Appeal From The Upper Tribunal By Sir Fraser Morrison Against The Commissioner For Hm Revenue And Customs
| Jurisdiction | Scotland |
| Judge | Lord Tyre,Lord Malcolm,Lord President |
| Neutral Citation | [2014] 113 |
| Date | 23 December 2014 |
| Docket Number | XA145/13 |
| Court | Court of Session |
| Published date | 23 December 2014 |
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2014] 113
XA145/13
The Lord President
Lord Malcolm
Lord Tyre
OPINION OF THE LORD PRESIDENT
in the APPEAL FROM THE UPPER TRIBUNAL TAX AND CHANCERY CHAMBER
by
SIR FRASER MORRISON
Appellant;
against
THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS
Respondents:
Act: Ghosh QC, Richardson; Maclay Murray & Spens
Alt: Artis; Office of the Advocate General
23 December 2014
[1] I agree with Lord Tyre that, for the reasons that he gives, the appeal should be allowed and that the case should be disposed of as he proposes.
[2] Lord Tyre’s reasoning depends to a great extent on the concession by the respondents that the payment made by the appellant in settlement of AWG’s action constituted a “contingent liability” within the meaning of section 49(1)(c) of the Taxation of Chargeable Gains Act 1992, and that it was “enforced” by AWG’s action and its settlement. The consequence of that concession is that we have heard no submissions from either side on various questions that might have been thought to arise in the interpretation of section 49(1)(c); for example, whether a contingent liability, if such it was, can be said to have been enforced when the formal settlement agreement involves no acceptance of liability by the taxpayer and is without prejudice to his continued denial of any liability on his part.
[3] That concession, having been made in relation to an important provision in a taxing statute, may have significant consequences in other cases. It is therefore unfortunate that counsel for the respondents was unable to articulate what, in their contention, was the nature of the contingent liability and in what way it was enforced by the action and its settlement. In the result, as counsel for the appellant insisted, we must simply decide this appeal on the basis that it is undisputed that a contingent liability of the appellant has been enforced.
[4] In a matter of this kind, it is inappropriate that a concession by the respondents on the interpretation of a statutory provision of general application should be made orally at the bar. In my view, any such concession should be made in writing and in clear and precise terms. Moreover, to enable the court to assess the soundness of the concession, the respondents should give a clear explanation of the reasoning on which it is made.
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2014] 113
XA145/13
The Lord President
Lord Malcolm
Lord Tyre
OPINION OF LORD MALCOLM
in the APPEAL FROM THE UPPER TRIBUNAL TAX AND CHANCERY CHAMBER
by
SIR FRASER MORRISON
Appellant;
against
THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS
Respondents:
Act: Ghosh QC, Richardson; Maclay Murray & Spens
Alt: Artis; Office of the Advocate General
23 December 2014
[5] For the reasons given in the Opinion of Lord Tyre, I agree that this appeal should be allowed. With reference to the additional remarks of the Lord President, I agree that revenue concessions of this nature should be explained, and set out in writing in clear and precise terms.
FIRST DIVISION, INNER HOUSE, COURT OF SESSION
[2014] 113
XA145/13
The Lord President
Lord Malcolm
Lord Tyre
OPINION OF LORD TYRE
in the APPEAL FROM THE UPPER TRIBUNAL TAX AND CHANCERY CHAMBER
by
SIR FRASER MORRISON
Appellant;
against
THE COMMISSIONERS FOR HM REVENUE AND CUSTOMS
Respondents:
Act: Ghosh QC, Richardson; Maclay Murray & Spens
Alt: Artis; Office of the Advocate General
23 December 2014
Introduction
[6] The appellant was formerly a major shareholder in, and the chairman and chief executive of, Morrisons plc (“MPLC”), a company listed on the London Stock Exchange. In about June 2000, Anglian Water plc (“AWG”) expressed an interest in acquiring the whole share capital of MPLC. Discussions took place. On or about 3 July 2000, the appellant as chairman of MPLC authorised the sending of MPLC’s five year strategic plan to AWG. The plan included a profit forecast for the year to March 2001. During the subsequent sale negotiations, further information was provided by the appellant in the same capacity as to the state of MPLC’s business, including a letter dated 11 September 2000 in which an assurance was given that there were no other matters of which AWG should be aware.
