Revenue And Customs v Hutchinson

The appellant, HMRC, now appeals from the order of Whipple J dated 11 November 2015 granting judicial review of four decisions of HMRC dated 30 April 2014. The judge quashed the decision. By these decisions, HMRC issued the closure notices in relation to the enquiries raised on the respondent’s self-assessment tax returns (“SAs”) for 1999 to 2002 and rejected losses which the respondent had claimed. The judge quashed those decisions and remitted the matter to HMRC to make a fresh decision consistently with her judgment.

To briefly indicate the background, in 1998 and 1999, the respondent exercised some share options and reported the transactions in his SAs for 1998/9 and 1999/2000. Subsequently he took advantage of an apparent change in the permitted treatment of those transactions which enabled him to claim additional losses in later periods following HMRC guidance (referred to below as the 2003 guidance) to that effect. This gave rise to a legitimate expectation that HMRC would be bound by that guidance. However, on 2 June 2003, HMRC opened enquiries into the respondent’s SAs, warning him that they did not accept his additional losses. In 2009, HMRC, following legal advice, issued corrected guidance stating that it would not accept the additional losses unless (primarily) there had been reasonable detrimental reliance on the 2003 guidance. HMRC did not consider that the respondent had shown this and, for this and other reasons, served closure notices bringing the enquiries to an end and refusing the additional losses.

The essential question on this appeal is whether HMRC could resile from their previously expressed view in the 2003 guidance in the circumstances of this case. We are not concerned with the correctness of HMRC’s view, which is the subject of a separate appeal to the First-tier Tribunal.

The parties have agreed a summary of HMRC’s approach to the appropriate tax treatment of the exercise of the respondent’s share options at the various material points in time. This summary can be found in Appendix 1 to this judgment. Appendix 2 to this judgment contains an abbreviated version of the agreed chronology of the events in this case for ease of reference. I will explain those events in narrative form in the next section of this judgment.

The respondent received share options in 1989 through his employment with ABN Amro plc (“ABN”). He exercised those options in 1999 and 2000 and shortly thereafter sold the shares. He reported the transactions to HMRC when he filed his SAs for 1998/9 and 1999/2000. He did so on the basis, as was the common understanding at the time, that no liability to capital gains tax arose. This was because section 120 of the Taxation of Capital Gains Act 1992 (“TCGA 1992”) treats the amount on which income tax had been calculated as deductible when calculating the gain.

On 12 December 2002, this Court decided in Mansworth v Jelley [2003] STC 53 that the figure to use for base cost when calculating the gain which accrued on disposal of the shares was the market value at the date of exercise of the options. In many cases, this resulted in a capital loss which the taxpayer could set against his taxable income in that and subsequent years and carry back against income for the previous five years of assessment.

In 2003, HMRC issued guidance (“the 2003 guidance”). They stated that they did not intend to appeal Mansworth v Jelley. They also extrapolated from the ruling in that case that the amount of income tax payable had also to be added to the base cost and confirmed they would apply the same beneficial tax treatment that that case had upheld in relation to those who, like the respondent, had acquired shares under options linked to their employment exercised before 10 April 2003.

The judge set out the guidance in detail in her judgment, together with passages from the HMRC manuals which were to the same effect. I need not repeat these passages as it is common ground that the 2003 guidance gave rise to a legitimate expectation that in respect of share options exercised before 10 April 2003 HMRC would apply the equivalent beneficial tax treatment to that resulting from Mansworth v Jelley.

Following the issue of the 2003 guidance, the respondent made loss claims on the basis of Mansworth v Jelley for 1998/9 and 1999/2000 by adjusting his SAs and making loss claims. I will call these losses “Mansworth v Jelley losses”. He subsequently made similar claims in his SAs for 2000/1 and 2001/2. He calculated that his total Mansworth v Jelley losses are about £428,000, of which some £326,806 remained for use after 2002.

The Finance Act 2003 amended the TCGA 1992 for options exercised after 9 April 2003. The base cost after that date was the cost of exercising the option plus any amount charged to income tax on exercise (TCGA 1992, section 144ZA).

On 2 June 2003, HMRC opened enquiries into all the respondent’s relevant SAs. At the outset the enquiries were prompted by a concern that the option scheme under which ABN had issued options to the respondent had been used by ABN to avoid paying National Insurance contributions, though it appears that those matters were settled in 2005. Significantly, HMRC’s letter to the respondent dated 2 June 2003 stated that:

Substantial correspondence ensued. HMRC gave further explanations for the enquiries in correspondence. The respondent contended that his tax affairs should be treated independently of those of ABN, and noted that similar claims of colleagues had been allowed.

