O’Connell (Inspector of Taxes) v Fleming
| Jurisdiction | Ireland |
| Judge | MR. JUSTICE KELLY |
| Judgment Date | 22 March 2002 |
| Neutral Citation | 2002 WJSC-HC 5489 |
| Court | High Court |
| Date | 22 March 2002 |
2002 WJSC-HC 5489
THE HIGH COURT 2002
KELLY
Citations:
MARA V HUMMINGBIRD 1982 ILRM 421
KIRBY (INSPECTOR OF TAXES) V THORN EMI PLCE 1988 1 WLR 445, 1987 STC 621
NOKES V DONCASTER AMALGAMATED COLLIERIES LTD 1940 AC 1014
IGOTE LTD V BADSEY LTD UNREP SUPREME 18.7.2001
Synopsis:
REVENUE
Taxation
Case stated - Appeal - Capital gains tax assessment - Appeal to Revenue Commissioners failed - Assessment reduced on appeal to the Circuit Court - Inspector appealed that decision - Money received under terms on non-competition agreement - Shareholders agreement - Transfer of shares Finding of fact by trial judge (2000/449R - Kelly J - 22/03/2002)
O'Connell (Inspector of Taxes) v Fleming
Facts: The respondent was assessed to a CGT liability for a chargeable amount of £2,232,987. He appealed the Revenue Appeal Commissioners but failed and appealed further to the Circuit Court who reduced the chargeable amount to £99,736. The inspector of taxes appealed and the Circuit Court judge posed a case stated to the High Court on whether on the facts and evidence found by him that his decision was correct in law.
Held The court was bound by Mara v Hummingbird 2 Irish Tax Reports 667 in whether to accept the findings of fact by the Circuit Court judge and as such was reluctant to reverse them. Accordingly, the court upheld the decision of the Circuit Court judge on his findings of facts.
TRANSCRIPT OF JUDGEMENT DELIVERED BY MR. JUSTICE KELLY, IN THE HIGH COURT, ON FRIDAY, MARCH 22ND, 2002
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APPEARANCES
Counsel for the Appellant:
Mr. R. Fullam, SC
Mr. B. Conway, BL
Instructed by:
Revenue Solicitors,
Dublin Castle,
Dublin 2.
Counsel for the Respondent:
Mr. P. Sreenan, SC
Ms. E. Egan, BL
Mr. T. Mallon, BL
Instructed by:
Messrs P.J.O'Driscoll & Sons,
179, Church St.,
Dublin 7.
This is an appeal by way of case stated from a determination of His Honour Judge Murphy at the Cork Circuit Court on the 9th of December, 1996. That is well over five years ago. Lest it be thought that the lengthy period which has elapsed between that determination and the hearing of this case stated yesterday is attributable to some problem in this Court, it is right that I should point out that the case stated in the form in which it is now before this Court was signed only in August of 2001 and was received in the Central Office of this Court on the 15th of August, 2001.
At the hearing before Judge Murphy Mr. Fleming, the taxpayer, appealed against an assessment to capital gains tax for the year of assessment 1991/'92. The Appeal Commissioners had found against Mr. Fleming and determined the amount of chargeable gain at £2,232,987. Mr. Fleming succeeded before His Honour Judge Murphy in having that reduced to £99,736. Mr. O'Connell, the Tax Inspector, being dissatisfied with the determination of the Circuit Court Judge has appealed to this Court by way of case stated.
The question which was before Judge Murphy was whether a sum of money received by Mr. Fleming under the terms of a non-competition agreement of the 10th of May, 1991, was correctly treated as consideration for the disposal of shares.
In order to understand how that issue arises it is necessary to set forth in some detail the findings which were made by the Circuit Court Judge. Before doing so I must look at the documentary evidence which was before him and which was likewise before this Court. The documents are few enough in number.
They consist of an agreement of the 10th of May, 1991, which was called the shareholders agreement. That was between Mr. Fleming, a company called Seven Heads Stone Limited. Wimpey Asphalt Limited. Wimpey Minerals Ireland Limited. Fleming Stone Limited, since renamed Wimpey Fleming (Quarries) Limited and Wimpey Fleming (Aggregates) Limited.
The second document was the non-competition agreement of the 10th of May, 1991. Made between Mr. Fleming, Wimpey Minerals Ireland Limited and Wimpey Asphalt Limited.
The third document constituted the minutes of a meeting held on the 22nd of January, of 1991, at the office of John Fleming Construction Limited.
