HM Revenue and Customs v Smart Price Midlands Ltd & Anor

UKUT 465 (TCC)

SMART PRICE MIDLANDS LIMITED

HARE WINES LIMITED Respondents

UKUT 419 (TCC)

He did not accept that the proposed disclosure exercise would place an unreasonable burden on HMRC’s resources. There should already be a file containing all the material the decision-maker considered or a record of the documents considered so compiling a list should be a simple task. Counsel had raised the issue of disclosure of materials which would reveal confidential sources of information. The judge noted that HMRC had not suggested that any of the documents in issue in the appeals before him contained such confidential information. Where such material did exist, he held that HMRC should not be required to produce that or at least not in unredacted form: [28]. However:

“As it was part of the material that was considered by the decision maker and, given its nature, it is very likely to have influenced the decision, I consider that it should be included in the list of documents described in general terms, if necessary, but marked as confidential. HMRC could apply, on a case-bycase basis, to exclude such material from further disclosure or production”.

Judge Sinfield varied the direction at paragraph 2.2 of the relevant orders to the form of the global disclosure direction:

HMRC appealed against the Hare Wines FTT decision. That appeal was dismissed by the Upper Tribunal (Henry Carr J and Judge Hellier) on 6 December 2017: [2017] UKUT 465 (TCC) (‘Hare Wines UT’). The Upper Tribunal rejected a number of criticisms of the FTT’s judgment that are not pursued in this court. They noted at [27] that, without expressing any views as to the ultimate outcome of the appeal, there was a good arguable case that the Refusal letter was inadequate and incomplete because “the reference to “key points” begs the question of what was taken into account by the decision-maker, and what was disregarded.” The Upper Tribunal found that questions as to what was and what was not considered by the officer were important in these appeals, in particular in relation to the ‘key points’ ground. The judge was entitled to make a direction for the disclosure of those documents considered by the officer on the basis that this was necessary for a just and fair resolution of the appeal.

The Upper Tribunal then considered the submission that the judge had applied the wrong principles in exercising his discretion to depart from the automatic disclosure provided for in rule 27(2). They referred to the judgment of Sir Geoffrey Vos C in E Buyer UK Ltd v HMRC, HMRC v Citibank NA [2017] EWCA Civ 1416 (‘E Buyer’) and to the judgment of Sales J (as he then was) in HMRC v Ingenious Games [2014] UKUT 62 (TC). The Upper Tribunal said:

“44.

These authorities are examples of the application of rule 27(2) which turn on their own facts. In agreement with Judge Sinfield in the Decision, we regard Rule 27 Disclosure as a starting point or default position which applies unless the Tribunal is persuaded that something else is, in the

circumstances of the appeal, just and fair. However, it is no more that. The rule expressly provides that its provisions are “subject to any direction to the contrary”. Where the FTT, in the exercise of its discretion, decides that it should depart from this starting position to enable it to deal with the case justly and fairly, it is entitled to do so, as illustrated by the Ingenious Games decision.

45.

In the present cases, Judge Sinfield gave reasons for departing from the starting position in order to enable the FTT to deal with the appeals justly and fairly. He did not apply an incorrect test in reaching the conclusion that he did, and we reject HMRC’s argument based upon Rule 27(2).”

The Upper Tribunal held that the judge had been entitled to make the same direction in each of the appeals because the appeals shared a common factor. They were very serious matters for each of the appellants. In accordance with the overriding objective, the judge was entitled to have regard to the importance of the case to ensure so far as practical that the parties were able to participate fully in the proceedings: [47].

“The decision-maker was the only person who knew what material he or she had considered when making the decision, and it would not be possible for the FTT to dispose of these appeals fairly and justly, and for the Appellants to participate fully, without the disclosure that he ordered.”