In July 2006, the respondent asked for an update, saying that he understood that the discussion with his employer had concluded some time previously. HMRC replied on 26 July 2006 that it intended to litigate the issues with other taxpayers, and that these proceedings were unlikely to be heard before the beginning of 2007.

The respondent claimed Mansworth v Jelley losses in his SAs for 2005/2006 and 2006/7. HMRC responded by opening enquiries into those SAs.

In April 2008, the respondent sought a further update and was told that the matter was a long way off settlement. He was also told that if he sought to use the losses, and they were found not to be due, he would have to repay them with interest.

On 12 May 2009, HMRC issued Revenue and Customs Brief (“RCB”) 30/09, announcing that, following advice that its 2003 guidance was wrong in law, the tax treatment set out in the 2003 guidance would no longer apply. HMRC would thenceforth treat the base cost as the market value of the shares at the date of acquisition. HMRC stated that this treatment would apply to any enquiry or appeal open at that date relating to Mansworth v Jelley losses.

RCB 30/09 was followed in September 2009 by RCB 60/09. This stated that the corrected view of the law would be applied in all cases unless there was detrimental reliance. Thus the RCB stated:

In this judgment, I use the word “open claims” to describe the claims of taxpayers who had Mansworth v Jelley losses in respect of which HMRC had opened enquiries which had not been closed before RCBs 30/09 and 60/09 were issued. We are told that there were some 600 taxpayers with open claims. Other Mansworth v Jelley losses where no enquiry was opened, or, where any enquiry opened was closed by that date, are referred to as made in “closed” years. The latter category include loss claims which were originally made in SAs which HMRC had no power to reopen, even if those losses had not then been fully utilised.

HMRC gave the respondent the opportunity to provide evidence as indicated by RCB 60/09.

On 30 April 2014, HMRC issued closure notices denying the respondent’s Mansworth v Jelley losses. The notices stated:

On 7 December 2010, the respondent indicated that he would appeal against this rejection of his loss claim.

There was further correspondence between the respondent and HMRC.

On 24 July 2014, the respondent began these judicial review proceedings. The grounds were: breach of a legitimate expectation, unfairness amounting to an abuse of power, unfairness by comparison with taxpayers whose Mansworth v Jelley claims had been accepted, i.e. “comparative unfairness”, and the maintenance of unlawful enquiries.

The respondent has filed considerable evidence. In it, he explains that, following the financial crisis, he has suffered considerable financial hardship. He explains that he lost his employment. He and his wife set up a business in 2010. He states that, had he envisaged rejection of his Mansworth v Jelley losses, he and his wife would probably not have started this business, which has not been successful. Thus, the sums in issue are highly significant to him. In a later witness statement, he also explains that, had he realised that there was a risk his claims would not be allowed, he may have pressed for the earlier conclusion of the enquiries started by HMRC.

There are also witness statements from Carole Sanderson, the officer of HMRC who took the decision in his case. She gives a number of reasons for her decision. In addition to those referred to below, she explains that she followed the decision in May 2014 of HMRC’s Personal Taxes Contentious Issues Panel on outstanding Mansworth v Jelley losses that HMRC would give taxpayers the benefit of the incorrect tax treatment if:

the taxpayer could make a realistic case that on the balance of probabilities they had relied on the incorrect guidance;

the taxpayer would suffer detriment if he could not use the loss; and

the taxpayer could on a balance of probabilities have shown a legitimate expectation that they could rely on the guidance if HMRC had not delayed in dealing with their case so that he could provide only limited evidence.

The judge gave a careful and thorough judgment. In her review of the law, the judge held that, as regards unfairness, the respondent had to show conspicuous unfairness on the part of HMRC. It was, therefore, not enough that not all taxpayers were treated in the same way.

However, once clear guidance was given, the taxpayer could rely on it ([52]) so in consequence of having relied on the 2003 guidance in making his claims, the respondent:

The legitimate expectation arising from the issue of the 2003 guidance was not affected by HMRC’s subsequent discovery that the guidance was incorrect ([53]). A legitimate expectation could be overridden by the public interest, but again there had to be conspicuous unfairness.

In the judgment of the judge, the decision of Wyn Williams J in R (o/a Cameron) v Revenue and Customs Comrs [2012] STC 1691 established that:

The key issue so far as the judge was concerned was the comparative unfairness: taxpayers whose SAs had been closed before HMRC’s change of view had the full benefit of the 2003 guidance whereas those in the position of the respondent did not. HMRC should have considered the unfairness to taxpayers before withdrawing the 2003 guidance. Unfairness could not be limited to detrimental reliance ([62]). There was intrinsic unfairness because taxpayers who were in an identical position in 2003 had been treated differently ([68]). The officer of HMRC who dealt with the respondent’s case, Mrs Sanderson, had not considered comparative unfairness arising from the fact that other taxpayers with Mansworth v Jelley losses which had been the subject of closed years before the 2003 guidance was withdrawn were not affected by that withdrawal ([63]).

