MITCHELL CASES: HAVING A TAXING TIME? THREE CASES CONSIDERED IN THE TAX CHAMBER

Mediatelegal

The “Mitchell” principles have been adopted in other tribunals, not least the First Tier Chamber Tax Tribunal.  There are three recent cases where the Mitchell principles have been considered extensively by the Tribunal. The principles have had a major impact on the outcome of the cases.

 

R P BAKER (Oxford) Ltd  -v- COMMISSIONERS FOR HMRC  [2014] UKFTT 420.

An appeal was made and withdrawn.  HMC sought costs, but filed the costs schedule three days late.  The Judge held that Mitchell principles applied,  however the three day delay was not decisive.  The judge considered the Mitchell principles and stated.

 

 “conduct of litigation

16.         HMRC’s schedule was 3 days late but the appeal has been withdrawn.  I do not consider that the late receipt of the schedule has or will cause any litigation to be conducted inefficiently or at disproportionate cost.

Need to enforce compliance with rules

17.         Permitting the schedule to be lodged 3 days late will mean a failure to enforce compliance with the rules.  While obedience to the rules is very important, nevertheless, that has to be measured against a background of a case in which HMRC have been punctual in all other respects, the appellant was granted at its request and without objection from HMRC a number of extensions of time to provide its dates to avoid, and the 28 day limit for the schedule was not drawn to HMRC’s attention in the Tribunal’s letter of 21 October.

Explanation for delay

18.         The delay was inadvertent and arose because of the HMRC officer’s unfamiliarity with the rules and in particular the need for the costs application to be accompanied by a schedule.

Consequences of refusing extension

19.         If I refuse the extension of time the complete costs application will be out of time.  This will mean a costs award cannot be made.  It will mean HMRC will lose the opportunity to make out its case that the appellant behaved unreasonably:  if it has a good case on this, the consequence of refusing the time extension will be to deprive it of the award of costs which is likely to follow and the appellant will avoid the costs sanction for its (alleged) unreasonable behaviour.

20.         So I need to consider how likely is it that HMRC can make out a case of unreasonable behaviour?  I consider, having heard their submissions, that they have a reasonable prospect of success of doing so (and indeed I do find at §52 that there was unreasonable conduct by the appellant in bringing and maintaining this appeal).

Conclusions

21.         Time limits should be respected unless there are good reasons not to.  Time limits are there for a reason and parties are entitled to finality.

22.         Nevertheless, if the sanction for failure to meet a deadline is always that party is deprived of the opportunity to make (or defend) its case, then justice cannot be served.  Each case must be considered individually.  I take account of the fact that in this case the delay was minor in that (a) it was only by 3 days, and (b) it was only a part of the application (the schedule) that was late.  I take account of the fact that the delay did not prejudice the appellant. I take account of the fact it was only inadvertent.  I take account of the fact that a failure to grant relief to HMRC would potentially prevent HMRC making out its case on costs; it may therefore allow the appellant to escape a sanction for unreasonable behaviour (if HMRC can prove this) on the basis only of a minor delay by HMRC.  Weighing all factors in the balance, and giving appropriate weight to the factors mentioned in CRP 3.9, I waive the time limit in Rule 10(3) and therefore find that the application and schedule must be treated as if they had been filed in accordance with the rules.”

ARCHER –v- HMRC  [2014] UKFTT 423 (TC)

This was a late appeal by a taxpayer. The tribunal refused to exercise its discretion, because it was late.  However it held that it would have exercised its discretion in the same manner, even before Mitchell.

“Whether the Tribunal should follow  Mitchell 

69.         The CPR does not apply to the Tribunals, but in Data Select Morgan J confirmed that the approach set out in old CPR 3.9 was to be taken into account when considering whether to allow an application for a late appeal.  We have therefore considered whether we should follow the new CPR 3.9 and abandon the old.

70.         We start by recording the reasons why the Tribunals are not governed by the CPR.  The reforming principles behind the new Tribunal system were set out in the document “Transforming Tribunals” published on 28 November 2007. Chapter 11 discusses the reforms which led to the creation of the Tax Chamber. At [288]-[289] the document says:

“Users range from individuals and small businesses through to large multinationals…The new system therefore needs to be flexible. It needs to retain the best elements of the General Commissioners’ system, with cases dealt with quickly, locally and informally.”

71.         This is reiterated at Q23 of the Response document published on 19 May 2008:

“The Government agrees that the informality and accessibility of the present system must be retained in the design of the new one. The new tax appeals system will deal with a wide variety of matters, but many cases will be straightforward and should be dealt with promptly without the need for overly legalistic processes. The tax chamber will provide informal and accessible hearings for cases of this type, heard quickly and as locally as possible.”

