SIR FRASER Morrison, one of Scotland's wealthiest men who sold his family business to Anglian Water in a controversial deal has won a bid to recover potentially millions in capital gains tax paid on the £33 million proceeds in a landmark case.
It has emerged in a Court of Session appeal Lord Tyre overturned a decision by Lord Glennie in the Upper Tribunal tax court that a £12 million settlement paid by Sir Fraser Morrison in a dispute with Anglian over the purchase of construction company Morrison plc, could not be tax-deductible.
A move to also have the £5,668,648 legal costs in defending the litigation also deducted from any capital gains tax liability, failed at an earlier hearing.
And the Lord President, head of the judiciary of Scotland, in supporting the decision criticised HMRC for making a concession that the settlement was indeed a liability in general terms at the bar, rather than in written detail.
He said the reasoning in Lord Tyre's decision depended "to a great extent" on the HMRC acknowledgement and "may have significant consequences" in other cases.
The legal case is the latest twist in what was was one of the most difficult takeover sagas of the late 1990s.
Sir Fraser Morrison and his brother Gordon, who two years ago together were once thought to be worth £85million, sold Morrison Construction, the main contractor in the building of the Falkirk Wheel, to Anglian 15 years ago.
Anglian paid £263m for the company and Sir Fraser had received 2,650,542 Anglian shares and £16,687,792 in Anglian loan notes in exchange for his 8,668,983 Morrison shares. His immediate family and related trust had held over 14 million shares.
But the deal turned sour when Anglian sued Sir Fraser and former Morrison Construction operations director Stephen McBrierty for £130m in damages for allegedly misrepresenting the state of the business. Court papers say the claim alleged "a number of false representations and mis-statements to offer more for the company than it was worth".
Before the sale Anglian was given a five year strategic plan which included a £30,500,000 profit forecast for the year to March 2001.
The action was defended and liability was denied, Sir Fraser said.
He added the forecast was substantially achievable overall, assuming reasonable continuity of management and business and accounting practice.
Court papers show that in February 2006, four years after the claim was initiated, £12 million was paid to Anglian to settle the case out of court without an acceptance of liability. But Sir Fraser tried to have that cost deducted from the taxable profits he made on the sale in August 2000 as a "contingent liability" - as it was a loss incurred in connection with the sale.
In October, 2013, Lord Glennie in the Upper Tribunal tax court ruled that he had received the £33million as a selling shareholder but paid out on the £12 million settlement as a result of promises he had given as his company's chairman.
He could therefore not claim that the liability which arose out of his role as chairman, was one incurred as the seller of shares.
But Lord Tyre said the capacity and context by which which Sir Fraser made the representations about the state of the company "should not be regarded as making a material difference".
A First Tier Tribunal will now decide how much of the £12 million paid in settlement of the claims by Anglian were the result of the profit representation dispute, and therefore tax deductable.
It is understood Sir Fraser will claim the whole of the £12 million should be included, as there was only one admitted representation, relating to profits.
The Lord President said the hearing may have significant consequences in other cases.
He said that is because the result of the HMRC concession meant there was no debate on whether a contingent liability can be said to have been enforced when the formal settlement agreement involved no acceptance of liability by Sir Fraser and "is without prejudice to his continued denial of any liability on his part".
The Lord President said: "In a matter of this kind, it is inappropriate that a concession by the respondents (HMRC) 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."
Lord Malcolm added: "I agree that revenue concessions of this nature should be explained, and set out in writing in clear and precise terms."
HMRC said: "We are considering the judgment. This decision was made on the facts of the case and does not have wider application."
Why are you making commenting on The Herald only available to subscribers?
It should have been a safe space for informed debate, somewhere for readers to discuss issues around the biggest stories of the day, but all too often the below the line comments on most websites have become bogged down by off-topic discussions and abuse.
heraldscotland.com is tackling this problem by allowing only subscribers to comment.
We are doing this to improve the experience for our loyal readers and we believe it will reduce the ability of trolls and troublemakers, who occasionally find their way onto our site, to abuse our journalists and readers. We also hope it will help the comments section fulfil its promise as a part of Scotland's conversation with itself.
We are lucky at The Herald. We are read by an informed, educated readership who can add their knowledge and insights to our stories.
That is invaluable.
We are making the subscriber-only change to support our valued readers, who tell us they don't want the site cluttered up with irrelevant comments, untruths and abuse.
In the past, the journalist’s job was to collect and distribute information to the audience. Technology means that readers can shape a discussion. We look forward to hearing from you on heraldscotland.com
Comments & Moderation
Readers’ comments: You are personally liable for the content of any comments you upload to this website, so please act responsibly. We do not pre-moderate or monitor readers’ comments appearing on our websites, but we do post-moderate in response to complaints we receive or otherwise when a potential problem comes to our attention. You can make a complaint by using the ‘report this post’ link . We may then apply our discretion under the user terms to amend or delete comments.
Post moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours.
Read the rules hereComments are closed on this article