Atlantic Electronics Ltd v HM Revenue and Customs (Rev 1)

On the 26 November 2012 Judge Colin Bishopp sitting in the Upper Tribunal (UT) Tax and Chancery Chamber gave reasons for a decision made on 28 September 2012 to set aside a case management decision of Judge Theodore Wallace sitting in the First Tier Tribunal (FTT) Tax Chamber on 5 March 2012. The appeal before this court is brought by Atlantic Electronics Ltd (the Company) against the UT's decision. The respondents to the appeal are the Commissioners for Her Majesty's Revenue and Customs (HMRC). On 14 March 2013 we dismissed the Company’s appeal with reasons to follow.

The Company is a long established family business trading in electronic goods. The proceedings arise out of decisions made by HMRC to deny input tax repayment claims in the sum of £1,128,137.50. The issue before the FTT is whether HMRC was right to disallow the Company's claim for input tax credit in the VAT periods 03/06, 04/06 and 05/06, in each case on the ground that the Company's transactions in respect of which the input tax had been incurred were connected with fraud and the Company knew or should have known of that connection. The decisions were made as long ago as 22 May 2007, 28 June 2007 and 28 May 2008, respectively and the procedural history is extraordinarily long.

The case management decision which is in question is whether a statement from an HMRC officer should be admitted into evidence before the FTT. The focus of this hearing has been on the fact that the statement annexes the note of the prosecution opening from a recently completed criminal trial at Southwark Crown Court where on 19 August 2011 the jury convicted Shabir Ahmed, a director of a company known as Morganrise Ltd (Morganrise) of two offences of conspiracy to cheat the public revenue for which on 5 September 2011 he received a total sentence of 48 months imprisonment. The statement also annexes the certificate of conviction and the indictment. The FTT decided that the statement should not be admitted and the UT decided that the FTT had made an error of law and re-made the decision admitting the statement.

The fraudulent scheme which is alleged is what is known as a 'missing trader intra-community' (MTIC) fraud. The scheme is succinctly described by Christopher Clarke J in Red 12 Trading Ltd v Commissioners for HMRC [2009] EWHC 2563 (Ch) at [2] to [10]. I need only repeat paragraph [10] in the context which I describe below:

“In a chain of transactions between traders all of whom are honest each trader will account to HMRC for the output tax received (in respect of which the trader acts, broadly speaking, as agent for HMRC: Elida Gibbs Ltd v Customs & Excise Comrs [1997] QB 499), less any output tax incurred, which he will claim from HMRC. He will, ordinarily, need most of the money received from his sales to pay his supplier and the VAT due. The full extent of any chain will be patent. Where there is dishonesty the position is different. It is in the interests of those who seek to defraud HMRC of VAT to hide the full extent of any chain by the use of buffer companies. Such persons lack any interest in seeing that they, or the companies through whom they operate, are able to account to HMRC for all the VAT that they should.”

If one imagines one or more chains of traders which begin with an importer from the EU (the defaulter) and end with an exporter to the EU (the broker); the importation of goods from the EU and their subsequent exportation to the EU are VAT free. Each link in the chain between these two steps involves a transaction between traders in this jurisdiction often occurring rapidly and without any actual possession of the goods being involved. The transactions in this jurisdiction will each attract VAT which is levied as an output tax on the sale of the goods by one trader and re-claimed from the HMRC as an input tax credit by the trader who is the buyer. A fraud is perpetrated where a defaulting trader, usually the importer, goes missing without accounting to HMRC for the VAT levied. The missing trader may use wholly innocent companies in the chain or may be in league with others including the exporter. A version of the fraud (and there are a number of permutations) occurs where an exporter sets off another transaction which has occurred through another chain by re-importing goods leaving the Revenue to discover whether the apparently reconciled figures are genuine or the result of fraudulent contra-trading.

The Company's appeal to the FTT from the decision of HMRC relates to eight wholesale mobile telephone transactions undertaken by the Company who acted as the exporter or broker. Six of those transactions are said to have been connected with a fraudulent trader. Two transactions, each dated 29 April 2006 led to one particular fraudulent contra trader, Morganrise. It is this contra trader to which the evidence relates and which forms the subject of the appeal to this court.

HMRC describe its case in the FTT as follows: In acting as a dishonest contra trader, Morganrise acted as a knowing party to a fraudulent, contrived series of transactions. It deliberately conducted acquirer transactions with broadly comparable overall values to its broker transactions in the relevant VAT accounting periods, in order to conceal what would otherwise have been a large repayment claim in respect of broker transactions which led to a defaulting trader. The repayment chain was passed up the 'clean' transaction chains to various brokers, one of whom was the Company.

The procedural history is not without note. All that needs to be said for the purpose of this appeal is that recorded by the UT, at paragraphs 7 and 8 of the Decision:

“7.

I should also record that it was initially envisaged that exchange of witness statements would be completed as long ago as 2008 but, as is often the case in MTIC appeals, that timescale proved overly optimistic since additional evidence has emerged as time has passed, and there have been repeated applications by HMRC for permission to adduce that additional evidence, of which the application before the judge was only one example. It seems that almost all of the applications have been strongly resisted, and they have met with mixed success.

8.

I should add for completeness that over the course of the appeal HMRC applied for, and were granted, several extensions of time for complying with a number of requirements. The Company, too, sought and obtained some indulgence. I do not consider that past conduct offers much assistance in deciding the matter before me, and I have left it out of account.”