On the question of proportionality, the Upper Tribunal noted that HMRC had had the opportunity to put forward evidence at the hearing before the judge as to why the orders for disclosure would be disproportionate. HMRC had not done so. The Upper Tribunal then considered the contrast between the breadth of the global disclosure direction and the approach of the High Court to disclosure in the broadly comparable field of judicial review. The Upper Tribunal concluded that it was within the margin of discretion afforded to the judge to make the global disclosure direction, indeed they considered that on the information before him he was entitled to do so. When such directions were made in the future, HMRC would be given the opportunity to exclude documents, depending on the facts of the case.

The Upper Tribunal refused permission to appeal but permission was granted in the Hare Wines appeal by Lewison LJ. In his reasons for granting permission, Lewison LJ stated that the widespread implications of the Upper Tribunal’s approach and the desire of HMRC for authoritative guidance on the proper approach to disclosure in AWRS appeals justified consideration of the appeal by the full court. That was a compelling reason for the court to consider the correct approach. He imposed the condition that HMRC would pay the Traders’ costs of the appeal in any event. In the light of that, I approach this appeal on the basis that this court should in this instance consider not simply whether the disclosure order made following Hare Wines FTT was within the judge’s margin of discretion but rather should determine what the appropriate order for disclosure should be in these cases.

Disclosure of documents is not an end in itself but a means to an end, namely to ensure that the tribunal has before it all the information which the parties reasonably require the tribunal to consider in determining the appeal. It is only one step in the overall management of the case which should, as the appeal progresses towards a substantive hearing, identify and if possible narrow the issues between the parties. The scope of the issues in contention at the trial depends in part on the legal test to be applied by the tribunal and in part on the parties’ respective positions as to which elements of that test are in contention.

As to the test to be applied, I have already considered section 16(4) of the Finance Act and the ‘gloss’ put upon it by Gora. Any particular AWRS appeal might or might not raise issues of primary fact for the tribunal to decide. There may be factual disputes about whether misconduct relied on by HMRC to justify the refusal of approval actually took place or conversely whether exonerating conduct on which the trader wishes to rely actually took place in the manner that the trader claims. There may be appeals in which there are no disputes of primary fact and the argument rather is whether the HMRC officer could reasonably have arrived at the decision to refuse approval on the facts as agreed between the parties. Some appeals may be limited to the question whether conditions or restrictions could have been imposed sufficient to protect the revenue so that refusal of approval was unreasonable and disproportionate.

What then is the appropriate disclosure regime in these AWRS appeals? Mr Hall QC argued that disclosure should be limited to that required by rule 27(2) of the FTT Rules. He referred to the judgment of Sir Geoffrey Vos C in E Buyer as authority for the proposition that the FTT Rules have been enacted for important as well as simple cases and that the rule provided a procedure for disclosure in the FTT which was intended to be different from that which applied in civil litigation generally: see [93] and [94]. However, a number of alternative disclosure models were discussed at the hearing; standard disclosure under the Civil Procedure Rules, disclosure in judicial review cases and the special procedure for disclosure in appeals to the Upper Tribunal in financial services cases.

Mr Bedenham accepted that standard disclosure under CPR r 36.1 did not extend as widely as the global disclosure direction. The scope of standard disclosure was considered by this court in Serious Organised Crime Agency v Namli and another

SOCA’s witness stated that in the course of carrying out the disclosure exercise, it had established that it held highly confidential communications from UK intelligence and crime prevention agencies on which it did not wish to rely. The material was only relevant as adversely affecting the defendant’s case, it did not adversely affect SOCA’s case so that withholding such material would not prejudice the defendants. Stanley Burnton LJ (with whom Carnwath LJ and Sir Robin Jacob agreed) held that the documents fell within CPR r 31.6(b)(ii). The application of that provision was not limited to multi-party cases but covered documents adverse to the defendant’s case. In other words, the reference to “another party” included the opposing party in a two party case, even where the disclosing party did not wish to rely on those documents. The judge commented that it was not immediately obvious why such documents were included in standard disclosure; perhaps those formulating the rule did not have in mind the possibility that a party might not want to rely on documents adverse to his opponent’s case: [18]. However, the words of the rule were clear and the power in CPR r 31.5 for the court to limit disclosure rendered any contrived or forced or purposive interpretation unnecessary.

