Flaherty v The Revenue Commissioners

• Jurisdiction: Ireland
• Court: Court of Appeal (Ireland)
• Judge: Ms. Justice Máire Whelan
• Judgment Date: 21 March 2025
• Neutral Citation: [2025] IECA 67
• Docket Number: Court of Appeal Record Number: 2024/71

In the Matter of a Case Stated Pursuant to Section 949AQ Taxes Consolidation Act 1997

Between/

Sean Flaherty

Appellant

and

The Revenue Commissioners

Respondent

[2025] IECA 67

Whelan J.

Faherty J.

Meenan J.

Court of Appeal Record Number: 2024/71

THE COURT OF APPEAL

CIVIL

NO REDACTION NEEDED

JUDGMENT of Ms. Justice Máire Whelan delivered on the 21st day of March 2025

Introduction

1 . This is an appeal from the judgment of the High Court (Nolan J.) delivered on 23 ^rd November 2023 and Order made on 8 ^th December 2023 (perfected on 30 ^th January 2024) in a Case Stated by the Tax Appeals Commissioner on 16 ^th December 2022 for the opinion of that court on a point of law pursuant to s.949AQ of the Taxes Consolidation Act 1997, (as amended) ( TCA 1997). The opinion sought arose from a determination which issued on 6 ^th October 2022 pertaining to assessment of Capital Gains Tax (CGT) raised in respect of Mr. Flaherty (the Appellant) by the Revenue Commissioners on 27 ^th April 2018 for the tax year 2015. The key issue in dispute was the “ date of disposal” for CGT purposes of the Appellant's fishing vessel Glór na dTonn together with the vessel's associated capacity tonnage and in particular whether the said disposal took place, as the Appellant contended, after 1 ^st January 2016 (the date when Entrepreneurial Relief of 13% was introduced) entitling him to claim relief on CGT liability pursuant to s.597AA of the TCA. Eligibility for the said relief required disposal to take place on or after 1 ^st January 2016.

Background

2 . The Appellant, a fisherman of Rossaveal, County Galway, was at all material times the beneficial owner of the fishing vessel Glór na dTonn with a related capacity-tonnage held on foot of a licence previously granted by the Sea Fishing Authority (SFA). On 21 ^st October 2015 he entered into a Memorandum of Agreement with Antarctic Polyvalent Fishing Company (the purchaser) for the sale and disposition of the vessel and its related capacity for consideration of €5,000,000. The agreement is succinct. The First Schedule identifies the vessel and its related gross tonnage of 230gt. The consideration was payable in three separate tranches. On the basis of the documentation considered by the High Court the key dates under the agreement included the following:

• • 21 ^st October 2015 the Memorandum of Agreement for the sale of the vessel and its related capacity tonnage was executed by the parties.

• • 17 ^th December 2015 the first tranche of consideration of €65,000 fell to be paid.

• • 21 ^st December 2015 the Bill of Sale was signed acknowledging payment of €5,000,000, although it seems that the payment was not made on that date.

• • 11 ^th January 2016 a sea fishing boat licence issued by the Department of Agriculture, Food and the Marine to the purchaser in respect of the vessel. The vessel was also registered in the purchaser's name.

• • 19 ^th January 2016, the second tranche of €4,930,000 million fell due for payment to the vendor.

• • 10 ^th February 2016, final tranche of €5,000 was due to be paid to the vendor.

3 . If the “ date of disposal” for CGT purposes is found to have occurred prior to 1 ^st January 2016 the Appellant is not entitled to benefit from entrepreneurial relief which would have reduced the CGT rate to 20% for gains up to €1million. The Appellant and the Revenue Commissioners were unable to reach agreement on the issue of entitlement to Entrepreneurial Relief and on 27 April 2018 the Revenue Commissioners issued a Notice of Assessment to CGT which assessed the Appellant's CGT based on a sale date of the 21 ^st October 2015 resulting in entrepreneurial relief not being deemed available. Thus, the dispute centres on whether the “ disposal date” for CGT purposes is located in the year 2015 or 2016.

4 . S.542(1)(a) of TCA defines “ disposal” for CGT purposes thus:

“ Section 542 TCA 1997 Time of disposal and acquisition.

(1)(a) Subject to paragraph (b) and subsection (2), for the purposes of the Capital Gains Tax Act, where an asset is disposed of and acquired under a contract, the time at which the disposal and acquisition is made shall be the time at which the contract is made (and not, if different, the time at which the asset is conveyed or transferred).

(b) Where the contract is conditional (and in particular where it is conditional on the exercise of an option), the time at which the disposal and acquisition is made shall be the time at which the condition is satisfied.”