I agree with Judge Bishopp's approach but caution the reader who may fall into the error of assuming that indulgence will or should be given in case management. The Tribunal is in its very nature a specialist forum with a process that reflects in its Rules a broad discretion to get to the heart of a dispute by the use of robust case management. That is not to be subverted by non compliance or over elaborate procedural arguments that have the effect of avoiding the principles set out in the overriding objective. The broad question in this appeal is whether the case management decision is just, fair and proportionate.

The appeal before this court has been strongly argued. Mr Abbas Lakha QC appeared with Mr Edmund Vickers for the Company and Mr Foulkes appeared with Ms Karen Robinson for HMRC.

There are two questions to be answered on the appeal: a) did the UT identify an error in law entitling it to interfere with the FTT's decision and b) was the admission of the material by the UT just, fair and proportionate?

The HMRC officer's statement is dated 18 October 2011 and sets out that the director of Morganrise, Shabir Ahmed, was convicted of the two offences. Annexed to the statement are three documents: the certificate of conviction, the indictment and a note of the prosecution opening. The indictment and the certificate of conviction are evidence of the fact of the conviction itself, the dates of the offending behaviour, namely between September 2004 and October 2006, and that the convictions relate to the use of companies in MTIC fraud.

The background to the convictions is that between December 2005 and May 2006 Morganrise acted as a dishonest contra trader, offsetting its transactions as an importer and as broker / exporter to hide its fraudulent activity from the HMRC. The asserted relevance is that the contra trading encompassed by two the convictions occurred during the period(s) in which Morganrise allegedly featured in the deal chains involving the Company. HMRC wish to have the annexe to the Officer's statement admitted so that they can explain to the FTT the detailed background rather than merely the technical relevance of the convictions to their case.

It has been held that the knowing involvement of the contra trader has to be established if it is asserted that a broker in a clean chain connected to the contra trader either knew or should have known of the connection of its transaction with fraud (see, for example Blue Sphere Global Ltd v HMRC [2009] EWHC 1150 per the Chancellor at [55]. HMRC say that there can be no better evidence of the knowing participation of Morganrise as a contra trader than the criminal conviction of its director for conspiracy to cheat the revenue by participation in MTIC fraud, using that company as the vehicle for the fraud, during the same VAT accounting period, by operating as a contra trader.

Given the role of the contra trader in the transactions which form the background to the convictions, HMRC is able to assert that that role is probative of the fraudulent trader's knowing participation as a fraudulent contra trader and also capable of being probative of the Company's connection to the fraudulent evasion of VAT and hence actual or imputed knowledge of the connection of its (i.e. the Company's) transactions with fraud during a VAT accounting period 05/06 which is coincident with the Company's appeal.

Section 13 of the Tribunals, Courts and Enforcement Act 2007 (the 2007 Act) provides a right of appeal to this court from the UT on a point of law alone and subject to permission to appeal. Permission was granted in accordance with The Appeals from the Upper Tribunal to the Court of Appeal Order 2008 on 1 February 2013 in the following terms:

“1.

The point of principle is whether there should be placed before the FTT material which is (a) not evidence and (b) not directly relevant to the VAT fraud alleged against the Appellant.

2.

It is also not easy to see from the decision of the UT what error of law it identified in the decision of the FTT.”

The powers of this court in the event that an error of law on the part of the UT is established are set out in section 14 of the 2007 Act which in short provides that the court may but need not set aside the decision of the UT and if it does set aside the decision, it must either remit the case to the UT with directions for reconsideration or remake the decision.

An appeal from the FTT to the UT is governed by section 12 of the 2007 Act and lies on a point of law alone. It is settled law that appeals concerning case management decisions should not be interfered with by an appellate court when made by a judge who has:

“applied the correct principles and who has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge.”

See, for example, Wallbrook Trustee v Fattal & Ors [2008] EWCA Civ 427 per Lawrence Collins LJ at [33]. Before the UT it was for HMRC to demonstrate that the FTT had applied the wrong approach in principle or that in applying the correct approach, the FTT had reached a decision that no Tribunal, properly directed, could have reached on the facts: Connect Global Ltd v Commissioners for HMRC [2010] UKUT 372 at [48] per Warren J.

The FTT's extensive case management powers are set out in the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 (the 2009 Rules). The powers are at Rule 5 which provides that the tribunal may regulate its own procedure and give directions in relation to the conduct or disposal of proceedings at any time. Rule 2 sets out the overriding objective and Rule 15 sets out the tribunal's power to regulate evidence.

The first question is whether an error of law was identified which enabled the UT to interfere with the FTT's decision. That part of the FTT decision complained of is described at paragraphs [39] to [45] of Judge Wallace’s Reasons:

The UT’s conclusion about the FTT’s reasons is set out at paragraphs [20] to [22] of the UT Decision:

The UT identified three reasons for its decision to set aside the FTT decision: a) the fact that the convictions were a matter of public record which was a matter not referred to by the FTT, b) the characterisation of the evidence in question as being very stale (paragraph [40] FTT) which the UT described as being quite wrong and c) the cursory examination of relevance from the perspective of HMRC which led the FTT to fail to consider prejudice and to undertake a balancing exercise in relation to the same. It has to be remarked that as a conclusion that the FTT erred in law, the UT’s reasoning is not developed in the way in which HMRC have made their submissions to this court.

