14 February 2008

This article first appeared in the Irish Tax Review, January 2008

Introduction

The last few years have seen significant tax cases litigated in the Irish Courts. As the economy grows, and commercial deals get bigger, so too does the tax at stake, so this trend can only continue.

However, the time and costs involved in litigating a case through the Courts is a major deterrent to any business. For the business owner or entrepreneur, the prospect of facing into five years of litigation is often untenable - entrepreneurs want to move on to the next deal, not live with the same case for five years. So too for the large corporation - individuals make decisions, not corporations, and those individuals must justify the decision to pursue the matter to their board of directors - not easy where the case may run for many years and involve considerable expense. Indeed, in some cases, the litigation may run so long that the individuals who started with the case within the company have moved on well before its conclusion. In short, even where the legal basis of a case is favourable, the decision to litigate is not one that is ever taken lightly by a business.

This is especially so when facing the resources and "long term view" of the State. The State must, of course, act to collect revenue within the law as it is charged to do, and indeed the State has been successful in recent High Court decisions such as Glenkerrin Homes (stamp duty) and O’Flynn Construction (Section 811). That can be contrasted, however, with cases such as Stylo Barrett and Centime (both VAT), where the Courts were critical of the State’s position and where the basis for the State pursuing a case was unclear.

With that background, the new Commercial Court, a division of the High Court, may present an alternative and preferable route for certain tax litigation, as was pursued in the recent case of Kinsella v The Revenue Commissioners in which our firm acted.

The Commercial Court was established in January 2004, and has been a great success. Its commitment to bringing speedy resolution to complex commercial disputes is self-evident from its ability to maintain an average time from entry to conclusion within five months, and there is a significant increase in the number of cases being resolved through negotiation.

This article examines why the Commercial Court has been such a success, and covers the timing and cost savings that may be achieved if a tax case can be run through the Commercial Court. It also outlines the types of cases that go into the Commercial List, with some specific examples of key cases that have been heard in this division.

What types of cases can go into the Commercial Court?

Most types of commercial disputes, where the value involved exceeds €1 million, are eligible for entry to the Commercial Court. That Court can also hear intellectual property and judicial review cases where a commercial issue is clearly at stake even if there is less than €1 million involved. To apply for entry, you have to explain why it is that the case is a suitable case for entry, and this has to be backed up by a solicitor’s certificate. Ultimately, the Judge (generally Mr Justice Peter Kelly) has the final decision as to whether or not a case will be allowed in. In practice, most cases that apply for entry are allowed in. Those that are not are generally excluded because there has been delay before application has been made to enter the case, or where the issues involved are not sufficiently commercial. This arose for example in relation to a dispute over the ownership of land which land was valuable but amounted in essence to a dispute between neighbours on the ownership of land between them. Personal injury and employment law cases are not eligible for entry, and competition cases are dealt with in a different division of the High Court.

What is different about the Commercial Court?

The main difference is that the litigation is case-managed throughout its time in the Commercial Court. The usual Court rules do not apply - instead there are separate rules and much tighter time frames. On the first day that the case is entered in the List, a time table will be set out for the following 6 to 8 weeks or so which will involve the delivery of a detailed Statement of Claim by the person bringing the case, a detailed Defence, any request for more information (Particulars) have to be exchanged and requests also have to be exchanged for discovery of documents. The case will be listed again 6 to 8 weeks later by which time any disputes have to be brought back to the Court. On that date, any disputes will be dealt with and a further time table of about 6 weeks set for the exchange of Witness Statements, the exchange of Legal Submissions, and the exchange of books of key documents as well as a statement of key issues before the hearing. The hearing date will also be allocated at that time, so within about two months of taking your case you will know what hearing date you have. Not only that, but you can have certainty that the case will actually be heard on that day, something that is not guaranteed in the normal High Court lists.

Adherence to the time table set is essential: any failure to adhere to the timetable will be penalised by costs Orders from the Commercial Court Judge. While this can put the client, the lawyers and other advisers under pressure, everybody is in the same boat. Opportunities for delaying really do not exist in the commercial division of the High Court. Once you get to your hearing, generally speaking, the Judge will have read the papers before the case starts. This, coupled with the fact that the Court documents exchanged are more detailed than would be the case usually, and the Witness Statements will have given a good indication of the evidence that is going to be given, means that the cases generally take fewer days to be heard, and are more likely to settle beforehand.

What about mediation?

Mediation is essentially a form of assisted negotiation. The parties agree to participate in a mediation which is not binding, which is run by a qualified mediator, and is entirely confidential. The Commercial Court Judge will not force the parties to go to medication, but he may well give strong indications that he would like to see a case being sent to mediation, and he will actively encourage the parties to avail of this procedure. At least 29 Commercial Court cases have by now been referred to alternative dispute resolution i.e mediation or some other form of alternative negotiation, with considerable success. Our firm’s experience of mediation has been extremely positive, and we have 9 qualified mediators within the firm. One of the key benefits of mediation can be the central role that the parties themselves play in the discussions. Particularly, where there is an ongoing business relationship, mediation is something that we highly recommend. Currently, a mediator typically charges about €6,000 a day - split equally between the parties.

