Barnett, R (On the Application Of) v Inland Revenue

MR JUSTICE DAVIS: This is a claim brought by a claim form issued on 4th March 2003 by Mr Michael Barnett for judicial review of a decision of the Board of Inland Revenue dated 5th December 2002 declining to exercise its discretion in favour of Mr Barnett pursuant to the provisions of what is now section 152(3) of the Taxation of Chargeable Gains Act 1992 (formerly section 115(3) of the Capital Gains Tax Act 1979). Permission limited to certain grounds was granted by Newman J on 7th May 2003. At the outset of the hearing before me I refused an application to amend to add certain proposed new grounds.

The matter has a long history. Putting it shortly, however, the position is this. Mr Barnett sold a property at 14 Belsize Park Gardens in north London on 22nd April 1986. He wished to obtain roll-over relief from Capital Gains Tax in respect of his gain accruing on the sale of that property by reinvesting in replacement properties.

The relevant statutory provisions for present purposes are those contained in section 152(1) to (3) of the 1992 Act (formerly section 115(1) to (3) of the 1979 Act). Those sections read as follows:

The requirement thus under the statutory provisions is, amongst other things, that an unconditional contract for the acquisition of the replacement assets must be entered into before the expiry of three years after the disposal of the old assets; but the Board has a discretion to extend time.

At the relevant times the Board operated and published a policy set out in a document entitled CG60640. That provides as follows under the heading "Roll-over relief: time for re-investment: Board's discretion":

In the event, the replacement assets acquired by Mr Barnett, being 13 Elrington Road, Hackney, were not acquired by way of unconditional contract until 27th July 1989: that is to say, more than three years after the disposal of the former assets. The vendor of the Hackney property was a company called Foldell Ltd, in which Mr Barnett had an interest. Mr Barnett invited the Board to exercise its discretion to extend time under section 115(3) of the 1979 Act (as it then was). It appears that that matter was reviewed on a number of occasions by the Board, the ultimate decision being the one as set out in the communication of 5th December 2002.

An assessment for capital gains tax for 1986/87 in respect of the gain arising on the disposal of 14 Belsize Park Gardens was raised by the Inspector of Taxes. Mr Barnett appealed to the General Commissioners. At that stage Mr Barnett was contending that his reinvestment was in fact within the three year time limit; alternatively, he was contending that the matter fell within the Revenue's discretion and that should be exercised in his favour.

It is clear from the wording of section 152(3) that the discretion to extend time is invested in the Board, not in the General Commissioners: as is confirmed by the judgment of Sir Richard Scott VC in the case of Steibelt (Inspector of Taxes) v Paling [1999] STC 594.

In advance of the hearing before the General Commissioners, which had been fixed for 12th November 2002, Mr Watson-Gandy (counsel then appearing for Mr Barnett, as he has before me on this claim for judicial review) provided a detailed skeleton argument. The first argument was that Mr Barnett had in fact reinvested the proceeds of the Belsize Park Gardens property in the Hackney property within the three year time limit. The second argument, however, was that the Board of Inland Revenue had erred on its determination of the facts when deciding not to exercise its discretion to extend the time limit (that being the then stance of the Board and as subsequently confirmed by the decision of 5th December 2002).

In that context the skeleton argument invited a determination by the General Commissioners of the factual basis on which the discretion was to be exercised. These were proffered by Mr Watson-Gandy in his skeleton argument as follows. As set out in section 5 of the skeleton argument lodged before the General Commissioners this is said:

The General Commissioners then had to decide whether Mr Barnett had, for the purposes of section 152(3), an entitlement to roll-over relief on the footing that he had entered into an unconditional contract with regard to 13 Elrington Road before 22nd April 1989. They also had been invited to decide the factual basis upon which the discretion under section 152(3) (formerly section 115(3)) was to be exercised.

I was told that the hearing before the General Commissioners lasted for much of the day. Mr Barnett himself gave evidence. The Inspector of Taxes appearing had taken the view and had submitted that the facts relating to the discretion under section 152(3) were irrelevant for the General Commissioners' decision, but the General Commissioners, as I understand it, nevertheless invited examination of Mr Barnett on those matters.