The court in Namli went on to consider whether the judge had nonetheless been right to exercise his discretion to limit disclosure to exclude the documents. The defendants had put forward four reasons why they wanted to see the material. Those arguments are similar to the submissions made by the Traders in these appeals:

The court in Namli therefore held that the judge had been right to exercise his discretion to limit disclosure having regard to the overriding objective, including the saving of expense and the need not to take up unnecessary court resources by requiring SOCA to make applications for public interest immunity in respect of the documents. They upheld a direction that each party give disclosure of documents that (i) he relies on; (ii) adversely affect his own case; (iii) support another party’s case and (iv) he is required to disclose by any relevant practice direction.

The scope of standard disclosure in a similar factual situation was considered in Shah and another v HSBC Private Bank (UK) Ltd [2011] EWCA Civ 1154, [2012] Lloyd’s

Lewison LJ stated at [23] of Shah that given that the avowed intention of the framers of the CPR was to reduce the scope of discovery in civil actions, it was dangerous to apply pre-CPR statements of the test of relevance. The word “relevant” does not appear in CPR r 31.6 and is a summary of, not a substitute for, the categories of documents set out in the rule. Since the names were not information on which the bank wished to rely and there was no positive “case” being put forward by the claimant which might be supported by the additional disclosure, the only possible category into which the names could fall was that they might be information that adversely affected the bank’s case. The names might reveal that the sources were people with some ulterior ill will against the claimant leading them falsely to report a suspicion of money laundering. This suggestion was rejected as speculative on the facts put forward by the claimant. Lewison LJ concluded that the more he listened to the explanation of why the claimant wanted the names, the more convinced he became that this was a fishing expedition: [49]. He held that disclosure should not be required. Pill LJ agreed with the result but did not agree that the judge had been wrong to rely on the statement of Sir Thomas Bingham MR in Taylor v Anderton. That was, he held, still the rationale for the rule as to disclosure. Munby LJ agreed with Pill LJ on this point, that the purpose of CPR r 31.6 was “to ensure that there is no unfair advantage or unfair disadvantage, no litigious disadvantage and no litigious advantage”. The difference was that these questions are now to be assessed not by reference to the pre-CPR test of relevance but by reference to the requirements of the new rule: [53].

The second model referred to by the parties was disclosure in judicial review proceedings, pursuant in particular to the public authority’s duty of candour: see

Mr Hall QC argued that if the Tribunal considered that rule 27(2) disclosure was inadequate, HMRC would not object to a disclosure order which requires HMRC to disclose all documents that (a) were taken into account in making the decision, and (b) were not taken into account and which suggest that the appellant is fit and proper. This would, Mr Hall submitted, mirror HMRC’s litigation duty, although he accepted that the analogy with the judicial review jurisdiction was not exact. The importance of focusing in judicial review proceedings on the validity of the reasons given for the decision under challenge was stressed in R v Secretary of State ex p London Borough of Islington and the London Lesbian and Gay Centre [1997] JR 121. Dillon LJ referred to what was described as the “terminus argument” namely that where the case for judicial review is put on the basis that the decision challenged is so unreasonable that the decision-maker must be taken to have taken irrelevant matters into account or to have failed properly to consider the relevant matters or to have erred in some other way, then one need only look at the decision itself to see whether it is unreasonable. That argument had been accepted by the court in the earlier case of R v Secretary of State for Home Affairs ex parte Harrison [1997] JR 113 where the court had rejected an application for disclosure of all documents which had been before the decisionmaker on the basis that the application was a fishing expedition. Dillon LJ said that it was dangerous to apply that conclusion in every case, since many judicial review cases focus on the fairness of the procedure by which the decision was reached. But he held that since there was nothing to support the applicant’s suspicion that the Minister had been biased by his disapproval of homosexual activity, there was no basis for going behind the statement made in an affidavit that that had not formed any part of the reasons for the decision.

