STOP USING PROCEDURE TO BULLY VULNERABLE PEOPLE: HM REVENUE & CUSTOMS TOLD TO READ DENTON PROPERLY

June 11, 2017 · by · in Applications, Relief from sanctions

I have no intention of taking this blog into areas of taxation and customs and excise. However the judgment of the First-tier Tribunal (Tax) in E -v- The Commissioners for Her Majesty’s Revenue & Customs [2017] UKFTT 348 (TCC) contains some passages of general interest in relation to procedure.  They are worthy of being read by a wider public and not those who specialise in revenue law.

 

 

‘Those provisions therefore impose an express obligation upon the parties to assist in the furtherance of the objective of dealing with cases fairly and justly, which includes the avoidance of unnecessary applications and unnecessary delay.  That requires parties to cooperate and liaise with each other concerning procedural matters, with a view to agreeing a procedural course promptly where they are able to do so, before making any application to the tribunal.  This is particularly to be expected where parties have legal representation.”

“We rather incline to the view that if any party has failed to co-operate with the Tribunal in the manner described in Rule 8(3)(c) it is HMRC.  They were the ones who should have (even if “must have” is going too far) realised the vulnerability of the appellant and should not only have made all appropriate adjustments themselves but should have informed the Tribunal, so that the rather unsuitable directions and letters from the Tribunal would not have been issued in the form they were and which could easily have led the panel hearing the application to take a very different course from the one it did.  That would not have been just and fair. “

THE CASE

The Appellant (“E”) was issued with an excise duty assessment of £928  and a £185  finehaving been found with 15kg of  hand rolled tobacco in her possession at Dover docks.  Her case was that she had been duped and used as a scapegoat.

The appellant was a “vulnerable adult”.  “This was apparent from the Notice of Appeal where the appellant stated that she suffered from Asperger’s Syndrome, Attention Deficit Hyperactivity Disorder (ADHD) and fibromyalgia”.

The appellant appealed on the grounds of hardship.

HMRC’S STANCE

HMRC made a specific application to strike out the appeal on the grounds that E had failed to pursue the appeal properly.

THE DECISION: THERE WAS HARDSHIP

The judgment on hardship is interesting (even to a non-specialist) the Tribunal was critical of the respondent’s failure to follow its own practice and guidelines in relation to vulnerable adults. Further the respondent cited the incorrect law and procedure in relation to the penalties and procedure.  The appeal was allowed on the grounds of hardship. However the Tribunal went on to consider the strike out application.