The UT correctly identified that the conviction and the indictment were matters of public record. If the fact that Shabir Ahmed had committed the offences in question is relevant to any issue in the FTT proceedings, that fact may be proved by evidence that he has been convicted of those offences by reason of section 11 of the Civil Evidence Act 1968. This court is told that it is the Company's case before the FTT that it did not have any dealings with Ahmed or his company, Morganrise. That is a question of fact that will have to be determined. Either way, the fact of the conviction is relevant to the case HMRC seek to prove and that was a question not considered by the FTT.

Shabir Ahmed was convicted on 19 August 2011 and sentenced on 5 September 2011. The application to file and serve evidence about his convictions was made as soon as was practicable after sentence. The convictions relate to an earlier period but that is the same period which includes the timescale for the Company's transactions which are the object of this appeal: that is not stale evidence. Until the convictions had been entered the evidence relating to the facts in issue would be no more than that, evidence in a separate criminal trial. While it may be true that the evidence upon which the convictions were based was old, that cannot be said of the fact of the convictions themselves. Had the convictions been earlier, say in 2008, it would be difficult to see how evidence of them adduced in accordance with the directed timetable could properly have been excluded.

While objection could well have been taken to the late admission of evidence of alleged fact that had been available to HMRC for the duration of the criminal trial and which was directly relevant, that was not the point of the application. As was submitted to this court, evidence of alleged fact from HMRC officers relating to the appeal before the FTT is already admitted.

The UT went on to conclude that the FTT had identified the prejudice to the Company that the admission of the material could cause but had failed to refer to, let alone consider, the prejudice to the Revenue by its exclusion i.e. there was only a cursory examination of the relevance of the material and no balancing exercise relating to the principles in play. Although it is certainly correct that the FTT referred to the principles by directing its mind to a previous detailed exposition of those principles, that did not cure the lack of application of the principles to the facts in the FTT's written decision.

I accept with some hesitation that the reasons identified by the UT, as explained more fully above, are sufficient to amount to an error of law justifying the interference by the UT in the FTT’s case management decision.

HMRC has submitted to this court that the FTT was also plainly wrong in other respects. It is more convenient to consider the UT’s conclusions about these aspects when analysing the decision that was subsequently reached.

Having identified errors of law sufficient to justify an interference with the decision of the FTT, the UT went on to set aside and re-make the decision. The UT identified three material errors which entitled it to set aside and re-make the decision and a further five issues were considered by the UT in re-making the decision. The question which remains is whether the UT adopted the correct approach to re-making the decision.

The overriding objective of the 2009 Rules is to enable the FTT to deal with cases fairly and justly. That objective includes dealing with cases in ways that are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties. This does and should avoid unnecessary procedural formality and allows for some flexibility provided that essential protections encompassed within the concepts of fairness and justice are observed. The FTT is not bound by the same rules of evidence as a court of law. In accordance with rule 15(2)(a) of the 2009 Rules it may “admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom”

The UT adopted the correct approach to the admission of the materials in question. It assessed whether the evidence was relevant and applied the presumption that all relevant evidence should be admitted unless there is a compelling reason to the contrary: Mobile Export 365 Ltd v Commissioners for HMRC [2007] EWHC 2664 (Admin) per Lightman J at [20]. In doing so, it considered all of the Company's submissions which if accepted could have led to the exclusion of the evidence and in particular decided that the submission that the admission of the convictions and the background relating to them would be a significant burden in the time and cost of their investigation was over stated. The balance of the prejudice to each party was analysed.

The eight factors which HMRC identified before this court as being supportive of the correctness of the UT’s decision (and as being indicative of the error of the FTT) are as follows:

I have dealt with those matters which the UT relied upon to interfere with the FTT’s decision and will not repeat those conclusions here. The UT was of course entitled to rely upon those conclusions in coming to its own decision.

The FTT’s conclusion that the admission of the evidence in question would involve extending the length of the hearing in a significant way was regarded by the UT as being wrong. I agree. The opening note is admissible to demonstrate the relevance of the convictions of Ahmed to the dishonest activities of Morganrise. It is not evidence of the truth of its contents, which will otherwise have to be proved (in so far as that may be necessary) by the direct evidence of an HMRC officer which has already been admitted. The background provided in the opening note adds little to the complexity of the case as already pleaded but in so far as the opening note makes reference to other documents that are necessary to understand its contents, HMRC should make disclosure of the same forthwith in accordance with directions already made by the FTT.

The UT was right to observe that the FTT is a specialist tribunal whose members are well used to dealing with complex specialist arguments and evidence, both oral and in writing. It would be wrong to conclude that the evidential issues raised by the admission of the opening note would be too complex to be considered by an FTT. The fact that Judge Wallace had a detailed knowledge of the case and had heard many applications with varying degrees of success is relevant and was considered by the UT as part of the overall context of the case i.e. both as to the appropriate reluctance to interfere with case management decisions and when looking at whether the correct principles were identified and applied.

The attempt by the Company before this court to demonstrate that the UT was wrong in its failure to distinguish the transactions involving the Company from either those involved in the criminal trial or fraudulent transactions generally does not succeed in its objective namely, to show that the opening note should not have been admitted.

The nature of the goods involved and the number of traders in a chain are not usually critical to the nature of MTIC frauds, that much is evident from the careful descriptions of contra trading which can be ascertained from the authorities to which this court has been taken. The dishonest offsetting exercise relied upon against Shabir Ahmed in the criminal trial is said to be the same offsetting exercise used in the transactions that form the object of this appeal. There is a coincidence of dates and the existence of Morganrise as the defaulting trader in two transaction chains.