Determination of the Appeal Commissioner

5 . The Determination of the 28 ^th September 2022 is of central importance. The Commissioner reached the following findings of fact based on the evidence before him:

• (1) That the Appellant entered into a Memorandum of Agreement for the sale of his vessel together with the related capacity-tonnage on 21 ^st October 2015;

• (2) The Appellant submitted his CGT computation to the Revenue Commissioners which asserted that the date of disposal occurred in the 2016 tax year;

• (3) A dispute thereby arose between the Appellant and the Respondent as to whether the sale had occurred in the 2015 or 2016 tax years;

• (4) The vessel together with the related capacity-tonnage were required to be disposed of together for the sale to be effective;

• (5) A number of steps were required to be undertaken to ensure that the vessel together with its licence and fishing rights were transferred to the purchaser;

• (6) If those steps were not fulfilled it was likely that the Memorandum entered into between the parties would have become frustrated.

6 . In his Determination the Commissioner considered the documentation furnished by the Appellant including the Memorandum of Agreement, Bill of Sale and sundry correspondence with the Department of Agriculture Food and the Marine including a letter dated 11 ^th January 2016. This was addressed to the purchaser confirming that the Licensing Authority had decided to grant a non-operative licence pursuant to s. 4 of the Fisheries (Amendment) Act 2003 (as inserted by s.97 of the Sea Fisheries and Maritime Jurisdiction Act 2006). This step enabled the purchaser to re-register the vessel as a sea-fishing boat. Following issuance of the said licence, which was only valid for registration purposes and for a period of three months from the date of issuance, the purchaser was then eligible for an operative licence provided application for same was made within the three-month timeframe. A Certificate of Registration of an Irish Fishing Vessel and a Sea Fishing Boat Licence in respect of the vessel ultimately issued to the purchaser on 11 ^th January 2016. The Appellant contended that the events above occurring after 1 ^st January 2016 were proof that “ disposal” occurred in 2016.

7 . The Appeal Commissioner considered the import of various terms in the Memorandum of Agreement of 21 ^st October 2015. He noted that Clause 3 provided:

“3 COMPLETION:

3.1 Completion of this agreement shall take place following:-

a. receipt by the vendor of the balance purchase monies;

b. receipt by the purchaser's solicitor of the documentation set out in the Second Schedule hereto;

and completion shall take place on the day of 2015, subject to the provisions of clause 1.2 hereof.

On completion the vendor shall deliver the vessel to the purchaser at Killybegs.”

In fact, there is no “clause 1.2” in the Memorandum. Neither was any date specified in the executed Memorandum as representing the completion date. It was simply left blank.

8 . In his analysis of same, the Commissioner had regard to two aspects; firstly he considered that the agreement itself was poorly drafted and that there were a number of errors contained therein. He considered that the kernel of the problem revolved around the application of the Second Schedule of the agreement. The Second Schedule is explicitly referred to in clause 3.1.b (cited above). It provides as follows:

“SECOND SCHEDULE

• 1. Up to date transcript of the register;

• 2. Certificate of registry;

• 3. Bill of sale;

• 4. Discharged marine mortgage;

• 5. Up to date copies of vendors licences from MSO;

• 6. Explanation of all acts appearing on searches against the vendor and against the vessel;

• 7. All other documents in the vendor's control and possession relating to the vessel;

• 8. Satisfactory survey;

• 9. Confirmation of fishing entitlements.”

9 . The Appellant sought to attach particular weight to item 9 in the Second Schedule “Confirmation of fishing entitlements”. By its operation clause 9 required the vendor to furnish confirmation of the fishing entitlements associated with the vessel. It was contended on behalf of the Appellant that performance of clause 9 was in effect a prerequisite to any contract coming into existence between the parties in the first place since pending furnishing of same completion of the contract could not take place. Compliance by the vendor with clause 9 of the Second Schedule was said to be analogous to a “subject to planning permission” condition in a Contract for Sale of real property. Thus, he argued this requirement should be treated by the Revenue Commissioners as a condition precedent to any binding contract ever coming into existence. The argument posited on behalf of the Appellant contended that a court could imply conditions into a contract for it to be effective. Emphasis was placed on the fact that the Appellant was disposing of his vessel together with the attached fishing rights: “these were inalienable from one another and as such the sale of the vessel could not occur unless the associated fishing rights were also transferred.” Reliance was placed on various maritime legislation including the Merchant Shipping Act 1894, the Mercantile Marine Act 1955, the Maritime Safety Act 2005, the Sea Fisheries Jurisdiction Act 2006, the Merchant Shipping (Regulation of Ships)...