BPP Holdings v Revenue And Customs

This is an appeal by BPP Holdings Limited [“BPP”] against a determination made on 3 November 2014 by Judge Bishopp in the Tax and Chancery Chamber of the Upper Tribunal who allowed an appeal against a determination made by Judge Mosedale in the Tax Chamber of the First-tier Tribunal (FtT). It is accordingly a second appeal to which the test in CPR 52.13 applies. Permission to appeal was given by Judge Bishopp who recognised that the key question raised in the appeal is “a matter of considerable importance to practitioners and the tribunals themselves”.

The FtT debarred The Commissioners for Her Majesty’s Revenue and Customs [“HMRC”] from further participation in the proceedings that were before it and the UT decided that the FtT had made an error of law in that determination so that it was permissible to set it aside and re-make it. The UT decided that HMRC should not be debarred. The issue before us is whether the FtT was right to debar HMRC from further participation in the substantive proceedings before the FtT for their serious and prolonged breach of an order requiring them to give proper particulars of their pleaded case against BPP. The key question is the proper approach of tax tribunals in cases where there has been breach of an order.

The substance of the three cases before the FtT was the chargeability to VAT of the supply of books and other printed materials by the second appellant, BPP Learning Media Limited, in the circumstance that other BPP companies (BPP Professional Education Limited and BPP University College of Professional Studies Limited) made those supplies. It was argued by HMRC that the supply of printed matter and the supply of education were indissociable from each other and accordingly chargeable to VAT as part of a composite standard rated supply of education services. In an ordinary case the supply of books and printed materials would have been zero rated under section 30 and Group 3 of Schedule 8 of the VAT Act 1994 [‘VATA 1994’].

Two of the three FtT cases were conceded by HMRC in April 2014 following the decision of the FtT in Kumon Educational UK Co. Ltd v HMRC [2014] UKFTT 109 (TC) but one remains to be determined. It is said that the novelty in that case arises from the fact that from 19 July 2011, section 75(1) of the Finance Act 2011 amended the notes to Group 3, Schedule 8 VATA 1994 to remove zero rating of printed matter in particular circumstances. The remaining case will be the first case to consider the meaning of notes 2 and 3 to Group 3.

The procedural background is set out in full in the FtT and UT judgments and I shall only set out in this judgment a summary of the facts necessary to illustrate the key issue:

HMRC submit that they had repeatedly explained the facts they relied upon in pre-litigation correspondence and also that the application of the notes to Group 3 Schedule 8 VATA 1994 were well understood by BPP who had not questioned them for some 14 months after 19 July 2011 when they came into effect. There is no cross appeal by HMRC about what are the relevant procedural facts and, accordingly, those must be taken as read by this court. It is not for this court to re-consider the procedural facts in the absence of a cross appeal.

HMRC also submit that the behaviour of BPP is relevant to the procedural background in that from the outset of the case management issue between the parties, BPP sought to pursue an ‘unless order’ in the following terms: “If the Respondents fail to comply with [the request for further information within 14 days] the appeals shall be allowed without further order”. BPP did not achieve an order in those terms. On 15 January 2014 Judge Hellier granted a conditional order in the following terms:

“If [HMRC] fail to provide replies to each of the questions identified in the Appellants’ Request for Further Information by 31 January 2014, [HMRC] may be barred from taking further part in the proceedings.”

It is right to observe that the order was not a ‘final order’ or an ‘unless order’. It was a conditional order warning of the possible consequence of non-compliance of the kind described in rule 8(3)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 [‘FtT Rules’] (see below). An unless order was within the power of the FtT by reason of rule 8(1). I acknowledge that in making the order that he did, Judge Hellier had declined to make a rule 8(1) order and that as a consequence HMRC were not automatically debarred from taking any further part in the proceedings. BPP’s submission, had it been accepted, could have potentially afforded disproportionate weight to non-compliance.

Judge Hellier’s order was not appealed and the positive and negative factors that compelled hin to make such an order are not for reconsideration by this court. I do not intend to go behind an un-appealed, regular case management order in effect to determine whether it should have been made. Compliance must begin with the fact that a regular order was made even if one or all of the parties would rather it had not been made. The principle of collective proportionality may demand that an order is made in an individual case that has as one of its purposes the wider interests of justice than those engaged in the individual case before the tribunal.

As respects other factors that were in play, the FtT and the UT were at one in holding that there was no excuse for HMRC’s failures. In the FtT Judge Mosedale held without complaint from the UT that:

The summary that I have set out from the judgment of Judge Bishopp does not do justice to the firm and critical analysis of HMRC’s failures which he sets out at [47] to [51] of his judgment. He described their position as being “difficult if not impossible to understand”, “inadequate” and “unhelpful”. Their approach demanded an explanation and yet nothing convincing was provided. Accordingly, without application in an appropriate way, and there is no such application, it is not open to HMRC to argue in this court either that there had been de facto compliance or that there was a reason for non-compliance that justified their conduct. It is likewise not open to HMRC to argue in this court that there has been no prejudice consequent upon the default because there is no basis to go behind the conclusions of the FtT and the UT on that question. Judge Mosedale held that:

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).

