Brady v Group Lotus Car Cos. Plc
| Jurisdiction | England & Wales |
| Judgment Date | 18 December 1986 |
| Date | 18 December 1986 |
| Court | Chancery Division |
Chancery Division.
Mr. J.M. Chadwick Q.C. and Mr. A.G. Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Mr. L.A. Price Q.C. and Mr. J.L. Munby (instructed by Messrs. Gouldens) for the taxpayer companies.
Before: Sir Nicolas Browne-Wilkinson V.C.
The following cases were referred to in the judgment:
Haythornthwaite (T.) & Sons Ltd. v. Kelly (H.M.I.T.) TAX(1927) 11 T.C. 657
Jonesco v. Beard ELR[1930] A.C. 298
Ladd v. Marshall WLR[1954] 1 W.L.R. 1489
Meek v. Fleming ELR[1961] 2 Q.B. 366
Yuill v. Wilson (H.M.I.T.) WLR[1980] 1 W.L.R. 910
This was the Crown's appeal from a decision of General Commissioners who allowed appeals by the taxpayer companies against two alternative assessments to corporation tax.
The taxpayer companies were manufacturers of sports cars. In 1978 they became involved via their directors in negotiations for the development of the De Lorean sports car in Northern Ireland. A Panamanian company GPD Services Inc. ("GPD") was interposed in the eventual contractual relationship between De Lorean companies and the taxpayer companies. GPD received an advance payment in respect of design work of $17.65m of which some $8.5m was then paid to Mr. De Lorean. Thereafter the taxpayer companies did the work for which they had contracted and were paid for it accordingly. They were then assessed to corporation tax on the basis that they must have been the recipients of the balance of the advance payment, in the sum of $9.15m. The companies appealed to General Commissioners. No evidence was produced as to what had actually become of the balance of the advance payment and on that basis the Commissioners discharged the assessments; if the money had in fact been paid to or for the benefit of the companies then that must have involved fraud and the burden was on the Revenue to prove that fraud, which it had not done.
The Crown appealed from the General Commissioners' decision, seeking an order for the remittal of the case to the Commissioners and for further evidence to be admitted. That was because evidence had come to light in the liquidation of a De Lorean company showing that directors of the taxpayer companies had in fact received payments from GPD. The issue of law taken on the appeal was that the Commissioners had misdirected themselves about the burden of proof on the issue of fraud.
Held, allowing the Crown's appeal:
1. The Commissioners had misdirected themselves. Throughout the case the burden was on the taxpayer companies to show that the assessments were wrong. Had the Commissioners not decided that there was a burden on the Revenue to prove fraud, they might not have been satisfied that the taxpayer companies had discharged the burden on them. The matter had to be remitted.
2. It was clear that the Commissioners had been misled by false evidence. It was a fundamental principle of justice that where a party had materially misled the court a judgment so obtained would not be allowed to stand. It was therefore proper for the court to take account of the fresh evidence in deciding what order to make underTaxes Management Act 1970 section 56 subsec-or-para (6)sec. 56(6) of the Taxes Management Act 1970. That was that, in a wholly exceptional case, justice required that there should be a complete rehearing at which evidence not previously led could be adduced. (Meek v. Fleming ELR[1961] 2 Q.B. 366 applied.)
3. The case was potentially very complex involving difficult questions of fact and law. The General Commissioners seemed an unsuitable tribunal for such a case, which would be remitted for rehearing before the Special Commissioners.
Stated under the Taxes Management Act 1970 section 56Taxes Management Act 1970, sec. 56 by the commissioners for the general purposes of the Income Tax Acts for the opinion of the High Court of Justice.
1. At a meeting of the Commissioners held at Norwich on 11, 24, 25, 26 and 27 April 1984 Group Lotus Car Companies plc and Lotus Cars Ltd. (hereinafter referred to as "Lotus") appealed against assessments for corporation tax for the accounting periods ended 31 December 1978 and 31 December 1979, each in the sum of £9m.
2. [Paragraph 2 listed the witnesses who gave evidence before the Commissioners.]
3. The following cases were cited before the Commissioners:
Anderson v. I.R. Commrs. TAX(1933) 18 T.C. 320
T. Haythornthwaite & Sons Ltd. v. Kelly (H.M.I.T.) TAX(1927) 11 T.C. 657
4. As a result of the oral and documentary evidence adduced, the Commissioners found the following facts proved or admitted.
