Davies & Anor vRevenue and Customs

The two claimants in this case, the appellants before us, are in dispute with the Revenue as to whether or not for the tax year 2001/2002 they are liable to tax in the United Kingdom. Both of them are British nationals in middle life. They have been United Kingdom residents of lifelong standing before March 2001. Their case is that in that month they ceased to be resident in the UK and accordingly are not liable to be taxed for the year 2001/2002. Their case is that they left the United Kingdom in March 2001 to take up residence in Brussels in order to work full-time there.

The claimants are in the property business. They had until then an existing British business. They set up a Belgian company to engage in property trade in Europe and their case is that throughout the tax year in question they were employed by that company in Brussels and lived in Brussels: they say they still fulfil both of those conditions now. They retained their homes in the United Kingdom. They also retained a quite extensive network of connections, social and in the public service or voluntary sector.

For its part the Revenue contends that they remained resident in the United Kingdom for at least part of that tax year. It is of significance because the claimants disposed of their pre-existing British business during that year and will be liable to substantial capital gains tax if the Revenue is right.

On 29 November 2006 the Revenue issued a determination that the claimants were resident in the United Kingdom for the relevant year. That determination came after a long period of negotiation and discussion. The claimants have challenged that determination on two fronts. They have lodged, as they are entitled to do, an appeal to the Special Commissioners on the grounds that the Revenue is wrong to say that they are resident here. They have, however, secondly, issued a claim for judicial review of the Revenue’s determination. The basis of the judicial review claim is not that they were in fact non-resident, it is that they ordered their affairs in reliance on a longstanding document issued by the Revenue: IR20 -- Residents and non-residents. The claim for judicial review is that by that document the Revenue has represented generally that those who fulfil certain conditions will be treated as resident abroad. Say the claimants, they do fulfil some of those conditions, and accordingly they say that whether or not the correct decision in fact is that they remained resident in the United Kingdom, they had and have a legitimate expectation that they will be treated in accordance with IR20 as non-resident.

The Revenue’s position is:

The occasion of the present appeal is a dispute as to which of the two challenges that the claimants have launched should go first. The claimants say that the judicial review application should be heard first. When their permission application came on in those proceedings before Stanley Burnton J (as he then was) he decided, without addressing the question of whether permission should be granted, that the judicial review application should be adjourned pending the appeal to the Special Commissioners. The claimants seek permission of this court to appeal against that decision.

On the face of it this is a case management decision and moreover an exercise of the judge’s discretion. As such the prospects of a successful appeal would normally be scant. Moreover it is undoubtedly good general practice to ensure, so far as possible, that a challenge in law by way of judicial review is mounted on the basis of known facts; and one consequence of that is that if a tribunal of fact exists which can find the relevant facts it is normally good practice to postpone judicial review until after the facts have been found.

However, it is the claimants’ case that in the particular circumstances of this dispute a genuine point of principle underlies the decision. Their case is that the judicial review claim raises the question whether the Revenue is disentitled from contending that they remained resident in the United Kingdom and they say that that is so whether or not the Revenue’s contention would succeed on the merits before the Special Commissioners. Therefore, say the claimants, the judicial review claim raises a point which must precede any appeal to the Special Commissioners. Its object, say the claimants, is to strike down the determination, which only falls to be appealed to the Commissioners if it stands. It is common ground between the parties that, in deciding the question of residence, the Commissioners do not simply apply the Revenue’s guide in IR20. It may be that they would refer to it but they are in no sense bound by it. The question which they have to decide is the broad question of fact and degree: whether the claimants were in fact resident in the United Kingdom for the relevant tax year or part of it, not what the meaning or application is of the Revenue’s own guidance document.

For the claimants Mr Goldberg QC contends that if the order of Stanley Burnton J stands and if subsequently the Commissioners should be against the claimants on the question of residence, the judicial review application will have been effectively pre-empted or, at least, substantial obstacles will have been raised in its way. That will have happened, he says, because it will, on that hypothesis, have been established by the appropriate judicial body that in fact the claimants were indeed resident here. Since the only issue in relation to their liability to tax is whether they are resident here or not, that would amount, says Mr Goldberg, to an effective decision that the claimants are liable to tax in the relevant year. If that happens, says Mr Goldberg, judicial review on the basis of legitimate expectation would either be certain to fail or would be very likely to fail. In short the legitimate expectation would have been ruled illegitimate.

