Gordon Neil Malcolm Palmer (Claimant/Appellant) v Shane Moloney and Another
| Jurisdiction | England & Wales |
| Judge | LORD JUSTICE ALDOUS,LORD JUSTICE CLARKE,LORD JUSTICE NOURSE |
| Judgment Date | 26 July 1999 |
| Judgment citation (vLex) | [1999] EWCA Civ J0726-21 |
| Docket Number | CHANF 1998/0214/3 |
| Court | Court of Appeal (Civil Division) |
| Date | 26 July 1999 |
[1999] EWCA Civ J0726-21
IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(Mr Justice Laddie)
Royal Courts of Justice
Strand, London WC2
Lord Justice Nourse
Lord Justice Aldous
and
Lord Justice Clarke
CHANF 1998/0214/3
MR M SHERRY (instructed by Messrs Irwin Mitchell, London EC1) appeared on behalf of the Appellant Claimant.
MR J WALTERS QC (instructed by Messrs Williams Davies Meltzer, London EC4) appeared on behalf of the Respondent Defendants.
Monday, 26th July 1999
Mr Palmer, the appellant, claimed against his accountants for damages for breach of contract and negligence in respect of advice given which he said resulted in him failing to obtain retirement tax relief under the Taxation of Chargeable Gains Act 1992. It was his case that he was entitled to relief as he was at the relevant time a full-time working officer of Autofreight (UK) Ltd in that he was "required to devote substantially the whole of his time to the service of that company … in a managerial or technical capacity.". Mr Justice Laddie in his judgment of 20th January 1998 upheld the submissions of the respondents that Mr Palmer was not a full-time working officer of the company and therefore their advice to that effect was correct in principle. He therefore dismissed the action.
The Facts
Mr Palmer has worked in the motor trade for many years. In about 1977/1978 he set up in business as a forwarding agent specialising in world-wide movement of motor vehicles and their parts. In 1979 he decided to give the business an identity and registered "Autofreight" as a business name and from March 1979 carried on business under that name. The name caused problems with certain of his clients who did not wish to supply him with goods destined for a foreign market. To overcome that problem and to take advantage of VAT relief he registered in 1979 "G.P. Enterprises" as a business name. G.P. Enterprises was from November 1979 used as a purchasing facility for overseas clients. All items purchased by G.P. Enterprises were exported through Autofreight.
In June/July 1985 Autofrieght (UK) Limited was formed to take over the business of Autofreight. To facilitate the transfer they both traded until April 1989. From that date Autofreight (UK) Limited carried on its forwarding business alongside Mr Palmer's purchasing business, carried on as before, under the name G.P. Enterprises.
Autofreight (UK) Ltd was controlled by Mr Palmer. He owned 93% of the shares with the remaining 7% belonging to his wife. She did not work in the company, but their daughter, Mrs Denise Saunders, joined the business in 1982 and like her father worked for Autofreight (UK) Ltd during and after the take over period.
In 1991 Mr Palmer read an article which indicated that retirement relief from capital gains tax could be obtained by persons aged 55 and over. At that time he was 57 and wished to reduce his involvement in the everyday activities of the business, if that could be done in a tax efficient way whilst at the same time preserving the business for his daughter. He consulted the respondents. Pursuant to their advice a new company, Autofreight Limited, which I will call Limited, was registered in November 1992. Mrs Saunders owned 60% of the shares and the balance was owned by Mr Palmer and his wife. Limited started trading in 1993 and thereafter took over the business of Autofreight (UK) Limited. Also upon the advice of the respondents profits that had built up in Autofreight (UK) Limited were distributed by way of dividends. There is no dispute that if those profits had been realised by way of a capital distribution which qualified for retirement relief under the 1992 Act, Mr Palmer's tax liability would have been considerably lower than that which he incurred.
