Cussens and Others v Inspector of Taxes

• Jurisdiction: Ireland
• Judge: Ms. Justice Laffoy
• Judgment Date: 20 May 2015
• Neutral Citation: [2015] IESC 48
• Docket Number: [Appeal No 229/2008]
• Date: 20 May 2015
• Court: Supreme Court

Between

Edward Cussens, John Jennings and Vincent Kingston

Appellants

and

T.G. Brosnan (Inspector of Taxes)

Respondent

[2015] IESC 48

O'Donnell J.

Clarke J.

MacMenamin J.

Laffoy J.

Dunne J.

[Appeal No 229/2008]

THE SUPREME COURT

Value Added Tax – Notice of appeal – Amendment – Appellants seeking to amend notice of appeal – Whether amendment would be prejudicial to the respondent

Facts: The appellants, Mr Cussens, Mr Jennings and Mr Kingston, prior to 2002, as business partners, were involved in a construction project. Following the creation of the Long Lease, the appellants accounted for and paid to the Revenue Commissioners the VAT exigible in relation to its creation. No VAT was accounted for on any of the subsequent transactions as, in accordance with the provisions of the Value Added Tax Act 1972, the subsequent disposals were not liable to VAT. In August 2004, the respondent, Mr Brosnan (Inspector of Taxes) raised on the appellants assessments pursuant to s. 23 of the VAT Act in respect of VAT on the sales of the fifteen constructed holiday homes to the purchasers for the periods January/February 2002 to November/December 2002 and for the period May/June 2004, in consequence of which the Revenue Commissioners contended that the appellants were liable for VAT greater than the amount which had been paid by them. An appeal was taken by the appellants to an Appeal Commissioner against the respondent, which was not successful. A further appeal, pursuant to s. 942(1) of the Taxes Consolidation Act 1997 was taken by the appellants to the Circuit Court, which decided that the appeal should be dismissed. The Circuit Court stated a case pursuant to s. 943 of the Act of 1997 which was heard in the High Court which delivered its judgment in June 2008. The questions of law which had been raised on the Case Stated were answered, the outcome being that the assessments were upheld. In July 2008 the appellants appealed to the Supreme Court against the judgment and order of the High Court. This judgment relates to an application filed by the appellants in November 2013 seeking an order granting them leave to amend the notice of appeal dated 11th July, 2008. In the appellants" original notice of appeal, one of the grounds advanced was that the High Court judge misdirected himself in law and upon the evidence in holding that the Long Lease and Short Lease had no commercial reality and constituted an abuse of rights within the doctrines identified by the European Court of Justice, whereas the true position was that the Long Lease and Short Lease were perfectly valid and lawful transactions and that insofar as such transactions should be redefined for VAT purposes, this could only be done by virtue of domestic legislation which transposed the Case C-255/02 Halifax Plc & ors v Customs & Excise Commissioners doctrine into domestic law. On the application to amend, the appellants sought to substitute for the ground that the High Court judge misdirected himself in law and upon the evidence in holding that the transactions entered into by the appellants constituted an abuse of rights as that concept has been defined by the Court of Justice of the European Union. The appellants submitted that without prejudice to the generality of the foregoing, the judge erred in concluding: (a) that the requirements of the first limb of the Halifax test were met in particular in circumstances where the domestic provisions applicable to the appellants" transactions are not in accordance with the provisions of the Sixth Council Directive 77/388/EEC of 17 May 1977; (b) in determining that the requirements of the second limb of the Halifax test were met in particular in circumstances where the economic purpose of the appellants" activity was to dispose of the properties to third parties in a tax efficient manner; and (c) in determining that the abuse of rights doctrine could be applied absent legislation which transposed that doctrine into domestic law.

Held by Laffoy J that, having compared the original ground with the proposed amended ground, the first sentence of the amended ground did not differ from the first assertion in the original ground; moreover, para. (c) of the amended ground does not differ from the remainder of the original ground, and para. (b) elaborates on the original ground. Laffoy J noted that at the core of the appellants" argument that the amendment in para. (a) should be allowed is that their position has consistently been that the burden is on the respondent to establish that the requirement of the abuse of rights doctrine are met, which includes a requirement to prove that the first limb of the Halifax test is met; in that regard, the respondent relied on the derogation, which the appellants contended is invalid

Laffoy J held that the derogation issue raised in para. (a) of the proposed amendment is so closely related to the arguments advanced in the High Court and may be properly regarded as arising from the questions posed in the Case Stated. Laffoy J held that that the proper conduct of the appeal requires that the appellants be given leave to amend the notice of appeal; no prejudice to the respondent was identified as likely to result from that decision. Accordingly, Laffoy J made an order to that effect.

