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OUTER HOUSE, COURT OF SESSION
[2007] CSOH 120
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OPINION OF LADY
PATON
in the cause
THE ADVOCATE
GENERAL FOR SCOTLAND
Pursuer;
against
DENNIS HENRY MONTGOMERY
Defender:
________________
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Pursuer:
Artis, Advocate; H M Milne,
Solicitor (Scotland) H M
Revenue & Customs
Defender: Party
10 July 2007
Motion for summary decree: income tax and interest
[1] Following
upon my previous Opinion dated 8 August 2006, the Advocate General on
behalf of the Commissioners for Her Majesty's Revenue and Customs ("the
Revenue") amended the claim against the defender as follows: (1) the income tax sought was reduced from
£305,455.63 to £130,422.93; (2) the
interest thereon was calculated at £281,652.93.
Claims (3) and (4) for surcharges of £14,023.12 and interest thereon of
£417.77 were no longer insisted upon.
The relevant amended Closed Record is dated March 2007, number 27
of process. There is a typing error at
page 8 line 12, where "1995/06" should read "1995/96".
[2] A
motion for summary decree in terms of Rule of Court 21.2 has been
enrolled. That Rule provides inter alia:
"(1) Subject to paragraphs (2)
to (5) of this rule, a pursuer may, at any time after a defender has lodged
defences while the action is depending before the court, apply by motion for
summary decree against that defender on the ground that there is no defence to
the action, or a part of it, disclosed in the defences.
(2) In applying for summary
decree, the pursuer may move the court -
(a) to grant decree in terms
of all or any of the conclusions of the summons;
(b) to pronounce an
interlocutor sustaining or repelling a plea-in-law; or
(c) to dispose of the whole
or a part of the subject-matter of the action ...
(4) On a motion under
paragraph (1), the court may -
(a) if satisfied that there
is no defence to the action disclosed or to any part of it to which the motion
relates, grant the motion for summary decree in whole or in part, as the case
may be ..."
Income tax
[3] As can
be seen from paragraphs [6], and [40] to [48] of the previous Opinion, the
defender challenged the allocation of payments to account which he had
made. In particular, he argued that
certain payments to account should have been set against his income tax
liability of £305,455.63, reducing that figure, instead of being set against
other tax liabilities.
[4] The
Revenue responded by allocating the payments to account in the manner contended
for by the defender, including an additional payment to account of £85,656.74
made by the defender in October 2006.
Precise details of the allocation and its effect upon the principal sum
of income tax due are set out in a Schedule prepared by the Revenue, number
6/40 of process. The re-allocation of
the payments to account resulted in the reduced figure of income tax due,
namely £130,422.93 (the sum first concluded for). In the course of the hearing of the motion
for summary decree, counsel for the Revenue explained and vouched both the
Schedule and the reduced figure of £130,422.93, referring to supporting
productions such as computer printouts, assessments and certificates issued
under section 70 of the Taxes Management Act 1970.
Interest on unpaid
income tax
[5] A
cut-off date of 2 October 2006 was chosen in order to
facilitate interest calculations.
Interest due on outstanding income tax as at 2
October 2006 was demonstrated to amount to £281,652.93 (the sum second
concluded for). Again counsel for the
Revenue gave a full explanation for that figure, with reference to supporting
productions. Interest continues to run
on the principal sum of income tax due, namely £130,422.93, from 2 October 2006 until payment, as first concluded for.
The Revenue's
submissions
[6] Counsel
for the Revenue referred to Henderson v 3052775 Nova Scotia, 2006 S.C. (H.L.) 85, particularly
paragraphs [13] to [14] and [17] to [19].
In the present case, the defender had no defence which he could advance
at proof to the action as now framed.
The court should sustain the Revenue's first to fourth pleas-in-law,
repel the defender's pleas-in-law, and grant decree in terms of the First and
Second Conclusions, with expenses so far as not already dealt with.
The defender's
response
[7] The
defender stated that he did not take exception to the arithmetical
calculations. The principal sum due had
been reduced from over £305,000 to about £130,000, a decrease of about
£175,000. However due to the delay,
interest had increased by about £10,000.