The decision of the General Commissioners was announced at the hearing and then communicated by letter from their clerk dated 14th November 2002, which letter enclosed the decision. That decision as enclosed with the letter reads as follows:

There was some debate after that communication was received as to whether the wording of that decision corresponded precisely with what had been read out at the end of the hearing on 12th November; but it is clear that that document does represent the decision of the General Commissioners. I might add that the General Commissioners had, at the end of the hearing, adjourned the appeal before them to enable the Board to reconsider the exercise of its discretion.

Mr Barnett, in the light of that decision of the General Commissioners, renewed his request for the exercise of the Board's discretion under section 152(3). He relied on the General Commissioners' decision in that regard, and in particular what had been stated in the last sentence of the decision.

The decision of the Board of 5th December 2002 was in these terms:

It is the validity of that decision which is now attacked. What Mr Watson-Gandy, on behalf of Mr Barnett, says in essence is this. The General Commissioners are the judges of fact in tax cases. In the present case, in the second part of their decision, the General Commissioners made findings which were material to the issue of discretion under section 152(3). The General Commissioners had, he submits, a wide discretion as to the conduct of hearings before them and as to the determination of issues before them: see regulation 15(2) of the General Commissioners (Jurisdiction and Procedure) Regulations 1994. Having made their decision on these matters, and no appeal having been brought by the Inspector of Taxes, the Board was, he submits, bound to give effect to the Commissioners' findings in exercising its discretion under section 152(3). That, as is evident from the decision letter of 5th December 2002, the Board had failed to do. On the contrary, he said, the Board had made findings inconsistent with those of the General Commissioners. Accordingly, the decision letter was flawed and should be quashed.

The response of Miss Simler on behalf of the Board in essence is this. The discretion under section 152(3) is vested in the Board, not in the General Commissioners. The only matter for the General Commissioners to decide was the determination of Mr Barnett's appeal against the assessment for capital gains tax arising from the sale of the Belsize Park Gardens property. For that purpose the General Commissioners had to establish the entitlement, if any, of Mr Barnett to roll-over relief under section 152(3), specifically in this case whether he had entered into an unconditional contract to acquire replacement assets prior to 22nd April 1989. That aside, submits Miss Simler, the General Commissioners had no function at all to purport to make findings related to the exercise of any discretion under section 152(3), nor could they, by purporting to do so, fetter the Board's discretion in any way; and it was for the Board to make its own assessment of the case.

Considering the competing submissions, I have reached the conclusion that the case advanced on behalf of Mr Barnett by Mr Watson-Gandy breaks down at a number of stages in the argument.

The first point is that the General Commissioners indeed considered that they were entitled to review whether the case fell within CG64640, which they further indicated was analogous to the extra statutory concessions in D24 in accordance with the approach set out by Sir Richard Scott VC in Steibelt v Paling. But that, in my view, reveals a misunderstanding on the part of the General Commissioners of the decision of the Vice-Chancellor. CG60640 does not purport to be an interpretation of section 152(3). Indeed, section 152(3) really needs no interpretation in this respect. It explicitly confers a discretion on the Board. What CG60640 indicates, in effect by way of extra statutory concession, are circumstances in which the discretion will be exercised in favour of the taxpayer and the general approach that will be adopted by the Board. So far as the text of D24 is concerned, however, that is set out at page 601 of the Vice Chancellor's judgment. It related to section 152(1) of the 1992 Act. As to D24, the Vice Chancellor, in obiter comments at page 604 of his judgment, said this:

The second point, which is in some respects linked to the first point, although perhaps even more fundamental, is that I agree with Miss Simler that it simply was not the function of the General Commissioners to make findings, let alone findings designed to bind the Board, in respect of the exercise of the discretion under section 152(3). That discretion is, under the terms of the statute, specifically invested in the Board. It is nothing to do with the General Commissioners and they have no entitlement, as I see it, to make it something to do with them by, for example, invoking regulation 15(2). Indeed, the logic of Mr Watson-Gandy's submissions would tend to suggest that if General Commissioners made findings in favour of a taxpayer in precisely the terms of CG60640, the Board must give effect to those findings: but if that is so the operation of CG60640 would then positively require the Board to exercise its discretion in favour of the tax payer. Thus, in such a case the General Commissioner would not simply have fettered the discretion vested in the Board: they would in effect have actually dictated its exercise. That cannot be right. Indeed, as Miss Simler pointed out, had the General Commissioners purported to make findings totally adverse to Mr Barnett in this regard, one would not have expected him thereafter to have regarded them as binding on him. Yet further, it is difficult to see what appeal could lie in favour of the Board from these purported findings. The issue before the General Commissioners was the appeal against the assessment of capital gains tax arising from the sale of the Belsize Park Gardens property, and specifically whether Mr Barnett had entered into an unconditional contract to acquire replacement assets within the three year period. On that issue, the Revenue had succeeded. The decision was in their favour. They had nothing to appeal against. Mr Watson-Gandy's attempts to deal with that particular point were unconvincing, to say the least.

