Out-Law News | 04 Jul 2014 | 4:49 pm | 5 min. read
Judge Barbara Mosedale was critical of HMRC's conduct saying "I find that HMRC have not shown a great respect for time-limits in this appeal" and that "HMRC does not appear in this appeal to have appreciated the importance of adhering to directions".
Ian Hyde, a tax disputes expert at Pinsent Masons, the law firm behind Out-law.com said "Parties tend to assume directions don’t mean much in FTT appeals – clearly here there was an 'unless' order so HMRC should have paid attention."
Although Judge Mosedale said that "barring is a draconian remedy" she said that it was "virtually the only sanction that the tribunal has", as costs would not be an adequate remedy.
She decided that HMRC should be barred as its conduct had led to unnecessary delay and expense, Tribunal directions had been breached and she said "There is clear prejudice to the appellant in having to wait 8 months for a proper statement of HMRC's case and not barring HMRC leaves the appellant without a remedy for this prejudice."
Being barred from taking further part does not mean that HMRC's assessment is set aside. It means that HMRC will not be allowed to appear in the Tribunal to put its arguments against the taxpayer's appeal of HMRC's tax assessment. Where the person who has failed to comply with directions is the respondent in the proceedings, barring is the sanction. But where the person who has failed to comply is the appellant – which in tax proceedings in the first tier tribunal will be the taxpayer - the sanction is striking out the appeal.
Jason Collins, of Pinsent Masons questioned "whether being barred from participating is a sufficient sanction, when a taxpayer could have his appeal struck out if he failed to comply with directions."
Collins said "if HMRC does not withdraw their assessment in this particular case, how much of a victory will it be for the taxpayer? Convention does not prevent a tribunal judge from considering legal arguments even where specific submissions on the point have not been made by a litigant. In being painstakingly fair, a judge in practice may end up identifying arguments which HMRC would have made themselves had they been involved."
BPP was in dispute with HMRC over the VAT treatment of what it argued was a separate zero rated supply of printed matter, in respect of books supplied to students in conjunction with a standard rated supply of education made by another group company. BPP appealed three different assessments in which HMRC treated the supply of books as standard rated.
HMRC served its statement of case but BPP did not consider it satisfactorily explained the basis for HMRC's assessments and applied for 'further and better particulars' .Tribunal Judge Charles Hellier issued an order that stated that if HMRC failed to provide replies to each of BPP's questions it "may be barred from taking further part in the proceedings".
HMRC served its reply in compliance with the deadline then subsequently withdrew two of the assessments it had made but continued with the third assessment. HMRC's statement of claim covered the third assessment only briefly and did not make any reference to the facts on which it relied to support its legal arguments. The Tribunal's direction required HMRC to "identify with the same degree of particularity as will be relied upon at the hearing of these appeals, each and every matter on which they rely in support of their argument". In its reply to the further and better particulars HMRC stated that it would not list all the facts and matters upon which it intended to rely in relation to the third assessment and in fact did not list any such facts.
BPP applied for a direction that HMRC be barred from taking any further part in the proceedings on the basis that it had not complied with the FTT's order.
Judge Barbara Mosedale said that whilst pleadings in general do not require each party to identify every fact, matter and submission with the same degree of particularity as will be relied upon at the hearing, it is open to the FTT to direct more detailed pleadings than ordinarily required and this is what had happened in this case. She said it was not open to HMRC to say they were not obliged to comply fully with the direction – and she pointed out that HMRC had agreed to the direction. She said "HMRC may now consider it unwise to have agreed to a direction which required such detailed pleadings but HMRC were professionally represented by their own solicitor's office and cannot be heard to resile on their agreement now". She held that HMRC had failed to comply with the direction.
BPP relied on the Mitchell line of cases to argue that HMRC should be barred from the proceedings. In that case the Court of Appeal upheld a High Court judgment preventing former Conservative chief whip Andrew Mitchell from claiming anything more than court fees in his legal action against The Sun over the "Plebgate affair". Mitchell's solicitors had failed to submit a cost budget by the due date and the effect of that was that it was to be treated as claiming only its court fees. Lord Dyson refused to give relief from the sanction saying that relief would only be appropriate if the non-compliance was trivial or if there was good reason for the non-compliance.
In the BPP case, HMRC argued that Mitchell was not relevant to an application to strike out a party and was only relevant to an application for relief from sanctions. Judge Mosedale said that whilst Mitchell is not strictly relevant it contains "some useful guidance when considering the overriding objective of dealing with cases fairly and justly".
Ian Hyde said "It is interesting that the High Court assertiveness in cases like Mitchell is starting to influence FTT judges. A wider point for taxpayers is that in this case it was HMRC who fell foul of the FTT, next time it could be a taxpayer"
Judge Mosedale said that BPP did not have a statement of HMRC's case on the third assessment until they received HMRC's skeleton argument, shortly before the hearing. She said "there is very clear prejudice to the appellant in not knowing HMRC's case. Litigation is not to be conducted by ambush. The appellant has the right to be put in the position so that it can properly prepare its case". She said that it was not clear why HMRC had not complied with the direction saying that it should have been obvious to a lawyer that the reply did not comply with the judge's order.
HMRC had argued that it should not be barred because the case was effectively a test case. Judge Mosedale said "if HMRC are barred, they will simply have to find another test case".
Collins said that with regard to this particular case "anyone with an appeal stood behind BPP ought to be thinking about whether they need to advance their own case."