72.         The Tribunals could have been brought within the CPR, but instead they have their own procedural rules, which reflected the government’s intention that hearings should be flexible, accessible and relatively informal.

73.          Although the CPR does not apply to the Tribunals, in R&C Commrs v McCarthy & Stone (Developments) Limited, Monarch Realisations No. 1 PLC (in administration) [2014] SWTI 626 (“McCarthy & Stone”), the Upper Tribunal (Judge Sinfield) applied new CPR 3.9 as interpreted by  Mitchell .

74.         The background to McCarthy & Stone is that HMRC had received permission to appeal to the Upper Tribunal but had forgotten to file the Notice of Appeal.  When the Notice was filed it was 56 days late.  Judge Sinfield decided that there was no good reason for the default, that it was not trivial and that HMRC should not be granted permission to make a late appeal. He also said that it was “no longer necessary” to consider all the factors in old CPR 3.9 or to treat it as a checklist.

75.         There are, however, differences between Mr Archer’s case and McCarthy & Stone. The latter involved a failure to comply with the Upper Tribunal Rules, so there is a direct parallel with Mr Mitchell’s failure to comply with the CPR.  Mr Archer has failed to comply with a statutory time limit, not a time limit contained in the Tribunal Rules. We therefore asked ourselves whether it should it be less serious to breach a rule laid down by parliament than to breach a rule of the Tribunal, when the statutory provision both sets an explicit time limit which must be met if taxpayers are to access the Tribunal appeal system, and gives HMRC discretion to allow late appeals if the taxpayer has a reasonable excuse.

76.         If these were the only factors, we would answer no: a breach of a statutory time limit is no less serious than a breach of Tribunal rules. But TMA s 49(2)(c) specifically allows us to give permission in cases where HMRC have not accepted that there is a reasonable excuse. In other words, Parliament has explicitly allowed the Tribunal greater discretion over and above the statutory time limit.

77.         It is also significant that the TMA appeals procedure is the gateway to the legal system. Strict enforcement of the statutory time limit would not result in costs penalties (as in  Mitchell ), or prevent certain witnesses from giving evidence, as in Durrant v Chief Constable of Avon and Somerset Constabulary [2013] EWCA Civ 1624, another case involving the application of new CPR 3.9.  As Judge Mosedale said when considering a recent application for permission to appeal “the question here is not whether the litigation is being conducted efficiently but whether the appellants are entitled to litigate at all” – see Mr and Mrs B v R&C Commrs[2014]UKFTT 256 (TC) (“Mr and Mrs B”) at [45].

78.         We also note that the Court of Appeal in  Mitchell  said that they hoped their decision would “send out a clear message” and that if it did, “legal representatives will become more efficient and will routinely comply with rules…” This aspiration has little application to ordinary taxpayers, who will only encounter the appeal time limits once or twice in their lifetimes: there is nothing routine about their actions. The “clear message” is more relevant to professional litigators, including those who appear before the Upper Tribunal.

79.         Nevertheless, this Tribunal is part of the justice system and we should be mindful of the strong message from the higher courts that greater weight should be given to the need for litigation to be conducted efficiently and for rules and deadlines to be more strictly enforced. We note that in the more recent Court of Appeal case of Chartwell Estate Agents Ltd v Fergies Properties SA [2014] EWCA Civ 506, Davis LJ (with whom Sullivan LJ and Laws LJ agreed) said at [28] that the purpose of the Jackson reforms was:

“to change a litigation culture…with a view to protecting the wider interests of justice including the interests of other court users: who themselves stand to be affected in the progress of their own cases by satellite litigation, delays and adjournments occurring in other cases by reason of non-compliance.”

80.         At [33] he says:

“The emphasis thus under the new CPR 3.9 is not to be placed simply on the interests of the parties in the individual case; a wider approach is mandated, calling for protection of the position of court users generally.”

81.         If a person is allowed to appeal late, despite breaching the statutory time limits, he can then notify his substantive appeal to the Tribunal (TMA s 49D). This will absorb judicial and administrative resources which could otherwise have allowed another taxpayer to have his appeal heard more expeditiously.

82.         Taking all the above into account, in our judgment the Tribunal should continue to balance all relevant factors in order to meet the overriding objective but with greater weight given to the need to comply with rules and regulations, including time limits contained within the statute, than was the case before new CPR3.9 was introduced.

