USING PART 8 PROCEEDINGS INSTEAD OF APPEALING IS AN ABUSE OF PROCESS: A TAXING ISSUE OF SOME INTEREST

February 17, 2021 · by · in Abuse of Process, Appeals

In Revenue And Customs v MCX Dunlin (UK) Ltd [2021] EWCA Civ 186 the Court of Appeal held that the use of Part 8 proceedings, rather than a statutory route of appeal was an abuse of process.

“… it seems to me that the present proceedings were an abuse of process. Parliament has laid down a statutory appeal process by which PRT assessments can be challenged. The question whether HMRC’s refunds were due by way of discharge of PRT payments could have been determined using that procedure and, that being so, MCX should not have resorted to ordinary civil proceedings.”

THE CASE

The court was considering an appeal by HMRC in relation to the liability to pay interest on a tax refund.  The claimant had issued Part 8 proceedings to seek a declaration in relation to the interest and this had been allowed by the High Court judge.  The Court of Appeal overturned the case on the merits. It also held that the application itself was an abuse of process.

THE JUDGMENT ON THIS ISSUE

Was it appropriate for MCX to bring a claim under CPR Part 8?
    1. Where a matter can be raised by way of an appeal to the First-tier Tribunal (Tax Chamber) (“the FTT”), it is generally an abuse of process to seek to pursue it in ordinary civil proceedings. As the Court of Appeal explained in Knibbs v Revenue and Customs Commissioners [2019] EWCA Civ 1719, [2020] 1 WLR 731 at paragraph 17:
“It is well established that if Parliament has laid down a statutory appeal process against a decision of HMRC, a person aggrieved by the decision and wishing to challenge it must use the statutory process. It is an abuse of the court’s process to seek to do so through proceedings in the High Court or the County Court.”
    1. In Autologic Holdings plc v Inland Revenue Commissioners [2005] UKHL 54, [2006] 1 AC 118, which was decided when the FTT had not yet been established and tax appeals lay to commissioners, Lord Nicholls said this about the “exclusive nature of the appeal commissioners’ jurisdiction to decide certain types of disputes arising in the administration of this country’s tax system”:
“11.  … The present disputes concern claims for group relief. The way a taxpayer claims group relief depends on whether the claim relates to an accounting period before or after 1 July 1999. Before that date the corporation tax (pay and file) system was in force. This has now been replaced by the corporation tax (self-assessment) system. For present purposes this difference is immaterial. What matters is that, whichever system is applicable, an assessment which disallows a group relief claim cannot be altered except in accordance with the express provisions of the tax legislation. Statute so provides: see, in respect of the pay and file system, section 30A of the Taxes Management Act 1970 (as inserted by the Finance Act 1994, section 196, Schedule 19, Part 1, paragraph 5) and, in respect of the self-assessment system, paragraphs 47(2) and 97 of Schedule 18 to the Finance Act 1998. Further, the statutory code makes its own provision for appeals. Under both the ‘pay and file’ system and the self-assessment system a taxpayer has a right of appeal to the appeal commissioners against assessments of tax, including amendments made by the revenue to a taxpayer’s tax return. The appeal commissioners’ findings of fact are final. In appropriate cases a further appeal lies to the High Court by way of case stated on a point of law. Where the appeal commissioners reduce the amount of an assessment, any overpaid tax must be repaid to the taxpayer, with a repayment supplement by way of interest as provided in section 825 of the ICTA.
12.  Clearly the purpose intended to be achieved by this elaborate, long established statutory scheme would be defeated if it were open to a taxpayer to leave undisturbed an assessment with which he is dissatisfied and adopt the expedient of applying to the High Court for a declaration of how much tax he owes and, if he has already paid the tax, an order for repayment of the amount he claims was wrongly assessed. In substance, although not in form, that would be an appeal against an assessment. In such a case the effect of the relief sought in the High Court, if granted, would be to negative an assessment otherwise than in accordance with the statutory code. Thus in such a case the High Court proceedings will be struck out as an abuse of the court’s process. The proceedings would be an abuse because the dispute presented to the court for decision would be a dispute Parliament has assigned for resolution exclusively to a specialist tribunal. The dissatisfied taxpayer should have recourse to the appeal procedure provided by Parliament. He should follow the statutory route.
13.  I question whether in this straightforward type of case the court has any real discretion to exercise. Rather, the conclusion that the proceedings are an abuse follows automatically once the court is satisfied the taxpayer’s court claim is an indirect way of seeking to achieve the same result as it would be open to the taxpayer to achieve directly by appealing to the appeal commissioners. The taxpayer must use the remedies provided by the tax legislation. This approach accords with the views expressed in authorities such as Argosam Finance Co Ltd v Oxby [1965] Ch 390, In re Vandervell’s Trusts [1971] AC 912 and, more widely, Barraclough v Brown [1897] AC 615.”
