The Commissioners for HMRC v LG Park HT1 Limited & Ors

The correct approach to appeals against case management decisions is well established. HMRC relied on Sales J’s summary in HMRC v Ingenious Games LLP [2014] UKUT 0062 (TCC), [2014] STC 1416 (“Ingenious Games”) at [56], which was also referred to by the UT:

The Court of Appeal has endorsed a cautious approach to challenges to case management decisions on a number of occasions: see for example Jalla v Shell International [2021] EWCA Civ 1559 at [27]-[28], where Coulson LJ repeated Lewison LJ’s comment in Mannion v Ginty [2012] EWCA Civ 1667 at [18] that it is “vital for the Court of Appeal to uphold robust, fair case management decisions made by first instance judges” and reiterated the high hurdle that must be overcome to challenge them successfully.

An appeal to the UT lies only a point of law. Where an error of law is identified then the UT “may (but need not) set aside” the FTT’s decision pursuant to s.12 of the Tribunals, Courts and Enforcement Act 2007. In Degorce v HMRC [2017] EWCA Civ 1427, [2017] STC 2226 (“Degorce”) at [95] Henderson LJ accepted that this gave the UT a broad discretion, but continued:

There is no difficulty with the first three principles set out by the UT in applying paragraph 45 (see [25] above). Paragraph 45 obviously applies only where an appeal has been notified to the FTT and it requires any “question of the market value of the subject matter of the land transaction” to be transferred to the Lands Chamber. What is transferred is only that question. The appeal itself, including all other issues of fact and law, remains with the FTT.

Before the FTT it appears that HMRC proceeded on the basis that paragraph 45 would apply only if valuation was the only issue, or the only issue left. This was not effectively contradicted by LG Parks because their position is that valuation is in fact the only issue. HMRC’s approach in the FTT was not pursued before the UT or this court. While Ms McCarthy accepted that, on a literal interpretation, the use of the definite article in paragraph 45 (“the” question in any dispute) could indicate that there was no jurisdiction to make a reference under paragraph 45 if there was any other question in the appeal (either remaining after other issues are resolved, or possibly at all), on further consideration HMRC preferred a purposive interpretation which would not preclude a reference as a matter of principle where other issues existed or remained. Rather, the question of the time at which a reference should be made is a matter of case management for the FTT.

I agree. Paragraph 45 simply requires questions of valuation to be referred to the Lands Chamber. It says nothing about the timing of a reference. It also cannot be right to interpret it in a way that would potentially exclude a reference where other issues also arise in the appeal. The clear intention is that issues of valuation should be dealt with by specialists in that area, with all other issues being dealt with by the FTT.

With that in mind, how should the FTT approach the question of when to refer an issue of valuation? I have no doubt that this must be a case management decision for the FTT and that, as with other case management decisions, it should exercise its powers in accordance with the overriding objective (set out in the FTT’s rules) to deal with cases fairly and justly, having regard among other things to the need to deal with cases in a proportionate manner and to the need to avoid unnecessary delay.

I therefore do not consider that the UT’s fourth principle (that when the reference should be made “must be guided by the three preceding points”: see [25] above) is helpful. Rather, the first three points do no more than set out what paragraph 45 provides, and as already explained it says nothing about timing. As Lord Justice Newey observed during submissions, by its fourth principle the UT appears to give the impression that there is some form of presumption in favour of an immediate referral. There is no such presumption.

I consider that the correct approach to paragraph 45 is as follows:

In some cases it may be clear that the most efficient and effective approach is to refer the question of market value at a relatively early stage. This will most obviously be the case where the parties are agreed that value is the only issue, or only material issue, that arises. However, in many other cases that would not be appropriate. Examples would include not only cases where market value may prove to be irrelevant once other issues are determined, but cases where an early referral might risk conflicting with the limited nature of the referral by requiring the Lands Chamber to form views on matters of fact or law that are properly within the sole jurisdiction of the FTT, or more generally cases where it is simply not yet clear to the FTT what the issues are in the appeal, so that it cannot properly decide not only whether to refer, but on what terms.