I shall come to the legislation dealing with retirement relief and the submissions of the parties, but the issue as to whether retirement relief could be claimed turned upon whether Mr Palmer was at the relevant date a full-time working officer of Autofreight (UK) Ltd as defined in the 1992 Act as amended. If he was, he should have been advised to seek retirement relief and the advice that he actually received from the respondents was, it is now accepted, misconceived. On this crucial issue the judge found the following facts:
"The documents available show that at all material times the profits of GPE have been substantial. For example, in the year ending 30 April 1990 GPE's gross profits were just over £25,000, which is to be compared with the £110,000 gross profits of Autofreight (UK) Ltd. In the year ended 30 April 1992 GPE's gross profits were just over £40,000, whereas the gross profits of Autofreight (UK) Ltd were just over £78,000. Furthermore, it appears that all Mr Palmer's drawings, to the tune of many thousands of pounds per annum, were from GPE. He drew no money from Autofreight (UK) Ltd, although he may have received dividends from time to time.
Mr Palmer's evidence is to the effect that the business of GPE was much less time-consuming than the work he did for Autofreight (UK) Ltd. Although he was not paid by the latter company, it is not in dispute that he spent the majority of his time working for it. Mr Walters said that the defendants were not in a position to dispute Mr Palmer's assessment that 85 to 90% of his working time was devoted to working for Autofreight (UK) Ltd, the remaining 10 to 15% being devoted to GPE."
The judge made no finding as to the hours worked by Mr Palmer, but he said in his witness statement that he estimated that he worked about 50 hours per week, except when they were particularly busy when he worked 7 days a week. I understand those estimates to relate to the hours worked for Autofreight (UK) Ltd and G.P. Enterprises as it seems that the two businesses were conducted from the same premises and during the hours worked by Mr Palmer and subsequently by him and his daughter. She said that at the relevant time the office was open between 9am and 5pm, five days a week (40 hours a week). It follows that the time spent on Autofreight (UK) Ltd's business ranged from 42.3 to 45 hours per week.
The Legislation
Relief for disposals by individuals on retirement from a family business were dealt with in section 163 of the Taxation of Chargeable Gains Act 1992 as amended. The relevant parts of that section at the relevant time were:
"163. Relief for disposals by individuals on retirement from family business
(1) Relief from capital gains tax shall be given, subject to and in accordance with Schedule 6, in any case where a material disposal of business assets is made by an individual who, at the time of the disposal-
(a) has attained the age of 55, or
(b) has retired on ill-health grounds below the age of 55
(2) For the purposes of this section and Schedule 6, a disposal of business assets is—
(a) a disposal of the whole or part of a business, or
(b) a disposal of one or more assets which, at the time at which a business ceased to be carried on, were in use for the purposes of that business, or
(c) a disposal of shares or securities of a company (including a disposal of an interest in shares which a person is treated as making by virtue of section 122),
and the question whether such a disposal is a material disposal shall be determined in accordance with the following provisions of this section.
……
(5) A disposal of shares or securities of a company (including such a disposal of an interest in shares as is mentioned in subsection (2)(c) above) is a material disposal if, throughout a period of at least one year ending with the operative date, the relevant conditions are fulfilled and, in relation to such a disposal, those conditions are fulfilled at any time if at that time—
(a) the individual making the disposal owns the business which, at the date of the disposal, is owned by the company or, if the company is the holding company of a trading group, by any member of the group; or
(b) the company is the individual's personal company and is either a trading company or the holding company of a trading group and the individual is a full-time working officer or employee of the company or, if the company is a member of a group or commercial association of companies, of one or more companies which are members of the group or association;
and except where subsection (6) or subsection (7) below applies, the operative date for the purposes of this subsection is the date of the disposal."
Schedule 6 as now amended contains the following relevant definitions:
""… full-time working officer or employee", in relation to one or more companies, means any officer or employee who is required to devote substantially the whole of his time to the service of that company, or those companies taken together, in a managerial or technical capacity.
…..
"personal company", in relation to an individual, means any company the voting rights in which are exercisable, as to not less than 5 per cent., by that individual."
The Judgment
It was accepted that Autofreight (UK) Ltd was a company within section 163(5)(b) of the Act and the distribution could have been a qualifying disposal under the section. In substance the only issue before the judge was whether Mr Palmer was at the relevant date a full-time working officer of Autofreight (UK) Ltd as defined in the Schedule 6. Having set out the rival submissions on this issue the judge said:
"The definition of full-time working officer in paragraph 1(2) is not couched in terms of main...
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