Balloon Promotions Ltd Alonso Vela-Castro, Edward Kidney & Natale Lucibello v Her Majesty's Revenue & Customs

Facts

Balloon Promotions Limited (Appellant One) and two partnerships comprising Messrs Vela-Castro, Kidney and Lucibello (Appellant Two) owned restaurants operated under PizzaExpress franchise agreements: Appellant One held partnership interests in restaurants in Victoria Street, London and in Liverpool, while Appellant Two owned restaurants at East Sheen and Islington. Each had built its business from scratch, providing the premises, capital, staff, design and working capital, paying PizzaExpress a continuing fee of four per cent of turnover. After Star Computer Group PLC acquired PizzaExpress in 1993 and the new management pressed the franchisees, the franchisees formed a consortium, the PizzaExpress Franchise Association, which negotiated a sale of 33 franchised restaurants to PizzaExpress for £25 million, completed on 11 November 1996. The sale agreements terminated the franchise and wholesale supply agreements for £1 each and allocated the bulk of the price to goodwill, with further sums paid for restrictive covenants. The Appellants claimed roll-over relief under section 152 of the Taxation of Chargeable Gains Act 1992. The Revenue refused, contending there was no saleable goodwill and that the payments were compensation for early termination of the franchise agreements, and gave notice under section 52(4) of the Taxation of Chargeable Gains Act 1992 re-apportioning the goodwill figures accordingly. The Appellants appealed to the Special Commissioners.