Revenue and Customs Commissioners v Sir Alexander Fraser Morrison
| Jurisdiction | UK Non-devolved |
| Judgment Date | 11 October 2013 |
| Neutral Citation | [2013] UKUT 497 (TCC) |
| Date | 11 October 2013 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2013] UKUT 497 (TCC).
Upper Tribunal (Tax and Chancery Chamber).
Lord Glennie.
Mr Iain Artis, Advocate, instructed by the Office of the Advocate General for Scotland, appeared for the Appellant (HMRC)
Mr Julian Ghosh QC and Ms Elizabeth Wilson, counsel, instructed by Ernst & Young LLP appeared for the Respondent (Sir Alexander Fraser Morrison)
Capital gains tax - TCGA 1992, Taxation of Chargeable Gains Act 1992 section 49s. 49 - Contingent liability - Capacity - Representation made of a disposal - Costs as a contingent liability.
The Upper Tribunal has overturned the decision of the FTT, finding that a payment made in settlement of a High Court action was not a contingent liability for the purposes of TCGA 1992, Taxation of Chargeable Gains Act 1992 section 49s. 49.
In June 2000, Sir Fraser Morrison ("SFM") was a major shareholder in, and the chairman and chief executive of, Morrison plc ("MPLC"). On or about 20 June, what is now AWG Group Ltd ("AWG") expressed an interest in acquiring MPLC. On or about 3 July, SFM authorised the sending to AWG of MPLC's Five Year Strategic Plan. That Plan included a profit forecast and SFM represented to AWG that he had an honest belief in the Plan's accuracy. On 24 August, AWG announced that it would make an offer to acquire all of the shares in MPLC. The Offer document provided information about MPLC and intimated that SFM and other MPLC directors accepted responsibility for that information. By a further letter in September, SFM gave an assurance that there were no other matters of which AWG should be aware. The Offer was declared unconditional on 21 September.
SFM received AWG shares and AWG loan notes in consideration for his shares in MPLC. The shares and loan notes were later transferred into a trust, giving rise to a CGT liability for SFM. In August 2002, solicitors acting on behalf of AWG wrote to SFM informing him that AWG was considering pursuing a claim against him in relation to its acquisition of MPLC. Proceedings were commenced in the High Court of Justice under which AWG alleged that it had been induced by a number of allegedly false representations and misstatements to offer more for MPLC than it was worth. Those proceedings were defended and in February 2006, shortly before the action was due to come on for trial, an agreement (the "Settlement Agreement") was entered into under which SFM was required to pay the sum of £12m to AWG.
Later that year, SFM's accountants wrote to HMRC claiming an adjustment under TCGA 1992, Taxation of Chargeable Gains Act 1992 section 49s. 49 to the CGT liability which arose on the transfer to the trust on the basis that the payment of £12 million was the enforcement of a contingent liability in respect of representations made by SFM on the disposal of his shares in MPLC. That claim was refused and an appeal was brought to the First-tier Tribunal (NevisTAX[2013] TC 02061), giving rise to a further appeal from the FTT to the Upper Tribunal.
There were two issues in dispute from the FTT. First, was the payment of £12m a contingent liability within the meaning of s. 49(1)(c), requiring an adjustment to be made under s. 49(2). Second, were SFM's costs of defending the proceedings brought by AWG also such a contingent liability. The FTT had decided the first issue in favour of SFM in principle, though it stopped short of holding that the whole payment of £12m fell within s. 49(1)(c), and the second in favour of HMRC.
For the Upper Tribunal (applying the decision of Lord Jauncey in Garner (HMIT) v Pounds Shipowners and Shipbreakers LtdTAX[2000] BTC 190), the fundamental question was whether the payment of £12m was "directly related to the value of the consideration" received by SFM on the disposal of his shares in MPLC. SFM received his price for his shares by virtue of his ownership of the shares and he received the same price per share as was received by any other shareholder. That price was not adjusted to reflect SFM's position as chairman of MPLC, or any other factors. 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). As it was not suggested that SFM could succeed on the second issue if he failed on the first, SFM failed on the second issue also. In case the matter went further, the Upper Tribunal rejected an argument put forward by counsel for SFM that the legal costs went hand in hand with the payment of £12m; for the Upper Tribunal, a proper construction of s. 49 would limit the deduction to the amount enforceable as a contingent liability and not include the legal costs involved in arriving at that settlement figure.
