Flaherty v The Revenue Commissioners (Approved)

Factual and Procedural Background

This case concerns an appeal by way of case stated pursuant to section 949AQ of the Taxes Consolidation Act 1997, arising from a determination of the Tax Appeal Commission dated 28 September 2022. The dispute relates to a Capital Gains Tax ("CGT") assessment raised by the Revenue Commissioners on 27 April 2018 for the 2015 tax year, amounting to €130,000.

The core issue involves the disposal of a fishing vessel and its related capacity-tonnage under a memorandum of agreement dated 21 October 2015. The appellant contended that the agreement was conditional, with the final condition satisfied on 11 January 2016, thereby placing the disposal in the 2016 tax year and entitling the appellant to entrepreneurial relief under section 597AA of the Taxes Consolidation Act 1997. The respondent maintained that disposal occurred on the agreement date in 2015, disallowing the relief.

The appellant, a fisherman, agreed to sell his vessel and capacity-tonnage for €5 million payable in three installments between December 2015 and February 2016. The agreement included a clause titled "completion" which referenced conditions for completion, but contained drafting errors such as a missing clause 1.2 and an unspecified completion date. The second schedule listed documents to be furnished for completion, including confirmation of fishing entitlements, which the appellant argued was a condition outside his control and thus made the contract conditional.

The Bill of Sale, signed on 21 December 2015, acknowledged the transfer and payment. The Tax Appeal Commission determined that the contract was not conditional but procedural, holding the disposal date as 21 October 2015 and upholding the assessment. The appellant then sought a case stated to the High Court on points of law.

Legal Issues Presented

1. Did the Commissioner err in interpreting that the memorandum of agreement did not contain any express or implied conditions regarding the sale?
2. Did the Commissioner err in stating that one of the steps required was to "ensure licence and fishing rights were transferred to the purchaser" rather than "be surrendered by the vendor and the purchaser given equivalent fishing rights," and if so, does this affect the conditionality of the memorandum?
3. Did the Commissioner err in holding that matters requiring third-party consent did not amount to express or implied conditional terms in the memorandum?
4. Did the Commissioner err in determining that failure to fulfill procedural steps would cause the memorandum to become frustrated?
5. Did the Commissioner err in determining that the doctrine of business efficacy was not applicable?
6. Did the Commissioner err in interpreting that the memorandum was not a conditional contract?

Arguments of the Parties

Appellant's Arguments

• The memorandum was conditional because completion depended on several conditions, notably confirmation of fishing entitlements controlled by a third party.
• The disposal date should be when all conditions were fulfilled, i.e., 11 January 2016, entitling the appellant to entrepreneurial relief under section 597AA.
• The word "conditional" need not appear explicitly; conditions can be implied, relying on precedents concerning conditional contracts in land sales.
• The Commissioner erred in not applying the business efficacy test, which would support the contract being conditional.
• The contract was not enforceable until the conditions were met, analogous to contracts subject to planning permission.

Respondent's Arguments

• The contract was binding and enforceable on 21 October 2015 and was not conditional; thus, the disposal date is that date under section 542(1)(a).
• A conditional contract requires an express condition precedent, not merely obligations to be performed before completion.
• Performance obligations by the transferee do not render the contract conditional.
• Relevant case law supports that contracts with obligations prior to sale are not conditional contracts.
• The Commissioner correctly distinguished between procedural requirements for transfer and conditions affecting the existence of the contract.
• The business efficacy doctrine is not applicable in this tax context as per relevant precedents.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Hughes v. Revenue Commissioners [2019] IEHC 804	Principles governing case stated appeals and statutory interpretation in tax cases.	Outlined the role of the court in reviewing findings of fact and law in case stated appeals.
Mara (Inspector of Taxes) v. Hummingbird [1982] ILRM 421	Endorsed principles on findings of fact and mixed questions of law and fact.	Supported the approach to findings and inferences drawn by the Commissioner.
O'Culacháin v. McMullan Brothers Ltd [1995] 2 IR 217	Principles on statutory interpretation and findings in tax law.	Reinforced the legal framework for statutory interpretation applied.
Mac Cárthaigh (Inspector of Taxes) v. Cablelink Ltd [2003] 4 IR 510	Endorsed principles on findings of fact and law in tax appeals.	Supported the court's deference to the Commissioner's findings.
Revenue Commissioners v. O'Flynn Construction Ltd [2013] 3 IR 533	Purposive approach to statutory interpretation in tax law.	Confirmed that tax statutes are to be interpreted purposively, not narrowly.
O'Connor v. Coady [2004] IESC 54	Conditional contracts and enforceability in land sales.	Referenced by appellant to argue implied conditions in contracts.
Hand v. Greaney [2004] IEHC 391	Conditional contracts in land sale context.	Appellant relied on this to support implied condition argument.
Mullane v. Riordan [1978] ILRM 73	Contracts subject to conditions precedent (e.g., planning permission).	Appellant cited to analogize conditionality of contract.
Moloney v. Danske Bank [2014] IEHC 441	Doctrine of condition precedent and business efficacy test.	Appellant used to argue for implied conditions and enforceability.
Parway Estates Ltd v. Commissioners of Inland Revenue 45 TC 135	Distinction between conditional contracts and contracts with obligations prior to sale.	Respondent cited to support that obligations do not render contract conditional.
Lyon (Inspector of Taxes) v. Pettigrew [1985] STC 369	Conditional contracts and timing of disposal for tax purposes.	Respondent relied on this to argue contract was unconditional despite obligations.
Eastham v. Leigh (1971) 46 TC 687	Definition and scope of conditional contracts.	Quoted to clarify the types of conditional contracts recognized.
Murphy v. O'Toole & Sons Ltd & anor [2014] IEHC 486	Requirement for express conditions to classify a contract as conditional.	Supported the conclusion that implied conditions do not suffice to make a contract conditional.

Court's Reasoning and Analysis

The court examined the memorandum of agreement and related documentation, noting drafting deficiencies such as a missing clause 1.2 and an unspecified completion date. The court emphasized the statutory provision in section 542(1) of the Taxes Consolidation Act 1997, which distinguishes between unconditional contracts and conditional contracts where disposal occurs upon satisfaction of the condition.

The court found that the memorandum did not contain express or implied conditions rendering it conditional. The requirement to furnish documentation, including confirmation of fishing entitlements, was procedural and related to the conveyance or transfer of the vessel rather than conditions precedent to the contract's existence.

The Bill of Sale, signed under seal and acknowledging payment and transfer, indicated the contract was concluded. The court rejected the appellant's analogy to contracts subject to planning permission, noting the absence of conditional language such as "subject to" in the agreement.

The court applied established legal principles that findings of primary fact by the Commissioner should not be disturbed if supported by evidence, and that inferences drawn are mixed questions of law and fact. It found no error in the Commissioner's interpretation or application of the law, including the rejection of the business efficacy test in this context.

The court concluded that the appellant's contract was not conditional and that the date of disposal for CGT purposes was the date the contract was made, 21 October 2015.

Holding and Implications

DISMISSED

The court upheld the Tax Appeal Commissioner's determination that the memorandum of agreement was not conditional and that the date of disposal for Capital Gains Tax purposes was 21 October 2015. Consequently, the appellant was not entitled to the entrepreneurial relief under section 597AA for the 2016 tax year. The decision directly affects the parties by affirming the tax assessment for 2015 and does not establish new legal precedent beyond the application of existing principles to the facts.