DENTON CONSIDERED IN THE TAX TRIBUNAL: ELDER -v- REVENUE & CUSTOMS

The Denton case was considered by the First Tier Chamber: Tax Tribunal in Elder -v- Revenue & Customs [2014] UKFTT 728 (TC). Consideration of the Denton principles led to relief being granted.  The decision is, obviously, specific to the rules relating to the Tax Tribunal. However it contains important observations on the principles generally and gives some indication as to how the principles are being construed.

THE ISSUES: LATE SERVICE

The respondent to the appeal should have served a respondent’s notice by the 4th February 2013, it was filed on the 27th March 2013, in accordance with an order extending time.  The appellant sought to set aside the order extending time and debar the respondent from taking any part in the appeal.  The relevant rules gave a time period for service of the notice but did not impose any sanction for failure to comply.

Judge Cannan observed:

“90. I have assessed all these factors and the circumstances generally in the light of the Court of Appeal decision in Denton. Mr Rezvi cited a large number of cases relevant to the question of relief from sanctions. However it is now clear from Denton (at [24] and [82]) that in light of the Court of Appeal’s guidance reference to earlier authorities ought to be unnecessary.

91. I have considered the guidance given by the Court of Appeal in Denton to the application of CPR 3.9.

At [24] the court set out a 3 stage approach as follows:

(1)          Identify and assess the seriousness and significance of the breach (discussed at [25]-[28] of the judgment).

(2)          Consider why the default occurred (discussed at [29]-[30] of the judgment).

(3)          Evaluate all the circumstances of the case so as to deal justly with the application (discussed at [31]-[38] of the judgment).

92. In the first stage the focus is not on whether the breach has been trivial, but on whether it has been serious or significant. Whether a breach imperils future hearing dates or otherwise disrupts the conduct of the litigation may well be a useful measure of whether it has been serious or significant. The first stage does not involve consideration of unrelated failures which are better considered at the third stage.

93. At [28] the court said this:

“ If a judge concludes that a breach is not serious or significant, then relief from sanctions will usually be granted and it will usually be unnecessary to spend much time on the second or third stages. If, however, the court decides that the breach is serious or significant, then the second and third stages assume greater importance.”

94. The second stage is important, particularly where the breach is serious or significant. The court or tribunal should consider why the default occurred. Mitchell gave examples of good and bad reasons. Plainly pressure of work will rarely be a good reason.

95. The third stage involves consideration of all the circumstances of the case. The need for litigation to be conducted efficiently and at proportionate cost and the need to enforce compliance with rules are of particular importance in the third stage and should be given particular weight. It is also necessary to take account of the seriousness and significance of the breach and the reasons for it (stages 1 and 2). At [35] and [36] the court said this:

“ 35. …The more serious or significant the breach the less likely it is that relief will be granted unless there is a good reason for it. Where there is a good reason for a serious or significant breach, relief is likely to be granted. Where the breach is not serious or significant, relief is also likely to be granted.

36.But it is always necessary to have regard to all the circumstances of the case…”

96. Applying this guidance, I consider that the respondents’ failure to serve its statement of case prior to the directions hearing on 15 February was not serious or significant. The statement of case was due to be served by 4 February 2014. As at the directions hearing it was 11 days late. That is not a significant delay in the context of appeals generally, or in the context of the first and second appeals in the present case. That is not to say that such delays are to be in any way encouraged. However it did not imperil a future hearing date. Nor should it have disrupted the conduct of these appeals or other appeals.

97.In the light of that finding I can deal with the second and third stages relatively briefly.

98. There was no good reason for the respondents not to seek an extension of time for service of the statement of case. Whilst I can sympathise with Mr Hone as the person tasked with taking conduct of these appeals on behalf of the respondents at relatively short notice, I cannot sympathise with the respondents themselves. There is no good reason why they should not make adequate resources available to deal with such situations.

99. As regards the circumstances generally, the breach did not imperil a future hearing date and it did not disrupt the conduct of these appeals or other appeals. Those factors therefore do not point towards a refusal of relief. It is relevant that the respondents had failed to engage with the appellant in seeking to agree directions and that the statement of case itself does not adequately deal with quantum. Apart from these aspects, I am not satisfied that any other breaches would be significant to the exercise of my discretion.

100.00Taking into account all the circumstances I am satisfied that Judge Tildesley’s direction extending time for service of the statement of case should remain effective and I dismiss the application to vary it. It is not appropriate to debar the respondents from taking further part in these proceedings.”