Brady v Group Lotus Car Cos. Plc
| Jurisdiction | England & Wales |
| Judgment Date | 31 July 1987 |
| Date | 31 July 1987 |
| Court | Court of Appeal (Civil Division) |
Court of Appeal.
Mr. Leolin Price Q.C. and Mr. James Munby Q.C. (instructed by Messrs. Gouldens) for the Lotus companies.
Mr. John Chadwick Q.C. and Mr. Alan Moses (instructed by the Solicitor of Inland Revenue) for the Crown.
Before: Dillon, Mustill and Balcombe L.JJ.
The following cases were referred to in the judgment:
"Gold Sky") UNK[1972] 2L1. Rep. 18.
Bird (R.A.) & Co. v. I.R. Commrs. TAX(1924) 12 T.C. 785
Bradshaw v. Blunden (H.M.I.T.) (No. 2) TAX(1960) 39 T.C. 73
De Lasala v. De Lasala ELR[1980] A.C. 546
Haythornthwaite (T.) & Sons Ltd. v. Kelly (H.M.I.T.) TAX(1927) 11 T.C. 657
Hillenbrand v. I.R. Commrs. TAX(1966) 42 T.C. 617
Hornal v. Neuberger Products Ltd. ELR[1957] 1 Q.B. 247
Hudson v. Humbles (H.M.I.T.) TAX(1965) 42 T.C. 380
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
Murphy (H.M.I.T.) v. Australian Machinery & Investment Co. Ltd.TAX(1948) 30 T.C. 244
Slattery v. Mance ELR[1962] 1 Q.B. 676
Yuill v. Wilson (H.M.I.T.) TAX(1980) 52 T.C. 674
This was an appeal by the two Lotus companies from a decision of Sir Nicolas Browne-Wilkinson V.C. ([1987] BTC 95) allowing an appeal by the Crown against the determination of General Commissioners discharging assessments to corporation tax made on the companies in respect of payments alleged to have been received on the companies' behalf by two directors.
In 1978 the Lotus companies became involved in negotiations for the development of the De Lorean sports car in Northern Ireland. A Panamanian company (GPD) was interposed in the eventual contractual relationship between the De Lorean companies and the Lotus companies. GPD received an advance payment of $17.65m in respect of design work of which $8.5m was paid to Mr. De Lorean personally. The Lotus companies did the work for which they had contracted and were duly paid for it.
The Lotus companies appealed against assessments to corporation tax made on the basis that the companies, or two directors one of whom had died, must have received the balance of the advance payment. The surviving director gave evidence before the General Commissioners but no evidence was produced as to what had become of the advance payment. The Commissioners discharged the assessments on the grounds that if the money had been paid to or for the benefit of the companies, then that must have involved fraud, and where fraud was alleged the burden was on the Revenue to prove it, which it had not done.
The Crown appealed from the General Commissioners' decision contending that they had erred in holding that the burden of proof was on the Revenue to prove fraud. Where an assessment was made within the statutory time limit the burden of displacing it was on the taxpayer. The Crown therefore sought an order that the case should be remitted to the Commissioners to reconsider the case applying the proper burden of proof. The Crown also sought an order that new evidence should be admitted, which had come to light in the liquidation of a De Lorean Company. The new evidence showed that directors had large amounts in Swiss bank accounts which had been paid by GPD.
The Crown's appeal was allowed. It was held that the General Commssioners had misdirected themselves as to the burden of proof, which lay on the Lotus companies throughout. In view of the complexities involved the case was remitted to the Special Commissioners instead of the General Commissioners for rehearing. The Commissioners had been materially misled by the surviving director and in the circumstances the Crown should be permitted to adduce the new evidence.
The Lotus companies appealed to the Court of Appeal. The issue for decision was whether, if the case was remitted to the Special Commissioners, it should be heard merely on the evidence which was before the General Commissioners or whether the new evidence should be admitted.
The Lotus companies contended that, if the General Commissioners had directed themselves correctly in law, their decision would have been final and conclusive against the Crown. In order to use the new evidence the Crown would have had to bring a separate action to set aside the Commissioners' decision on the ground that it had been obtained by fraud, and it would be wrong for the Crown to profit from the Commissioners' error of law by being able to adduce new evidence in proceedings where the burden of disproving it was on the Lotus companies.