(a) For a very considerable number of years Lotus have been engaged in the manufacture of high quality sports cars, and as a means of publicising these cars they have also built specialised cars designed for the race track. These cars have had a considerable success on both the British and foreign tracks. Lotus built up a good reputation for research into the engineering aspects of motor manufacture, as a result of which they have obtained contracts for research and development of motor vehicles on behalf of other motor manufacturing companies. Lotus was the creation of a Mr. Colin Chapman who until his sudden death on 16 December 1982 was the driving force behind the organisation, of which he had virtually complete control. He had by the time of his death built up an international reputation as a designer and for the development of motor cars in all their aspects, with particular reference to cars of a sporting nature. Mr. F.R. Bushell, who was a director of both the two major Lotus companies (there were other subsidiaries of Group Lotus), was in effect Mr. Colin Chapman's right-hand man for many years and became managing director of Lotus after Mr. Colin Chapman's death. As is customary in the motor industry, Lotus had marketing arrangements to dispose of their cars, and so far as the matters before the Commissioners were concerned really three bodies are relevant. In America there was Lotus East Imports Inc., originally the sole US importer and distributor of Lotus products, and Lotus North America Inc. which was to succeed Lotus East Imports Inc. There was also a company known as LCI S.A. of Geneva with which Lotus Cars Ltd. entered into a ten-year agreement on 2 September 1977 which appointed LCI S.A. as an international marketing organisation for Lotus products, which was inter alia responsible for market research and researching and locating suitable distributors, negotiation with distributors and monitoring of their activities and ascertaining and advising on legalities and requirements in overseas territories which appeared to cover all territories in the world. This company appears to have been in effect owned by a M. Gerry Juhan and his wife Mme Denise Juan. They appear, however, to have been more concerned with Europe and do not appear to have had much to do with American sales.
(b) In 1978 Lotus ran into difficulties and their sales were dropping and they approached the Juhans at this time to explain that their position was unsatisfactory and that if they were to continue to carry their high overheads which were necessary for their programme they must obtain either sub-contract or consultancy work, and they asked the Juhans and others to see if they could find this. The agreement at that time was that the Juhans would not enter into any contracts as principals but when suitable customers were found then negotiations would be direct between Lotus and the customers and the Juhans would arrange their commission direct with the customers. It would appear that as a result of this, and about this time, Mr. John De Lorean, who was a very senior ex-official of General Motors of America and who was known to be trying to develop a highly innovative and very expensive sports car, which subsequently came to be known as the DMC 12, was put into contact with Mr. Colin Chapman. Mr. Chapman and also his close associate Mr. Bushell were under the impression that Mr. De Lorean would be sub-contracting work to Lotus in connection with the development of this car, but as a result of meetings between Mr. Chapman and Mr. De Lorean, what Mr. De Lorean had in mind was an amalgamation or take-over of Lotus by him. This was in no way acceptable to Mr. Chapman, who was not prepared to relinquish control of his own business, and the negotiations came to an end.
(c) It appears that Mr. De Lorean tried to find other firms in Europe to take on the development work for the DMC 12, whether by sub-contracting or take-over is not known. These inquiries seem to have been fruitless and the Juhans once more approached Mr. Chapman to find out whether Lotus would be prepared to negotiate once more with Mr. De Lorean. It is asserted that Mr. Chapman was reluctant, but eventually agreed to meet Mr. De Lorean in Geneva, and at a meeting between Messrs. Chapman and Bushell and the Juhans, primarily devoted to a review of Lotus's affairs, it was agreed that Mr. Chapman should meet Mr. De Lorean and a meeting took place. At this meeting Mr. Chapman, who was accompanied by Mr. Bushell, and at which the Juhans were present, Mr. Chapman was by no means enthusiastic. However, after considerable discussion Mr. Chapman and Mr. De Lorean agreed that some sort of arrangement could possibly be arrived at. The two main stumbling blocks were first that Mr. Chapman did not wish to enter into a direct contract with Mr. De Lorean, and this was for personal reasons, and also that Mr. Chapman was very concerned about the dangers of his company being involved with product liability in the United States, where most of the sales would expect to be made. It was emphasised to us that product liability in the US can involve manufacturers in horrific claims far in excess of those in Europe.
(d) Eventually a solution appears to have been arrived at whereby a contract dated 1 November 1978 was made between De Lorean...
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