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.

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.

There are two conflicting decisions of the UT about the principles that are to be applied when non-compliance with rules and directions falls to be considered by a tax tribunal. The first in time is the decision of Judge Sinfield in McCarthy & Stone (Developments) Ltd v HMRC [2014] UKUT 197 (TCC), [2014] STC 973 and the second is the decision of Judge Bishopp in Leeds City Council v HMRC [2014] UKUT 350 (TCC) where he declined to follow Judge Sinfield’s approach. The Leeds decision was promulgated after Judge Mosedale’s determination in this case and accordingly she could not have known of it. Judge Bishopp followed his earlier reasoning in Leeds in coming to the conclusion that the FtT in this case had erred in law.

The key question underlying the two decisions can be characterised in the following way: whether the stricter approach to compliance with rules and directions made under the CPR as set out in Mitchell v News Group Newspapers Ltd [2014] 1 WLR 795 and Denton v TH White Ltd [2014] 1 WLR 3296 applies to cases in the tax tribunals. The two conflicting decisions of the UT on the point came to different conclusions. For the reasons I shall explain, I am of the firm view that the stricter approach is the right approach.

In McCarthy & Stone Judge Sinfield held that it was appropriate for the tribunals to follow the Mitchell approach. His reasoning expressly recognised that the CPR do not apply to the tribunals and that there were clear differences in the words used in the Tribunal Procedure (Upper Tribunal) Rules 2008 [‘UT Rules’] and in the CPR. At [42] to [45] he held:

In Leeds Judge Bishopp took a different approach and reasoned that until the Tribunal Procedure Committee decided to introduce changes similar to CPR 3.9 in the UT Rules, it was not open to a tribunal to apply by analogy changes in the CPR as if they had also been made to the UT Rules. At [18] he held:

In this case Judge Bishopp reasoned his conclusion on the key question in the following way:

Although the conflicting decisions of the UT looked to the position under the UT Rules, the equivalent rules in the First-tier Tribunal are just as relevant and as can be deduced from the wording, the argument about their effect must be the same. Save for the substitution of ‘Tribunal’ by the description ‘Upper Tribunal’, rule 2 of the FtT Rules and UT Rules are in identical terms:

“Overriding objective and the parties’ obligation to co-operate with the Tribunal

(1)

The overriding objective of these rules is to enable the Tribunal to deal with cases fairly and justly.

(2)

Dealing with a case fairly and justly includes-

a.

Dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

b.

Avoiding unnecessary formality and seeking flexibility in the proceedings;

c.

Ensuring, so far as is practicable, that the parties are able to participate fully in the proceedings;

d.

Using any special expertise of the Tribunal effectively, and

e.

Avoiding delay, so far as compatible with proper consideration of the issues.

(3)

The Tribunal must seek to give effect to the overriding objective when it-

a.

Exercises any power under these Rules; or

b.

Interprets any rule or practice direction.

(4)

Parties must-

a.

Help the Tribunal to further the overriding objective; and

b.

Co-operate with the Tribunal generally.”

I shall return in due course to the plain meaning of those words. The tax tribunal rules follow a standard form for the FtT and UT chambers and accordingly the same overriding objective is to be found in the rules enacted for each.

By way of comparison with the tribunal rules, the overriding objective in the CPR at rule 1.1 is as follows:

“The Overriding objective

(1)

These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

(2)

Dealing with a case justly and at proportionate cost includes, so far as is practicable-

a.

Ensuring that the parties are on an equal footing;

b.

Saving expense;

c.

Dealing with the case in ways which are proportionate-

i.

to the amount of money involved;

ii.

to the importance of the case;

iii.

to the complexity of the issues; and

iv.

to the financial position of each party;

d.

ensuring that it is dealt with expeditiously and fairly;

e.

allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and

f.

enforcing compliance with rules, practice directions and orders.”

There is no equivalent provision to that found in CPR 3.9 in the tax tribunals rules. As already described the application in this case came to be made under rule 8 of the FtT Rules. This is the provision that provides for the striking out of a party’s case which is applied to a respondent as an order barring them from taking further part in the proceedings. A barring order can be lifted on application. The rule provides for an ‘unless order’ where the strike out would be automatic in consequence upon a failure to comply and a ‘conditional order’ where strike out may be the consequence of non-compliance, as follows:

“Striking out a party’s case

(1)

The proceedings, or the appropriate part of them, will automatically be struck out if the appellant has failed to comply with a direction that stated that failure by a party to comply with the direction would lead to the striking out of the proceedings or that part of them.