Furthermore, there is often one or more buffer traders between a defaulting trader and the trader in question in an alleged MTIC fraud: clearly the more remote the connection, the less likely on the facts of any particular case that a trader either knew or should have known of the connection between its transaction and fraud. Whatever the merits of any distinctions of fact that can be established and relied upon by the Company before the FTT, they are not determinative of this application and the UT was right not to have regarded them as being.

So far as the balance of prejudice is concerned, the question whether the admission of the note of the prosecution opening would be a significant burden on the Company was regarded by the FTT as being decisive. The UT disagreed for good reason. The asserted prejudice to the Company relates to a misapprehension of the status of the document which is not evidence of the truth of its contents, merely evidence as to what was said in opening about the background to the offences and accordingly the nature and extent of the dishonest activities of Morganrise in respect of the convictions. The prejudice to the Revenue in not being able to rely on the note of the prosecution opening is clear once the purpose of the admission of the material is analysed i.e. the dishonest and knowing participation of Morganrise as a contra trader. As the FTT remarked at paragraphs [32] and [37] of its Reasons:

“[32] … HMRC need to establish that Morganrise was deliberately and dishonestly masking the connection of the Appellant’s purchases with other dirty chains. The Appellant was not implicated in the prosecution”

“[37] … [Mr Foulkes] said that the main reason for the disputed evidence was to prove dishonest default by Morganrise rather than the knowledge of the Appellant. The evidence was highly probative: Morganrise had supplied the Appellant through [another trader]”.

In so far as there is any question about the disclosure of contextual material which is necessary to understand the opening note, that is and has been a question well within the procedural competence of the Tribunal although it should be understood that this court expressed concern that time was passing and HMRC must make any disclosure ordered within sufficient time for it to be considered before the next substantive hearing, rather than at the last minute. Before this court, HMRC confirmed that they have isolated 37 paragraphs of the opening note as being the paragraphs upon which reliance is placed.

Finally, there was a misapprehension by the FTT that a problem arose as to admissibility because of the existence of a Contempt of Court Act order made in the Crown Court. No issue turns on that question before this court.

Contrary to the submissions of the Company, although the question of admissibility appears to be focussed on whether the opening note discloses similar fact evidence, in fact, HMRC contend that the relevance of the material to the FTT's deliberations is not similar fact, it is that the same fact is in issue i.e. the dishonest contra trading of Morganrise during the relevant VAT accounting period. That is relevant to all of the issues that are before the FTT and admissible. Even if the materials fell within a description of similar fact evidence, the two stage test set out in O'Brien v Chief Constable of South Wales Police [2005] UKHL 26, [2005] AC 534 would have been satisfied having regard to the conclusions of the UT.

The UT clearly understood the limited purpose to which the opening note could be put and the issue to which it might go. That was within the purpose and terms of Rule 15(2)(a) and hence admissible. The UT was right to conclude that the opening note and the statement of evidence to which it was attached were relevant to an issue before the FTT, were admissible and, having regard to the balance of prejudice, should be admitted. That was fair, just and proportionate.

For these reasons and for the reasons set out in the judgment of my Lady, Lady Justice Arden, with which I agree, I would dismiss this appeal.

Two questions fall for decision in this appeal. The first is whether the Tax and Chancery Chamber of the Upper Tribunal (“the UT(TCC)”) was entitled to set aside the decision of the Tax Chamber of the First Tier Tribunal (“the FTT”) refusing to admit as evidence the part of Officer Cummins’ statement which exhibited the note of the prosecution’s opening at the trial of Shabir Ahmed and his co-defendants. The second question is whether, on the assumption, that the UT(TCC) was entitled to set aside the FTT’s decision and to remake the decision itself, its decision to admit the disputed evidence was just, fair and proportionate within the Tribunal Procedure (Upper Tribunal) Rules 2008 SI 2008 No. 2698 (“the Upper Tribunal Procedure Rules”).

I gratefully adopt the account by my Lord, Ryder LJ of the background, the procedural history, his summaries of the decisions of Tribunal Judge Wallace in the FTT and Upper Tribunal Judge Bishopp in the UT(TCC), and of the way the Commissioners for Her Majesty's Revenue and Customs (“HMRC”) put their case in the UT(TCC).

On the assumption that the UT(TCC) was entitled to set aside the FTT’s decision and to remake the decision itself, I do not consider that it fell into error in such a way as to justify this court setting aside its decision. Rule 15(2)(a) of the Tribunal Procedure Rules, enables the Tribunal to admit evidence which is not admissible in a civil trial. For the reasons given by Ryder LJ at [37] – [38] and [40] – [42] of his judgment, with which I respectfully agree, the UT(TCC) was entitled to decide to admit the disputed evidence. I am, however, troubled by the prior question; whether the UT(TCC) was entitled to set aside the FTT’s decision. I also have some concern about the approach of the UT Judge to the FTT Judge’s decision.

My starting point is that the FTT’s Tax Chamber is a specialised tribunal which has very broad case management powers by virtue of the Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 SI 2009 No. 273 (“the Tribunal Procedure Rules”). Apart from certain exceptions which are not applicable in this case, there is only a right of appeal to the UT from it on a point of law: section 11(1) of the Tribunals, Courts and Enforcement Act 2007 (“the 2007 Act”). Section 12 of the 2007 Act makes it a precondition to the power of the UT to set aside a decision of the FTT that it finds that the making of the decision concerned involved the making of an error on a point of law.