    1. In the present case, Mr Ewart submitted that the question whether the repayments made by HMRC were wholly of PRT or represented both PRT and APRT could have been the subject of appeal to the FTT and that it was an abuse of process for MCX to seek to have it determined in ordinary civil proceedings. It is nothing to the point, Mr Ewart said, that any such appeal might have had to have been brought by an old participator rather than MCX. It was for the old participators and MCX to make appropriate arrangements in that regard between themselves, for example by including in the agreements under which the old participators transferred their interests in the Dunlin field provision for the old participators to issue appeals at MCX’s request. The fact that, as a result of contractual arrangements with the old participators, it is MCX rather than the old participators which stands to gain from the present litigation cannot have entitled MCX to institute civil proceedings where it would not have been proper for the old participators to do so.
    1. Mr Goldberg’s answer, which the Judge accepted, was that this dispute could never have been the subject of an appeal to the FTT. The Judge said this in his judgment:
“56. HMRC … pointed to the terms of the amended assessment dated 26 August 2015, which identified a ‘discharge’ (repayment) of £1,157,973. This was the principal amount of tax paid pursuant to a 1996 amended assessment for that chargeable period, net of APRT credit. The amended August 2015 assessment was therefore an assessment that only the PRT liability paid in cash should be discharged by oil allowance or exempt allowance leaving an obligation to repay tax. The tax chargeable was shown on that amended assessment as nil. It is difficult to understand how the old participators could have sought to appeal an assessment of nil, other than as regards the appropriateness of the use of allowances rather than allowable losses to set against assessable profits. Even if they could have done so, that amended assessment was not in fact the end of the process of revising their liability to PRT for the chargeable period in question, and HMRC did later repay all PRT paid by means of APRT credit as well as that paid in cash.
57. A further amended assessment dated 18 December 2015 made a nil assessment on the basis that all except a small part of the assessable profits was reduced by allowable losses, with the final small part reduced by oil or exempt allowances. This amended assessment said nothing about the amount of tax to be repaid. In any event, I accept Mr Goldberg’s submission that it is no part of an amended assessment of liability to calculate a repayment of tax (or interest) that is due, even if it might helpfully include such information. The old participators therefore could not have appealed the December 2015 amended assessment on the ground that HMRC did not pay full interest on the repaid tax.
58. Accordingly, I reject the argument that the old participators could and should have appealed one or other of the amended assessments, if they wished to challenge a decision made by HMRC about what sums were to be repaid.”
    1. Supporting the Judge’s conclusions, Mr Goldberg argued that there was nothing for the recipient to appeal against in the 26 August 2015 assessment. It put both the “Amount chargeable to tax” and the “Net amount payable” at zero. There was no reason for the old participators (or MCX) to disagree, and the thinking behind an assessment does not form part of it.
    1. On balance, however, I agree with Mr Ewart that the old participators could have appealed. Paragraph 14 of schedule 2 to OTA 1975 allows a participator to appeal “against an assessment”. An “assessment” will show what, if any, amount of tax is said to be due, but I cannot see why the right to appeal should be limited to that figure. In fact, the Judge himself evidently accepted that it would also be possible to appeal “the appropriateness of the use of allowances rather than allowable losses to set against assessable profits” and a participator could potentially have very good reason to contest such a point. To my mind, it would have been equally possible to appeal the fact that the 26 August 2015 assessment gave the “Discharge” figure as £1,157,973 when on MCX’s case the correct figure would have been £422,061 higher to take account of the APRT which had previously been set against PRT. It was implicit in that part of the assessment that HMRC saw £422,061 of the tax that they were repaying as APRT rather than PRT. Whether they were right to do so was an issue eminently suitable for decision by the FTT, and in my view it could have been the subject of an appeal to the FTT.
    1. In the circumstances, it seems to me that the present proceedings were an abuse of process. Parliament has laid down a statutory appeal process by which PRT assessments can be challenged. The question whether HMRC’s refunds were due by way of discharge of PRT payments could have been determined using that procedure and, that being so, MCX should not have resorted to ordinary civil proceedings.”

 

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