The third point is this. It is to be noted that the findings of fact which the General Commissioners expressed are not in fact coextensive with the three matters set out in CG60640. They did not, for example, find that Mr Barnett was prevented from acquiring replacement assets "by some fact or circumstance beyond his control"; only that he was prevented from contracting to buy 13 Elrington Road by a delay in obtaining the appropriate planning permission. That is a significant difference. Indeed, the findings that the General Commissioners purportedly made fell a long way short of what Mr Watson-Gandy had invited them to find in his skeleton argument submitted to them. The question whether there was some circumstances "beyond Mr Barnett's control" preventing him from acquiring "the replacement assets, or any assets" was thus left open on the face of the General Commissioners' decision: and on any view fell to be decided by the Board.

I should add that Miss Simler took me through various documentary materials. A number of the letters and documents are consistent with the delay occurring being due to inaction on the part of Mr Barnett or his associates or to attempts to obtain, or delays in obtaining, finance. Moreover, it is the case that in the event Mr Barnett eventually entered into an unconditional contract to buy the Hackney property before planning permission for 13 Elrington Road had even been granted.

I do not of course make any findings myself on any of this: nor do I say that the General Commissioners were not entitled to reach the limited factual conclusions that they purported to reach (leaving aside the question of relevance and jurisdiction for this purpose). But what is plain is that there was material on which the Board could properly reach the conclusion that no facts or circumstances beyond the control of Mr Barnett occurred, and could properly reach the other conclusions which it expressed in its decision under section 152(3) of 5th December 2002, and directing itself in accordance with the policy set out in CG60640. Such decision was not unlawful or unreasonable in any public law sense.

I add that Miss Simler was prepared to accept, for the purposes of this case, that the Board was under a duty at least to consider and take into account the entirety of the General Commissioners' decision before deciding how to exercise its own discretion. It is plain both from the decision letter itself and, if it is relevant, from a subsequent witness statement by Mr Bowen on behalf of the Board that the Board did indeed do that.

Mr Watson-Gandy did at one stage say that if this was right, that meant that the Board was the final judge and jury on this matter. But the statute confers the discretion on the Board, with no right of appeal. If, as Mr Watson-Gandy suggested, Article 6 points could then arise (although that may be debatable, as it seems to me, in this particular tax context) then that is in any case met by the point that a decision made by the Board not to exercise discretion under section 152(3) is itself in principle capable of court challenge by judicial review, provided of course appropriate public law grounds are raised.

In the present case, however, I have come to the conclusion that no such grounds are established and therefore I must dismiss this claim.

MR NAWBATT: My Lord, I understand my legal friend has an application to make. I have various submissions on costs.

MR JUSTICE DAVIS: We will deal with permission to appeal first.

MISS GUPPY: My Lord, I am instructed to ask for permission to appeal on the basis that the matter raises significant matters of public importance. My Lord, my submission is limited to that point.

MR JUSTICE DAVIS: I do not think this is a case where permission will be granted. If you can persuade the Court of Appeal that permission should be granted I suggest you should try that, but I refuse permission myself.

MISS GUPPY: I am grateful.

MR NAWBATT: My Lord, you should have before you the statement of costs from the Inland Revenue.

MR JUSTICE DAVIS: Yes.

MR NAWBATT: My Lord, there is just one aspect that is not covered by that, and that is the costs of today.

MR JUSTICE DAVIS: Your costs.

MR NAWBATT: Precisely, my Lord.