Held, dismissing the Lotus companies' appeal:
1. The case would be remitted for rehearing since it could not be said that the evidence was such that the Commissioners would have reached the same conclusion had they correctly directed themselves as to the burden of proof.
2. There were special circumstances which justified allowing the new evidence to be admitted. If the Commissioners had been misled it would be wrong that the Special Commissioners should be denied the benefit of the new evidence.
3. (Per Mustill L.J. dissenting) The Crown should not be allowed to adduce the new evidence. The hearing should await the outcome of an action for a declaration that the previous decision was improperly obtained. If the action succeeded, the investigation would proceed de novo, but if it failed the proceedings would recommence only to the extent required by the court's decision on the question of law.
By a notice of appeal dated 7 January 1987 Group Lotus Car Companies plc and Lotus Cars Ltd. appealed against the decision of Sir NicolasBrowne-Wilkinson V.C. given on 18 December 1986. The grounds of the appeal were:
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(2) the assessments, the subject of the determination having been made by the inspector expressly on the basis that there had been fraud, wilful default or neglect on the part of, or on behalf of, the taxpayers, the Vice-Chancellor misdirected himself and erred in law in holding that it was not for the inspector to prove and in failing to hold that it was not for the taxpayer to disprove such fraud, wilful default or neglect;
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(3) alternatively the Vice-Chancellor misdirected himself and erred in law in holding that the Commissioners had misdirected themselves in respect of the burden of proof or otherwise made an error of law;
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(4) if (contrary to the foregoing) there was any such misdirection or error of law by the Commissioners, it was not such as could reasonably be regarded as adversely affecting the determination and accordingly could not reasonably have been regarded by the Vice-Chancellor as justifying either the order that the case be remitted for a rehearing, or the order that upon such rehearing there should be any liberty to adduce fresh evidence;
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(5) the Vice-Chancellor having correctly held that he had no jurisidction to order that the case be remitted for a rehearing unless the Commissioners had made an error of law, misdirected himself and erred in law, alternatively wrongly exercised his discretion in deciding whether or not to order that the case be remitted for a rehearing by taking into account matters wholly unrelated to any error of law made by the Commissioners and matters not referred to in the case.
Dillon L.J.: The taxpayer companies, Group Lotus Car Companies plc and Lotus Cars Ltd. ("the Lotus Companies"), appeal against a decision of the Vice-Chancellor, Sir Nicolas Browne-Wilkinson,given on 18 December 1986, whereby on a case stated at the request of the Crown under Taxes Management Act 1970 section 56sec. 56 of the Taxes Management Act 1970 ("the Act") by the General Commissioners for the Wymondham Division of Norfolk, the Vice-Chancellor directed that the matter be remitted to the Special Commissioners for rehearing with liberty to each party to adduce fresh evidence.
The issues debated in argument before the Vice-Chancellor and in this court have been essentially issues of procedure and onus of proof. What lies behind them, however, is the desire of the Crown to get in, if possible, certain fresh evidence which the Crown obtained for the first time after the General Commissioners had given their decision and which could not have been obtained with reasonable diligence for use at the hearing before the General Commissioners.
Since the only appeal to the High Court against a decision of the Commissioners, Special or General, in a tax case is an appeal by case stated on a question of law, it is accepted by the Crown that new evidence cannot in general be received in the High Court or in this court on a tax appeal, even if the three well-known conditions laid down in Ladd v. Marshall WLR[1954] 1 W.L.R. 1489 are satisfied. It is submitted, however, for the Crown that, if it can be shown that there has been error of law on the part of the Commissioners such that the matter should be remitted for rehearing, then it may be appropriate, and would in the present case be appropriate, for new evidence to be admitted on the rehearing. The particular error of law relied on in the present case is that it is said, and the Vice-Chancellor held, that the General Commissioners misdirected themselves in law in relation to the onus of proof on the questions which they had to consider.
In the years down to 1978, the Lotus Companies had been engaged with some success in the manufacture of high quality sports cars and in building specialised cars designed for the racetrack. The driving force behind the Lotus Companies, until his death on 16 December 1982, was a Mr. Colin Chapman who, according to the case stated, had virtually complete control of the companies and had 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. Chapman's right-hand man for many years was a Mr. F.R. Bushell. Mr. Bushell is one of Mr. Chapman's executors, and on Mr. Chapman's death he...
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