Revenue and Customs Commissioners v Morrison
| Jurisdiction | Scotland |
| Judgment Date | 23 December 2014 |
| Neutral Citation | [2014] CSIH 113 |
| Docket Number | No 30 |
| Date | 23 December 2014 |
| Court | Court of Session (Inner House) |
The Lord President, Lord Malcolm, Lord Tyre
Capital gains tax Taxation of Chargeable Gains Act 1992 (TCGA 1992), s. 49 Contingent liability Capacity Representation made of a disposal Costs as a contingent liability.
The Scottish Court of Session has upheld an appeal against the decision of the Upper Tribunal (UT) in R & C Commrs v Morrison TAX[2013] BTC 2,065, finding that the appellant's payment of 12m in settlement of a High Court action taken against him by Anglican Water Plc (AWG) for false representations and misstatements made by him as Chairman and Chief Executive of Morrisons Plc (MPLC) in connection with the sale of MPLC (of which he was a major shareholder) to AWG was a contingent liability under the Taxation of Chargeable Gains Act 1992 (TCGA 1992), s. 49(1)(c) and the requirements of s. 49(2) for the adjustment of the computation of the appellant's chargeable gain realised on the disposal of his AWG shares and loan notes (received in exchange for his share in MPLC) were met. However, the question of whether the whole, or if not what part, of the 12m settlement was attributable to representations made by the appellant giving rise to the contingent liability falling within s. 49(1)(c) was remitted to the First-tier Tribunal (FTT) for determination.
The appellant (Sir Fraser Morrison) was formerly a major shareholder in, and the chairman and chief executive of, MPLC. During negotiations with AWG, which led to AWG's purchase of MPLC, the appellant provided information and made representations to AWG which AWG subsequently alleged resulted in their offering more money for MPLC than it was worth. AWG sued the appellant for the difference between the price paid by AWG for the shares and their alleged actual value, plus consequential loss. In the same action, MPLC also sought damages from the appellant for breach of fiduciary duty and duties of care owed to it by him as its director and employee. The action was settled between the parties with a settlement of 12m being paid by the appellant without acceptance of liability.
The appellant claimed an adjustment of 12m to the capital gains tax liability incurred on his disposal of AWG shares and loan notes (that he had received in exchange for his shares in MPLC) to a trust on the grounds that the payment was the enforcement of a contingent liability in respect of a representation made on the disposal of his shares in MPLC within TCGA 1992, s. 49(1)(c). The FTT agreed that the appellant fell within the ambit of s. 49(1)(c) and was entitled to an adjustment in terms of s. 49(2). The UT, however, disagreed, finding that there was no direct relationship between the payment of 12m and the consideration for the disposal and so the payment was not a contingent liability within s. 49(1)(c).
Lord Tyre noted that the meaning of the expression contingent liability was discussed by the House of Lords in Winter (Sutherland's Trustees) v IR Commrs [1961] SVC 227, which definitions envisaged that the contingency which might give rise to the crystallisation of the liability was an event that was yet to occur or not occur. However, Lord Tyre considered that in the context of s. 49, the expression was to be given a broader meaning; the contingent liabilities in s. 49(1)(a) and (b) were capable of including liabilities which emerged after the date of the disposal but which arose as a consequence of a state of affairs already in existence at that date and it followed that when construing the expression contingent liability in s. 49(1)(c), it was unnecessary to identify an event which, at the time of the disposal by way of sale, might or might not happen.
Lord Tyre further rejected the UT's reasoning that in order for a contingent liability to be incurred in respect of a warranty or representation made on a disposal by way of sale, the liability had to be directly related to the value of the consideration finding that:
i) s. 49 focused on ascertaining the chargeable gain not valuing the consideration;
ii) the capacity in which the appellant made the representations (as director rather than shareholder) made no critical difference because in contrast to s. 49(1)(a) and (b), there was no reference in subparagraph (c) to the capacity of the person making the disposal; and
iii) as far as the context in which the appellant made the representations (being the sale of the whole company rather than his personal sale of some of the shares), there could be no distinction drawn as the representations made by the appellant related to the purchase of all of the issued shares in MPLC, including his own shares.
Therefore, the basis on which the appellant's personal contingent liability arose was that he made the representations which induced the purchase of the shares, including those owned by himself, which representations were properly described as having been made on a disposal by way of sale of the shares (s. 49(1)(c)). The requirements of s. 49(2) for adjustment of the computation of the appellant's chargeable gain were therefore met. This conclusion reflected the reality that after making the payment, the gain realised by the appellant on the disposal of his shares was reduced by 12m.
The appeal was allowed. However, as both the FTT and UT had determined that the issue of quantification, in terms of whether the whole, or if not what part, of the settlement payment was attributable to representations made by the appellant giving rise to the contingent liability falling within s. 49(1)(c) was a matter for further discussion between the parties, the case was remitted to the FTT.
TCGA 1992, s. 49(1) prevents a deduction being made in the calculation of the chargeable gain arising on a disposal for liabilities which are contingent on some future event but instead provides relief for any such contingent liabilities subsequently becoming enforceable and being enforced by way of a claim under s. 49(2) for such adjustment as is required to take place by way of discharge or repayment of tax (or otherwise). This case relates specifically to contingent liabilities falling within the definition in s. 49(1)(c) as any contingent liability in respect of a warranty or representation made on a disposal by way of sale or lease of any property other than land.. Following the sale of MPLC to AWG, the appellant (MPLC's former chairman, chief executive and major shareholder) paid 12m in settlement of claims against him (including for representations made by him) and sought relief for the payment against the capital gains tax liability arising on his earlier disposal of shares. The Scottish Court of Session has confirmed that the payment was a contingent liability within s. 49(1)(c) and so eligible for relief under s. 49(2), however, as the settlement related not just to claims in respect of representations made by the appellant in relation to the sale, the extent of relief obtained (as so relating) remains to be determined by the FTT.
[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.
[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.
[6]...
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