Thirdly, reference was also made to the disclosure regime in Schedule 3 to the Tribunal Procedure (Upper Tribunal) Rules 2008 (S.I. 2008/2698). This applies to appeals against certain decisions of the Financial Conduct Authority or other financial regulators. The procedure provides for the applicant to start proceedings by lodging a reference notice stating: “the issues that the applicant wishes the Upper Tribunal to consider”. In response, the regulator sends a statement of case setting out all the matters and facts upon which the respondent relies to support the referred action. According to paragraph 4(3) of Schedule 3:

“(3)

The respondent must provide with the statement of case a list of—

(a)

any documents on which the respondent relies in support of the referred action; and

(b)

any further material which in the opinion of the respondent might undermine the decision to take action.”

The applicant under Schedule 3 then sends a reply which sets out the grounds on which the applicant still relies, all the matters in the respondent’s statement of case which are disputed and the reasons for disputing them. There is then the procedural step called “secondary disclosure” by the respondent. Paragraph 6 of Schedule 3 provides that after the applicant’s reply has been sent, if there is any further material which might reasonably be expected to assist the applicant’s case as apparent from the applicant’s reply and which has not already been listed, the respondent must provide a list of such further material. The term “further material” is defined in paragraph 1 of Schedule 3 as follows:

““further material” means—

(a)

in a single regulator case, documents which—

(i)

were considered by the respondent in reaching or maintaining the decision to give the notice in respect of which the reference has been made; or

(ii)

were obtained by the respondent in connection with the matter to which that notice relates (whether they were obtained before or after giving the notice) but which were not considered by it in reaching or maintaining that decision;

but does not include documents on which the respondent relies in support of the referred action;”

That disclosure regime is in some ways broader than the global disclosure direction and in some ways narrower. It is broader because the further material includes material obtained by the respondent even if not considered by it in reaching or maintaining the decision. It is narrower in an important respect because there is no requirement that further material that supports the regulator’s case but which is not relied on by the regulator need be disclosed. This is the effect of the rules because, although the definition of “further material” would appear by itself to include additional material supporting the regulator’s case, the phrase “further material” is only used in the Schedule in a context where it is immediately qualified by being limited to material which in the opinion of the respondent might undermine the decision to take action or assist the applicant’s case: see para 4(3)(b), para 4A(6)(b) and para 6(1) of the Schedule. That is the case even though the tribunal’s jurisdiction may be a merits based jurisdiction when considering the reference. The apparent width of the definition of “further material” is also cut back by para 7 of the Schedule which provides for exceptions to the need to list documents.

Having considered these different models of disclosure and the FTT’s task in these appeals, my conclusion is that disclosure from HMRC limited to that required by rule 27(2), would not be not sufficient in these AWRS appeals, even as a starting point. I do not accept that E Buyer is authority for the proposition that something exceptional is required for that rule to be displaced. The Chancellor’s comment was made in the context of an appeal against a case management decision by the FTT to limit disclosure to the documents on which HMRC wished to rely to refuse input VAT deduction in respect of specified transactions alleged to be part of an MTIC fraud. The focus of the inquiry in such a case is much narrower than the wide ranging assessment of fitness and properness involved in the present appeals. The Chancellor said that wider disclosure such as standard disclosure would have been appropriate had fraud or dishonesty been alleged rather than simply knowledge of the fraud. Further, Hallett LJ noted in E Buyer that the order being challenged was expressed by the FTT judge as the one appropriate at that stage of the litigation. I agree with the conclusion of the FTT and Upper Tribunal in these appeals that where HMRC have access to many documents of which the applicant may be unaware, it is vital that the appellant trader have access to any exonerating material in the hands of HMRC. These cases are different from the more common appeals against a tax assessment where most if not all the material considered is provided to HMRC by the tax payer.