Those documents were before the Circuit Judge. They were likewise before me as they form part of the case stated.
A number of witnesses gave evidence before the Circuit Court Judge. They consisted of:
Mr. Fleming
Mr. Seamus O'Mahoney - an accountant with the firm of Fitzsimons, Flynn & Company
Mr. Stephen Kee - who is described as a consultant
Dr. Michael Walsh - who has a Doctorate in philosophy in finance and holds a Masters Degree in business administration and finance as well as a Bachelors Degree in commerce
Mr. Ted Hallissey - solicitor
Mr. Seamus Carey - assistant principal officer, office of the Revenue Commissioners
Mr. Patrick O'Connell - Inspector of Taxes.
Arising from the hearing before the Circuit Court Judge a number of findings of fact were made and they are set out in the case stated at paragraph 6 thereof.
As they are of some importance. I propose to set them out as part of this Judgement, though I will be returning to some of them in particular later in the judgement.
The Judge found as follows:
(A) Mr. Fleming had operated in the construction industry in County Cork since 1973.
(B) In 1989, Mr. Fleming realised that there might be markets for the export of aggregates. He employed Mr. Stephen Kee, Consultant of Aggregates. He employed Mr. Stephen Kee, Consultant of Aggregate Management (a Northern Ireland company) to investigate the aggregates market.
(C) A viable costal quarry required good quality aggregates, deep water, a sheltered harbour and suitable planning permission.
Mr. Fleming looked at a number of sites in West Cork before deciding that the site at Adrigole on the Beara Peninsula was suitable for a coastal quarry. Mr. Fleming had the knowledge and the expertise to locate a quarry with those characteristics.
(D) A number of United Kingdom and other foreign companies, involved in costal quarrying had tried unsuccessfully prior to Mr. Fleming's location of the Adrigole site, to locate a viable coastal quarry in Ireland. George Wimpey Plc ("Wimpey's") was one of the companies which had tried unsuccessfully to locate a coastal quarry in Ireland.
(E) In 1990, Mr. Fleming set up Fleming Stone Limited. The company's name was subsequently changed to Wimpey Fleming (Quarries) Limited and was referred to as simply Wimpey Fleming (Quarries) Limited thereafter.
(F) Wimpey Fleming (Quarries) Limited acquired the land at Adrigole from various vendors for approximately IR£60,000, subject to obtaining planning permission to quarry.
(G) The Respondent, on behalf of Wimpey Fleming (Quarries) Limited obtained planning permission for a costal quarry at the Adrigole site. Prior to obtaining planning permission, the Respondent had borings carried out on the site so as to establish the quality of the rock and to establish the viability of the proposed quarry. He also arranged for the carrying out of an environmental impact assessment. These costs were of the order of IR£70,000. Those costs were incurred in that activity.
(H) The Respondent had not been involved in any quarrying prior to the identification and acquisition of the site at Adrigole.
(I) The Respondent held talks regarding the exploitation of the proposed costal quarry at Adrigole with a large number of companies involved in the aggregate business, particularly in the United Kingdom. In the course of the these discussions, Mr. Fleming met and developed contacts with the development managers and/or the managing directors and/or senior people in those companies. From his meetings and discussions, he acquired a lot of knowledge about the aggregate industry. Eventually, Mr. Fleming decided to progress negotiations with George Wimpey Plc ("Wimpeys"), which is one of the largest companies in the construction industry in the United Kingdom.
(J) Negotiations with potential investors, aside from Wimpeys, did not progress to such a level that a price to be paid for the right to share in the exploitation of the quarry or a price to be paid for the Respondent's agreement not to compete was discussed. The Respondent did not have the site at Adrigole valued. His advisors did not suggest a valuation to him prior to the sale of the shares to Wimpeys.
(K) The outcome of the discussion with Wimpeys was that:
(1) The Respondent and Wimpeys agreed to establish a costal quarry at Adrigole and operate it as a joint venture. This agreement was implemented by way of a written agreement between Mr. Fleming, Seven Heads Stone Limited, Wimpey Asphalt Limited (a United Kingdom subsidiary company of Wimpeys), Wimpey Minerals Ireland Limited (an Irish subsidiary company of Wimpey Asphalt Limited), Fleming Stone Limited (since renamed Wimpey Fleming (Quarries) Limited) and Wimpey Fleming (Aggregates) Limited.
That is the agreement which is the first of the three documents before the Circuit Judge, and indeed before this Court.
The Circuit Judge...
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