Shiner & Anor, R (on the application of) v HM Revenue & Customs

On 20^th April 2005 the applicants set up settlements aimed at taking advantage of what was perceived to be a loophole in the double taxation agreement between the UK and the Isle of Man in relation to income earned by them as UK residents. The scheme involved trustees being partners in an Isle of Man partnership - the details do not matter at this stage. There could be an issue between the applicants and HMRC as to whether the scheme succeeded in avoiding tax, having regard to section 62 of the Finance (No 2) Act 1987 which became section 858 of the Income Tax (Trading and other Income) Act 2005. Section 58 of the Finance Act 2008 sought to put matters beyond doubt so far as future schemes were concerned but also purported to have retrospective effect.

By letters dated 18^th August 2008 HMRC wrote to a number of taxpayers, including the applicants, saying that the consequence of section 58 was that they would be chargeable to tax for every year in which income arose.

On 17^th November 2008 the applicants issued proceedings seeking judicial review of what they alleged was the “decision” of 18^th August 2008 to apply section 58 retrospectively. They sought declarations that the retrospective application of section 58 was incompatible with Article 56 of the EC Treaty (the EC point), and with Article 1 of the First Protocol to the ECHR (the Human Rights point). They also sought an order quashing HMRC’s decision to enforce section 58 retrospectively as reflected in the letters of 18^th August 2008.

The application for Judicial Review came before Stanley Burnton LJ on 3^rd June 2009. He stayed the ECHR claim pending the outcome of a similar application in R (Huitson) v HMRC (“Huitson”) and considered the EC point. He decided that the applicants’ claim was in substance a challenge to section 58 itself and the letter of 18^th August 2008 was not a decision but was “doing no more than conveying to the taxpayers the effect of section 58” and dismissed the claim for being out of time. He also found that proceedings of this kind ought to be dealt with through the statutory appeals procedure under which the Tribunal (Tax Chamber)(“the Tax Tribunal”) could consider the EC point if it were a good one. He did not say that proceedings for Judicial Review were necessarily an abuse of process but, as a matter of discretion, he would have stayed the proceedings.

One distinction between the EC point and the ECHR point is that the Tax Tribunal would have had no jurisdiction to consider the ECHR point and that is an important distinction to have in mind, as will appear.

On 16^th June 2009 Stanley Burnton LJ granted permission to the applicants to bring Judicial Review on the ECHR point, and the applicants ultimately agreed to be bound by the decision in Huitson, at that time pending.

The applicants sought permission to appeal Stanley Burnton LJ’s decision on the EC point, and on 1st September 2009 Arden LJ adjourned the application into court with appeal to follow if permission granted.

On 28^th January 2010 Kenneth Parker J dismissed the claim for Judicial Review on the ECHR point in Huitson [2010] EWHC 97.

Pursuant to Arden LJ’s order the application for permission to appeal came before us on 9^th March 2010. During the course of argument various points became clear. First, the EC point was going to have to be decided at some stage and ultimately almost certainly by the Court of Appeal; the real question was whether the correct Tribunal to consider the matter first was the Tax Tribunal or the court in Judicial Review proceedings. Second, although a direct attack on the legislation could be said to be late, as decided by Stanley Burnton LJ, and/or a matter which, as a matter of discretion, was better decided by the Tax Tribunal, it was not a matter which was not susceptible to Judicial Review. Third, although the argument was different on the ECHR point, the underlying point in relation to the ECHR challenge and the EC challenge was retrospectivity, and there was, as accepted by both counsel before us, a convenience in hearing the argument on both points together.

Thus, if permission to appeal in Huitson were granted and because the Tax Tribunal could not deal with the ECHR point, there had to be force in allowing the EC point to be considered under the Judicial Review process together with Huitson in the Court of Appeal.

We accordingly adjourned the application for permission to appeal against Stanley Burnton LJ’s decision, pending a decision on whether permission to appeal was granted in Huitson.

Permission to appeal the judgment of Kenneth Parker J in Huitson has now been granted.

As appeared to us likely during the hearing on 9^th March, it still seems that efficient case management suggests that the appropriate course on the application for permission to appeal, and the appeal of Stanley Burnton LJ’s decision, is to allow the EC point to be heard by way of judicial review at the same time as Huitson and the ECHR point. It furthermore seems sensible to try and limit such a hearing to the two points. To achieve that result the appropriate course seems to be as follows. Instead of granting permission to appeal, permission should be granted to apply for judicial review under CPR 52.15(3), granting any necessary extension of time so that the proceedings amount to a direct attack on Section 58. That review should be retained in the Court of Appeal and listed to come on at the same time as the appeal in Huitson.

I emphasise that this is simply a case management decision in the peculiar circumstances of this case. The circumstances are quite different from those before Stanley Burnton LJ and it would simply not be fruitful to consider any aspects of his judgment. The extension of time should be in the interests of both parties saving, as it should, the costs of arguing whether the letter of 18^th August 2008 is a decision and leaving simply the EC point and the ECHR point to be argued without more.

At the time of drafting the above parts of this judgment I had seen only the submissions of the applicants placed before us following the granting of permission to appeal in Huitson. I had rather assumed that the respondents might not be putting in further submissions. I have however now seen both some correspondence on which the applicants rely for there being an agreement as to the form of order now desired by both parties, and some written submissions from the respondents who do not accept that a binding agreement was reached although in broad terms they accept that it is appropriate to make an order which achieves the result that I have outlined above.

I do not accept that there was an enforceable compromise reached as to the form of order because it was still for the court finally to decide the appropriate form and in particular whether this appeal and application for judicial review should be listed with Huitson. On the other hand I am not clear why the order in the form proposed by the respondents is necessary.

It is suggested that there should be a short case management hearing with representatives from Huitson and the parties in this case so as to ensure that what it seems sensible to seek to achieve can be achieved i.e. the Court of Appeal dealing simply with two points – the ECHR point and the EC point in so far as they affect section 58. It would be convenient to clarify the form of order at that hearing particularly as it is an order that affects Huitson and it would be sensible for that hearing to take place on the handing down of this judgment. It would I suggest be possible for the matter to be dealt with by one member of the court.

I agree.

I also agree.