A “DISTURBING” APPROACH TO COMPLIANCE: STATE AGENCIES HAVE NO PREFERRED STATUS

The judgment of the Court of Appeal in BPP Holdings -v- The Commissioners for Her Majesty’s Revenue and Customs [2016] EWCA Civ 121, contains some observations in relation to compliance that are of general relevance.  Not least everyone litigating on behalf of a government agency should bear the clear warnings in mind.

  1. I found the approach of HMRC to compliance to be disturbing. At times it came close to arguing that HMRC, as a State agency, should be treated like a litigant in person and that the constraints of austerity on an agency like the HMRC should in some way excuse unacceptable behaviour. I remind HMRC that even in the tribunals where the flexibility of process is a hallmark of the delivery of specialist justice, a litigant in person is expected to comply with rules and orders and a State party should neither expect to nor work on the basis that it has some preferred status – it does not.”

THE CASE

In a case proceeding in the Tax & Chancery Chamber of the Upper Tribunal a First-tier judge debarred HMRC from further participating in the proceedings. This was because of their serious and prolonged breach of an order requiring them to give proper particulars of their pleaded case.

HMRC appealed against that order and the appeal was allowed. BPP then appealed to the Court of Appeal.  That appeal succeeded and HMRC remained debarred from participating.

THE JUDGMENT ON APPEAL

The Court of Appeal rejected, firmly, some of the arguments put by HMRC.
  1. In written submissions HMRC questioned the motive of BPP in pursuing this appeal with the attendant loss of the fixture that had been listed for the hearing of the substantive issues. They are entitled to make submissions about the effect on the hearing of the appeal but their submission on the position taken by BPP involves questioning the merits of the substantive case. That is a factor which they concede is not one that can generally be argued under CPR 3.9, that is, as to whether relief from sanctions should be granted (see R (Dinjan Hysaj) v Secretary of State for the Home Department [2014] EWCA Civ 1633 at [47] per Moore-Bick LJ).
  2. In their written submissions to this court HMRC seek to rely on their skeleton argument dated 13 June 2014 filed before the FtT as being a sufficient disclosure of the information that was necessary to reply to BPP’s Request for Further Information. Without commenting on whether the disclosure made was a sufficient reply, it is elementary that unless accepted by the taxpayer or the tribunal, an assertion in a skeleton argument, unlike a witness statement or a formal Reply to a RFI, is not backed by a truth statement and is not evidence. HMRC have not asked this court to consider any additional evidence and accordingly that is not a factor they can pray in aid of their position.
  3. HMRC’s appeal to the UT was of course in respect of a case management decision. It is common ground that an appellate tribunal should be slow to interfere in such decisions and the UT cannot do so unless the FtT erred in law in exercising its broad discretion.

THE RULES

The tribunal rules have an overriding objective similar to that in the CPR. there is no equivalent to CPR 3.9.  However there are provisions allowing the tribunal to strike out a case for not compliance.

THE ORIGINAL RULING

The Court of Appeal held that the original ruling of the judge was appropriately made. Or at least was an order that should not have been interfered with on appeal.
  1. It is plain that Judge Mosedale did not directly apply the CPR or the subsequent authorities that give guidance on CPR 3.9. She was careful to make it clear that her consideration of the same was limited to whether the guidance contained in them was relevant by analogy to the application of the overriding objective in the tax tribunal rules. She was careful to distinguish the nature of the application before her from one under CPR 3.9. Most importantly, she distinguished the guidance before applying a nuanced version of it to the overriding objective in the tax tribunal rules. In the circumstance that the tax tribunal rules are silent on the question, did she make an error in law in according the efficient conduct of litigation at a proportionate cost and compliance with rules, practice directions and orders significant weight as part of her consideration of the overriding objective?
  2. For the reasons I set out below, I do not think that she did, with the consequence that the UT should not have intervened.

THE REASONS IN THE COURT OF APPEAL

  1. There is nothing in the wording of the relevant rules that justifies either a different or particular approach in the tax tribunals of FtT and the UT to compliance or the efficient conduct of litigation at a proportionate cost. To put it plainly, there is nothing in the wording of the overriding objective of the tax tribunal rules that is inconsistent with the general legal policy described in Mitchell and Denton. As to that policy, I can detect no justification for a more relaxed approach to compliance with rules and directions in the tribunals and while I might commend the Civil Procedure Rules Committee for setting out the policy in such clear terms, it need hardly be said that the terms of the overriding objective in the tribunal rules likewise incorporate proportionality, cost and timeliness. It should not need to be said that a tribunal’s orders, rules and practice directions are to be complied with in like manner to a court’s. If it needs to be said, I have now said it.
  2. A more relaxed approach to compliance in tribunals would run the risk that non-compliance with all orders including final orders would have to be tolerated on some rational basis. That is the wrong starting point. The correct starting point is compliance unless there is good reason to the contrary which should, where possible, be put in advance to the tribunal. The interests of justice are not just in terms of the effect on the parties in a particular case but also the impact of the non-compliance on the wider system including the time expended by the tribunal in getting HMRC to comply with a procedural obligation. Flexibility of process does not mean a shoddy attitude to delay or compliance by any party.
  3. I found the approach of HMRC to compliance to be disturbing. At times it came close to arguing that HMRC, as a State agency, should be treated like a litigant in person and that the constraints of austerity on an agency like the HMRC should in some way excuse unacceptable behaviour. I remind HMRC that even in the tribunals where the flexibility of process is a hallmark of the delivery of specialist justice, a litigant in person is expected to comply with rules and orders and a State party should neither expect to nor work on the basis that it has some preferred status – it does not.
  4. If there is nothing in the policy argument, then the only complaint that there can be about the exercise conducted by Judge Mosedale is as to weight, that is that she afforded two factors substantial weight when it was inappropriate to do so. That is an insubstantial basis for a second appeal on a point of law. Matters of weight are for the first instance tribunal, subject to an overall test of Wednesbury unreasonableness.
  5. It is plain that Judge Mosedale took into account all relevant factors. It is not alleged that she fell into error by failing to do so. Two of the factors that might have predisposed the tribunal to come to a different view were found in BPP’s favour, namely not only was there no good reason for non-compliance, there was no reason at all and further, prejudice had been occasioned as a consequence i.e. significant delay and expense. The balance was stark on the facts. It is accordingly wrong to say that non-compliance was the only factor that militated in favour of a barring order. The lack of any reason for non-compliance and the finding of prejudice were also relevant factors.
  6. In any event, and given my conclusion on the legal policy question that has been raised, it is in my judgment an appropriate reflection of the purpose of the overriding objective that compliance and the efficient conduct of litigation at a proportionate cost are given the weight accorded to them by the FtT in this case.
  7. If HMRC have a difficulty with compliance they should, where possible, make application to the tribunal to be relieved of compliance on the basis of some alternative proposal which should be canvassed with the taxpayer prior to the application. The reasons for non-compliance and the merits of the alternative should be explained. HMRC had no good reason indeed no stated reason at all for their non-compliance.

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