Section 29(2) of the Taxes Management Act 1970 (“TMA”) enables a taxpayer to rely on a practice generally prevailing at the date when he completes his SA as a defence to a section 29 TMA extended time limit assessment. But this provision did not affect the respondent because it had no application as HMRC had opened valid enquiries (within the relevant time limits) and so did not need to raise s29 TMA extended time limit assessments. The withdrawal of the 2003 guidance was potentially inconsistent with HMRC’s own guidance on correcting mistakes of law ([72]). There had also been considerable delay in this case. The respondent found himself in the position he was because of HMRC’s mistake in issuing the 2003 guidance ([73]).

The judge accepted that she did not have all the information necessary to perform the balancing exercise herself. Nonetheless, her “instinctive response” was that:

The judge summarised her decision as follows:

Giving judgment in another case some two months later, R (City Shoes Wholesale Limited) v HMRC [2016] EWHC 107, the judge sought to give this further explanation of her judgment in this case:

As explained, there is no dispute here that HMRC created a legitimate expectation when it issued the 2003 guidance that pre-10 April 2003 Mansworth v Jelley losses would be dealt with in accordance with that guidance. Before discussing the parties’ submissions, I will set out the general principles applicable to legitimate expectations and explain how they have been applied in relation to HMRC (which term I use to include its predecessors).

The general principles relating to legitimate expectation were helpfully summarised by Lord Neuberger, with whom Lord Mance, Lord Clarke, Lord Sumption and Lord Carnwath agreed, in United Policyholders Group v Attorney General of Trinidad and Tobago [2016] 1 WLR 3383, P.C., as follows:

These general principles do not need further explanation at this stage. They must be applied in this case in the context of the duties which the law imposes on HMRC (see paragraphs 38 to 48 below). HMRC is a public body invested with the power to collect tax, and taxpayers must expect to pay the right amount of tax. HMRC issues guidance in order to facilitate the smooth collection, and in general HMRC must follow that guidance or any policy. The importance of HMRC issuing guidance is recognised in the authorities.

As to the duties which the law imposes on HMRC, the leading cases are well known. In R v Inland Revenue, ex parte National Federation of Self-Employed Small Business Ltd [1982] AC 617 at 651, Lord Scarman held that HMRC owed a legal duty to the general body of taxpayers to treat taxpayers fairly and “to use their discretionary powers so that, subject to the requirements of good management, discrimination between one group of taxpayers and another does not arise”.

In R v Inland Revenue ex parte MFK Underwriting Agents Ltd [1990] 1 WLR 1545, Bingham LJ, with whom Judge J agreed, held that judicial review could not compel HMRC to act contrary to its statutory duty (pages 1566 to 1567). HMRC had no general discretion to remit taxes but they had a general managerial discretion as to the best means of collecting tax. This discretion could properly include the issue of guidance (page 1568).

At page 1569, Bingham LJ held:

Judge J added at page 1573:

In the next landmark case of R v Inland Revenue Commissioners ex parte Unilever plc [1996] STC 681, the taxpayer complained that HMRC, who had by conduct allowed loss claims to be filed late for some twenty years suddenly refused to accept further claims on the basis that they were out of time. This Court (Sir Thomas Bingham MR, Simon Brown and Hutchinson LJJ) held that rejection of the claims simply on that basis, without any notice of the change in practice, was so unfair as to amount to an abuse of power. Sir Thomas Bingham MR held that the categories of unfairness were not closed and precedent should be taken as a guide and not a cage. Each case had to be decided on its own facts, bearing in mind HMRC’s duty to act fairly and to the highest public standards. The threshold of public law irrationality was high. Sir Thomas Bingham MR held that it was to be noted that conduct which might constitute fair treatment of one taxpayer might be unfair if other taxpayers “similarly placed” are treated differently (page 692). He added:

Simon Brown LJ emphasised that there had to be conspicuous unfairness. He drew a distinction between a decision that amounted to “mere unfairness”, which he described as “conduct which may be characterised as a ‘bit rich’ but otherwise understandable”, and a “decision so outrageously unfair that it should not be allowed to stand” (page 697). Hutchinson LJ agreed with both judgments.

Most recently, Henderson LJ in Samarkand Film Partnership No 3 v HMRC [2017] STC 926, with whom David Richards LJ and I agreed, summarised the law on unfairness in these terms:

I now turn to the situation where HMRC issues a policy or guidance but later comes to the view that its policy or guidance was wrong in law. Legitimate expectations are not unqualified: see, for example, United Policyholders, above. If HMRC finds that they need to resile from guidance, a taxpayer can only rely on the legitimate expectation that the guidance created where, having regard to the legitimate expectation, it would be so unfair as to amount to an abuse of power.