(2)

The Tribunal must strike out the whole or a part of the proceedings if the Tribunal –

(a)

does not have jurisdiction in relation to the proceedings or that part of them; and

(b)

does not exercise its power under rule 5(3)(k)(i) (transfer to another court or tribunal) in relation to the proceedings or that part of them.

(3)

The Tribunal may strike out the whole or a part of the proceedings if –

(a)

the appellant has failed to comply with a direction which stated that failure by the appellant to comply with the direction could lead to the striking out of the proceedings or part of them;

(b)

the appellant has failed to co-operate with the Tribunal to such an extent that the Tribunal cannot deal with the proceedings fairly and justly; and

(c)

the Tribunal considers there is no reasonable prospect of the appellant’s case, or part of it, succeeding.

(4)

The Tribunal may not strike out the whole or a part of the proceedings under paragraphs (2) or (3)(b) or (c) without first giving the appellant an opportunity to make representations in relation to the proposed striking out.

(5)

If the proceedings, or part of them, have been struck out under paragraphs (1) or (3)(a), the appellant may apply for the proceedings, or part of them, to be reinstated.

(6)

An application under paragraph (5) must be made in writing and received by the Tribunal within 28 days after the date that the Tribunal sent notification of the striking out to the appellant.

(7)

This rule applies to a respondent as it applies to an appellant except that –

(a)

a reference to the striking out of the proceedings must be read as a reference to the barring of the respondent from taking further part in the proceedings; and

(b)

a reference to an application for the reinstatement of proceedings which have been struck out must be read as a reference to an application for the lifting of the bar on the respondent taking further part in the proceedings.

For completeness, CPR 3.9 is as follows:

“Relief from sanctions

(1)

On an application for relief from any sanction imposed for a failure to comply with any rule, practice direction or court order, the court will consider all the circumstances of the case, so as to enable it to deal justly with the application, including the need-

a.

For litigation to be conducted efficiently and at proportionate cost; and

b.

To enforce compliance with rules, practice directions and orders.

(2)

An application for relief must be supported by evidence.”

It is also worth recollecting that although the UT’s appellate jurisdiction derives from the power under section 11 of the Tribunals, Courts and Enforcement Act 2007 [‘TCEA 2007’] to hear an appeal on any point of law arising out of a decision made by the FtT, by section 25(1)(a) of that Act the UT has in England and Wales the same powers, rights, privileges and authority as the High Court. Furthermore, by section 3(5) of that Act the UT is a superior court of record. The UT’s rulings on points of law are binding on the FtT and it is both the practice of and a power inherent in that court to give appropriate guidance. If there is any doubt about that it is resolved by reference to section 25(3)(b) TCEA 2007 which expressly states that the powers, rights, privileges and authority conferred by section 25(1) shall not be taken “to be limited by anything in the Tribunal Procedure Rules other than an express limitation”. There is no relevant express limitation.

The appellant’s submissions on the key question are as follows:

In any event, the appellant submits that Judge Bishopp was wrong to have come to the conclusion that Judge Mosedale had given non-compliance a “disproportionately prominent role in the application of the overriding objective” given that he had earlier in his determination noted correctly that Judge Mosedale had attached “significant, albeit not paramount weight” to HMRC’s non-compliance. On any basis, as Judge Bishopp accepted (at [44]), non-compliance was not an irrelevant factor and there was an appropriate approach to the question of judgment that was before the FtT namely to balance the various factors that expressly included the reasons for non-compliance which were non-existent and the question of prejudice which the FtT and the UT found against HMRC.

Putting to one side HMRC’s submissions about the background facts that are not available to them in this court, they make the following submissions on the key question:

It is important to record what Judge Mosedale acknowledged in the FtT. She was careful to identify (at [60]) that she was making a decision about whether barring should be applied as a sanction rather than considering whether to grant relief from a sanction already applied. Furthermore, she did not equate a rule 8(3) conditional order with a rule 8(1) unless order. Whether on the basis of the difference in the nature of the application or the wording of the rules, she was careful to remind herself that the decision in Mitchell was not strictly relevant to the judgment she had to make and that the relevance of the guidance given in the authorities was constrained to how the FtT should apply the overriding objective.

Judge Mosedale’s conclusion was stated at [95] and [96] where she held:

“[95] There is no presumption that I will order HMRC to be barred. I must simply weigh all the factors: if I am in doubt whether barring is appropriate, I think I must err on the side of not barring HMRC. My objective in exercising my discretion is the overriding objective of dealing with cases fairly and justly’

[96] While the factors identified in Mitchell are not directly relevant, for the reasons I have given, I have to give significant weight when considering the overriding objective to the importance of compliance with directions of the tribunal and avoiding unnecessary delays and expense. […]”.

