Irish Revenue dispute solicitor’s fiduciary capacity
P.O. Cahill (Inspector of Taxes) v Patrick J. O’Driscoll,
Michael O’Driscoll and William F. O’Driscoll
(2005) IEHC 179
The Irish Revenue recently appealed a decision delivered by
the Appeal Commissioner, Mr. Ronan S. Kelly, who had opined
that the provisions of Section 2 of the Finance Act, 1991
(now Section 15 Taxes Consolidation Act 1997 (TCA 97)), did
not apply the higher rate of income tax to interest earned
on funds held in a fiduciary capacity.
Patrick J., Michael and William F. O’Driscoll were partners
in the solicitors' firm of Messrs. P.J. O’Driscoll and
Sons (hereafter called the firm). They carried on a practice
in both Dublin and Cork. In the course of its trade, the firm
received funds from or on behalf of clients. Such funds were
held on deposit in two ways. The first was that the client
would have a designated deposit account; in this instance,
it was quite straightforward to attribute the interest earned
on that account to a specific client. However, the second
way was not so straightforward: a general deposit account
was maintained, with numerous cash inflows and outflows concerning
several different clients.
The Inspector of Taxes raised income tax assessments on the
interest earned on the general client account. Tax was assessed
at the higher rate of tax, which for the tax year in question
(1991-92) was 52%. The Appeal Commissioner had agreed with
the firm that the interest earned should be taxed at the standard
rate, which at that time was 29%.
The firm argued that the equivalent of Section 15 TCA 97 did
not apply because they held funds in a fiduciary capacity.
They relied on Brown v Inland
Revenue Commissioners (1965), AC 244, to demonstrate
the fiduciary or representative capacity with which they held
funds in the general deposit account on behalf of clients.
In the Brown case, Lord Reid stated: ‘The general principle
is well settled. A solicitor has a fiduciary duty to his clients
and any person who has such a duty “shall not take any
secret remuneration or any financial benefit not authorised
by the law, or by his contract, or by the trust deed under
which he acts, as the case may be”.’ He further
stated: ‘I do not see how the difficulty in discovering
who the owner is can make the money the property of the solicitor.’
The Irish Revenue argued that, as a consequence of the Solicitors'
Professional Practice, Conduct and Discipline Regulations,
1986 (SI 405 of 1986), no such fiduciary relationship existed.
This was because Section 5(2) of those regulations stated
that solicitors did not have to account for any interest earned
on monies which were less than £50. The Revenue argued
that as a result of removing that obligation, the notion of
a fiduciary relationship was destroyed.
Michael Hanna J. in the High Court opined that ‘It is
and remains the law that client’s funds held by solicitors
in the circumstances that arise here remain the property of
the client’. With regard to Section 5(2), nothing in
the regulations would prevent a solicitor from paying interest
of less than £50. He further opined that the principles
enunciated by Lord Reid in the
Brown case fairly represented Irish law. Accordingly,
the Revenue’s appeal was dismissed. |
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‘A client's monies and
the interest earned thereon remain the property of the
client held in trust by the solicitor and the fiduciary
relationship between solicitor and client remains intact.'
Mr. Justice Michael Hanna
P.O. Cahill (Inspector of Taxes) v Patrick J. O'Driscoll
Michael O'Driscoll and William F. O'Driscoll
[2005] IEHC 179
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