MITCHELL IN THE CONTEXT OF A TAX APPEAL: HMRC HIT A STONE WALL.
As previous posts have shown the Mitchell criteria are being considered in wider contexts. In R&CC –v- McCarthy & Stone (Developments) Limited the Upper Tribunal (Finance and Tax) applied it to the government’s application to appeal a decision out of time.
Revenue and Customs Commissioners v McCarthy & Stone (Developments) Limited (Upper Tribunal (Finance and Tax) 10th January 2014).
HMRC applied for, and was granted, permission to appeal from a decision in relation to input tax. The rules required a Notice of Appeal to be supplied in one month of permission being granted. The Notice had to be supplied by the 6th May. In fact it was supplied on the 1st July 2013, 56 days late. HMRC made an application to extend time.
THE REASONS IT WAS LATE
The reasons were, basically, administrative problems by the HMRC. One member of staff had left and the other was on sick leave. Access to the e-mail box of the absent person was problematic. In the interim period the company involved had updated its financial position to reflect the money due as an asset of the company.
THE JUDGMENT OF THE UPPER TRIBUNAL
The judgment contains a detailed consideration of the Mitchell criteria and subsequent cases. In essence the Tribunal decided that the Mitchell criteria applied and that the application should be granted.
“42. In my view, the new CPR 3.9 and the comments by the Court of Appeal in Mitchell andDurrant clearly show that courts must be tougher and more robust than they have been hitherto when dealing with applications for relief from sanctions for failure to comply with any rule, direction or order. Mr Macnab’s answer to this point was that the Jackson reforms and CPR 3.9 do not apply to tribunals. He pointed out that the overriding objective in CPR 1 is in different terms to the overriding objective in Rule 2(3) of the UT Rules. From 1 April 2013, CPR 1.1 provides that the overriding objective is to enable the court to deal with cases justly and at proportionate cost. CPR 1 also provides that dealing with a case justly includes ensuring that it is dealt with expeditiously. Mr Hitchmough submitted that the courts and tribunals should not apply different standards to matters such as their attitude to the grant of an extension of time.
43. I agree that the CPR do not apply to tribunals. I do not, however, accept that the differences in the wording of the overriding objectives in the CPR and UT Rules mean that the UT should adopt a different, ie more relaxed, approach to compliance with rules, directions and orders than the courts that are subject to the CPR. The overriding objective in the UT Rules requires the UT to avoid unnecessary formality and seek flexibility in proceedings.
44. An informal and flexible approach may mean that a self-represented litigant is granted relief from a failure to comply with the rules, including time limits, in circumstances where a more experienced and better resourced party is not. That difference in treatment between different parties does not mean that the UT is applying dual standards but only that the level of experience and resources of a party are factors which should be taken into account in considering all the circumstances of the case. Such factors will, however, carry less weight than the two principal matters which must be considered in the new CPR 3.9.
45. The overriding objective does not require the time limits in those rules to be treated as flexible. I can see no reason why time limits in the UT Rules should be enforced any less rigidly than time limits in the CPR. In my view, the reasons given by the Court of Appeal in Mitchellfor a stricter approach to time limits are as applicable to proceedings in the UT as to proceedings in courts subject to the CPR. I consider that the comments of the Court of Appeal in Mitchell on how the courts should apply the new approach to CPR 3.9 in practice are also useful guidance when deciding whether to grant an extension of time to a party who has failed to comply with a time limit in the UT Rules.
46. The new CPR 3.9 does not contain a long list of factors to be considered as the old one did. The new version now provides that the court will consider all the circumstances of the case to enable it to deal justly with the application including the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions and orders.
47. As the Court of Appeal recognised in Mitchell at , regard must still be had to all the circumstances of the case but the other circumstances should be given less weight than the two considerations which are specifically mentioned. In this case, applying the principles of the new CPR 3.9, as explained in Mitchell and Durrant, means that, in considering whether to grant relief from a sanction, I should take account of all the circumstances, including those listed in the old CPR 3.9, but I should give greater weight to the need for litigation to be conducted efficiently and the need to enforce compliance with the UT Rules, directions and orders.
48. Accordingly, in considering HMRC’s application to be allowed to serve a notice of appeal after the time limit for doing so has passed, I have treated the need for appeals to be conducted efficiently and the need to enforce compliance with the UT Rules as important issues which carry greater weight than the other issues in the case. I turn to consider those issues next. As discussed below, I have also had regard to the different matters listed in the old CPR 3.9 but I have given them less weight in making my decision. They are discussed in more detail below.