Are there statistics available to back up the "success" of the Commercial Court?

The Commercial Court regularly publishes statistics and the latest ones available were prepared up to 23 November 2007. At that stage, 406 cases had been admitted, this is over 80% of those that had applied to be admitted. 320 have been disposed of within 20 weeks average time to conclusion. In fact, 50% of cases were concluded in less than 13 weeks with 75% concluded in less than 27 weeks. 68% of cases were settled.

Is it more expensive?

The Commercial Court has set up a Users Group which has gathered feedback and, anecdotally, the consensus is that whilst the costs are incurred earlier and within a much tighter time frame, the overall costs of litigation in the Commercial Court are not any higher than would be if the case was dealt with in the normal High Court. In fact, those costs are likely to be less because if a case takes two years to come to hearing, then inevitably there will be an element of duplication of work as people have to remind themselves exactly what the case is about. Obviously, there is additional time and money spent on the preparation of Witness Statements (which are not filed in the normal High Court) but similar costs would have been incurred in any event, close to a trial date, for cases in the usual High Court lists. Also, because of the delivery of witness statements and more detailed pleadings, as well as the general attitude of the Court towards mediation, cases are more likely to settle, and not only that, they are more likely to settle at a much earlier stage this reducing overall costs.

Can you appeal a decision of the Commercial Court?

You have the same right of appealing a case from the Commercial Court as you have from the normal High Court. Some types of cases (e.g. planning judicial reviews) require a "certificate" from the High Court which only allows appeals to the Supreme Court on points of public importance, but this is the same even if those cases are heard in the normal High Court. Unfortunately, if a case is appealed to the Supreme Court, then it will have to wait on average over two years before it will get a hearing date. In fact, of all the cases admitted to the Commercial List, 29 have been appealed to the Supreme Court (up to 29 March 2007).

Examples of cases that have gone through the Commercial List.

The Fyffes v DCC litigation had started before the Commercial Court was opened in January 2004, and so that case could not go through the Commercial List, but in actual fact, a lot of the procedures adopted in the Commercial Court were used for that case. That is a typical case that benefits from the case management available in the Commercial List.

The Court also very quickly showed a willingness to hear planning judicial review challenges. For example, where a developer obtains a planning permission from An Bord Pleanála which is then challenged, in the past, those types of cases would have taken two years to be heard by which time the project could have become commercially dead. Those types of cases are now routinely heard by the Commercial Court which can have the judicial review heard and determined within five months.

A large percentage of the cases going through the Commercial Court are to do with property - for example, cases seeking to compel parties to comply with the terms of a contract i.e. "specific performance", or other related property disputes.

The Commercial Court has also admitted cases concerning challenges to the constitutionality of legislation, and a case in point was Kinsella v The Revenue Commissioners concerning the interpretation of the Ireland-Italy Double Taxation Convention. This was the first tax case admitted to the Commercial List where our firm successfully argued on behalf of the Plaintiff that the Convention applied to Capital Gains Tax and that our client was therefore not liable to pay Irish Capital Gains Tax on gains realised from the sale of shares, contrary to the position adopted by the Revenue. The Revenue has appealed the High Court decision to the Supreme Court which appeal will not be heard until 2009/10.

In addition, the Commercial Court has heard many intellectual property cases - including complicated and technical patent cases - and regularly adjudicates on share holder disputes, warranty claims, public procurement challenges, and contractual disputes.

Conclusion

As a Commercial Litigator guiding clients through commercial litigation, the development of the Commercial Court is very welcome. Suddenly, litigation is an option where realistically, knowing it could take two years to go through the system, sometimes it wasn’t that option. We can now give clients much more certainty as to what to expect out of the process, although with that you have to warn clients that a lot of management time also needs to be spent, early on, making sure that the case is put together as robustly as possible. The other advantage is that we have had quite a few instances where international disputes (e.g. patent litigation) may take place in Ireland first, deliberately, so as to seek to obtain a useful precedent which can then be used in litigation in other European countries. Where there is a choice of where to litigate, we are finding that more and more, parties are choosing to litigate in the Irish Courts because of the speed, and quality, of service that the Commercial Division provides, and following the Kinsella case, we see opportunities to litigate certain tax cases in the Commercial Court. The Court, four years on, continues to go from strength to strength and provides a model as to how other divisions of the Court could be run. Efforts have already started in this regard with the establishment of the Competition Division of the High Court, and others may follow.

Andrew Quinn
Tax Partner
A & L Goodbody

Alison Fanagan
Litigation Partner
A & L Goodbody