There are two important corollaries of HMRC’s duty of fairness. First, HMRC’s duty does not mean that it has to ensure that all taxpayers are charged with tax, if it appears that the facts bring them within a particular statutory charge, as there may be all sorts of reasons why it is not practical in the interests of good management to do so: R (on the application of Weston) v HMRC (2004) 76 TC 207 at [8] – [10] per Moses J. Second, in R (o/a Esterson) v HMRC (2005) 77 TC 629 at [40], Davis J, applying Weston concluded that the fact that some other taxpayers benefitted from a policy does not require that the claimant taxpayer should, as a matter of public law fairness, do so if that involves the perpetuation of the mistake or misapprehension that led to the adoption of the policy.

Once it is appreciated that HMRC can apply the law selectively in these ways, the issue that arises is as to the circumstances in which it is unfair to do so. That is the issue of comparative unfairness to which I turn in paragraphs 52 to 65 below.

The further question which I must next consider is whether and, if so, when HMRC may correct its mistakes in issuing a policy or guidance. This is largely common ground. In R (O’Brien) v Independent Assessor [2007] UKHL 10 at [30], Lord Bingham, with whom the other members of the House, apart from Lord Scott, agreed on this point, held that, while it was generally desirable that decision-makers should act in a broadly consistent manner, a decision-maker (whether administrative or judicial) is not bound, and is not entitled, to follow a previous decision that he considered erroneous. However, the precise circumstances are subject to dispute between the parties, and so I will leave that issue to my discussion of the submissions under Parties’ Submissions and My Analysis of Them, below.

Because the respondent relies on a legitimate expectation, the respondent is able in effect to challenge RCBs 30/09 and 60/09. So, as I see it, the logical order of the issues to this appeal gives rise is in my judgment:

As explained above, the judge answered each of these questions yes, except that she did not deal with the Convention. On remittal, she directed that the matter be remitted back to HMRC.

When I have dealt with those issues, I will deal with the final issue which is about the court’s jurisdiction for the judge’s order remitting the matter back to HMRC.

As stated above, the judge held that the taxpayers with Mansworth v Jelley claims formed a single cohort whereas the RCBs in 2009 treated those who then had closed years differently from those with open years.

Mr Akash Nawbatt QC, for HMRC, submits that the judge made three errors here. First, under the law about legitimate expectation, comparative unfairness may only be found to exist where parties are materially identically placed, and taxpayers with open claims are in a materially different position from those with claims made in closed years. So he submits that the judge should have held that taxpayers who, like the respondent, had open Mansworth v Jelley losses were not in a materially identical position to those with claims for closed years. In particular, the losses of the latter group could not now be corrected. This flows from section 29(4) and (5) TMA 1970 (which I need not set out as this is common ground).

Mr Nawbatt cites R (o/a British Sky Broadcasting Group plc) v HMRC [2001] STC 437, where the only material difference was that HMRC had raised an assessment against the taxpayer which it had not raised against the other cable companies with which the taxpayer sought to compare itself. Elias J held that HMRC considered that the taxpayer was in a materially different position from the other cable companies. He accepted that HMRC’s reasons were not irrational. He held that accordingly, and even if HMRC was subsequently found to be wrong for treating the taxpayer differently, HMRC was not required to have regard to comparative fairness as between the taxpayer and the other cable companies. He further held that, for comparative unfairness, there had to be disparate treatment between taxpayers in a materially identical position, citing Unilever at 692. I would add that, by implication, Elias J read the words “similarly placed” used by Sir Thomas Bingham MR in Unilever as meaning, in this context placed in a materially identical position (at [30]), or “identically placed” (at [33]). However, this case did not concern taxpayers with open and closed years and so it was not authority for the proposition that the similarities or differences were to be determined at the outset. They clearly had to be determined when the decision under challenge was made. The judge, on Mr Nawbatt’s submission, should have distinguished this decision on that basis.

Mr Nawbatt also relies on City Shoes at [84]-[86] where employee benefit trust (“EBT”) users had applications to register under the Lichtenstein Disclosure Facility (“LDF”) which HMRC accepted. These users were held to be in a “fundamentally different position” to otherwise identically placed EBT users whose applications happened to have been put on hold pending HMRC’s review of whether EBT users should be allowed to benefit from the favourable terms of the LDF.

The second error on Mr Nawbatt’s submission was that the judge was wrong to conclude that the question of comparative unfairness was to be determined as at the time of the 2003 guidance and not at the time when it was withdrawn.