The need for appeals to be conducted efficiently
49. Unlike the example given by the Court in Mitchell, this was not a case where, because of overwork or other reason, a solicitor simply overlooked a deadline which the Court stated would be unlikely to be a good reason to grant an extension of time. In this case, Mr Stok and Mr Coleman received the notification of the grant of permission to appeal and, it appears, did not inform others of it when, for different reasons, they stopped working at the Solicitor’s Office. Mr Williams and Mr Beresford missed the FTT’s email with the decision granting permission to appeal when reviewing Mr Stok’s files after he had gone on long term sick leave. Although I accept that it is easy to overlook one email among so many, I consider that the fact that this one was missed shows that this appeal was not being efficiently managed after Mr Stok’s departure. There was no evidence that Mr Stok had not maintained the file relating to the appeal properly. It should have been clear from looking at the case file that an application to appeal had been made to the FTT on 8 February. A decision from the FTT should have been expected within a few weeks (certainly before the date of Mr Stok’s departure) and a simple search of Mr Stok’s inbox would have discovered the email which had the name and reference of the appeal in its subject line. The evidence shows that, despite it being an active matter, Mr Williams did not review the file for this appeal until prompted to do so by Mr Belbin’s telephone call on 28 June. I conclude that, between 12 April and 28 June, this appeal was not being conducted efficiently.
50. The fact that the appeal was not being conducted efficiently does not inevitably lead to the conclusion that HMRC’s application must be refused. In particular, if there is a good reason for the conduct then this factor would weigh less heavily against HMRC. The burden is on HMRC to satisfy me that there was a good reason for the time limit not being met. HMRC’s frank admission that they made an administrative error is commendable but does not provide any explanation for the failure to comply with the time limit. Although Mr Stok went on long term sick leave from 12 April, HMRC expressly disclaimed any reliance on his illness either before or after his absence as a reason for the failure. I think that is right. HMRC Solicitor’s Office has many lawyers and paralegals and should be able to handle cases in the event that a lawyer falls ill or leaves. No reason was given why Mr Williams’ review of Mr Stok’s active case files and email account did not reveal that the FTT’s decision granting permission to appeal had been received. In short, HMRC are not only unable to give a good reason for the failure to serve the notice of appeal on the UT within one month, they are unable to give any explanation at all. It seems to me that, in the circumstances of this appeal, it would not be consistent with the need to ensure that appeals in the UT are conducted efficiently to allow HMRC to serve a notice of appeal almost two months after the time limit has expired.
The need to enforce compliance with the UT Rules
51. In Mitchell, the Court of Appeal stated, at , that
“… we consider that well-intentioned incompetence, for which there is no good reason, should not usually attract relief from a sanction unless the default is trivial.”
52. The failure by HMRC Solicitor’s Office to provide the notice of appeal for a period of 56 days after the time limit for doing so had expired was neither minor nor trivial. The service of the notice of appeal on the UT, which then sends it to the respondent, is an important part of the appeal process without which further progress is impossible. The fact that a failure to comply with a time limit is neither minor nor trivial does not preclude the UT from extending time in order to enable the party to comply if there was a good reason for the default and it is fair and just to do so in all the circumstances of the case. As discussed above, HMRC have not advanced any reason for the failure to comply with the UT Rules other than administrative error which I equate with the “well-intentioned incompetence” mentioned in Mitchell. As in that case, I find that the administrative error that led to a breach of the UT Rules was neither minor nor trivial. Refusing applications to extend time limits made after they have expired reinforces the need for parties to comply with the time limits in the UT Rules and directions made under them. In the absence of any good reason for failing to comply with the time limit, I can find no reason, in the circumstances of this case, not to apply the sanction provided by Rule 23(5)(b) of the UT Rules and refuse to admit HMRC’s notice of appeal.
53. As the Court of Appeal noted in Mitchell at  quoted above, Sir Rupert Jackson said in his report that the new CPR 3.9 does not preclude the court taking into account all of the matters listed in the old CPR 3.9 but it should avoid the need for judges to embark upon a lengthy recitation of factors. It seems to me, therefore, that it is no longer necessary to conduct the exercise undertaken by Morgan J in Data Select v HMRC  UKUT 187 (TCC) in every case. Data Select concerned an application to the FTT for an extension of time for making an appeal. The FTT considered that, in the exercise of its discretion, it should have regard to the factors referred to in the old CPR 3.9 as well as the overriding objective in Rule 2 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 which is identical to the overriding objective in the UT Rules. When the case came before the UT, Morgan J held, at , that, as a general rule, when a court or tribunal is asked to extend a relevant time limit, it asks itself the following questions:
(1) what is the purpose of the time limit?