Secondly, the margin accorded to the primary decision-maker in a case management decision, here the FTT, is particularly wide. Ryder LJ has set out the well-known statement of Lawrence Collins LJ (as he then was) in Walbrook Trustee v Fattal and others [2008] EWCA Civ 427 at [33] and has summarised the similar statement in the UT(TCC) by Warren J in Connect Global Ltd v Revenue and Customs Commissioners [2010] UKUT 377 (TCC) at [48] at [18] of his judgment.

In the Connect Global case Warren J, the President of the UT(TCC) stated that, to succeed in a case management appeal, the appellant would have to persuade the UT either that the FTT “had applied the wrong approach in principle or that, in applying the correct approach, it had reached a conclusion which no Tribunal, properly directed, could have reached on the facts”. Warren J’s second alternative is formulated very similarly to the Wednesbury unreasonableness test; that is it is, or is akin to, a requirement of perversity. He had earlier observed that the application of case management principles in tribunals must be consistent with the ethos of tribunals within the new structure of the 2007 Act and with appropriate sensitivity to the situations of tribunal users: see ibid. at [39].

For the reasons I shall give, although UT Judge Bishopp summarised the principles and cited the statement of Lawrence Collins LJ at [4] of his decision, I do not consider that his approach showed the appropriate caution and allowed the appropriate margin of appreciation to the specialist FTT. Moreover, since the UT may only set aside a decision where it finds that it involved making an error on a point of law, it is incumbent on it to identify the error of law and to do so clearly in its decision. The Upper Tribunal Judge did not, in my judgment do so in this case.

I reached my conclusions at the time the result of this appeal was communicated to the parties immediately after the hearing. Since then, in Jones (Caldwell) v First Tier Tribunal and Criminal Injuries Compensation Authority [2013] UKSC 19, the Supreme Court has given guidance on the relationship of the Court of Appeal to a specialist appellate tribunal. This case is not on all fours with Jones’s case because here the appellate tribunal, the UT(TCC), is also a specialist tribunal. But the general principles and the guidance as to the general approach in it are also of some relevance when considering the relationship of a specialist appellate tribunal to a specialist first tier tribunal, and I have found it useful when drafting this judgment.

In the context of case management decisions by the Tax Chamber of the FTT, I also observe that in Goldman Sachs International v Revenue and Customs Commissioners [2009] UKUT 290 (TCC), Norris J, sitting in the UT(TCC), stated (at [23]) that “the Upper Tribunal should exercise extreme caution in entertaining appeals on case management issues”. He considered that Lawrence Collins LJ’s statement in Walbrook Trustee applied with “at least as great, if not greater, force in the tribunals’ jurisdiction as it does in the court system”.

The three reasons identified by the UT(TCC) for its decision to set aside the First Tier Tribunal’s decision are set out by Ryder LJ at [21] of his judgment and summarised by him at [22]. I shall take each in turn. The first reason was that the FTT’s analysis of relevant considerations ignored the fact that the convictions of Shabir Ahmed and his co-defendants in August 2011 were a matter of public record. In the light of what the live issues were before the FTT, and for the reasons in the next two paragraphs, I do not regard the absence of a reference to the fact that the convictions were a matter of public record as an error of law.

It was not in dispute that the prosecution could prove the fact of Shabir Ahmed’s conviction by adducing evidence of the certificate of conviction. One of the other documents exhibited to the statement of Officer Cummins before the FTT was the certificate, and (see Appellant’s skeleton argument for this appeal, paragraph 24) there was no objection to admitting that. The appeal before us was conducted on the basis that was also the position before the FTT. The issue between the parties and on which the decision of the FTT was sought related to the note of the prosecution’s opening. Mr Foulkes, on behalf of HMRC, had said (see FTT, [32] and [37] and see also UT (TCC), [18] and [25]) that “HMRC needed to establish that Morganrise was deliberately and dishonestly masking the connection of the Appellant’s purchasers with other dirty chains” and the main reason for the evidence was to prove dishonest default by Morganrise rather than knowledge by the Appellant. The prosecution’s opening, however, is only a statement of what, at the outset of the case, the prosecution hope to be able to prove in the light of the evidence they propose to adduce. What is of more relevance to the matter which HMRC needed to establish was the basis of the conviction, and for that what was of primary relevance was how the trial judges referred to the matter when sentencing.

Additionally, I do not consider that it should have been assumed that the FTT judge, who had been case managing these proceedings for some considerable time, had not taken the status of the convictions into account. In Jones (Caldwell) v FTT and CICA, Lord Hope stated (at [25]) that “judicial restraint should be exercised when reasons that a Tribunal gives for its decision are being examined”. He also stated that “the appellate court should not assume too readily that the Tribunal misdirected itself just because not every step in its reasoning is fully set out in it”. See also, to the same effect, MA (Sudan) v Secretary of State for the Home Department [2010] UKSC 49 at [43] – [45]. The same is surely true of an appellate Tribunal.

The second reason identified by the UT(TCC) for setting aside the FTT’s decision was that the FTT described the evidence upon which the conviction was based as “very stale” (see FTT decision, [40], set out by Ryder LJ at [20]). The UT Judge stated (at [20]) that the FTT Judge seemed “to have been influenced by his perception that the evidence was stale”. He went on to state that, while “that may be true of the evidence on which the conviction was based”, “it was not true of the evidence of the conviction”. The FTT Judge’s reference to staleness in his decision was, however, in my judgment not a reference to the evidence of the conviction itself, but to the underlying evidence as to dishonesty by Morganrise’s director in 2006. This is seen from his statement that, while the evidence of dishonesty by Shabir Ahmed, Morganrise’s director, was “potentially relevant”, how relevant it would be “would depend on examination of the facts”. It is difficult to understand what error of law is contained in this. The evidence about facts which occurred some six years earlier could reasonably be described as stale. The UT Judge appears to have elided the evidence of the conviction and the evidence of all the underlying facts in [20] of his decision when he treated a description of the latter as a description of the former.