Third, Mr Nawbatt submits that the judge failed to direct herself correctly about the exception to the normal requirement for decision-makers to act consistently where the decision-maker had previously acted under a mistake as to the law. He cites O’Brien (paragraph 48 above). Mr Nawbatt also relies on the conclusion of Elias J in R (o/a Lewisham) v AQA [2013] EWHC 211 (Admin) at [126] that:

Mr Rory Mullan, for the respondent, submits that HMRC had a duty to treat taxpayers consistently and that section 29(2) TMA (enabling a taxpayer to rely on a practice generally prevailing at the date when he completes his SA) confirms this approach. He relies on the separate judgment of Lord Carnwath in United Policyholders. In this case, the Government of Trinidad and Tobago had given assurance to policyholders of an insurer which it subsequently sought to qualify in the light of pressures on public finances. Lord Carnwath drew an analogy with the need to adhere to a published policy and indicated that the need for consistency might be relied on rather than legitimate expectation. He held:

Mr Mullan naturally pressed on us the approach of Lord Carnwath. His judgment usefully highlights the strength of Lord Neuberger’s first proposition, and his emphasis on consistency supports Mr Mullan’s own submission that HMRC should be held to what they had said in the 2003 guidance. At the end of his judgment, Lord Carnwath also holds that the trend of modern authority is to favour a narrow interpretation of substantive legitimate expectation, such as is involved in this case by reason of the issue of the 2003 guidance. In my judgment, however, we should apply the formulation of Lord Neuberger in so far as there is any difference between his judgment and that of Lord Carnwath. It is sufficient therefore to cite only that of Lord Neuberger.

While Mr Mullan accepts that there is no duty of equal treatment, he argues that, once HMRC publish guidance, they must apply that policy unless there is a good reason not to do so: see Mandalia v Secretary of State for the Home Department [2015] 1 WLR 4546 at [29]-[31] per Lord Wilson, with whom the other members of the Supreme Court agreed. Lord Wilson held:

Mr Mullan also submits that taxpayers affected by the 2003 guidance form a single cohort, and that there was a duty to apply the 2003 guidance consistently to all those within its scope. He further submits that changes in the policy in that guidance have to be managed fairly: see R (o/a of (Cameron) v HMRC [2012] STC 1691, [71]; R (Gaines Cooper) v HMRC 81 TC 134 at [12] and [58]-[59] per Moses LJ, with whom Dyson LJ agreed. (The decision of this Court was subsequently affirmed on partly different grounds by the Supreme Court ([2011] STC 2249). He submits that taxpayers are entitled to expect that HMRC should be kept to its word. Moses LJ held:

In my judgment, Mr Nawbatt’s three submissions are correct and they are amply supported by the authorities which he cites and which I have set out above. A recent further example of his first submission is R (Gallaher Group Ltd) v Competition and Markets Authority [2016] Bus LR 1200 at paragraph 53 per Lord Dyson MR, with whom Longmore and Lloyd Jones LJJ agreed. The judge, as I see it, did not give due weight to the fact that a public body can change its policy if there is a good reason. In MFK, Bingham LJ stated that a policy once made was binding but this was in the context of a case where there was no question of any change of direction. The view that a policy may be changed if there is good reason to do so is supported by the judgment of Lord Dyson in WL Congo (cited by Lord Wilson in Mandalia, paragraph 60 above), by Elias LJ in Lewisham (paragraph 57 above), and by Bhatt Murphy, cited by Lord Neuberger (paragraph 36 above).

Mr Mullan urged on us the principle of consistency, i.e. that public law requires that, once HMRC or any public body has given guidance or published a policy, they should be held to it. As the authorities cited by Mr Nawbatt show, this overstates the position reached in the authorities. As Bingham LJ put it in MFK, the taxpayer’s only legitimate expectation is that he will be taxed according to statute, not concession or a wrong view of the law (see paragraph 40 above). The correct position in law is not that urged on us by Mr Mullan but that set out by Lord Bingham in O’Brien (see paragraph 48 above).

On what I have termed Mr Nawbatt’s second submission (paragraph 55 above), I consider that on principle it is not enough to say that the persons to be treated in the same way were in the same cohort originally. It is necessary to look at the time when the decision is made, that is, when the decision-maker is called upon to assess whether they should be treated as being in the same position. In the present case taxpayers with Mansworth v Jelley losses were not in the same position if they were in open years as opposed to closed years. For the latter group, HMRC had no power to reopen their affairs and to remove the ability to utilise the Mansworth v Jelley loss. The position was entirely different for those whose years were open, including the respondent. Therefore this ground of unfairness was not available to the judge.

I therefore conclude that in law the RCBs in 2009, withdrawing the 2003 guidance for Mansworth v Jelley losses in open years, did not involve comparative unfairness of which the respondent could properly complain. HMRC were not precluded from changing its policy by the fact that not every taxpayer’s losses could be reopened.