[7] The shareholders of MPLC, including the appellant, accepted an offer by AWG to purchase all issued and to-be-issued ordinary shares in MPLC. The consideration for the sale was a combination of loan notes and shares in AWG. By letter dated 23 August 2000 the appellant irrevocably accepted the offer in respect of his 8,668,983 shares and all shares of which he became the registered or beneficial owner thereafter. The shares and loan notes which he received were later transferred into a trust (“the 2002 Trust”). The disposal of his shares and loan notes to the 2002 Trust gave rise to a capital gains tax liability.
[9] The profit forecast turned out to be materially inaccurate. In August 2002 AWG raised proceedings in the High Court of Justice in London against the appellant and a co-defendant, Mr Stephen McBrierty, who had been the Group Operations Director and executive responsible for developments at the time of the sale. The statement of claim alleged that AWG had been induced by the defendants’ false representations and misstatements to offer more for the company than it was worth. The sum sued for was £132 million. The measure of the damages claimed was broadly the difference between the price paid by AWG for the shares and their alleged actual value at the date of acquisition, plus consequential loss. In the same action MPLC sought damages from the appellant for breach of fiduciary duty and duties of care owed to it by him as its director and employee.
[9] The action was defended. Liability was denied. The appellant admitted that he had made an implicit representation that he honestly believed that the profit forecast representation was substantially achievable overall, assuming reasonable continuity of management and business and accounting practice. He asserted that the assurance given in his letter of 11 September 2000 that there were no other matters of which AWG should be aware was given by him as chairman of MPLC and not in his personal capacity, and that it was not a representation by him about the profit forecast.
[10] In February 2006, shortly before trial, the parties settled the action. A settlement agreement was entered into in terms of which AWG and MPLC undertook to release the appellant, Mr McBrierty, and each of the persons listed in a schedule thereto as “the Morrison interests”, including the appellant’s immediate family and related trusts, from any liability that he or they might have. The settlement figure was £12 million and was paid by the appellant without acceptance of liability.
[11] The appellant then claimed an adjustment of £12 million to the capital gains tax liability that he had incurred on disposal of the AWG shares and loan notes to the trust. The adjustment was sought under section 49 of the Taxation of Chargeable Gains Act 1992 (“the Act”), on the ground that the payment in settlement of the High Court action constituted the enforcement of a contingent liability in respect of a representation made on the disposal of his shares in MPLC. The claim was refused by the respondents on the ground that the payment of £12 million under the settlement agreement was not part of the consideration, whether contingent or otherwise, for the share exchange in 2000, and so could not be brought within section 49.
[12] The appellant appealed against that decision to the First Tier Tribunal (“FTT”). In a decision published as Mr Ben Nevis at [2012] UKFTT 377 (TC), the FTT held that the appellant fell within the ambit of section 49(1)(c) and was therefore entitled to the benefit of the adjustment in terms of section 49(2). The respondents appealed to the Upper Tribunal. On 11 October 2013, the Upper Tribunal (Lord Glennie) upheld the respondents’ appeal. The appellant now appeals to this court against the decision of the Upper Tribunal, which is published as HMRC v Morrison at [2013] UKUT 0497 (TCC).
[13] The issue for determination by this court is whether the settlement payment of £12 million by the appellant was made for a contingent liability in respect of representations made on a disposal by way of sale of the appellant’s shares in MPLC within the meaning of section 49(1)(c) of the Act, so as to require an adjustment of the appellant’s liability to capital gains tax under section 49(2). A second issue, namely whether the appellant’s costs of defending the AWG action were also a contingent liability, was decided by the FTT in favour of the respondents, and the appellant’s appeal against that decision was refused by the Upper Tribunal. The latter decision has not been appealed.
The statutory framework
[14] Section 48(1) of the Act (as amended) states:
“In the computation of the gain consideration for the disposal shall be brought into account without any discount for postponement of the right to receive any part of it and, in the first instance, without regard to a risk of any part of the consideration being irrecoverable or to the right to receive any part of the consideration being contingent; and if any part of the consideration so brought into account subsequently proves to be irrecoverable, there shall be made, on a claim being made to that effect, such adjustment, whether by way of discharge or repayment of tax or otherwise, as is required in consequence.”
Section 49 provides:
“(1) In the first instance no allowance shall be made in the computation of the gain-
(a) in the case of a disposal by way of assigning a lease of land or other property, for any liability remaining with, or assumed by, the person making the disposal by way of a assigning the lease which is contingent on a default in respect of liabilities thereby subsequently assumed by the assignee under the...
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