I also reject HMRC’s proposal that disclosure be ordered on the basis of documents “taken into account” by the decision-maker. As a practical matter, the border between documents “taken into account” on the one hand and those which have been “considered” by the decision-maker on the other hand is too uncertain and is bound to lead to disputes. HMRC appear content with the former but object strongly to the latter because they construe the “considered” test as encompassing everything which the decision-maker looked at, even if it was immediately dismissed as irrelevant. I have set out above the description in the Excise Notice of the wide range of files and sets of records both within HMRC and held by other Government agencies or taxpayers that may be consulted in the assessment of any individual application for approval. It appears that there is no division within HMRC’s procedures between those officers investigating the circumstances of the applicant and its key persons and those officers then tasked with taking the initial decision. There is no handing over of a file limited to those documents that should be taken into account by the decisionmaker unless there is an internal review. In those circumstances I do not regard HMRC’s alternative test as workable in practice or correct in principle.

On the other hand, I do not regard it as appropriate in these appeals to order disclosure of everything the decision-maker considered when deciding to refuse approval. That might be necessary if the tribunal were required to assess the fitness and properness of the trader afresh, taking into account all the potential factors listed in the Excise Notice. Here, the task of the tribunal is to consider whether the appellant trader has established that no reasonable officer could refuse approval because of the conduct relied on by HMRC in the decision to refuse approval, having regard to (a) the extent to which HMRC continues to rely on that conduct in its statement of case to defend the appeal; (b) any exonerating conduct relied on by the trader; (c) whether any disputes of primary facts relevant to that conduct are resolved by the tribunal in favour of the party asserting that the facts are well founded; and, where the issue is raised, (d) whether any conditions or restrictions short of refusal could have adequately protected the revenue. In the light of that, documents adverse to the appellant that do not relate to the misconduct on which HMRC relies are not relevant.

In my judgment, HMRC should give what corresponds to standard disclosure under the CPR but with the same qualification as the Court accepted in the Namli case, that is excluding documents which are not relied on and which are entirely adverse to the applicant’s case. If disclosure is generally to be given on that basis, it does not seem to me helpful for disclosure to take place before the stage at which it is envisaged by rule 27(2). That rule contemplates that disclosure will take place after the Refusal letter has informed the trader of “the reasons” for the refusal, the notice of appeal under rule 20 has set out the appellant’s grounds for bringing the appeal and HMRC have served the statement of case setting out their position in relation to the case. If all that happens as it should, the FTT should be in a position to invite the parties to agree directions for disclosure on the standard basis, having regard to the areas of dispute emerging after those three procedural steps. Although section 16(4) of the Finance Act provides that the tribunal is reviewing the decision taken by the Commissioners or other person, in practice the tribunal is reviewing the robustness of those arguments on which HMRC chooses to rely in defending the appeal. By analogy, in Shah Coulson J at first instance had commented that the redaction of the informants’ names made it more difficult for the bank itself to show, for example, that a number of different people within the bank had reported suspicions to the nominated officer. Lewison LJ said that withholding the names was the bank’s ‘forensic choice’ – if the bank had made it more difficult for itself to prove its own case, it must live with the consequences. In AWRS appeals too, HMRC may include a large number of allegations of misconduct in a refusal decision. In the light of the grounds of appeal, however, they may decide to abandon some allegations and limit the statement of case to fewer instances of misconduct. HMRC will have in mind, of course, the public interest in ensuring that unsuitable people are not approved. If they are confident that a few egregious instances will be sufficient to convince the tribunal that the decision to refuse was reasonable, HMRC may well decide for reasons of proportionate cost and ease of presentation to rely on particular instances. Although the applicant then bears the burden of proof as to the grounds of its appeal, the identity of the points it must challenge is defined by the combination of the refusal reasons, the grounds of appeal and the statement of case. HMRC may ultimately regret having abandoned certain of its reasons, if the appellant’s case on the points before the tribunal turns out to be stronger than HMRC anticipated. As Lewison LJ said, that is their forensic choice and they must live by it.