The defender commented that, had the figures now produced been available
two years previously, there might have been no need for the present court
hearing.
[8] Nevertheless
the defender had two specific points to make.
(i) First, a contested sum of £20,000 was still
included in the principal sum, all as set out in the Closed Record dated March
2007. The matter had been discussed at
the previous debate: see paragraphs
[10], [19], [21], [40], [49], [61] and [72] of the Opinion dated 8 August
2006. Nevertheless the defender again
maintained that he could prove that two senior Revenue officers had agreed to
reimburse him with £20,000 in costs, as a result of his agreeing to a
postponement of a hearing before the General Commissioners.
(ii) Secondly, it was not disputed that £25,000
of the payment to account of £50,000 made in November 1999 had been
credited to the defender's wife's account, all as agreed with the Revenue. The defender had in fact written a letter to
the Revenue dated 6 September 2006, number 6/29 of process,
acknowledging the appropriateness of that attribution. However the sum of £25,000 had not in fact
been credited to his wife's account until after 3 March
2005. Prior to 3 March
2005,
between the date of payment (24 November 1999) and the date of
attribution to his wife's account (3 March
2005),
that £25,000 had not been set against the defender's income tax
liabilities. Thus the defender had been
charged with more interest during the period 24 November 1999 to 3 March
2005 than he should have been had he been credited with the set-off of £25,000
during that period.
[9] The
defender referred to Rule of Court 21.2.
He submitted that there had clearly been a defence to the action, in
that the principal sum sued for had been reduced by £175,000. There was still a defence to the action on
the basis of the two points he made, which would have the effect of further
reducing the sums sued for. Accordingly
the defender opposed the motion for summary decree, and sought time "to prepare
defences and a counterclaim". The
defender submitted that the granting of summary decree would deny him the
opportunity of proving that the sums sought were excessive. The defender further requested that a proof
date be fixed.
Final reply
for the Revenue
[10] Counsel
for the Revenue responded by pointing out that the issue of the £20,000 had
been decided in paragraph [72] of the previous Opinion dated 8 August 2006. So far as the
sum of £25,000 was concerned, the agreement to allocate one-half of the payment
of £50,000 to Mrs Montgomery's account was reached at the outset, when the
payment of £50,000 was tendered. In
fact, the payment of £50,000 had resulted in the Revenue's receiving £25,000
for the defender's wife's account before her
tax liability crystallised. In effect
therefore, the Revenue had received a pre-payment in respect of her tax
liability. On the basis of the
defender's instructions at the time when the sum of £50,000 was paid, only
£25,000 could be ascribed to his account.
There had been no basis upon which the full £50,000 could be ascribed to
the defender's account.
[11] Counsel
further submitted that, in any event, the defender had no appropriate averments
permitting him to address this issue. The
defender had amended the Record on many previous occasions, for example, during
the course of the previous debate, all as noted in paragraphs [35] to [38] of
the Opinion dated 8 August 2006. The
defender had also amended on other occasions.
In February 2007, he had foregone an opportunity to amend. The defender had sought to delay proceedings
in the past. His motion to amend at this
late stage was a further attempt to delay matters.
Discussion
Further amendment by the
defender
[12] The
defender's motion seeking time to prepare defences and a counterclaim has to be
treated as a motion to amend his present pleadings. Late amendment is a matter for the discretion
of the court. The interlocutors in the
present case reveal that the defender amended the pleadings on 10 February 2006 and 27 April 2006 (the latter amendment
taking place in the course of a debate).
On 16 January 2007, a diet of proof was discharged on the defender's
motion, and I appointed the cause to be put out By Order on 20 February 2007
for consideration of a Minute of Amendment which the defender proposed to lodge
within four weeks (i.e. by 13 February 2007).
No such Minute of Amendment was lodged.
On 20 February 2007 I appointed the Revenue to
lodge in process "a chronological statement of account detailing when the
defender's tax obligations arose, how interest on those obligations had
accrued, any adjustments that have been made to those obligations and any
periods in which interest was offset by said adjustments". That statement was to be lodged in process
and to be intimated to the defender by 6 March
2007. The Schedule number 6/40 was duly lodged and
intimated. The pleadings described the
Schedule as "setting out in chronological order by tax year the tax charged,
the allocation of payments made and the effect of those payments on interest
accrued" (Article 2 of Condescendence, page 8).