The hearing before the FTT had taken place in private to protect commercially sensitive information and to respect the agreement of the parties to the Settlement Agreement that its terms should be remain confidential. As a result, the decision of the FTT was issued in an anonymised form. An application was made for the hearing before the Upper Tribunal to take place in private, for substantially the same reasons. The Upper Tribunal refused that application on the basis that it was "unrealistic" to think that the disclosure of allegations about events in 2000 could give rise to issues of commercial sensitivity now. Further, the fact that the parties to the Settlement Agreement had agreed that it should remain confidential could not be allowed to prevail over the requirement for open justice. Although there are circumstances in which the court will depart from the principle of open justice, it will not do so simply to save one or other party from embarrassment.
This in an interesting decision for a number of reasons: first, because of the line of reasoning which led the Upper Tribunal to find that the payment was not a contingent liability in respect of a warranty or representation made on a disposal of property; second, because the Upper Tribunal wasted little time in rejecting the argument that the payment and legal costs must be considered hand in hand; and third, because of the rejection by the Upper Tribunal of the application for the hearing to take place in private.
For commentary on contingent liabilities, see the CCH Tax Reporter at 518-720.
[1]There are two issues in dispute in this appeal from the First-tier Tribunal ("FTT").
[2]The first, in respect of which HMRC are the appellants, is whether a payment of £12 million made by Sir Fraser Morrison ("SFM") to settle an action arising out of representations made or allegedly made by him with respect to Morrison plc ("MPLC") in connection with an offer for the purchase of the company by Anglian Water plc (later renamed AWG Group Limited) ("AWG") was a "contingent liability in respect of a … representation made on a disposal by way of sale of [SFM's shares in MPLC]" within the meaning of Taxation of Chargeable Gains Act 1992 section 49 subsec-or-para 1section 49(1)(c) of the Taxation of Chargeable Gains Act 1992 ("the Act"), requiring an adjustment to be made in terms of Taxation of Chargeable Gains Act 1992 section 49 subsec-or-para 2section 49(2) thereof.
[3]The second issue, on which SFM is the appellant, is whether SFM's costs of defending that action (amounting to over £5 million) were themselves also such a contingent liability within the meaning of Taxation of Chargeable Gains Act 1992 section 49 subsec-or-para 1section 49(1)(c), requiring an adjustment in terms of Taxation of Chargeable Gains Act 1992 section 49 subsec-or-para 2section 49(2).
[4]The FTT decided the first issue in favour of SFM in principle, though it stopped short of holding that the whole payment of £12 million fell within Taxation of Chargeable Gains Act 1992 section 49 subsec-or-para 1section 49(1)(c). HMRC appeal against that decision with leave of the FTT. In the course of argument, as foreshadowed in his skeleton argument, SFM submitted that the FTT should have gone further and decided that the whole payment of £12 million fell within the section. Objection was taken to this submission on the ground that SFM had not obtained leave to appeal on this point. On a very narrow view there might be something to be said for this objection, but on balance I consider that, once the FTT granted HMRC leave to appeal on the first issue, it opened up this ancillary point too. Accordingly, I shall consider the point on its merits. Had it been necessary to do so, I would myself have granted leave to argue this point as part of this appeal.
[5]The FTT decided the second issue in favour of HMRC. SFM appeals against that decision with leave of the FTT.
[6]The following facts were among those agreed between the parties in a Statement of Agreed Issues and Facts. I only recite those which appear to me to be of direct relevance to the issues in the appeal.
[7]In June 2000 SFM was a major shareholder in, and the chairman and chief executive of, MPLC, a publicly listed company whose shares were traded on the London Stock Exchange. On or about 20 June 2000 AWG expressed an interest in acquiring MPLC. Discussions took place and certain information was made available to AWG by MPLC.
[8]On or about 3 July 2000, as chairman of MPLC, SFM authorised the sending to AWG of MPLC's Five Year Strategic Plan. That Plan included the profit forecast for the year to March 2001 ("the profit forecast"). It is agreed that, in providing the profit forecast, SFM represented to AWG that he had an honest belief in its accuracy.
[9]On 24 August 2000, AWG announced that it would make an offer ("the Offer") to acquire all issued and to-be-issued ordinary shares in MPLC. The Offer was for 385p in cash for each MPLC share. The terms of the Offer permitted MPLC shareholders, in respect of up to 50% of the MPLC shares for which they accepted...
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