This last point is worth expanding upon a little. There is no format for the terms of a reference under paragraph 45. In some circumstances it might be straightforward: the Lands Chamber may simply be asked to value a particular parcel of land as at a specified date. But where there are transactions which are potentially relevant to determining market value and there is an actual or potential dispute about their terms or about their legal (including tax) effect, it will be for the FTT, not the Lands Chamber, to determine any such dispute, and it will need to incorporate any relevant findings into the reference.

A final general point to make is that the need to determine the issues arising on the appeal before a reference is made should not be taken as meaning that a preliminary hearing should be held for that purpose. The UT suggested that it would have been preferable for the FTT to have determined the scope of the closure notices and that it could have required further information for that purpose. That would amount to holding a hearing to decide a preliminary issue, rather than a case management hearing. As explained in the guidance given by the UT in Wrottesley v HMRC [2015] UKUT 637 (TCC), [2016] STC 1123 at [28], the power to order the hearing of a preliminary issue should be exercised sparingly, and generally only if there is a “succinct, knockout point” which can readily be separated from other issues in the case. In a case such as the present one, considerations such as the ones just mentioned, together with factors such as delay and expense, are in most cases likely to result in a conclusion that the scope of the appeal should be determined with other issues at the substantive hearing of the appeal.

For the reasons already given I consider that the UT’s approach to paragraph 45 involved an error of law. Further, for the reasons explained below I consider that the UT did not adhere sufficiently to the need for caution in interfering with case management decisions of the FTT and the importance of determining whether any error of law was in fact material in the sense described by Henderson LJ in Degorce. I would therefore set the UT Decision aside (reflecting grounds 1 and 2 of the appeal).

In my view, and read as a whole, the FTT Decision does not disclose a material error of law. I would therefore re-make the UT Decision by dismissing the appeal against the FTT Decision.

I accept that some parts of the FTT Decision might be construed as suggesting that a reference may only be made if valuation was the only remaining issue in dispute. This is not surprising given the parties’ positions: see [34] above. However, I do not consider that the FTT Decision is fatally flawed by any such error. Read as a whole, the emphasis is on whether it would be “appropriate” to refer the issue of valuation before other issues were decided, and see also para. 49 (set out at [21] above) where the FTT refers to not being “required” to refer valuation while there were still questions to be considered by the FTT. But in any event, and importantly, the FTT decided that it would not be in accordance with the overriding objective to refer the question of valuation at that stage.

I disagree with Mr Baldry that the FTT’s decision under the overriding objective heading was infected by an error of law. Rather, and with respect to the UT, the FTT reached an independent conclusion that a reference at that stage would not meet the requirements of the overriding objective, a conclusion which I consider to have been well within the ambit of the FTT’s discretion.

The UT was right not to interfere with the FTT’s refusal to determine the scope of the appeals (strictly the “matter in question”, see [12] above). Having been entitled not to do so I do not consider that the FTT should be criticised for failing to treat the conclusions in the closure notices as its “starting point” as the UT said it should. With respect, that tends to assume the answer to a question which the FTT was entitled not to decide.

Given that conclusion it would be wrong to elaborate at length on the topic of the scope of conclusions in closure notices and the implications of that on the scope of appeals, but I do need to make some observations to explain why, despite the apparent focus of the closure notices in this case on market value, the point may not be as simple to decide as LG Parks maintain that it is:

I should reiterate that this is not the occasion to decide the scope of the appeals. As Investec makes clear, that is a matter for the FTT. The FTT was entitled not to determine that issue. Investec also shows that in some cases HMRC may not be restricted to advancing further reasons in support of conclusions reached in a closure notice but may be entitled to take a different approach from that taken on the face of the closure notice, including one which could result in more tax being due.

In this case, HMRC’s position is that, despite what is said on the face of the closure notices and the context of the 2012 correspondence referred to at [5] above, they are entitled to maintain on appeal that there was in fact no exchange for SDLT purposes. If that view prevailed and HMRC ultimately succeeded in arguing that the exchange provisions did not apply, then market value would be irrelevant. SDLT would simply be due by reference to the consideration paid (totalling £116,568,994 plus VAT: note that the addition of VAT makes the amount higher than that reflected in the closure notices).