In Jones (Caldwell) v FTT and CICA [2013] UKSC 19 Lord Carnwath stated (at [43]) that “it is open to the Upper Tribunal to interpret ‘points of law’ flexibly”, but the flexibility appeared only to extend to the inclusion of “other points of principle or factual judgment of general relevance to the specialised area in question”. Even allowing for a flexible approach to what constitutes an error of law, it is difficult to see that the first two of the three reasons relied on by the UT(TCC) concerned points of principle or factual judgments of general relevance to the specialised area in question.

The third reason given for the decision to set aside the FTT’s decision was that the FTT Judge did not “advert to, let alone consider, the prejudice to HMRC which a refusal to admit the evidence would cause, made only a cursory examination of relevance, and did not undertake a balancing exercise”: see UT(TCC) decision, [21]. This would be an error of the sort that would justify setting aside a case management decision on the ground that what was done was “outside the generous ambit of the discretion entrusted to the judge” with responsibility for undertaking the case management. The question is whether the FTT did in fact err in this way.

There is, in my view, force in Mr Lakha QC’s submission on behalf of the Appellant that the part of the decision with which we are concerned should be seen in its context. The decision of the FTT dealt with other matters, including other questions of disputed evidence. Moreover, it was one of a number of case management decisions in this case made by FTT Judge Wallace. In a decision dated 12 May 2011, some ten months before the decision with which the court is concerned, about inter alia an earlier statement by Officer Cummins, FTT Judge Wallace had set out the general principles as to exclusion of evidence in detail. There was no criticism of his account. He showed that he understood the need to balance the competing interests of, and potential prejudice to, the parties, and the overriding objective in Rule 2 of the Tribunal Procedure Rules to deal with cases justly and fairly for both parties.

In the decision under appeal, FTT Judge Wallace had reminded himself of his earlier account of the general principles as to the exclusion of evidence: see decision, [28]. He had done so by reference to it, rather than by quoting what he had said in the previous decision. His self-reminder was at the end of the section of his decision dealing with another piece of disputed evidence, the statement of Mr Johnson. But that was immediately before the section of the decision about Officer Cummins’ statement. The UT Judge (at [11]) referred to that reminder when considering the appeal about Mr Johnson’s statement, but did not refer to it when considering FTT Judge Wallace’s treatment of Officer Cummins’ statement.

It would have been preferable for the FTT Judge to have summarised the prejudice to HMRC if it was not permitted to adduce the note of the prosecution’s note. In a sense that prejudice was obvious. It was that HMRC would have to set out the background to the offences and show the nature and extent of Morganrise’s dishonesty in another way. But, since the note itself is not evidence of the truth of its contents, in relation to any matter disputed by the Appellant, and since at the time HMRC did not propose putting the judge’s sentencing remarks before the FTT, HMRC would have to do this anyway.

As to the failure to set out or summarise the relevant principles, in circumstances where the FTT Judge has, in the immediately preceding section of his decision, reminded himself of his statement of the principles in a previous decision, I do not consider it was necessary for him to recite those principles again or to repeat his reminder to himself in the section dealing with Officer Cummins’ statement. The passages from paragraph [25] of Lord Hope’s judgment in Jones (Caldwell) v FTT and CICA to which I have referred about the need for restraint and the need not to assume too readily that the Tribunal below misdirected itself just because not every step in its reasoning is fully set out in it are also of relevance here. This may be of particular relevance where the decision under appeal is, as this one is, one in a series of decisions on the same general topic, for example case management and the admission of evidence. I observe that as well as setting out the principles and relevant caselaw in his decision in May 2011, FTT Judge Wallace also did so in a decision dated 29 June 2012. That was, of course, after the decision which is now before this Court, but the decision related to directions given after two days legal argument on 25 January 2012, some five weeks before the decision before this Court.

The way Mr Foulkes presented the Respondent’s case at the hearing before this Court reflected the difficulty in identifying the error of law in the FTT’s decision from the terms of the UT(TCC)’s decision itself. He constructed a critique of the FTT’s decision based on the submissions made to the UT(TCC) on behalf of HMRC, and a critical analysis of the FTT Judge’s reasoning. He submitted that those factors showed that the FTT Judge had erred in law. The factors relied on by Mr Foulkes are helpfully summarised at [32] of Ryder LJ’s judgment. One, about the existence of an order made under the Contempt of Court Act 1981, was not pursued in this court: see [41] of Ryder LJ’s judgment.

For my part, I consider that all but two of the other factors show only a difference of view as to how to decide a matter of case management. They do not show that the FTT Judge applied the wrong approach in principle, or reached a conclusion which no Tribunal properly directed could have reached on the facts. This is particularly so in relation to HMRC’s contentions that the admission of the note of the prosecution’s opening would not add materially to the length or complexity of the hearing, and that the Appellant would not need to make detailed investigations into the criminal trial in order to avoid prejudice resulting from its admission. That these are questions of judgment upon which there can be legitimate differences of opinion can be illustrated by considering what happened when, in October 2012, very shortly after the decision of the UT(TCC), this case came before FTT Judge Cornwell-Kelly for directions. I of course recognise that what happened after the UT(TCC)’s decision is irrelevant in considering whether or not either the FTT or the UT made an error of law.