I accept that from an administrative point of view, it may make sense for the FTT to devise a disclosure direction which can be made by the tribunal at an early stage in the life of these appeals. We were told by HMRC that several thousand businesses applied for approval when the AWRS came into effect, a large proportion of applications were refused and there are up to 100 live appeals currently before the FTT. Many of the appeals were expedited because of the uncertainties for existing businesses which will have to close if their appeals against refusal are not successful. But if the FTT’s aim in bringing the disclosure exercise forward was to save time and shorten the overall proceedings, that is not how it has turned out.

In any event, even an order made after the statement of case has been served is necessarily a first step. That points in favour of adopting a conservative approach rather than an expansive approach to disclosure. Too much disclosure by one party imposes a significant burden not only on that disclosing party but also on the opposing party who has to incur the time and cost of its legal team sifting through and commenting on documents which may have no bearing on the points on which either party intends to rely. The tribunals considering these cases have recognised that the FTT’s procedure allows for HMRC to apply to vary the initial disclosure direction. It also allows for the trader to seek further disclosure by category or by seeking specific disclosure as the case develops, for example if it becomes clear from the statement of case that there are still disputes of primary fact. As this court said in North Shore Ventures Ltd v Anstead Holdings Inc [2012] EWCA Civ 11, disclosure is a continuing process which is part of case management: [42].

I turn then to consider the appropriate order for this court to make in the Hare Wines appeal. Unfortunately this appeal has progressed in a way which makes it difficult at this stage to order disclosure that is tailored, even in a broad brush way, to the matters in dispute between the parties. The main problem is the opacity of the reasons given for the refusal of approval. If what happened in the Hare Wines appeal is at all typical of HMRC’s process in determining applications, it reveals a chaotic decision-making process which is almost bound to generate appeals and create case management problems in any tribunal proceedings. I agree with the comment of the Upper Tribunal in Hare Wines UT that the Refusal letter is inadequate and incomplete. The obligation placed on HMRC in regulation 4(4) of the Wholesaling of Controlled Liquor Regulations 2015 is to give ‘the reasons’ not the ‘key points’ for the refusal. The applicant should be able to understand the reasons for the refusal of the application from the refusal letter as a self-standing document. The relationship in the Hare Wines appeal between the Refusal letter and the HMRC Response letter both sent on 20 March 2017 is not explained. The Refusal letter is from Ola Onanuga, who is presumably the decision-maker for the purposes of the global disclosure direction. It states simply that one ground for the refusal is that Mr Hare is involved as the guiding mind of the business but does not say anything about why his involvement is objectionable. The Refusal letter does not expressly incorporate everything in the HMRC Response letter and it does not say whether Ola Onanuga has seen or considered all the information that was available to Edward Fyle who wrote the HMRC Response letter. It is entirely unclear to me, for example, whether the tax loss letters have been relied on by Ola Onanuga as part of the reason why Hare Wines is not fit and proper, or whether Mr Hare’s spent conviction has played any part in the decision to refuse as asserted by Mr Fyle but not mentioned in Refusal letter.

This confused position has made it difficult for Hare Wines properly to formulate its grounds of appeal and has then been compounded by HMRC’s statement of case. That document appears in one section simply to replicate the brief reasons given in the Refusal letter but in a later section raises a host of other points without explaining in some cases whether and why HMRC have apparently rejected the arguments put forward in the Rainer Hughes letter.