THE APPLICATION TO STRIKE OUT THE APPEAL

The strike out application

  1. “We turn now to the application to strike out.  We had the benefit for this of written submissions by Ms Whelan which were handed to us in the hearing.  The appellant had no points to make on this technical legal point, at least on the point which we thought was the only application being made (the “due diligence application”).  As it turned out the due diligence application was used as a pretext for foreshadowing a forthcoming application to strike out both appeals against duty and penalty under Rule 8(2)(a) and 8(3)(c) and then arguing it.
  2. As to the due diligence application itself HMRC argued that strike out was justified because:
(1)          The Tribunal has no jurisdiction to hear the matter (by which they said they meant the appeal against the assessment: we supply the missing words “to duty” which are implicit) in the light of the failure on the part of the appellant to pay the sums due to HMRC.
(2)          The appellant had not complied with directions or prosecuted her appeal with due diligence (at least counsel recognised that Mr Riley’s phrase “with any due diligence” is ungrammatical) in that she had failed to supply any supporting evidence that she is impecunious in respect of her hardship application.
  1. This Tribunal now recognises that, by requiring HMRC to produce a formal application for strike out in the light of the numerous suggestions they made to the Tribunal on the topic, it may have misunderstood from a reading of those papers supplied beforehand what was being argued by HMRC.
  2. It seems to us now that by saying that the appeal against duty should be struck out for lack of prosecution or due diligence HMRC was simply putting forward arguments why the hardship application should not succeed or perhaps should itself be struck out.  This clearly accords better with the facts, namely that the directions in the case were, contrary to this panel’s original supposition, given merely for the hardship application, and that Mr Cameron’s letters seeking more information (or the same information but for a different reason) were also only concerned with the hardship application.
  3. On that basis this application falls away as a separate point.  It becomes irrelevant anyway in the light of our decision on hardship which is of course to accept the appellant’s application.  But we think that if that the point of the due diligence application was as we suggest in §65 then it was misconceived. 
  4. We are not aware whether the Tribunal when it issued its directions, had been informed by HMRC, as it should have been, that the appellant was a vulnerable adult.  We also think that HMRC should have appreciated that if a litigant in person who is a vulnerable adult does not supply a list of documents on which she will seek to rely, it is because she does not know what that means or the significance of it, or it could mean that there are no such documents and that the appellant will rely, as most litigants in person do, on documents that have already been given to HMRC or the Tribunal and to oral evidence.  Why should a list be provided that contains no entries? 
  5. But beyond that is a more important point.  The unspoken point being made here (which in other cases is spoken) is HMRC’s belief that the BPP[3]sauce for their goose should in all cases, irrespective of the importance of the issue, be sauce for an appellant’s gander.  In other words they seem to be using any non-compliance with directions as a weapon with which to engineer a strike out.  But why in this particular case?  Both members of the panel here have been involved in many other cases involving litigants in person where HMRC do not seek to take any points about a failure to comply with directions and where the HMRC representative will go out of their way to help the appellant (thus furthering the overriding objective in Rule 2 of the FTT Rules and cooperating with the Tribunal). 
  6. That it is not just HMRC who seek to use infringements of directions as a weapon can be seen from, among other cases, Essential Telecom Ltd v HMRC [2016] UKFTT 475 where the appellant sought to have HMRC debarred from the proceedings for being 24 hours late with a skeleton.  There it was said:
“22.  We consider that there are two very relevant paragraphs in Denton which, in this case, we draw to the attention of the appellant:
‘40 Litigation cannot be conducted efficiently and at proportionate cost without (a) fostering a culture of compliance with rules, practice directions and court orders, and (b) cooperation between the parties and their lawyers.  This applies as much to litigation undertaken by litigants in person as it does to others.  This was part of the foundation of the Jackson report.  Nor should it be overlooked that CPR rule 1.3 provides that “the parties are required to help the court to further the overriding objective”.  Parties who opportunistically and unreasonably oppose applications for relief from sanctions take up court time and act in breach of this obligation.
41 We think we should make it plain that it is wholly inappropriate for litigants or their lawyers to take advantage of mistakes made by opposing parties in the hope that relief from sanctions will be denied and that they will obtain a windfall strike out or other litigation advantage.  In a case where (a) the failure can be seen to be neither serious nor significant, (b) where a good reason is demonstrated, or (c) where it is otherwise obvious that relief from sanctions is appropriate, parties should agree that relief from sanctions be granted without the need for further costs to be expended in satellite litigation.  The parties should in any event be ready to agree limited but reasonable extensions of time up to 28 days as envisaged by the new rule 3.8(4).’
  1. This approach has already been reflected in decisions of Tribunals.  In Dorset Healthcare NHS Foundation Trust v MH [2009] UKUT 4 (AAC) the Administrative Appeals Chamber of the Upper Tribunal said of Rule 2 of the First-tier Tribunal Rules (Overriding Objective):
‘Those provisions therefore impose an express obligation upon the parties to assist in the furtherance of the objective of dealing with cases fairly and justly, which includes the avoidance of unnecessary applications and unnecessary delay.  That requires parties to cooperate and liaise with each other concerning procedural matters, with a view to agreeing a procedural course promptly where they are able to do so, before making any application to the tribunal.  This is particularly to be expected where parties have legal representation.’”
  1. This is as true here as it was there.  But the question that is not answered anywhere in HMRC’s applications or emails is this: under what part of Rule 8 was the due diligence application being made?  The Tribunal has not issued an “unless” direction in this case (at least there is no evidence put before us that the draft in the papers was ever issued).  The only other candidate would seem to be that the failure to comply with the direction shows that the appellant has failed to co-operate with the Tribunal to such an extent that the Tribunal cannot deal with the proceedings fairly and justly.