For the purposes of the present appeal the nature of the issues between the parties needs scarcely more fleshing out than that. Residence is a question of fact and degree. There exist few, if any, statutory rules governing the determination of when a person is resident. IR20 addresses, by way of guidance, a number of situations in which the question may arise. The present claimants rely principally, though it may be not wholly, upon paragraphs 2.2 and 2.8 of the document. It is unnecessary to read the whole of them. Paragraph 2.2 says:

“If you leave the United Kingdom to work full-time abroad under a contract of employment, you are treated as not resident and not ordinarily resident if you meet all the following conditions

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your absence from the UK and your employment abroad both last for at least a whole tax year.”

There follow some other conditions as to the permitted number of days on which such a person may return, which it is unnecessary to summarise.

Paragraph 2.8 contains this sentence:

“If you have left the United Kingdom permanently or for at least three years, you will be treated as not resident and not ordinarily resident from the day after the date of your departure providing

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your absence from the UK has covered at least a whole tax year.”

And then there follow similar conditions as to days of return visit. I make it clear that those are highly selective citations from IR20; they are intended to do no more than to flag up the basis of the claimants’ claim. If and when IR20 has fully to be investigated it will need to be looked at in context.

The claimants’ case is that those two paragraphs of IR20 contain bright-line tests where the general law of residence has none, and moreover, say the claimants, the last words which I have cited of paragraph 2.2, “for at least a whole tax year” are satisfied if the employment abroad survives for any whole tax year and not necessarily the tax year in question. Those various contentions are, I should make clear, heavily in dispute. The Revenue contends that it is not satisfied that the claimants were employed full-time throughout the whole of 2001/2002; rather, it suggests, the business really only got under way some time during the latter part of that year. Secondly, the Revenue contends that because of the continuing activities and solid links retained here by both claimants, they had never left the United Kingdom and thus, for that reason also, do not comply with IR20, never mind are not resident in terms of the general law.

As to the latter of those contentions, the issue effectively seems to be whether the expression “left the United Kingdom” where it appears in IR20 imports the general law or whether IR20 has given the claimants the legitimate expectation that they would be treated as having left if the other conditions set out in paragraph 2.2 or 2.8, as the case may be, are fulfilled.

The judge essentially reached his decision on the basis that there were issues of fact and that the Special Commissioners were the appropriate specialist tribunal to determine them. It seems to me likely that the judge approached the case in that way at least in part because the argument which the claimants now advance and which I have endeavoured to set out was not before him nearly as clearly as it has been before us.

However that may be, the question for us is whether Mr Goldberg is right. For my part I accept that this is a case management decision. It is, however, not simply a matter of management if one set of proceedings will effectively pre-empt or significantly raise an obstacle to the other. For the Revenue Miss Simler QC contends that a Special Commissioners decision adverse to the claimants will neither pre-empt any judicial review application nor raise significant obstacles to it. Her submission is that even if the Commissioners should hold that the claimants were resident in the year in question, Mr Goldberg can still make his application for judicial review. She says that the Administrative Court will have power to give effect to any legitimate expectation which the claimants had, if that should be established. The Administrative Court might not do so, she says, by way of striking down the determination of November 2006, as no doubt it would if judicial review went first, because by then that determination would have been upheld by the Commissioners. What Miss Simler expressly concedes is that the Administrative Court could, if satisfied that the Revenue had acted in abuse of power and contrary to a legitimate expectation of the claimants, restrain the Revenue from taking any further steps to collect the tax in dispute. It could, for example, forbid any amendment to the existing self-assessment and forbid the issue of any demand. Further, Miss Simler says that judicial review would be the more effective at that stage because she says it is virtually certain that the Special Commissioners would have had to make findings of primary fact en route to their decision which could then inform the judicial review proceedings and the question of whether the claimants did or did not satisfy what Mr Goldberg describes as “bright-line tests”. She contends that the Commissioners would be virtually certain to decide the primary fact of when full-time employment began. Secondly, she says they would certainly resolve the primary facts which are relevant to the question of whether the claimants had left the United Kingdom, at least insofar as that question is not for them governed or dominated by the contents of IR20.

I have, of course, no doubt that that concession is bona fide offered by Miss Simler on behalf of the Revenue. If that meant that the claim for judicial review was not either pre-empted or significantly obstructed by any earlier decision of the Special Commissioners, I should, for my part, be glad to be able to hold that the Special Commissioners should go first. I do not think that it is any obstacle to the Special Commissioners going first, that there is a substantial possibility that they may not determine the relevant primary facts -- for my part I think that they would, but in any event, to the extent that they did not, any unresolved issue would simply remain open and undetermined and the judicial review proceedings would not thereby be rendered more difficult.