(2) how long was the delay?
(3) is there a good explanation for the delay?
(4) what will be the consequences for the parties of an extension of time? and
(5) what will be the consequences for the parties of a refusal to extend time?
The court or tribunal then makes its decision in the light of the answers to those questions.
54. Morgan J, in  and , referred to Sayers v Clarke Walker (a firm)  EWCA Civ 645,  1 WLR 3095; Smith v Brough  EWCA Civ 261,  CP Rep 17; HMRC v Church of Scientology Religious Education College Inc  EWHC 1329 (Ch),  STC 1196; andAdvocate General for Scotland v General Commissioners for Aberdeen City  CSOH 135,  STC 1218 as useful guides to the approach to be taken to applications. And, indeed, I was referred to all of those cases by one or other, sometimes both, of the parties.
55. Morgan J also held, at , that the approach of considering the overriding objective and all the circumstances of the case, including the matters listed in the old CPR 3.9, is the correct approach for the FTT to adopt in relation to an application to extend time. In my view, that approach can no longer be regarded as correct in the light of the guidance given by the Court of Appeal in Mitchell. That is not to say that the factors in the old CPR 3.9 are irrelevant. Those factors may, depending on the case, be part of “all the circumstances of the case” which it is appropriate to consider. The matters listed in the old CPR 3.9 are a useful aid to ensure that all relevant other issues have been taken into account. In my view, it is no longer necessary, however, to treat the matters in the old CPR 3.9 as a checklist of issues which must be set out in full and considered in every decision.
56. In case I am wrong in my view and also because the parties made submissions on each of them, I now consider each of the factors listed in old CPR 3.9 in the context of HMRC’s application.
The interests of the administration of justice
(1) As I stated in  of Globalised Corporation Ltd v HMRC  UKFTT 556 (TC), the issue to be considered is not the interests of justice generally or even in relation to the parties but the interests of the administration of justice. It is clearly in the interests of the administration of justice that there should be time limits and that they should be observed as this contributes to the finality of litigation. I consider that the interests of justice also require consideration of two aspects of dealing fairly and justly, specified by rule 2(2)(c) and (e) of the UT Rules, namely enabling parties to participate fully in proceedings and avoiding delay. Mr Macnab submitted that refusing to grant an extension of time would mean that HMRC are unable to proceed with an appeal for which they have been given permission and that would have wider consequences because the issue in this appeal is one that may affect other taxpayers. Mr Hitchmough submitted that the FTT’s decision is not binding and HMRC can always re-litigate the issue. That does not seem to me to be an answer as further litigation of a point that has already been the subject of an appeal would not, in my view, be in the interests of the administration of justice. On the other hand, granting the extension entrenches a delay in this case and delay caused by failure to comply with a time limit can never be said to be in the interests of the administration of justice. I conclude that this factor does not assist me in deciding whether to grant HMRC’s application.
Whether the application for relief has been made promptly
(2) The failure to file the notice of appeal was discovered on 28 June 2013 and HMRC applied to the UT for an extension of time on 1 July which was the next working day, 29 and 30 June being a Saturday and Sunday. I consider that the application was made promptly. Mr Hitchmough criticised the application for being materially incorrect. I do not accept that the fact that the application contained errors, which it did, means that it was not made promptly. It is clear that HMRC made the application in a hurry and I accept, as there was no evidence to the contrary, that they believed it to be correct at the time. The fact that the application was made promptly does not necessarily lead me to conclude that I should extend the time for providing the notice of appeal whereas evidence of tardiness would count against granting HMRC’s application.
Whether the failure to comply was intentional
(3) I conclude from the evidence that I have seen, and in particular that of Mr Williams, that HMRC’s failure to comply with the time limit for providing the notice of appeal within one month was not intentional. This weighs in favour of granting HMRC’s application for an extension of time.
Whether there is a good explanation for the failure
(4) I have already discussed this at  and  above and concluded that there was no good explanation for the failure to provide the notice of appeal within the time limit. My conclusion in relation to this matter suggests that I should not grant HMRC’s application to extend the time for providing the notice of appeal.