At the October 2012 directions hearing FTT Judge Cornwell-Kelly stated that any of the material before the jury in the criminal trial could be the subject of applications for disclosure by the Appellant, disclosure would take time, and the Appellant would need time to examine material disclosed and its implication. He concluded that there was a potential for further applications which would lead to the lengthening of the proceedings to such an extent that the hearing would be part-heard at the end of the four weeks assigned to it. What transpired at the hearing in October suggests that the UT(TCC) may have taken an over-optimistic view of the implications of admitting the disputed material. It may also have accorded insufficient weight to the lessons to be drawn from HMRC’s past conduct in these proceedings, which it left out of account in making its decision: see UT decision, [8].

Part of the problem may have been that, even if the UT(TCC) clearly understood the limited purpose for which the note of the prosecution’s opening could be used, HMRC does not appear to have done so. The transcript of the directions hearing shows that HMRC wished to rely on the prosecution’s opening as evidence of inter alia the case upon which the jury convicted. As I have observed, the opening is only a statement of what, at the outset of the case, the prosecution hope to be able to prove. It is the Crown Court judge’s summing up which show how the case was left to the jury. But, in the present context, it is his sentencing remarks which are of particular importance because they show the way he saw the criminality proved to the jury. At the time of the hearing before the FTT Judge HMRC did not, however, propose hat the sentencing remarks be placed before the FTT. Even at the time of the hearing before this court in March, less than a month before the substantive hearing in the FTT, HMRC’s position was not altogether clear.

I also observe that, notwithstanding the orders made for disclosure of materials arising out of the proposed use of the note of the prosecution’s opening made at the directions hearing in October 2012, and the proximity of the hearing before the FTT, in mid-March when this appeal was heard and less than three weeks before the hearing, HMRC had not disclosed the documents. Mr Foulkes was unable to state when they would be disclosed. It might be said, admittedly with the benefit of hindsight, that, in view of what was said by FTT Judge Cornwell-Kelly at the directions hearing, contrary to the view of the UT(TCC), the FTT may not have underestimated the effect on the proceedings of admitting the note of the prosecution’s opening or the burden that doing so would impose on the Appellant.

I turn to the two remaining factors identified by HMRC as errors of law on the part of the FTT. These were (see [32(c) and (d)] of Ryder LJ’s judgment) that the FTT took into consideration in deciding not to admit the disputed evidence that the transactions in the criminal proceedings related to different goods and that there was a buffer trader between the Appellant company and Morganrise. Given the nature of missing trader VAT frauds, and for the reasons given by Ryder LJ, the FTT’s reference to and reliance on the fact that the chains involved different goods did not mean the evidence of the chain involved in the criminal proceedings was not relevant. Moreover, while the fact that the Appellant had no dealings with Morganrise might lessen the probative value of Shabir Ahmed’s and Morganrise’s conduct as proved in the criminal proceedings, it did not mean it had no probative value. These matters concerned assessments of a general and generic relevance to the trial of missing trader VAT frauds. The approach of the FTT to them erred in law either in the traditional sense of that concept or within the flexible approach identified by Lord Carnwath in Jones (Caldwell) v FTT and CICA [2013] UKSC 19 at [25] in relation to a particular specialised area. I have concluded that these two errors, enabled (or would have enabled) the UT(TCC) to set aside the FTT’s decision.

I have set out what I consider to be deficiencies in the approach of the UT(TCC) to the FTT’s decision and in the reasons it gave for setting aside the FTT’s decision. Despite those, as a result of the two errors by the FTT discussed in the preceding paragraph, neither of which were relied on by the UT(TCC), and because, when remaking the decision itself, the UT(TCC) did not itself make an error of law, I agree that this appeal should be dismissed.

A tribunal is in the unusual position that it may admit evidence even though that evidence would not be admissible in a civil trial. It follows that a tribunal normally admits relevant evidence. However, in this case, HMRC’s application to admit evidence was refused by the First Tier Tribunal. It said that the evidence was “already very stale.” (at [40]). By that the First Tier Tribunal appears to have meant that HMRC made its application too close to trial and a long time after the underlying events, and that its admission might cause prejudice to the appellants. We have, as I see it, to consider whether that was an appropriate assessment of the evidence in question.

The disputed evidence consisted of a certificate of conviction dated 20 September 2011 showing that a Mr Ahmed had been convicted of two counts of conspiracy to cheat the public revenue. It is impossible to identify the fraudulent transactions leading to the convictions simply by looking at the certificate of conviction. So HMRC also applied for the admission in evidence of a copy of the prosecution’s opening as a convenient way of explaining the transactions on which these convictions were based. As one would expect, the opening shows that the transactions involved dishonesty on the part of Mr Ahmed. Mr Ahmed used a company called Morganrise Ltd (“Morganrise”). I will have more to say about Morganrise later in this judgment.

The opening was not, of course, evidence which was capable of proving those transactions in law, and, if its weight were challenged, HMRC would have to adduce more probative evidence. (Parts of the opening are admittedly not relevant because they concern other, irrelevant transactions) But, subject to such challenge, the opening by the prosecution explicates the dishonest transactions which led to the convictions of Mr Ahmed.

It should have been no surprise to the appellant that HMRC would seek to put in evidence about Mr Ahmed’s activities if he was convicted. HMRC had stated that that was its intention in its statement of case.

