LITIGATION: NO DUTY TO THE OTHER SIDE IN LITIGATION TO PUT FORWARD YOUR BEST EVIDENCE

The Court of Appeal judgment this morning in  Revenue And Customs v Charles (t/a Boston Computer Group Europe) [2019] EWCA Civ 2176 contains some important observations in relation to the duties that litigating parties owe to each other.

 

“If the judge were correct, all litigants would owe a duty to the opposing party in litigation to put forward their very best evidence in relation to every case and to check the evidence relied upon by their opponents, at least if it is based on a document which originated with them. Not only would that create an intolerable and costly burden upon all litigants, it would also have profound effects for the court system. It would have the opposite effect to the overriding objective: CPR r 1.1. If each party were required to file and serve its best evidence on each and every issue, it would prevent the court from dealing with cases at proportionate cost, allotting an appropriate share of court resources and saving expense, amongst other things. To the contrary, all litigation would become unnecessarily lengthy and additionally expensive.”

THE CASE

The claimant brought proceedings against HMRC alleging breach of duty in the conduct of matters in a HMRC investigation in VAT fraud.  This investigation had led to several hearings before the First-Tier Tax Chamber and Upper Tribunal at which the claimant had been successful. It later transpired that there was an error in one of the documents that HMRC had relied upon at the hearings.  At first instance the claimant’s claims for breach of contract and breach of statutory duty were struck out, however a claim in negligence was allowed to proceed. HMRC appealed the decision not to strike out the claim in negligence.

HMRC SUCCESSFUL IN THE COURT OF APPEAL

The Court of Appeal allowed the appeal by HMRC.  It held that there was no duty of care.
  1. In my judgment, there is no real prospect of establishing that a duty of care arose to verify the Visit Report and to rectify it if necessary, once Mr Charles’ reliance upon it for the purposes of his appeal to the UT became clear and the judge was wrong to come to that conclusion at [36] of his judgment. It seems to me that the same would be true in relation to Mr Charles’ reliance upon the Visit Report in the FTT. The point was made succinctly by Lord Bingham in the Barclays Bank case at [18]. As the judge quoted at [32] of his judgment: ” . . . no duty is owed by a litigation party to its opponent: Digital Equipment Corpn v Darkcrest Ltd [1984] Ch 512; Business Computers International v Registrar of Companies [1988] Ch 229; Al-Kandari v J R Brown & Co [1988] QB 655.” The same point was made by Lord Rodger at [47] and [60]. It seems to me that this must be the case even where the opponent relies upon a document which has been created by the other party to the litigation. It is all the more so where the document was produced for a different purpose in the course of fulfilling HMRC’s public duties.
  2. Accordingly, it seems to me that there can be no question of an assumption of responsibility by HMRC in relation to Mr Charles’ conduct of his litigation, nor is the incremental test referred to in the Barclays Bank case satisfied. It has already been determined that a party to litigation does not owe a duty of care to the opposing party in that litigation. It also follows that the threefold test cannot be satisfied.
  3. In this case, HMRC having succeeded in the FTT, it was Mr Charles’ choice, nevertheless, to seek to rely upon the Visit Report in the UT. Furthermore, he did so, despite the fact that in its response to his Appellant’s Notice dated 8 February 2013, HMRC had stated in writing that it was likely that there was an error in the record of the Ipod supply chain contained in the Visit Report. It was open to Mr Charles at that stage to have asked HMRC to produce the underlying documentation, but he did not do so. It is unrealistic to suggest that having served and filed the response to the Notice of Appeal in 2013, HMRC were under a duty to conduct an internal investigation and to seek permission to adduce further evidence before the UT in order to clarify the Visit Report.
  4. It is for parties to litigation to determine what evidence they will deploy and in what way and to decide how best to conduct litigation. Mr Charles chose to continue to rely upon the Visit Report despite the admission that it probably contained an error and despite the fact that HMRC had succeeded before the FTT and the FTT had taken into consideration a large amount of evidence in addition to the Visit Report.
  5. The position can be no different because Mr Charles was exercising a statutory right to appeal against the disallowance of input tax for the purposes of his VAT return against a public body. Although the onus was on HMRC to defend the disallowance on that appeal before the FTT, it is difficult to see that, as a result, HMRC assumed a duty to verify all evidence relied upon whether by it or by Mr Charles and to prevent its opponent from taking points about the adequacy of the evidence relied upon. Of course, HMRC, like any other litigant, must not wilfully or recklessly mislead the court. They are not required, however, to ensure that only the best evidence is relied upon. Like any other litigant, HMRC takes the risk that the tribunal or court will consider a matter not to have been proved to the appropriate standard and will be subject to points which will be taken against it in relation to weaknesses in its evidence.
  6. If the judge were correct, all litigants would owe a duty to the opposing party in litigation to put forward their very best evidence in relation to every case and to check the evidence relied upon by their opponents, at least if it is based on a document which originated with them. Not only would that create an intolerable and costly burden upon all litigants, it would also have profound effects for the court system. It would have the opposite effect to the overriding objective: CPR r 1.1. If each party were required to file and serve its best evidence on each and every issue, it would prevent the court from dealing with cases at proportionate cost, allotting an appropriate share of court resources and saving expense, amongst other things. To the contrary, all litigation would become unnecessarily lengthy and additionally expensive.
  7. Furthermore, it seems to me that the judge’s approach was contrary to that adopted by Chadwick LJ in the Neil Martin case at [72]. The judge had already decided that there was no statutory duty of care and struck out that part of Mr Charles’ claim. He went on, nevertheless, to conclude that the circumstances, including the position of HMRC as a public body and the nature of the statutory appeal, were factors in determining that the narrow duty of care was arguable. In effect, having discounted it, he allowed the alleged statutory duty back in to his thinking.
  8. It seems to me, therefore, that the judge failed to apply Lord Bingham’s test in the Barclays Bank case properly. It has been decided that parties do not owe each other a duty of care in litigation. There was no need therefore to go any further. However, in the circumstances: there could not have been nor was there any assumption of responsibility for the way in which Mr Charles chose to conduct the litigation; there was no realistic prospect of showing that the alleged losses were a reasonably foreseeable consequence of what it was alleged that HMRC failed to do; nor would it be fair, just and reasonable to impose a common law duty of care.”