Although this was not a case of comparative unfairness, HMRC still could not resile from the 2003 guidance if it was so unfair as to amount to an abuse of power. So I need to consider whether those circumstances are present. HMRC’s position is that once it was appreciated the 2003 guidance was mistaken they should, subject to questions of fairness, correct the mistake and that they could not do so for closed years.

For the respondent, Mr Mullan submits that (if the decision to withdraw the 2003 guidance was not flawed because of comparative unfairness) there was a balancing exercise to be performed between the public interest and the interests of those affected by the decision. As to the public interest, he submits that the authorities recognise that the payment of the correct amount of tax according to the statute properly interpreted was not always conducive to the public interest as where there is hardship or tax is artificially reduced by tax avoidance. Further, he submits, the principle of consistency is again relevant here because there is a public interest in the consistent application of tax law for several reasons, including ensuring that everyone is taxed according to the same rules, avoiding capricious selective application, ensuring the tax burden is shared rationally, increasing co-operation with taxpayers and thus decreasing the cost of administering the system and giving effect to the will of Parliament.

On the other side of the scale, unfairness to the respondent had to be considered. In particular, some weight had to be given to the comparative unfairness as between the respondent (and others in the same position), and those whose claims had been accepted. In addition, the change applied to claims already lodged. This was contrary to the approach taken by the amendments to the TCGA 1992, and in that sense was retrospective.

Turning to the Convention, Mr Mullan submits that Article 14 of the Convention, taken with A1P1, applies. These Articles guarantee (a) the enjoyment of rights without discrimination on any specified ground “or other status” (Article 14) and (b) that a person will not be deprived of his property “except in the public interest and subject to the conditions provided by law” (A1P1).

Mr Mullan accepts that under Article 14 the difference in treatment had to be on one of the proscribed grounds: see R (o/a S) v Chief Constable for South Yorkshire [2004] 1 WLR 2196 at [42] to [43], and R (o/a Clift v Secretary of State for the Home Department [2007] 1 AC 484 at [59] to [66]. He submits that the difference in treatment in this case falls within Article 14 taken with A1P1 because of his status as a employee in the financial services sector. He was treated differently because HMRC were pursuing enquiries against his employer, and there was discrimination because the respondent’s claim was not determined when the enquiries against ABN were closed. The difference arose from the “procedural fluke” of HMRC having opened enquiries.

HMRC submits that the Convention is not engaged. As to Article 14, Mr Nawbatt submits that no authority was cited. As regards A1P1, this was not engaged because there was no established right to capital losses. In any event, the interference with property rights was in any event justified by the need to correct the mistaken view of the law taken in the 2003 guidance, and it was prescribed by law on the issue of the RCBs.

As explained under Issue (1), it is well established that it is open to a public body to change a policy if it has acted under a mistake. The decision whether or not to do so is not reviewed for its compatibility in the public interest: the question is whether or not there has been sufficient unfairness to prevent correction of the mistake. It is clear from the authorities that the unfairness has to reach a very high level: see, in particular, the holding of Simon Brown LJ in Unilever where he held that it was not enough that the change of course by the public body was “mere unfairness“ or conduct which was “a bit rich”. It had to be outrageously or conspicuously unfair. The respondent relies on authorities showing that it is not necessary for HMRC to charge the correct amount of tax and makes the obvious point that HMRC has no authority to do so where it is constrained by public law. I accept those points but they do not address the crucial question of when HMRC can depart from published guidance.

Confining the question at this stage to the balancing of the public interest against the interest of taxpayers affected by the decision to withdraw the 2003 guidance as a general body, I do not consider that, in the absence of comparative unfairness, it can be said that there was conspicuous unfairness. Mr Mullan draws an analogy with the approach taken by Parliament when it reversed Mansworth v Jelley. Parliament did not seek to disturb the position of those who had already exercised their options. This analogy does not in my judgment compare like with like since in that situation Parliament was removing for the future a right which, when it comes into existence, was thought to be sound in law. In this case, HMRC removed guidance which was premised on a right which they did not, at the date of removal, consider existed.

The respondent contends that HMRC filed no evidence as to the reasons for the decision in 2009. I do not consider that this is a sustainable criticism of HMRC. HMRC claimed legal professional privilege for the corrective legal advice that prompted it to issue the 2009 RCBs. This seems entirely reasonable and not a point on which HMRC can be criticised. It follows that the judge’s criticism in City Shoes about the significance of the lack of evidence from HMRC as to its reasons for withdrawing from the 2003 guidance was misconceived. It was also not determinative since the crucial question was whether the changed guidance should be applied in the respondent’s particular case.

