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HMRC internal manual

Compliance Handbook

Special Reduction: Case law on the meaning of ‘special circumstances’ in the context of non penalty laws - detailed extracts for appeals and review team information

This page gives additional detail for review officers and appeals teams.

The senior courts accept that for circumstances to be special they must be ‘exceptional, abnormal or unusual’ (Crabtree v Hinchcliffe) or ‘something out of the ordinary run of events’ (Clarks of Hove Ltd v Bakers’ Union).

Below are useful extracts from these cases. We have shown the most relevant parts of the extracts in bold.

Clarks of Hove Ltd v Bakers’ Union [1979] All ER 152

The House of Lords considered the meaning of ‘special circumstances’ as used in the context of employment law.

At 159 Geoffrey Lane LJ said:

‘What, then, is meant by ‘special circumstances’? Here we come to the crux of the case. In this aspect, also, decisions under the Road Traffic Acts appear to me to be unhelpful. The decisions are too well known to need reference. The basis of them all is probably Whittall v Kirby ([1946] 2 All ER 552 at 555, [1947] KB 194 at 201):

‘A “special reason” … is one which is special to the facts of the particular case, that is, special to the facts which constitute the offence … A circumstance peculiar to the offender … as distinguished from the offence is not a “special reason” … ‘

In so far as that means that the special circumstance must be relevant to the issue then that would apply equally here, but in these circumstances, the Employment Protection Act 1975, it seems to me that the way in which the phrase was interpreted by the industrial tribunal is correct. What they said, in effect, was this, that insolvency is, on its own, neither here nor there. It may be a special circumstance, it may not be a special circumstance. It will depend entirely on the cause of the insolvency whether the circumstances can be described as special or not. If, for example, sudden disaster strikes a company, making it necessary to close the concern, then plainly that would be a matter which was capable of being a special circumstance; and that is so whether the disaster is physical or financial. If the insolvency, however, was merely due to a gradual run-down of the company, as it was in this case, then those are facts on which the industrial tribunal can come to the conclusion that the circumstances were not special. In other words, to be special the event must be something out of the ordinary, something uncommon; and that is the meaning of the word ‘special’ in the context of this Act.

Accordingly it seems to me that the industrial tribunal approached the matter in precisely the correct way. They distilled the problem which they had to decide down to its essence, and they asked themselves this question: do these circumstances, which undoubtedly caused the summary dismissal and the failure to consult the union as required by s 99, amount to special circumstances?; and they went on, again correctly, as it seems to me, to point out that insolvency simpliciter is neutral, it is not on its own a special circumstance. Whether it is or is not will depend on the causes of the insolvency. They define ‘special’ as being something out of the ordinary run of events, such as, for example, a general trading boycott, that is the passage which I have already read. Here, again, I think they were right.’

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Crabtree v Hinchcliffe (Inspector of Taxes) [1971] 3 All ER 967

The House of Lords considered ‘special circumstances’ in relation to a share valuation for capital gains tax purposes. At 966-967 Lord Reid said:

‘Now I must turn to the interpretation of s 44(3). As might be expected it takes the Stock Exchange quotation as reflecting market value in all normal cases. Stock Exchange prices are more liable than most open market prices to large and rapid fluctuations. But the taxpayer must take the risk of that unless there are ‘special circumstances’. ‘Special’ must mean unusual or uncommon—perhaps the nearest word to it in this context is ‘abnormal’. I see no reason to exclude any kind of abnormality. ‘Rigging the market’ was discussed in argument. This exception of cases where there are special circumstances must be intended to provide that a fair value is to be taken where they exist; generally a fair value could only be reached by enquiring what the market value would have been if the special circumstances had not existed. I think that that is what the section is contemplating when it says that in consequence of special circumstances the Stock Exchange quotation is not by itself a proper measure of market value. If it is not then some other measure must be found.

The Crown argues that this provision has a very limited application. Indeed it says that it can only in two cases: first in the very few cases where on the day in question the Stock Exchange quotation was ‘stale’, and secondly when in practice a particular parcel of shares would not be sold on the Stock Exchange at all. With regard to the latter I would refer to the very recent decision in this House of Lynall v Inland Revenue Comrs (Page 914, ante). It would then be necessary to imagine some other form of open market sale of that parcel on that day if the Crown’s submission on this point is correct. It is unnecessary to reach any decision on that matter in this case. I can see nothing in the phraseology or in the apparent object of this provision to justify so narrow a reading of it.’

The question then is whether there were in this case any special circumstances on 6 April 1965. The Special Commissioners stated their ground of decision in these terms:

‘… we thought that, as it had been put in argument, the Stock Exchange was, in relation to the stocks at the 6th April, 1965, “working in blinkers“. A horse in blinkers was shut off from seeing a good deal. When a market was shut off, as we thought the London Stock Exchange here had been, from information vital to a realistic assessment of the true value of the assets in question, was it right to refer to that market as “the open market” envisaged in Section 44(1)? Having weighed the matter, we thought that it was not. Accordingly we held that the appeal succeeded in principle.’

‘They do not appear to rely on any impropriety in withholding the vital information; they seem to have regarded it as sufficient that in fact the Stock Exchange was ‘working in blinkers’ without considering whether this was unusual. Their apparent view that the Stock Exchange was not an open market because it lacked vital information was not supported in argument.

It must happen every day that directors of many companies have in their possession confidential information which very properly they do not make public but which if made public would lead to a substantial alteration of the quoted prices of their companies’ shares. That could not possibly be a ‘special circumstance’ and in my opinion that is all that happened here.’

At 983 Viscount Dilhorne said:

‘The question they had to consider was not whether the market on the London Stock Exchange was, on 6 April 1965, an open market within the meaning of s 44(1) but whether, in consequence of special circumstances, the prices quoted were by themselves not a proper measure of market value.

There must be many occasions on which the directors of a company are in possession of information which if made public would affect the prices quoted on the London Stock Exchange and where it could be said that in the absence of such information the London Stock Exchange is ‘working in blinkers’, but the fact that directors have such information and the Stock Exchange has not cannot ordinarily by itself amount, in my opinion, to ‘special circumstances’ within the meaning to be given to those words in s 44(3). For circumstances to be special must be exceptional, abnormal or unusual and the mere fact that directors have knowledge which would affect the prices quoted if made public cannot, in my view, be regarded as an unusual circumstance.

If, however, it clearly was the duty of the directors to make public such information, and there was failure to do so, with the result that the prices quoted were less or higher than they would have been if the duty had been discharged, it might well be that that would amount to special circumstances. Having heard the evidence it was for the commissioners to state what facts they found proved or admitted. They made no finding in para 6 of the case that the directors were under a duty to inform the shareholders and the public before 6 April 1965 of the talks with Vickers. They accepted the evidence given by Mr Gillum but he did not suggest that there had been any breach of duty by the directors. He merely said that he would have been in favour of an announcement being made.’