336/2008 - Allow Notice to Vary, 229/2008 - Refer to ECJ.

Judgment of Ms. Justice Laffoy delivered on 20th day of May, 2015

The factual and procedural background to the application

1 Prior to the year 2002, the appellants, as business partners, were involved in a construction project, namely, the construction of fifteen holiday homes on a building site of which they were the freehold owners, which was situate at Baltimore, County Cork. In the course of the disposal of the holiday homes, which were substantially completed by December 2001, the following transactions were effected:

(a) By a lease dated the 8th day of March, 2002 made between the appellants of the one part and Shamrock Estates Limited (the Company), a company associated with the appellants, of the other part, the fifteen holiday homes were demised to the Company for a term of twenty years and one month from the date of the lease. For clarity, that lease will be referred to as 'the Long Lease'.

(b) On the same day, the Company leased the fifteen holiday homes back to the appellants for a term of two years. That lease will be referred to as 'the Short Lease'.

(c) On 3rd April, 2002, the Long Lease and the Short Lease were both extinguished by way of mutual surrender, so that the appellants again became the owners of the entire freehold interest in the fifteen holiday homes.

(d) Subsequently, from around mid-May 2002, the appellants disposed of each of the fifteen holiday homes by way of sale of the freehold to each of the purchasers thereof for sums which aggregated approximately €3m.

2 Following the creation of the Long Lease, at the relevant time, the appellants accounted for and paid to the Revenue Commissioners the Value Added Tax (VAT) exigible in relation to its creation. No VAT was accounted for on any of the subsequent transactions as, in accordance with the provisions of the Value Added Tax Act 1972 (the VAT Act) as then in force and the regulations made thereunder, the subsequent disposals, including the final disposal of the fifteen holiday homes to the purchasers, were not liable to VAT.

3 However, subsequently, in August 2004, the respondent raised on the appellants assessments pursuant to s. 23 of the VAT Act in respect of VAT on the sales of the fifteen holiday homes to the purchasers for the periods January/February 2002 to November/December 2002 and for the period May/June 2004, in consequence of which the Revenue Commissioners contended that the appellants were liable for VAT greater than the amount which had been paid by them.

4 That assessment then became subject to the following appeal and judicial procedures:

(a) an appeal was taken by the appellants to an Appeal Commissioner against the respondent Inspector of Taxes, which was determined on 21st July, 2005 and on which the appellants were not successful;

(b) a further appeal, pursuant to s. 942(1) of the Taxes Consolidation Act 1997 (the Act of 1997), by way of re-hearing, was taken by the appellants to the Circuit Court, which appeal was heard in October 2006 by Judge Harvey Kenny, who decided on 10th October, 2006 that the appeal should be dismissed;

(c) counsel for the appellants having expressed dissatisfaction with the determination of Judge Kenny, on the request of the appellants to him to state a case for the opinion of the High Court, Judge Kenny stated a case pursuant to s. 943 of the Act of 1997, which was dated 22nd October, 2007 (the Case Stated); and

(d) the Case Stated was heard in the High Court by Charleton J., who delivered his judgment on 11th June, 2008 ( [2008] IEHC 169) and made the order of the High Court dated 13th June, 2008, wherein the questions of law which had been raised on the Case Stated were answered, the outcome being that the assessments were upheld.

5 On 11th July, 2008 the appellants filed a notice of appeal against the said judgment and order of the High Court (Charleton J.).

6 This judgment relates to an application filed by the appellants in November 2013 seeking an order granting them leave to amend the notice of appeal dated 11th July, 2008 in the form exhibited in the affidavit grounding the application. The application having been resisted by the respondent, by order of the Chief Justice, it was adjourned to be heard with the substantive appeal, which is what has occurred.

7 This judgment is concerned only with the application to amend the appellants' notice of appeal.

The context in which the appellants seek to amend their notice of...