The extent to which HMRC has complied with other rules
(5) As the appeal had barely started, this factor is not relevant in relation to these particular proceedings. If a broader perspective is relevant, my own experience is that HMRC do not deliberately or persistently disregard time limits or other provisions of the UT rules. I would, of course, not expect HMRC to engage in such conduct and this factor does not carry much weight in favour of granting HMRC’s application.
Whether the failure was caused by the party or his legal representatives
(6) Both parties agreed that this is not a relevant factor as HMRC are both client and legal representative.
Whether the trial date or the likely trial date can still be met if relief is granted;
(7) This factor is not relevant as no date for any hearing of the appeal has been set.
The effect which the failure to comply had on each party
(8) The issue to be considered under this heading is what effect did HMRC’s failure to provide a notice of appeal to the UT have on McCarthy & Stone. As described above, McCarthy & Stone assumed that HMRC, despite having been granted permission, had decided not to appeal. That assumption was made on the basis of information from Deloitte that the UT had confirmed by telephone, on more than one occasion, that HMRC had not lodged a notice of appeal. Neither Deloitte nor McCarthy & Stone sought confirmation from HMRC that they had abandoned their appeal. I find it surprising that between 6 May and 28 June, neither Mrs Baker nor Ms Matthews thought to ask Mr Belbin, by telephone or in an email, why HMRC had not pursued the appeal, especially when such a course of action would affect the Group Management Accounts and negotiations about a fundamental restructuring and refinancing of the McCarthy & Stone Group’s debt. I also find it surprising that Mrs Baker should authorise the adjustment to the accounts simply on the basis of a reported oral confirmation by the UT that HMRC had not filed a notice of appeal when there were other obvious reasons why the UT might not have received the application. Mrs Baker’s evidence was not, however, challenged by HMRC and I accept it as far as it goes. Mr Hitchmough submitted that by adjusting the Management Accounts and sending them to lenders and shareholders, McCarthy & Stone had acted to its detriment. Mrs Baker’s evidence did not establish actual detriment and no other evidence of actual detriment as a result of the adjustment to the accounts was produced. Further, it is clear that the term sheet used to negotiate the restructuring and refinancing of the Group’s debt was not finalised until 3 July which was five days after Mrs Baker’s telephone conversation with Mr Belbin and the same day as the UT sent HMRC’s notice of appeal and application to Deloitte. Clearly, the management accounts would have had to be restated and the shareholders and lenders informed once the true position was known but I do not accept that McCarthy & Stone suffered any material detriment as a result of HMRC’s failure to serve the notice of appeal on the UT until July. The fact that McCarthy & Stone suffered no material detriment does not mean that HMRC’s application should be granted although evidence of actual detriment would have weighed heavily against extending time.
The effect which the granting of relief would have on each party
(9) It is clear that HMRC will only be able to pursue their appeal if the application for an extension of time is granted and they will be prejudiced if their application is refused. The effect on McCarthy & Stone if the application is granted is that the company must face the prospect of an appeal before the UT with its attendant costs and the risk that part of the decision of the FTT in the company’s favour might be overturned. Those consequences are, however, the result of the grant of permission to appeal by the FTT and do not flow from HMRC’s failure to provide the notice of appeal within the time limit. I consider that the fact that HMRC would be precluded from pursuing its appeal if the application is refused lends strength to HMRC’s submissions that the application should be granted but it does not carry much weight as it is the sanctionprovided by the UT Rules for such a failure.
57. Taking all the circumstances of the case into account and bearing in mind the overriding objective of the UT Rules, I consider that the two requirements specifically mentioned in the new CPR 3.9, namely the need for appeals to be conducted efficiently and the need to enforce compliance with the UT Rules, lead ineluctably to the conclusion that HMRC’s application to submit a notice of appeal after the time limit has expired should be refused. I have also considered all the factors listed in the old CPR 3.9 although only some of them carry any weight in the circumstances of this case. I have found that they are fairly evenly balanced, tending slightly in favour of HMRC. If I was only considering the factors listed in the old CPR 3.9 then I would, on balance, have granted HMRC’s application but the requirements in the new CPR 3.9 carry greater weight. Accordingly, I have concluded that HMRC’s application must be refused.
58. For the reasons given above, HMRC’s application for an extension of time to serve its notice of appeal is refused and the notice of appeal is not admitted.”