  2. HMRC’s first submission though (see §63(1)) does faintly suggest that the argument is lack of jurisdiction on the basis that an appeal may not be entertained by the Tribunal in the absence of payment of the duty.  But that cannot be right because that is precisely the point that the hardship hearing was convened to decide.  And even if the decision on hardship had been against the appellant then an unsuccessful application for relief from paying (or needing to give security to be more accurate) does not prevent the appeal being entertained if the duty is subsequently paid or secured.  On the lack of jurisdiction basis this application was bound to fail and does so.
  3. Nor does it succeed on the basis of lack of co-operation with the Tribunal.  First we are sure that no lack of co-operation was intended by this appellant for obvious reasons.  Secondly if there was a lack of co-operation we fail to see how it could possibly have made it impossible to deal with the case fairly and justly.  We have just dealt with it: if HMRC were concerned that the appellant’s lack of co-operation prejudiced their ability to put their case properly, then someone from HMRC should have been at the hearing to assist counsel in dealing with any points that were felt by them to have amounted to an ambush or some other catching of HMRC off guard caused by the appellant’s failure to list her documents or to provide bank statements or to produce her evidence of benefit entitlements in a way which was not just “in general”.
  4. If HMRC think we have committed some procedural error or acted contrary to the overriding objective and thereby not acted fairly and justly then their remedy is to appeal this decision.
  5. We rather incline to the view that if any party has failed to co-operate with the Tribunal in the manner described in Rule 8(3)(c) it is HMRC.  They were the ones who should have (even if “must have” is going too far) realised the vulnerability of the appellant and should not only have made all appropriate adjustments themselves but should have informed the Tribunal, so that the rather unsuitable directions and letters from the Tribunal would not have been issued in the form they were and which could easily have led the panel hearing the application to take a very different course from the one it did.  That would not have been just and fair. 
  6. HMRC will know from BPP if they didn’t know before that Rule 8(7) is not a hollow threat.
  7. The application so far as it is grounded in Rule 8(3)(c) also fails.
  8. Ms Whelan’s submission on the due diligence application goes on to say that if that strike out application is unsuccessful and the hardship application succeeds, HMRC puts the “Court” and the appellant on notice that in due course another application to strike out will be made on grounds with which this panel is, and most other judges and members of the Tribunal will be, familiar, namely that the Tribunal has no jurisdiction to hear the appeal because of familiar case law[5] or that there is no reasonable prospect of success for the appellant.
  9. We have said “the appeal”, but it must not be forgotten that there are two appeals, only one of which, despite what HMRC may think, is the subject of the hardship application and the due diligence application.
  10. The way the foreshadowed application is put in the submission is that:
(1)          the appellant’s case is wholly without merit and the Tribunal has no jurisdiction to consider the grounds of seizure,
(2)          the appeal has no prospects of success.
  1. As to §79(1), the submission makes the familiar point that the goods have been duly condemned as forfeit under paragraph 5 of Schedule 3 to the Customs and Excise Management Act 1979 and accordingly have conclusively been determined to be held for commercial purposes, and the Tribunal has no jurisdiction to hear submissions on that basis as part of any appeal.
  2. As to §79(2) it is said that the appellant does not challenge the validity of the decision to assess both duty and penalty or the calculations of the duty or penalty.
  3. Having had these arguments set out we felt it right to inform Ms Whelan and thus HMRC that so far as the penalty is concerned, had we actually been considering HMRC’s threatened strike out application, we would have been strongly attracted to the view that on the basis of what the appellant has already said in her appeal notice she had a reasonable excuse for doing what she is accused of doing and that there were special circumstances justifying a special reduction to nil which had obviously not been taken into account by HMRC.
  4. As to §79(1) we do not know what the grounds of seizure given by the Border Force were.  The appellant’s account of being duped into being a “mule” (our characterisation) and being lied about as to a business may well give her grounds other than “private use” to contest the assessment.  For example she may be able to argue that in the circumstances of what she says happened at Dover she was not “holding the goods intended for delivery” in the sense of that phrase in Regulation 13(2)(b) of the 2010 Regulations.  We do not propose to go through all the points made in Liam Hill v HMRC [2017] UKFTT 18 but on the face of it there seem to be some deficiencies of process in the letter and associated documents of 14 April 2016 and there was no obvious offer of a review as is required by s 15A(1) FA 1994.
  5. We informed Ms Whelan and the appellant that in view of the fact that we had had to delve deeply already into the facts of this case and in view of the submissions she had made to us in relation to the foreshadowed strike out that we would reserve any further hearing of applications or appeals to ourselves.
  6. But we sincerely hope that HMRC will read this decision, and in the fashionable phrase, “learn lessons”, and that one of those lessons will be that when dealing with vulnerable adults the approach taken in this case is profoundly wrong.  We also very much hope, though we cannot dictate it, that we will not be called upon to hear any more applications or appeals in this case.

Decision

  1. We record here that for the reasons we have given:
(1)          We decide that, on the grounds that it would have caused hardship to the appellant, the Commissioners for Her Majesty’s Revenue and Customs should not have refused to issue a certificate under paragraph (a) of section 16(3) FA 1994 and we are satisfied that no security need be given to those Commissioners.
(2)          We refuse to grant HMRC’s application to strike out the appellant’s appeals against duty and a penalty.”
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