As to reliance on the Convention, I do not accept the ambitious submission that the respondent’s employment in the financial services industry could give him a requisite status for Article 14 purposes. No remotely similar case was cited. I would also accept Mr Nawbatt’s submission on A1P1 that even if the respondent had any form of property right for A1P1 purposes (a question I do not need to consider), the interference with it by the RCBs was in the circumstances described above justified.

The respondent’s case on unfairness stands or falls, as I see it, on the facts of his individual case, taking into account the general principles of legitimate expectations as they apply to HMRC, and this is a matter to which I turn under Issue (3).

Mr Nawbatt submits that the appropriate test is one of rationality and whether the relevant considerations were taken into account, i.e. did HMRC make a rational decision when they issued closure notices and amended the respondent’s SAs to reject his Mansworth v Jelley losses, and did they have regard to the material considerations? I have set out in paragraph 20 above the reasons which HMRC gave in their closure notices. These were amplified in Mrs Sanderson’s witness statements.

On Mr Nawbatt’s submission, the judge should have attached weight to the fact that withdrawal of the 2003 guidance was not unfair because the guidance post-dated the making by the respondent of his original Mansworth v Jelley claims. In fact, when refusing permission on paper, Andrews J had found this fact to be determinative:

Moreover, in making her decision, the officer concerned, Mrs Sanderson had, as stated in her first witness statement, taken into account a wider range of considerations than those noted by the judge. She took into account the fact that the respondent had exercised his options and submitted his SAs before the 2003 guidance was issued. So he filed his SAs on the premise that he would receive the very same tax treatment as set out in RCB 30/09.

Mr Nawbatt further submits that, while detrimental reliance is not essential, it is a powerful factor: see R (Bancoult) v Secretary of State for Foreign and Commonwealth Affairs (No 2) [2009] 1 AC 453, at [60] per Lord Hoffmann at and at [135] per Lord Carswell, both of whom cited with approval the judgment of Peter Gibson LJ in R v Secretary of State for Education and Employment, Ex p Begbie [2000] 1 WLR 1115). Peter Gibson LJ held at 1124 that:

Moreover, the court is entitled, on Mr Nawbatt’s submission, to expect that the claimant will submit proper evidence demonstrating his detrimental reliance: see R (o/a Bamber) v HMRC [2005] EWHC 3221 at [59].

Furthermore, on Mr Nawbatt’s submission, when applying a test of rationality and considering whether relevant considerations were taken into account the court should be cautious about “concluding that advice given by HMRC which is wrong in law will create a legitimate expectation, such that applying the law correctly amounts to an abuse of power.” (HMRC v Noor [2013] UKUT 71, [97f], Warren P).

Mr Nawbatt submits that the judge took into account an irrelevant consideration, namely the immigration decision in R (Rashid) v Secretary of State for the Home Department [2004] EWHC 2465 (Admin). Mr Mullan did not take issue with this point. As it is not determinative of this appeal, I propose to say no more about it. The decision in Rashid was affirmed by this Court ([2005] INLR 550) but subsequently overruled by the Supreme Court in R (TN Afghanistan) v Secretary of State for the Home Department [2015] 1 WLR 3083.

Moreover, on Mr Nawbatt’s submission, the judge should not have relied on the delay in concluding the enquiries because they were lawfully open. He submits that the judge correctly rejected the respondent’s criticisms of HMRC’s conduct in carrying out the enquiry:

Likewise, Mr Nawbatt submits, it was not correct to say, as the judge held, that the respondent had open claims because of the mistake made by HMRC (judgment, [73]). He had open claims because HMRC had lawfully opened enquiries in his case. This factor should therefore also have been left out of account.

Mr Mullan contends that the decision of Mrs Sanderson was not lawfully made.

He submits that Mrs Sanderson took a narrow view of detrimental reliance since the respondent’s expectation that the 2003 guidance would be applied to him was reinforced by the passage of time. The balancing exercise carried out by Mrs Sanderson was inadequate. HMRC did not take into account that the enquiry was driven by HMRC’s enquiry into ABN, not the respondent personally. Nor did Mrs Sanderson take into account the fact that the 2003 guidance was thought to be correct when he made his Mansworth v Jelley loss claims.

As to HMRC’s finding that the respondent had not shown any detrimental reliance on the 2003 guidance, Mr Mullan submits that HMRC’s approach had been too narrow and that because of the time which the enquiries had taken he had suffered, in his words, “creeping detriment” sufficient to amount to detrimental reliance. If the appeal succeeded, the respondent would have to pay £25,000 with interest from 2003. There were cash flow consequences to the respondent from reversal of the loss claims, and he had made an investment in the new business he had started with his wife and incurred expenditure on purchasing a house. Mrs Sanderson failed to consider comparative unfairness (which does not assist in the light of my conclusion on Issue (1)). Mr Mullan also submits that HMRC did not tell the respondent that he could not rely on the 2003 Guidance but HMRC’s letter of 2 June 2003 clearly indicates the risk. Mr Mullan points to the delay of 11 years and submits that it is no answer to say that the respondent is returned to the position he was in when he exercised his option after a delay of 11 years.

