Chartered Accoutant's Firm v Mrs R F Braisby (H M Inspector of Taxes), SPC 00463
| Jurisdiction | UK Non-devolved |
| Judge | Dr John Avery Jones CBE |
| Judgment Date | 01 March 2005 |
| Respondent | Mrs R F Braisby (H M Inspector of Taxes) |
| Appellant | Chartered Accoutant's Firm |
| Reference | SPC 00463 |
| Court | First-tier Tribunal (Tax Chamber) |
SPC00463
PARTNERSHIP – method of making profit adjustment when the preceding year basis applied – other questions on which there is no jurisdiction – appeal dismissed
CHARTERED ACCOUNTANTS’ FIRM Appellant
- and -
MRS R F BRAISBY
(HM INSPECTOR OF TAXES) Respondent
Special Commissioner: DR JOHN F AVERY JONES CBE
Sitting in public in London on 16 February 2005
Alpha and Beta (partners) in person; Delta (former partner) in person assisted a chartered accountant and by his son, for the Appellant
Clive Greenlagh and Henry Asenso, HM Inspectors of Taxes, for the Respondent
© CROWN COPYRIGHT 2005
DECISION
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This is an appeal by a firm of chartered accountants (“Chartered Accountants”) against partnership assessments for as long ago as 1987-88, 1988-89, 1990-90 and 1990-91 when the preceding year basis applied, and the allocation of the assessments among the partners (I record that it is common ground that partnership assessments for all years before these have been settled by s 54 agreements). It is essentially a dispute between the partners rather than a dispute with the Inspector. Following a preliminary hearing I gave leave to Mr Delta, a former partner, to argue 7 points. Mr Alpha and Mr Beta (“the Other Partners”) and the Inspector are content with the assessments and allocation and they have replied to Mr Delta’s points.
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The Other Partners and Mr Delta and entered into a partnership as chartered accountants from 1 February 1983. The partners fell out in about 1990 and Mr Delta left. Litigation followed and I was shown a schedule of legal issues said to have been determined by Master Barratt on 21 and 22 March 1994, and on 18 and 19 July 1994. I understand that he requested the parties to try to settle the action but negotiations broke down. Heads of agreement were initialled by all parties at some time but are undated. I understand that the action has been stayed.
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As an initial issue Mr Alpha on behalf of the Other Partners raised res judicata and issue estoppel. He cited Coflixip v Stolt Offshore MS Ltd [2004] EWCA Civ 213:
“41 At 105D-E [of Arnold] Lord Keith said that issue estoppel:
‘may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue.’
43. Estoppel per rem judicatam also extends to some types of abuse of process. Thus, at 104F, Lord Keith said:
‘Cause of action estoppel extends also to points which might have been but were not raised and decided in the earlier proceedings for the purpose of establishing or negativing the existence of a cause of action’
44. Lord Keith went on to explain what he had in mind in a little more detail at 104F-105B:
‘In Henderson v Henderson (1843) 3 hare 100, 114-115, Sir James Wigram V.-C. expressed the matter thus:
‘In trying this question, I believe I state the rule of the court correctly, when I say, that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to the litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matters which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, expect in special cases, not only to points upon which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.’…”
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Mr Alpha contended that all disputed points were open to Mr Delta to take in the previous litigation and he should not be allowed to go over the same ground in the guise of a tax dispute. He apologised for not having researched the law more fully but he is not a lawyer and had limited time available. I said I would look at the subject further myself before giving a decision, which I have done. I consider he has a good point in principle but not one that is applicable on the facts. The Master gave no final determination of the dispute as is clear by his requesting that the parties attempted to settle. As there is no judgment there can be no estoppel. Mr Delta’s act of withdrawing from the action is not a decision. I therefore turn to consider Mr Delta’s points.
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For reasons that I need not go into the partners agreed a profit adjustment from the normal one for the year ended 6 April 1990 so that Mr Delta receives an additional £6,327.15. Without the profit adjustment the results would have been:
|
|
Total |
Alpha |
Beta |
Gamma |
Delta |
|
Salaries |
70299 |
17236 |
10330 |
27175 |
15558 |
|
Percentage shares |
63207 |
32868 |
20858 |
|
9481 |
|
Total |
133506 |
50104 |
31188 |
27175 |
25039 |
The Other Partners effected the profit adjustment by first adjusting the profit shares so that all partners received an additional profit share such that the additional profit share for Mr Delta represented 15% (his profit share) of a total amount, and the Other Partners received their profit shares of this total amount. The Other Partners then reduced their salaries by the same total amount in the proportions in which they shares profits between them. They contended that one could not make an increase in Mr Delta’s salary as this would merely reduce his profit shares. The result is as shown below:
|
|
Total |
Alpha |
Beta |
Gamma |
Delta |
|
Profit percentage |
63206 |
32867 |
20858 |
27175 |
9481 |
|
Profit adjustment |
42181 |
21934 |
13919 |
|
6327 |
|
Adjusted profit shares |
105387 |
54801 |
34777 |
27175 |
15807 |
|
Salaries |
70298 |
17236 |
10330 |
27175 |
15558 |
|
Salary adjustment |
-42181 |
-25805 |
-16376 |
|
|
|
Adjusted salaries |
28118 |
-8567 |
-6046 |
27175 |
15558 |
|
Total |
133505 |
46234 |
28731 |
27175 |
31366 |
When applied to the 1989-90 assessment, this method gives the following result:
|
Salaries |
28118 |
-8567 |
-6046 |
27175 |
15558 |
|
Profit shares |
161811 |
84142 |
53397 |
|
24272 |
|
Total |
189929 |
75575 |
47351 |
27175 |
39830 |
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Mr Delta contends that the adjustment should have been made simply by adjusting the profit-sharing ratios, as shown below:
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