If HMRC’s defence of the appeal were limited to the wrongdoing described in the Refusal letter, namely that Hare Wines entered into eight transactions with Axhet Ltd before carrying out the necessary due diligence, then it may be that disclosure should be limited to documents relating to Hare Wines’ dealing with that supplier, if, indeed, those transactions are disputed as a matter of fact. HMRC may well be eager to disclose a great deal of documentation about Ms Kosiorek’s tax affairs, or due diligence failings other than in relation to Axhet Ltd, or the tax loss letters and argue that they are relying on that to defeat Hare Wines’ appeal. I note that HMRC say in their written submissions for this appeal that irrespective of whether the decisionmaker’s evidence is that he relied on Mr Hare’s spent conviction in reaching his decision “it is HMRC’s intention to rely on that fact during the FTT proceedings as demonstrating that Hare Wines is not fit and proper”. Given that the spent conviction is not mentioned in the Refusal letter there is, as I have said, a prior question whether HMRC are entitled to rely on that and other matters and so whether Hare Wines should be put to the expense of examining that disclosure. It seems to me better to resolve that procedural point before any disclosure exercise takes place.

Further, until that question is resolved, it is difficult to know how Hare Wines can comply with the direction made. Hare Wines is directed to disclose the documents on which it intends to rely in connection with the appeal. If, for example, no misconduct on the part of Ms Kosiorek is relied on by HMRC or if the tax loss letters have now been abandoned as forming part of the reasons for refusal (as appears from the Refusal letter and the statement of case), Hare Wines does not need to rely on any documents to refute any such allegations.

Turning finally to the appropriate disposition of the Hare Wines appeal, it follows from the reasoning above that the global disclosure direction cannot stand. It also follows that there is some work to be done on clarifying the scope of the issues in the Hare Wines appeal before it is appropriate to make any order for standard disclosure. I do not know how far that situation is replicated in the refusal decisions of the other Traders involved in these appeals. Disclosure is not a cure for a lack of clarity in HMRC’s case. In my judgment the safest course is therefore to allow the appeal, quash the global disclosure direction and remit the appeals to the FTT for further directions.

Given that I have found that the global disclosure direction was not an appropriate direction to make in these appeals at the stage at which it was made, I can deal with the Gardner Shaw appeals more shortly. The global disclosure direction had been made by the FTT in each of these 10 appeals but the proceedings, including HMRC’s compliance with the direction, were stayed pending HMRC’s appeal against Hare Wines FTT. That appeal was dismissed on 6 December 2017 in Hare Wines UT. HMRC applied for a further stay in these 10 appeals, pending the outcome of their application to the Court of Appeal for permission to appeal against Hare Wines UT. On 20 June 2018 Judge Mosedale refused to continue the stay in the Gardner Shaw appeals: see [2018] UKFTT 313 (TC). HMRC then applied for a variation to the global disclosure direction to exclude from disclosure any document that was considered sensitive by HMRC and did not either support the appellant’s case or adversely affect HMRC’s case.

Judge Mosedale considered first whether she had jurisdiction to amend the direction given that (a) the legality of the global disclosure direction had been the subject of an unsuccessful appeal to the Upper Tribunal and was now on appeal to the Court of Appeal, and (b) the application was supported by evidence which could have been produced to Judge Sinfield when hearing HMRC’s original application to vary the FTT’s directions in the Hare Wines appeal or at the hearing for the continuation of the stay. She referred to the tribunal’s apparently unfettered discretion under rule 5(2) of the FTT Rules to amend any direction made. She also referred to the case of Tibbles v SIG plc [2012] EWCA Civ 518 (‘Tibbles’) discussing how that discretion should be exercised. She said at [17] that it was clear from Tibbles that it does not matter whether the issue is seen as a question of jurisdiction or discretion; directions should only be revoked or varied where it is in the interests of justice to do so. She rejected HMRC’s contention that the application to vary was the kind of application contemplated by Judge Sinfield at [28] of Hare Wines FTT (see [33] above). She also rejected the submission that there had been a change in circumstances; what had changed was HMRC’s realisation that some of the material to be disclosed was confidential. The only basis on which HMRC could justify the variation they sought would be by showing that “the circumstances are something out of the ordinary”. That was a phrase taken from Tibbles [39]. Judge Mosedale referred to the evidence of Mr McGee, an HMRC officer. She accepted that if the global disclosure direction were to be implemented, HMRC would need four months to produce its list of documents and the cost would be in excess of £500,000. She concluded, having regard to the likely irrelevance of much of the material covered by the global disclosure direction, that the circumstances of HMRC’s application fell within “the category of being out of the ordinary, or even exceptional”: [83]. She concluded:

“84.