Her reasoning is set out at [59] to [65] as follows:

“[59] What Mr Singh [counsel for HMRC] did say was that the Mitchell line of authority was not relevant to an application to strike out a party under Rule 8(3)(a). Strictly, Mr Singh is right. The Mitchell line of cases (including McCarthy & Stone and Compass) relate to what considerations the court apply when there is an application for relief from sanctions. Comparable considerations to those in Mitchell might apply where this Tribunal is considering an application for reinstatement after an appeal has been automatically struck out following breach of Rule 8(1) unless order.

[60] Here, in contrast, no sanction has as yet been applied to HMRC. HMRC is in breach of the January directions but it has not been barred or had any other sanction applied. HMRC are not applying for relief from sanction. On the contrary, it is the appellant’s application that the Tribunal bar HMRC out for a breach of a Rule 8(3)(a) unless order. The question for me is whether I ought to apply the sanction of barring.

[61] I consider, however, while Mitchell is not strictly relevant, nevertheless it contains some useful guidance that when considering the overriding objective of dealing with cases fairly and justly.

[62] At [45] of Mitchell Lord Dyson said that the court must proceed on the assumption that the sanction was properly applied and the applicant must justify its claim for relief. That guidance is obviously inapplicable to this situation. No sanction has yet been applied and I must not assume that barring is the appropriate sanction for the breach of the unless order.

[63] But I consider that the guidance in Mitchell is relevant in this appeal in so far as it stresses that in consideration of the overriding objective, significant weight should be given to the factors (a) and (b) of CPR 3.9 to ensure fair and just hearings.

[64] What did he mean by this? While Lord Dyson at [36] and [37] said these two factors were of ‘paramount importance’ and that other circumstances should be ‘given less weight’ nevertheless, even where CPR 3.9 was concerned, it was clear he did not mean that these two factors would always outweigh other factors as CPR 3.9 itself said all relevant factors must be considered.

[65] I conclude that in considering whether to grant the appellant’s application to bar HMRC from further participation in this appeal I must consider all relevant factors. I will include in my consideration factors (a) and (b) from CPR 3.9 and accord them significant weight as part of my consideration of the overriding objective to deal with cases fairly and justly.”

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?

For the reasons I set out below, I do not think that she did, with the consequence that the UT should not have intervened.

HMRC made a virtue of the submission that to afford non-compliance significant weight was plainly a material error of law in light of the decision of the UT in Leeds because “once one puts aside the notion, engendered by Mitchell before it was explained in Denton, that the enforcement of rules and directions is a factor of particular importance, to be afforded substantial weight” then the “failings [of HMRC] are not so grave as to warrant a barring order”. With respect to the UT in Leeds where the words cited were coined, that is to put the cart before the horse.

The UT is a superior court of record. In like manner to the High Court, it can take its own view on interpretation and can develop its own precedent. The UT is not precluded from giving guidance on practice and procedure simply because the Tribunal Procedure Committee has not done so in the form of a rule. Furthermore, as I remarked at [25], the UT’s powers are not to be taken to be limited unless they are expressly so in the Rules and they are not. Of course there is significant merit in identifying and implementing new practices and procedures through the TPC, not least to ensure that there is consultation in an appropriate case, that the implications, including the financial implications, of change are considered and there is both adequate notice of change and consistency in its application, but none of those factors militate against the UT giving guidance in an appropriate case. There is nothing about this case, or for that matter McCarthy & Stone or Leeds, that suggests they were inappropriate cases in which interpretative guidance could be given.

HMRC are content that the UT relies upon the CPR by analogy where it suits their purposes, for example, as to the discretionary power to strike out in rule 8.3(c) FtT Rules, in which circumstance the UT has recently held that the approach under CPR 3.4 is helpful (see HMRC v Fairford Group [2014] UKUT 329 at [41] andtheir reliance on Abdulle v Commissioner of Police for the Metropolis [2014] EWHC 4052 (QB) and the decision in Data Select Ltd v Revenue and Customs Commissioners [2012] UKUT 187 (TCC). The irony in that circumstance is not lost on this court.

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.

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.

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.

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.

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.

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.

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.

The UT found support for its decision to overrule the FtT in the decision of Morgan J in Data Select supra. This is not an appropriate case to analyse the decision in Data Select. Suffice it to say that the question in that case was the principle to be applied to an application to extend time where there had been no history of non-compliance. In this case, HMRC neither acknowledged that they had breached a time limit nor made an application for an extension of the same. In my judgment, therefore, the question in this case turns on an antecedent principle of compliance. Had I been minded to analyse Data Select, that would have created a further difficulty for HMRC. Morgan J applied CPR 3.9 by analogy without waiting for the TPC to amend the UT Rules in just the manner I have suggested is appropriate.

For the reasons I have given, I would allow this appeal and restore the order made by the FtT.

I agree.

I also agree.