That is what the Schedule did indeed do.
Furthermore, on 6 March 2007 revised statements of interest were
sent to the defender (Article 3 of Condescendence, page 13). The motion for summary decree was not heard
until 27 April 2007. There was accordingly ample time for the
defender to consider the Schedule and the revised statements of interest prior
to the hearing. The defender gave no
good reason for seeking to amend his pleadings further at such a late stage in
the proceedings.
[13] Against
that background I have decided in my discretion that the defender should not be
permitted to amend his pleadings further at this late stage. I accordingly refuse what was in effect a
motion to amend.
Whether there is a defence
to the action disclosed in the defences
(a) The sum first concluded
for: income tax
[14] As can
be seen from my previous Opinion dated 8 August
2006,
the defender challenged the allocation of payments to account and thus the
principal sum due in respect of income tax.
The Revenue responded by re-allocating payments to account in the manner
contended for by the defender. The
defender also challenged surcharges of £14,023.12 and interest thereon of £417.77. The Revenue no longer insist upon recovering
those sums. The defender further
contended that there was an agreement that he should be reimbursed to the
extent of £20,000 following upon an abortive hearing before the General
Commissioners. I have given my view on
that matter in paragraph [72] of my previous Opinion, namely that the
defender's averments in relation to that matter are irrelevant. Finally, while the defender had a submission
to make about the effect on interest accruing of his
payment to account of £50,000 made in November 1999, the defender did not
dispute the fact that only £25,000 of that payment was to be used to reduce the
principal sum of income tax owed by him:
the remaining £25,000 was to be used to reduce his wife's tax liability,
as acknowledged in his letter to the Revenue dated 6 September 2006,
number 6/29 of process. It should also
be noted that during the hearing of the motion for summary decree, counsel for
the Revenue carefully explained the Schedule number 6/40 of process, and
justified every figure leading to the total sum of £130,422.93 sought in the
First Conclusion of the Summons by reference to productions including computer
printouts, assessments and certificates.
[15] Having
considered all the matters outlined in the preceding paragraph, the pleadings,
the productions, and the submissions, I am of the view that the defences do not
disclose a defence to the Revenue's claim for £130,422.93 with interest as
first concluded for in the Summons as amended:
cf. Rule of Court 21.2, cit.
sup. Thus in relation to the
principal sum of income tax and interest thereon from 2 October 2006 sought in
the First Conclusion, the defender is, in my view, "bound to fail", and "there
is nothing of relevance to be decided in a proof": cf. dicta
in Henderson v 3052775 Nova Scotia Ltd, 2006 SC (HL) 85, at paragraph [19]. I shall
therefore grant summary decree in terms of the First Conclusion.
(b) The sum second concluded
for: interest on unpaid income tax
As Lord Rodger of Earlsferry said in Henderson v 3052775 Nova Scotia Ltd, cit. sup., at paragraph [19]:
"In our view ... a judge who
is considering a motion for summary decree is entitled to proceed not merely on
what is said in the defences, but on the basis of any facts which can be
clarified, from documents, articles and affidavits, without trespassing on the
role of the proof judge in resolving factual disputes after hearing
evidence. The judge can grant summary
decree if he is satisfied, first, that there is no issue raised by the defender
which can be properly resolved only at proof and, secondly, that, on the facts
which have been clarified in this way, the defender has no defence to all, or
any part, of the action. In other words,
before he grants summary decree, the judge has to be satisfied that, even if
the defender succeeds in proving the substance of his defence as it has been
clarified, his case must fail ..."
[16] In the
context of interest accruing on unpaid income tax, the defender drew attention
to the fact that £25,000 from the payment to account of £50,000 made on
24 November 1999 had not in fact been allocated to his wife's account
until after 3 March 2005. Yet he
had not been given credit for the full £50,000 when calculating interest for
the period from 24 November 1999 until 3 March 2005. Thus he had
been charged with more interest during that period than he should have been.