MR JUSTICE DAVIS: That is very important to you, I suppose.

MR NAWBATT: My Lord, yes.

MR JUSTICE DAVIS: How much is that?

MR NAWBATT: £270 plus VAT.

MR JUSTICE DAVIS: Give me the total please.

MR NAWBATT: £12,759.25.

MR JUSTICE DAVIS: Miss Guppy, what do you say about costs?

MISS GUPPY: My Lord, I have a couple of points.

MR JUSTICE DAVIS: I think, in principle, you must pay the costs of this claim; do you accept that?

MISS GUPPY: My Lord, in principle, yes. I would like to flag up one matter, if I may. My Lord, the claimant invited the defendants to consider the possibility of alternative dispute resolution in a letter dated 7th October 2003. My Lord, I have actually passed up a copy of that letter and hopefully you will have that in front of you. A reply was given by the defendants on 8th October 2003.

MR JUSTICE DAVIS: Was that the first time that mediation was suggested?

MISS GUPPY: It was.

MR JUSTICE DAVIS: It was a little late. You want me to bear that in consideration.

MISS GUPPY: Bear that in consideration given the provisions of the Civil Procedure Rules, particularly --

MR JUSTICE DAVIS: You need not trouble me with chapter and verse.

MISS GUPPY: I have passed up two cases, which you are probably well familiar with.

MR JUSTICE DAVIS: I normally refuse to look at cases on costs matters. You say these are relevant to principle, are they?

MISS GUPPY: Simply on the basis that there was a blank refusal by the defendants to consider the possibility of alternative dispute resolution. It is relevant to the costs judgment. It was not entertained by them to any extent.

MR JUSTICE DAVIS: A tax point involving an attempt to quash a decision of the Board is not an obvious candidate for ADR, is it? One can see that if there was a dispute about the amount of penalties, that might or might not, but it is a very legal point, is it not?

MISS GUPPY: My Lord, it is a legal point. However, there are certain points I would seek to make, if I may. The Revenue clearly have a power to reopen their discretion. The problem from the claimant's point of view is that they had not really, in my submission, had a chance to air their point properly to the Revenue, that each time that they attempted to do so they were met with a refusal. Insofar as that is the case, my Lord, they did not have an opportunity to explain to the decision maker, as it were, to sit down and put heads together, which may, in my submission, have been fruitful, although I concede, my Lord, that the offer was made late in the day.

MR JUSTICE DAVIS: Yes. I was told that this matter was reviewed by the Revenue about five times and there was, as it were, a rolling request to review on each occasion. So it can hardly be said that this was a one-off refusal.

MISS GUPPY: It is accepted that it is not a one-off refusal, but the reasons given for the refusal, on my understanding, is that there was no further evidence given, and the position of the claimant really was that further evidence or information was being given.

MR JUSTICE DAVIS: Well, Mr Barnett took the opportunity to deploy a very great deal of evidence before the General Commissioners, so all that was in play. It is for him to put the whole case forward.

MISS GUPPY: Sorry, my Lord, may I just take instructions one moment. My instructions are that he has not had the opportunity of challenging the substantial issues that were raised in relation to the decision that was made in December.

MR JUSTICE DAVIS: One cannot keep on running back every time a decision is made. The Revenue are entitled to say they have made their decision and that is it, absent special circumstances. This challenge was a challenge of 5th December 2002. It is not for want of sympathy, Miss Guppy, but the decision was made and, as I have decided, it is a decision that could properly be made.

MISS GUPPY: My Lord, it does raise matters of general public importance, I would submit, and the Revenue could have sat down and it would not have taken too long to sit down and actually have a meeting. I would invite you to bear that in mind when you are considering costs.

Perhaps if I could raise one point on the issue of costs in relation to the schedule.

MR JUSTICE DAVIS: Do I have a schedule from your side?

MISS GUPPY: I certainly hope so, my Lord.

MR JUSTICE DAVIS: I am not sure I have seen it. Could I have a look at it please.

MISS GUPPY: I do apologise (_Handed).

MR JUSTICE DAVIS: That is all right. Your side's costs are greater than the Revenue's costs.

MISS GUPPY: Indeed. My Lord, I would say that that would be to be expected in the circumstances.