The exercise will delay appeals which should be expedited; it will cost an extremely large sum of taxpayer’s money while at the same time none of the information disclosed by it will be of any proper assistance to the appellants. It is a pointless exercise to require HMRC to disclose legally irrelevant material.”

She therefore varied the global disclosure direction by adding the words in italics below so that it read:

“2.2

the Respondents shall send or deliver to the Tribunal and the Appellants a list of all documents which were considered by the Respondents’ officer when reaching the decision at issue in this appeal and indicating which, if any, of those documents the Respondents do not rely on in this appeal, together with any other documents which the Respondents intend to rely on in this appeal save that the Respondents need not include a document on that list if both (a) it is considered to be sensitive by HMRC and (b) it does not support the case of the Appellant nor adversely affect that of HMRC.”

The Gardner Shaw appellants appealed and the Upper Tribunal (Fancourt J and Judge Hellier) overturned Judge Mosedale’s decision: [2018] UKUT 419 (TCC) (‘Gardner Shaw UT’). They held that the judge was entitled to make the findings about the costs and the time needed for carrying out the exercise: [24]. But she had been wrong to consider and determine the question of relevance of the documents or to come to her own conclusion as to the best way to balance the competing interests of the parties: [29]. There was no basis on which the Judge could reasonably have concluded that the circumstances justified her in varying the order. The Upper Tribunal granted permission to appeal to this court.

In their judgment, the Upper Tribunal noted, correctly, at [27] that the interplay between the nature of appeals against HMRC’s determination and the notions of relevance engaged when considering disclosure would be central to the argument in this court about the appropriateness of the global disclosure direction. They concluded that the fact that Judge Mosedale was persuaded that there was a more appropriate and better approach to disclosure, contrary to Hare Wines UT, was not capable of being a reason why exceptionally the FTT should revisit and change its earlier direction. The fact that there had been an appeal to the Upper Tribunal was a strong reason not to revisit the global disclosure direction because “[t]he interests of justice include upholding the finality of court and tribunal decisions and not undermining the appeal process”: see [33]. There had been no change of circumstances and a re-hearing could not be justified on the basis that a party had belatedly put in better evidence to support its case. Approaching the matter on the basis of Tibbles, the Upper Tribunal concluded that there was no basis on which a judge could reasonably conclude that this was a rare instance of the unidentified, residual cases where it was appropriate for the FTT itself to vary the terms of the direction previously issued: [40].

I agree with that reasoning and have also concluded that the FTT was wrong to vary the global disclosure direction in the circumstances presented to the judge. I reach that conclusion although I recognise that I have concluded that the disclosure in AWRS appeals should be less extensive than the disclosure covered by Judge Mosedale’s reformulation of the direction. The point in this appeal was whether the case was one in which it was appropriate for the FTT to vary its own previous direction rather than to maintain the position where that very issue had been determined by the Upper Tribunal and was being considered by this court. The appeal against Gardner Shaw UT should therefore be dismissed.

The result of the Upper Tribunal allowing the appeal in Gardner Shaw UT was that Judge Mosedale’s variation of the global disclosure direction was set aside so that the global disclosure direction was reinstated in full. Although the Gardner Shaw appeals are now dismissed, the global disclosure direction should not stand. The parties have indicated, following the circulation of the draft of this judgment, that they will agree a variation to the global disclosure direction to be made by the FTT in the Gardner Shaw appeals to ensure that disclosure is effected in accordance with this judgment.