[17] The
Revenue's response at the bar is noted in paragraph [10] above, namely that the
£50,000 was tendered at the outset in 1999 on the basis that one-half thereof
would be allocated to the defender's liability and one-half would be allocated
to the defender's wife's account. Mrs
Montgomery's liability did not in fact crystallise until a later date, and thus
there was in effect a pre-payment to the Revenue made on her account. On the defender's instructions in 1999, there
was no basis upon which the full £50,000 could be attributed to his tax
liability.
[18] However
the Revenue's averments in Article 2, page 8, are as follows:
"That particular allocation
[namely the allocation of £25,000 at the defender's request to the tax
liabilities of his spouse] was requested at a meeting attended by the defender,
his accountant, and officers of Revenue and Customs on 3 March 2005, and confirmed by the defender in writing by a letter
dated 6 September 2006."
Those averments do not suggest that it had been
understood at the outset (when the payment of £50,000 was made in November
1999) that one-half of that payment was to be allocated to the defender's
wife's account. On the contrary, the
averments state that the request for the allocation to the wife's account was
made at a meeting on 3 March 2005. If those averments accurately reflect the
sequence of events, it is at least arguable that the defender may be entitled
to have the full payment of £50,000 taken into account when calculating the interest accruing during the period 24 November 1999 to 3 March 2005, as the Revenue had the use
of the £50,000 during that period. Thus
while the defender cannot (and does not) claim that the whole £50,000 should be
deducted from the principal sum of income tax due, he does contend that the
interest calculated for the period 24 November 1999 to 3 March 2005
is overstated.
[19] It is
true that the Schedule number 6/40 of process uses the figure of £25,000 when
taking into account (for the purposes of calculating interest) the payment to
account made to the Revenue in November 1999. Moreover the Revenue expressly avers in
Article 2 of Condescendence, page 8:
"With reference to the
defender's averments in answer, admitted that payments totalling £137,882.76
have been made by the defender, in the amounts and at or about the times
stated, under explanation that said payments have been wholly taken into
account in calculating the sum first concluded for, their allocation against
the defender's tax liabilities for the years 1988/89 to 1995/96 having been
made by way of concession in view of the defender's averment on record and
assertion at the bar that the payments fall to be ascribed to those liabilities
and the sum formerly first concluded for reduced accordingly, save for one half of the payment of £50,000
made on 24 November 1999 which was and remains allocated at the defender's
request to the tax liabilities of the defender's spouse [italics added]."
Accordingly the Schedule, the pleadings, and the
supporting productions, suggest that, when assessing the interest accruing on
the income tax due by the defender during the period 24 November 1999 to 3 March 2005, the Revenue adopted the approach of treating the
payment made on 24 November 1999 as amounting only to
£25,000.
[20] In
those circumstances, I am not satisfied that the defender has no defence in
respect of the interest sought in the Second Conclusion. It seems to me, on the Revenue's own
averments in Article 2 of Condescendence, page 8 of the Record, that there is
some force in the defender's contention that, when calculating interest on
unpaid tax, he should be given credit for the full £50,000 payment during the
period from 24 November 1999 until the request for ascription to his
wife's account was made at the meeting on 3 March 2005, particularly
where, as stated by counsel for the Revenue, Mrs Montgomery's tax liability had not
crystallised by November 1999. If
the defender were to be given such credit, the calculations and the total
figure in relation to interest may be different.
[21] In the
result, I shall refuse in hoc statu to
grant summary decree in terms of the Second Conclusion.
Decision
[22] For the reasons given above, I shall, in
terms of Rule of Court 21.2(1) and (4)(a), sustain the Revenue's first to third
pleas-in-law only to the extent of granting summary decree for payment of the
sum of £130,422.93 with interest all in terms of the First Conclusion of the
Summons as further amended and as contained in the Closed Record dated March
2007. I refuse in hoc statu the Revenue's motion for summary decree in terms of
the Second Conclusion as amended. I
reserve meantime the question of expenses.
I shall put the case out By Order to enable parties to address me on
matters such as expenses and further procedure.
