of names may be, or have been, non-resident, in which event a foreign tax position might have to be taken into account. Questions relating to individual reliefs and losses occurring in any other business of the name would have to be taken into account. Other tax shelter transactions such as BES schemes might also come into the picture. These are the kind of investigations against which the court has traditionally set its face in commercial cases (see, for instance per Nicholls LJ in John v James [1986] STC 352 at 362-363). Having considered the matter carefully, I do not think that a departure from the traditional approach is called for to do justice in this case. Conclusion on the Gourley issue Accordingly, the answer to the Gourley issue is that there should be no reduction in the damages awarded to the names under the rule in BTC v Gourley. DISPOSITION: Order accordingly. SOLICITORS: Wilde Sapte; Elbourne Mitchell; Solicitor of Inland Revenue.