83.         In so concluding we have also considered the decision in Peter Arnett Leisure v R&C Commrs [2014] UKFTT 209(TC) (Judge Poole and Mrs de Albuquerque), another case about permission to make a late appeal after new CPR 3.9 and  Mitchell .  That tribunal decided that the relevant factors should normally include those in old CPR 3.9, and we agree.  They also decided that in cases such as this, new CPR 3.9 should not be taken as requiring a new, tougher, approach to time limits.  For the reasons given above, we consider that this tribunal too should be mindful of the message from the higher courts about the need to observe time limits and other rules. In our judgment greater weight should be given to this factor than was the case before new CPR 3.9.

Application of the law to the facts of this case

84.         We have therefore conducted a balancing exercise, taking into account all the circumstances of the case, but giving more weight to the need to comply with statutory time limits than would have been the case before new CPR 3.9.”

THE DECISION

The tribunal considered the merits in detail and refused the tax payer’s application for permission to appeal.

“113.     We refuse Mr Archer’s application.  This means that we do not give him permission  to appeal against the closure notices amending his 2005-06 or 2006-07 SA returns, or to appeal against the discovery assessments made for to 2007-08, 2008-09 or 2009-10.

114.     For completeness, we record that our decision would have been no different, had we been considering the same facts in the absence of new CPR 3.9.  As already stated, the balancing exercise is overwhelmingly in favour of not giving permission, even before any extra weight is added to the scales as a result of the new approach.

115.     Had the facts been different, so that our decision turned on the role of new CPR 3.9,  and noting that neither representative was aware of  Mitchell ,  we would have considered whether it was in the interests of justice to adjourn for submissions on whether, and if so to what extent, new CPR 3.9 should be taken into account in a case such as this. In the event, this was unnecessary”

Compass Contract Services UK Ltd -v- HMRC 

[2014] UKFTT 403 (TC)

This was an application by the Revenue  for the lifting of an order barring them from taking any further part in the appeal. During the course of an appeal the tribunal made an unless order that the Revenue file a statement of case. The Revenue made a written application for further time.  The statement of case was not served in time. The response  of the tribunal was an order barring the Revenue from taking any further part in the appeal.

There is an interesting and detailed review of the relevant authorities.  However the tribunal rejected the Revenue’s application. It also rejected the submission that there were different criteria to be applied in “public law cases.

NO DIFFERENT TEST IN PUBLIC LAW LITIGATION

“(viii) a difference in public law litigation?

120 Allied to this issue is the contention, also put forward by Ms Simor, that litigation before the tribunal is public law litigation and, as such, is subject to a somewhat different conception of the public interest than is to be seen in the context of private law litigation in cases such as  Mitchell , and the other authorities on the CPR and on ‘unless’ orders.  Thus, there is the public interest in the collection from each taxpayer of the right amount of tax, an interest in which every taxpayer at large shares and which builds on the interest of other litigants before the courts or tribunals in the efficient administration of justice; and there is the public interest in the financing of whatever projects parliament has decided should be undertaken.

 

121 Ms Simor said that there was therefore a contrast between the two types of litigation which emphasised the need for HMRC’s default to be dealt with proportionately – for example by way of a costs penalty. Proportionality required that the need to ensure the efficient administration of justice was not allowed to obscure the possibility that this taxpayer could receive money to which it is not entitled at the expense of taxpayers in general.   Although HMRC should to the greatest extent possible be treated as any other litigant recognition must, it is said, be given to the distinction between public law and private law proceedings and the sanctions applied to defaults be adapted proportionately.

 

122 This is an argument that has not, as far as we can see, been addressed elsewhere and we are therefore without authority on it.  If correct, Ms Simor’s submission has important implications for the perception, at least, of judicial even handedness in tax litigation and it is easy to see how it could be said that the parties were being treated differently on the same facts.  It could plausibly even appear to be the case that the correctness of the tribunal’s decisions as to tax liability is greater than the importance of a correct decision in a dispute inter partes in the civil courts, a proposition which we would be uncomfortable to accept.

 

123 If special account is to be taken of the public interest in the correct payment of tax in a sense which differs from the public interest in the correct determination of civil disputes, then the point must be established elsewhere than at first instance.  The First-tier Tribunal is bound by the decisions of the Upper Tribunal and there is nothing in its decision in McCarthy which would support the taking account of this further consideration in the way suggested.  On the contrary, the tenor of the decision in McCarthy is that special exceptions and special situations should not be sought out to detract from the need for litigation to be conducted efficiently and at proportionate cost, and to enforce compliance with rules, practice directions and orders.”