Mr Mullan made a number of criticisms in his skeleton argument about the conduct of the enquiries in the respondent’s case. He submitted that the enquiries had been conducted “with considerable unfairness” because the original enquiries were opened for reasons unrelated to the respondent’s claim instead and were carried on longer after the ABN enquiry had been completed. In addition, Mr Mullan submitted that the enquiries were carried on in a manner contrary to HMRC’s own guidance. Mr Mullan submitted that the respondent’s request that his claim be dealt with or closed were not properly dealt with, and that no actual enquiring had taken place during the course of the enquiry. Mr Mullan submitted that HMRC did not give the respondent an adequate explanation as to what was going on. The enquiries had lasted eleven years and on Mr Mullan’s submission discovered nothing.

I remind myself that the respondent has to show conspicuous unfairness. The principal reasons why I consider that this is not shown are those given by Andrews J in her perceptive reasons given on paper. The respondent was returned to the same position as he was in when he committed himself to the transactions which gave rise to the capital losses. Moreover he had been clearly warned by HMRC in the letter of 2 June 2003 that they did not accept his additional Mansworth v Jelley losses. HMRC was entitled to open the enquiries and those enquiries were open at the time when HMRC made its decision. Mr Mullan has no basis for challenging the conduct of the enquiries in this court in the light of the judge’s evaluation and clear rejection of this submission.

The witness statement of Mr Everett shows that a large number of other claims were met under the 2003 guidance, but the existence of such claims is in reality accepted by HMRC and the number of them is immaterial. In my judgment this does not give rise to unfairness because the case of people who have closed years and open years is different.

It is apparent that HMRC carefully considered whether he had suffered any detriment and made their decision on the information that the respondent provided. The absence of detriment is not conclusive but as the authorities show, it is a powerful factor. The respondent’s case is unlike that in Gaines-Cooper, cited in paragraph 61 above, where the taxpayer had relied on the published guidance. In the present case, the detriment was not caused by any reliance on the 2003 guidance but general financial difficulty due to other reasons.

The decisions under challenge are clearly hard for those whose claims were outstanding in 2009. Nonetheless, in my judgment, the level of unfairness is not that of conspicuous unfairness.

On my conclusions, if my Lords agree, this contention made in the respondent’s notice does not arise but it was argued and so it is convenient to deal with it. Mr Mullan does not ask this court to substitute its decision for that of HMRC but he submits that the judge was wrong to remit the matter to HMRC. He submits that this Court should hold “that, in the light of the respondent’s legitimate expectations and HMRC’s duties it would be unlawful for HMRC to deny the respondent the losses which he has claimed.” (Respondent’s replacement skeleton argument, 15 March 2017, [83]). That is tantamount to saying that the judge should have remade the decision herself.

Mr Mullan submits that the judge should not have remitted the matter back to HMRC because HMRC had deliberately failed to put in evidence which justified the difference in treatment: see Paponette v AG for Trinidad and Tobago [2012] 1 AC 1 at [38], which holds that the onus is on the public authority to show justification.

HMRC submit that it was not open to the judge to make the decision because under section 31(5A) Senior Courts Act 1981 she could only remake a quashed decision where (i) the decision was made by a court or tribunal, (ii) it was quashed because there was an error of law, and (iii) without the error, there would be only one decision that could have been reached

In my judgment, the judge made no error here for the reasons given by HMRC.

For the reasons given above, I would allow this appeal and dismiss the respondent’s notice.

I acknowledge with gratitude the assistance provided by Rory Mullan and Harriet Brown, who have appeared pro bono.

I agree.

I also agree.

The position, as understood before January 2003, was that the base cost of unapproved employment-related share options was (i) the cost of acquisition of the option (ii) any cost on exercise of the option and (iii) any sum on which income tax was payable under section 135 of the Income and Corporation Taxes Act 1988 (per section 120 TCGA 1992).

The position set out in the guidance issued by HMRC in 2003 was that the base cost for the acquisition of the shares was the market value of the shares (as per section 17 TCGA 1992 and Mansworth v Jelley ) at the time the option was exercised plus any amounts charged to income tax on their acquisition (as per section 120 TCGA 1992).

The position set out in the 2009 Guidance was that the base cost of unapproved employment-related share options is the market value of the shares as at the date of the exercise of the share option.

The Respondent does not accept that the 2009 Guidance is a correct statement of the law or that section 120 TCGA 1992 can be disregarded. He has appealed the closure notices to the First-tier Tax Tribunal.