Whether, as HMRC maintain, HMRC would in fact be entitled to argue that the exchange provisions have no application in this case is a question for the FTT in due course. Aside from the fact that the dispute on that issue itself shows that the appeal is not confined to a valuation question, its relevance at this stage is that, if the closure notices did not preclude that approach and HMRC succeeded in its argument, then no reference to the Lands Chamber would be required at any stage. This point is part of what lies behind ground 3 of the appeal, namely that the UT proceeded on a false assumption that a reference to the Lands Chamber was inevitably required.

I should also emphasise that the FTT was being asked to make a reference to the Lands Chamber at an extremely early stage of the proceedings, and before HMRC had even been required to produce a statement of case. In those circumstances the FTT cannot have been wrong to consider LG Parks’ own grounds of appeal in seeking to gauge the likely scope of the dispute between the parties. Having concluded that the taxpayers wished to raise matters that were properly within the sole jurisdiction of the FTT, and which HMRC were certainly not saying that the taxpayers were not entitled to raise, the FTT cannot be criticised for refusing to accede to the taxpayers’ argument that market value was nonetheless the sole issue for the purpose of deciding whether an immediate reference should be made.

As already indicated, the FTT had relied among other things on the issue of apportionment being one for the FTT, whereas the UT found that it could most appropriately be determined by the Lands Chamber as an aspect of valuation. In doing so the UT relied on the approach taken in Denning v HMRC [2021] UKUT 76 (LC). Mr Baldry submitted that the UT was correct, arguing that although the UT decision in Denning has now been reversed by the Court of Appeal ([2022] EWCA Civ 909, [2022] STC 1223) there was no suggestion that the Lands Chamber should not have dealt with apportionment in that case.

I do not need to address this point in any detail. Apportionment may or may not prove to be a relevant issue. If it is, that is most likely to be the case where market value is not determinative, because what has to be apportioned for SDLT purposes is the consideration given (see [9] above). The apportionment provision does not apply if SDLT is chargeable by reference to market value rather than the consideration. But in any event the facts of Denning (which concerned whether certain leasehold interests should be valued as including a goodwill element by reference to applicable RICS guidance) are very different from the facts of this case. It is obvious why the issue was accepted as being one for the Lands Chamber in Denning.

Further and more generally, any dispute about what the consideration ostensibly paid for the grant of the Plot Leases was actually paid for – for example whether it was paid to settle the arbitration in addition to acquiring the land interests, as well as whether any part of it was paid for the MPR Release or indeed anything else – will be a question of fact and (at least so far as it concerns contractual interpretation) law for the FTT. The Lands Chamber could not properly trespass on those questions, but it would require them to be determined in order properly to assess the relevance of the contractual price, agreed between unconnected parties, to determining market value: the existence of that agreed price was, after all, the nub of HMRC’s case on market value when it issued the closure notices. This simply underlines the prematurity of the reference that the FTT was asked to make. Mr Baldry’s submission that market value could be determined independently, and that once that is established it would become clear whether the consideration paid must have been paid in part for something else, conflicts with HMRC’s case as it would inevitably be put if a reference was made.

One of the other points made by the UT was that the discovery assessments post-dated the FTT Decision and so could not be relevant to whether the FTT made an error of law. However, in exercising its case management discretion the FTT had in mind HMRC’s indication of its intention to issue them (see [20] above). It was appropriate for it to do so. The discovery assessments relate to the same transactions and clearly raise issues that are not limited to market value. It would have been obvious that the inevitable appeals against them should be considered alongside the appeals against the closure notices. Further, if it were established that part of the consideration paid by LG Parks was attributable to the MPR Release and the remainder for the Plot Leases, and the MPR Call Option were found to be a chargeable interest for SDLT purposes, then the issue of the market value of the Plot Leases might at least in practice prove less controversial, such that no reference to the Lands Chamber might ultimately be needed for that reason. Alternatively, if the correct analysis is that there was an exchange, but one that encompassed a chargeable release of the MPR Call Option as well as the grant of the Plot Leases, then it might prove necessary to refer the question of the value of the MPR Call Option as well as the question of the value of the Plot Leases. A premature reference of the latter could result in the FTT subsequently having to make as further reference of the former. That would not accord with the overriding objective.

In conclusion, I would allow the appeal and remake it by dismissing the appeal against the FTT Decision.