HMRC want to use the disputed evidence to resist the taxpayer’s challenge of its refusal to repay VAT totalling £1,128,337. 50p on goods exported which the appellant to other member states of the EU in 2007 and 2008. HMRC’s principal answer to these claims is that appellant knowingly acquired the goods as part of a scheme for the fraudulent evasion of VAT.

The repayment claims relate to seven transactions occurring in March, April and May 2006. HMRC contends that there are links between two of those transactions and those on which Mr Ahmed’s convictions are based because the goods exported under those two transactions can be traced back to Morganrise. HMRC rely on the connection with Morganrise, and certain alleged uncommercial features of the way in which the appellant traded, to establish the defence to the repayment claims.

The First Tier Tribunal held that the evidence about Mr Ahmed’s dishonesty was relevant to the proceedings begun by the appellant. The appellant has not seriously contested that holding.

The relevance arises in this way. HMRC’s case is that Morganrise was a contra trader. Contra trading is one of the features of Missing Trader Intra-Community (“MTIC”) fraud. MTIC fraud may take various forms. For instance, the exporter at the end of a chain of transactions in a MTIC fraud will often use the funds obtained by making the fraudulent claim for repayment of VAT to acquire or fund the acquisition of more goods (and pay the VAT on them). Those goods will be the subject of another chain of contrived transactions (at ever higher prices and with the intermediate trader(s) disappearing) culminating in their export by the fraudulent party to another member state and a fraudulent claim for the repayment of VAT in an amount which exceeds the amount of VAT (if any) to be accounted for by the acquirer. Exporters and acquirers may change their roles under different chains and an exporter may in any event have a link with the acquirer under the same chain. Exporters who are also acquirers are “contra traders”.

The appellant points out that the goods traded in by it were not the same as those traded in by Morganrise in the transactions on which Mr Ahmed was convicted. That is not, however, a conclusive point as the parties to an MTIC fraud are not likely to be concerned by the nature of the goods.

Obviously, not every party to a chain of transactions resulting in the export of goods is involved in a MTIC fraud. Nonetheless, once it is appreciated that Morganrise was a contra trader, it is clear that Morganrise’s activities as exporter may throw light on the appellant’s activities as exporter when the goods being exported can be traced back to Morganrise as acquirer.

So the position on HMRC’s application is this. The opening in the criminal proceedings is relevant to the tribunal proceedings and is explicatory of the convictions. The convictions were obtained only five weeks before the application was made: HMRC could not have sought to put them in evidence much earlier than the date of their application. HMRC had given notice that it would rely on the convictions of Mr Ahmed if obtained and that it would seek to put in further evidence.

In these circumstances, in my judgment, the prosecution’s opening is not properly described as stale. It is relevant to explicate the convictions, and the explication is only needed because of the recent convictions.

On this basis, I agree with the Upper Tribunal that the First Tier Tribunal’s assessment of the staleness of the evidence was not appropriate in this context. For the First Tier Tribunal to rely on such an assessment was to introduce a consideration which was not relevant in the determination of the application to adduce fresh evidence.

Because the First Tier Tribunal wrongly considered that the evidence was stale, it did not go on to consider the prejudice to HMRC that would be caused by the exclusion of the prosecution’s opening. The conviction of Mr Ahmed would be a matter of public record but it carries no weight on its own. Thus, if HMRC’s application is rejected, it inevitably followed that HMRC would be prejudiced by its exclusion. It follows that the First Tier Tribunal erred in failing to take this consideration into consideration.

Case management decisions are reviewable on appeal only in limited circumstances, but, contrary to the appellant’s submissions, those circumstances are not limited to perversity. It may include the inclusion or exclusion of relevant considerations. This includes the erroneous evaluation of relevant considerations: see per Chadwick LJ in Royal Sun Alliance Insurance plc v T & N Ltd (in administration) [2002] EWCA Civ 1964 at [38]:

“… this Court should not interfere with case management decisions made by a judge who has applied the correct principles, and who has taken into account the matters which should be taken into account and left out of account matters which are irrelevant, unless satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge. It is pertinent to have in mind, in the present case, that the judge was well aware of the need for caution when considering whether to direct a trial of issues on assumed facts; and was well aware that there were dangers in the course which he decided to take. The judge appreciated that there was a risk that his decision would lead to delay and to wasted costs. If his approach to the evaluation of the risk was correct, I would not think it right to substitute my own view for the conclusion that he reached.”

I, too, came to the view that the case management decision of the judge in that case to direct trial on assumed facts could be set aside on appeal because he had failed fully to appreciate the consequences of his order: see [52].

This test as set out by Chadwick LJ does mean that, whenever a relevant consideration is wrongly excluded, the judge’s exercise of discretion must be set aside. In my judgment, this case shows that there needs to be added to that test a requirement that the considerations which were wrongful must, alone or in aggregate, constitute considerations that were material in the exercise of the discretion in question. I have no doubt this case satisfies that requirement as the judge’s evaluation of the evidence in this case was a key part of his reasons for rejecting HMRC’s application.

Accordingly I too would dismiss this appeal. On the first issue, the Upper Tribunal acted as an appellate court is entitled to do. There is no need, therefore, for me to express a conclusion on the further errors in the decision of the First Tier Tribunal identified by Beatson LJ. However, I agree with both Ryder and Beatson LJJ that the Upper Tribunal’s assessment of the prejudice to the appellant on the second issue (see paragraph 11 above) did not reach the high threshold necessary to entitle this court to interfere.