The concept of a contingent liability was considered.
Held: In Scots law, a contingent liability is a liability which, by reason of something done by the person bound, may or may not arise depending on the happening of a future event.
Lord Guest said: ‘The purpose of section 7(5) . . is to value the property. ‘It does not’ as Lord Evershed said ‘require you to assume that the sale . . has occurred.’ It simply prescribes, as the criterion for value, price in the open market as between a willing seller and a willing buyer, which is a familiar basis for valuation.’
He set out the test for a contingent liability as follows: ‘Contingent liabilities must . . be something different from future liabilities which are binding on the company, but are not payable until a future date. I should define a contingency as an event which may or may not occur and a contingent liability as a liability which depends for its existence upon an event which may or may not happen.’
A contingent obligation must be distinguished from a mere spes obligationis, or the hope or expectancy of an obligation yet to emerge. Lord Reid said: ‘. . if I see a watch in a shop window and think of buying it, I am not under a contingent liability to pay the price: similarly, if an Act says I must pay tax if I trade and make a profit, I am not before I begin trading under a contingent liability to pay tax in the event of my starting trading. In neither case have I committed myself to anything. But if I agree by contract to accept allowances on the footing that I will pay a sum if I later sell something above a certain price I have committed myself and I come under a contingent liability to pay in that event.’
Judges:
Lord Guest, Lord Reid
Citations:
[1963] AC 235
Jurisdiction:
Scotland
Cited by:
Cited – Grays Timber Products Ltd v Revenue and Customs SC 3-Feb-2010
An assessment to income tax had been raised after the employee resold shares in the company issued through the employees’ share scheme at a price which the Revenue said was above the share value. The company appealed against a finding that tax was . .
Helpful – In re SBA Properties Ltd ChD 1967
A court action had been raised in the name of a company without authority, giving rise to a possible liability in expenses to the defendants. One of the defendants claimed that, in the event that the company’s liquidator ratified the action, that . .
Applied – In re T and N Ltd and Others (No 3) ChD 16-Jun-2006
The court considered the application of ‘the bankruptcy template of section 382 to the rules governing the winding up of companies’.
Held: The phrase ‘obligation incurred’ in Rule 13.2(1)(b) was inapt to describe a common law duty of care in . .
Cited – In re Nortel Companies and Others SC 24-Jul-2013
The court was asked as to the interrelationship of the statutory schemes relating to the protection of employees’ pensions and to corporate insolvency.
Held: Liabilities which arose from financial support directions or contribution notices . .
Lists of cited by and citing cases may be incomplete.
Taxes Management
Updated: 11 June 2022; Ref: scu.396610