Burmarsh Ltd v Walters

In a professionally drafted technical agreement, construction starts with the document’s language and defined terms. Commercial purpose may assist in choosing between available meanings, but a more sensible commercial outcome alone does not justify departing from a defined term. Where a price-adjustment clause referred to a tax loss provisionally agreed at a specified amount, a final determination meant a final determination of the quantum of that defined loss attached to the property. A negotiated settlement of a wider tax dispute, allowing only a percentage of the claimed loss, did not amount to such a determination. A separate clause dealing with failure to obtain any tax benefit was not expanded to require repayment of the initial consideration.

Burmarsh assigned the respondent a contingent interest under a standard-form Deed of Assignment connected with a tax-saving scheme. The arrangement relied on section 71(2) of the Taxation of Chargeable Gains Act 1992. The Deed required an initial payment and a second instalment, subject to reduction if the defined Loss was finally determined below £98,243,000.

The Inland Revenue settled the respondent’s claim by allowing 35 per cent of the claimed loss and disallowing the remainder. The High Court held that this settlement finally determined a lower Loss for clause 2.6 and that only £7,647.50 remained payable. Burmarsh appealed, contending that the full second instalment was due. The central issues were the meaning of Loss and final determination in clause 2.6, and whether the reduction was triggered before the Acceptance Date.

The Court of Appeal, in the leading judgment of Lord Justice Lloyd, with Lord Justice Jacob and the Chancellor agreeing, unanimously allowed the appeal.

1. Construction. The Deed was a professionally drafted standard-form document dealing with a highly technical subject. Its language and defined terms were therefore the starting point. The commercial purpose of the transaction remained relevant, but an assertedly more sensible commercial result was not sufficient reason to depart from the literal and defined meaning of the words.
2. Meaning of Loss. In clause 2.6, Loss retained the meaning given by recital (D): the capital gains tax loss relating to the Appointed Property, provisionally agreed at £98,243,000. It did not mean the amount of loss ultimately allowable against the particular assignee’s chargeable gains.
3. Final determination. Clause 2.6 applied only where the quantum of that defined Loss was finally determined below the provisional figure. The respondent’s settlement with the Inland Revenue was a conventional compromise of several disputed issues. It did not finally determine the quantum of the defined loss.
4. Relationship between clauses. Clause 2.3 separately dealt with the timing of payment where the assignee obtained no benefit from the scheme or defaulted. The suggested anomalies in the payment structure did not justify extending clause 2.6 beyond its expressed subject matter.
5. Disposition. The Acceptance Date occurred at the latest on 5 January 2005, so the full second instalment became payable. Judgment was entered for £305,900, with interest at LIBOR plus 1 per cent from 19 January 2005. The respondent was also ordered to repay £126,000 paid in respect of costs, with interest at the same rate. Costs were to be assessed on the standard basis.

1. Court of Appeal (Civil Division): Appeal allowed and judgment entered for the full second instalment: [2007] EWCA Civ 172.
2. High Court, Chancery Division: The deputy judge held that the settlement finally determined a reduced Loss and that £7,647.50 was payable.