I am, however, in the end persuaded that the judicial review claim, assuming for the moment that it may be well-founded, would be pre-empted or have raised to it significant obstacles if the Special Commissioners hearing precedes it.

Very shortly, my reasons are these. First, there is a line of authority which suggests that legitimate expectation cannot be maintained if it would involve requiring the Revenue to act ultra vires its statutory duty to collect in the tax due. Of course it is true that the cases show that the Revenue has discretionary management powers; of course it is true the cases show that those powers include, or may include, forgoing particular tax in the interests of collecting the generality efficiently. For that, see for example R v Inland Revenue Commissioners ex parte MFK Underwriting Agents Ltd [1990] 1 WLR 1545 and R v Inland Revenue Commissioners ex parte Preston [1985] 1 AC 835. It does not, however, seem to me that it follows from that proposition that the Revenue would not be held to be acting ultra vires if it declined to collect tax which the Special Commissioners had, in effect, ruled was due. For the same reasons I do not think it possible to be confident that the Administrative Court would feel able, notwithstanding what Miss Simler has said to us, to direct the Revenue not either to claim or to collect tax which is effectively due under a decision of the Special Commissioners. In short, it seems to me that Mr Goldberg’s proposition that if the Special Commissioners are against the claimants, their legitimate expectation would have become illegitimate, raises a serious obstacle to the subsequent conduct of a judicial review claim.

Secondly, whilst I think for my part that it is likely that an incidental determination by the Special Commissioners of the primary fact when full-time employment began would indeed inform any judicial review application, I am not convinced that a determination whether the claimants had left would not pre-empt the judicial review claim given the centrality of the question of leaving to the issue determined by the Commissioners: whether the claimants are resident or not.

For my part, I accept that it looks as if there is at least some dispute of primary fact. There appears to be some dispute at least as to the commencement of full-time employment. The existence of that dispute may or may not turn out to be a significant obstacle in the way of a successful application for judicial review. It might be, because a substantial part of the judicial review claim is that the Revenue is acting unfairly in accepting the facts but not applying IR20, whereas if the Revenue is taking a bona fide position on a question of fact, that argument may very well be undermined. That, however, goes to the merits of the judicial review application, not which set of proceedings should go first.

I ought to record that Mr Goldberg told us that he does not seek, in the course of the judicial review proceedings, any finding of fact nor any hearing of oral evidence. In saying that the judicial review application should, on the particular facts of this case, go first, I make it clear that I do not contemplate any determination of any issue of fact being appropriate to the proceedings in the Administrative Court. Nor, for obvious reasons, should I be taken to be giving any kind of preliminary indication as to whether permission ought to be granted or not: that is a question for the judge in the Administrative Court. On the face of it at least, an early decision may be required as to whether, even if IR20 is assumed -- against the Revenue’s case -- to be a general promise to the whole of the world that compliance with it will insulate a person against any claim for tax in the United Kingdom, this is a claim which can succeed if there is a dispute whether it has been complied with or not. But that again is a question for the judge in the Administrative Court and not for us here.

For my part, for those reasons, I would give leave; I would allow the appeal; I would set aside the order adjourning the judicial review application and thus restore the hearing in the Administrative Court of the application for permission.

I agree, for the reasons given by my Lord, that the application for permission to appeal should be granted and that the appeal should be allowed.

I also agree. It seems to me that there is some force in Mr Goldberg’s submission that a decision on residence by the Special Commissioners might rule out a subsequent granting of judicial review because of those authorities which indicate that a legitimate expectation cannot operate where it would conflict with a statutory duty. The Revenue has such a duty to collect tax which is due. Once a judicial decision had established that the applicants were resident in the United Kingdom at the relevant time, then, argues Mr Goldberg, that statutory duty bites and the Revenue cannot be subjected to any restraint in performing it because of a legitimate expectation. Miss Simler argues that this contention is unsound and that IR20 and the individual application of it falls within the Revenue’s area of managerial discretion, allowing legitimate expectation to be advanced even in a subsequent judicial review proceeding. She may be right, but the issue is not straightforward; and I agree that there is a real risk that a decision by the Special Commissioners would be seen as ruling out judicial review based on legitimate expectation.

In those circumstances I too would grant permission to appeal and would allow this appeal. I also agree that it follows that the order below for the adjournment be set aside and this matter will then proceed as an application for permission to seek judicial review in the Administrative Court.