MR JUSTICE DAVIS: Absolutely, but I think I am entitled to have regard to that.

MISS GUPPY: My Lord, the only point I would make in relation to the defendant's costs is the figure that is being claimed for counsel's fees for the hearing, on the second page, £1,900.

MR JUSTICE DAVIS: Yes.

MISS GUPPY: My Lord, I am guided by the Civil Procedure Rules, 48.51, table of counsel's fees. My Lord, I understand this is a matter that was listed for a half a day hearing and that counsel was --

MR JUSTICE DAVIS: 48.51?

MISS GUPPY: Page 1233 of the White Book. My Lord, I understand it was junior counsel, ten plus years call, and would submit that the appropriate amount would be £1,500 in the circumstances.

MR JUSTICE DAVIS: Are these mandatory or suggestive?

MISS GUPPY: They are suggestive.

MR JUSTICE DAVIS: So how much are you saying Miss Simler should get?

MISS GUPPY: £1,500.

MR JUSTICE DAVIS: Plus VAT or inclusive of VAT?

MISS GUPPY: It does not actually say, I suspect it is £1,500 plus VAT. My Lord, those are my submissions in relation to costs.

MR JUSTICE DAVIS: You say Miss Simler should be knocked down on her fees. That might be used against you hereafter. What do you say about costs, Mr Nawbatt?

MR NAWBATT: Perhaps I could deal with the point on the quantum first and then the mediation second. In relation to brief fee I think it is relevant to see what the applicant's costs came up to. There is a brief fee of £2,000 plus VAT claimed.

MR JUSTICE DAVIS: I dare say you might have been asking them to knock that down.

MR NAWBATT: I take that as a starting point. If your Lordship had found against the Revenue and had accepted the applicant's submissions, then that would have had a far reaching impact on the Revenue. Miss Simler is APAL and she was simply charged at the APAL rate, which is £120 an hour. So, in my submission, the sum claimed is not in any way disproportionate for the hearing.

In relation to the mitigation point, I think it is pertinent to look at the case of Dunnett v Railtrack. The whole point of that case was that in giving leave to appeal the Court of Appeal had urged the claimant in that case to consider mediation, we get that from paragraph 1 of the judgment in Dunnett v Railtrack. That is clearly not a comparable case to this one. In this case the dispute was very simple. It was: were the Board bound by the findings made by the General Commissioners? That is not, in my submission, appropriate to be the subject of mediation.

My Lord, in terms of the opportunity had by the applicant in this case, one only has to look at paragraph 10 of Miss Simler's skeleton argument where she states that on no less than seven occasions was this matter reviewed by the Board.

The only final matter I would draw to your Lordship's attention is this request was made very late on in the day, 7th October, as you yourself said. Permission in this case was granted as early as --

MR JUSTICE DAVIS: It was made the day after the application to amend was issued and enabled those issues to be brought in. If mediation had gone ahead it would have allowed the issued raised by the proposed amendment to come in, which in the event I did not allow in this court.

MR NAWBATT: Quite, and the respondent did take quite a firm view on that.

MR JUSTICE DAVIS: The reality is these points are addressed when the case has to be addressed and that is the reality, is it not?

MR NAWBATT: Yes, my Lord. This was not, in my submission, an appropriate case for mediation. There were no factual disputes, it was a simple question of law.

MR JUSTICE DAVIS: On the question of costs, the claim has failed and in principle it seems to me that the claimant should pay the defendant's costs.

As to Miss Guppy's point that mediation or some kind of alternative dispute resolution was proposed by letter of 7th October 2003, which invitation in effect was summarily rejected, it seems to me, having regard both to the history of this particular matter and to the subject matter of this particular matter, and to the decision under attack, that the point of the Revenue could reasonably be to reject the proposal of mediation, which was raised late in the day. I do not think that matter should impact upon the defendant's entitlement as to costs.

As to Miss Guppy's point about the level of counsel's fees, given the subject matter of this case I think those fees are reasonable.

In the event, and no other challenge being raised to the schedule of costs, I summarily assess the costs to be paid to the revenue in the sum of £12,759.25. 28 days?

MISS GUPPY: Please.

MR NAWBATT: We are agreed, sir, yes.

MR JUSTICE DAVIS: Thank you both very much indeed.