Hitch, R (on the application of) v Commissioners For The Special Purposes Of The Income Tax Acts

By order of Mr Justice Jackson of the 28^th September 2004 the claimant (“Mr Hitch”) was granted permission to apply for judicial review of a decision of the Special Commissioners (“the Commissioners”) (Mr T H K Everett and His Honour Stephen Oliver QC) made on the 8^th April 2004 whereby they refused his application for a re-hearing de novo of certain tax appeals to the Commissioners which were already in process and gave directions to carry those appeals to their conclusion. The first interested party is an inspector of taxes. The second and third interested parties together with Mr Hitch are the taxpayers whose appeals are the subject matter of these proceedings.

In 1984 the taxpayers embarked on a series of transactions involving a company incorporated in Singapore and an insurance company (“the Scheme”) with the object of avoiding the payment of Capital Gains tax on the sale of certain land near Swindon. The effectiveness of the Scheme was challenged by the Inland Revenue on the basis that certain of the agreements involved in the Scheme and certain provisions of those agreements were ineffective as being “shams”. The taxpayers appealed against assessments to tax to the Special Commissioners. The appeal was heard by two commissioners at the direction of the Presiding Special Commissioner. Mr T. H. K. Everett (“Mr Everett”) and Mr D. A. Shirley (“Mr Shirley”) were nominated to conduct this case. The taxpayers’ appeal was heard in three sessions in March, July and December 1997. The Commissioners elected to deal with the issue of whether the 1984 agreements constituted shams, an issue which was fundamental to the taxpayers’ liability for Capital Gains tax, as a preliminary issue which they decided in favour of the Inland Revenue. The taxpayers appealed to the High Court. Their appeal was dealt with by Mr Justice Jonathan Parker in March 1999 who allowed their appeal. That ruling was further appealed by the Inland Revenue to the Court of Appeal. It was heard in November 2000 when the appeal was allowed in January 2001, and the ruling of the Commissioners restored. The appeal to the High Court had been by way of Case Stated. The part of the order of the Court of Appeal material to this judgment was an order whereby “the Case Stated and the assessments the subject of this appeal be remitted to the Special Commissioners for them to deal with in accordance with the judgment of this court.”

In May 2001 Mr Hitch’s solicitors raised with the Inland Revenue the question of whether the death of Mr Shirley meant that, by reason of the provisions of section 45(3) of the Taxes Management Act 1970, the remitted appeals had to be heard de novo. The matter was disputed in correspondence with no agreed result. In January 2003 the question was referred to the Court of Appeal on the application of Mr Hitch. On the 14^th January 2003 Lord Justice Kay dismissed Mr Hitch’s application without a hearing. His written reasons contained the following passage:-

“It is now for the Commissioners to determine how the remitted matter should be heard in the circumstances. If Mr Hitch considers such directions as they give to be wrong in law then it would be open to him to seek judicial review of that decision but none of this in any way affects the order of the Court of Appeal.”

It was not until the 26^th March 2004 that there took place a directions hearing before the Commissioners dealt with by Mr Everett who had been joined by a second commissioner, His Honour Stephen Oliver QC to replace Mr Shirley. It was the Commissioners’ view having heard argument, that the effect of the order of the Court of Appeal was to require the Commissioners to continue with the appeal proceedings and carry them to a conclusion. At paragraph 5 of their reasons the Commissioners say:-

“5

We are, we think, bound to deal with these appeals as continuing matters. Only in that way can we give effect to the Order of the Court of Appeal. For us to start again from scratch would involve our ignoring the judgment of the Court of Appeal rather than dealing with the matter in accordance with it. Nothing in section 45(3), which in terms regulates the proceedings before the Special Commissioners, limits the powers of the Court of Appeal to make an order under section 56(6).”

Section 45 of the Taxes Management Act 1970 provides as follows under the heading “Quorum of Special Commissioners”:-

“(1)

Anything to be done under any Act (including, except where otherwise expressly provided, any Act passed after this Act) by, to or before the Special Commissioners shall, except in any case where the Presiding Special Commissioner directs otherwise, be done by, to or before a single Special Commissioner.

(3)

Proceedings brought in accordance with a direction of the Presiding Special Commissioner before two or more Special Commissioners may be continued and determined by any one or more of them if the parties to the proceedings have given their consent, and if the continuing Special Commissioner or Commissioners after such consultation as is practicable with any Special Commissioner retiring from the proceedings, is or are satisfied that to do so will avoid undue delay in the hearing of those or any other proceedings.”

Section 56(6) of the Taxes Management Act 1970 provides:-

“(6)

The High Court shall hear and determine any question or questions of law [arising on a Case Stated and transmitted to the High Court under regulation 22 of the General Commissioners Regulation], and shall reverse, affirm or amend the determination in respect of which the case has been stated, or shall remit the matters to the Commissioners with the opinion of the Court thereon, or may make such other order in relation to the matter as to the Court may seem fit.”

It is Mr Price QC’s submission, on behalf of Mr Hitch that the effect of section 45(3) in the circumstances is that unless “the parties to the proceedings have given their consent”, the existing appeal proceedings will have to be discarded and fresh appeals commenced to be dealt with by new commissioners. Mr Hitch does not give his consent. Mr Price was entirely frank about Mr Hitch’s reasons for refusing his consent. Mr Hitch wishes to be in a position to reopen the question of whether the 1984 agreements were in whole or in part sham transactions. This he can only do pursuant to a fresh appeal. It is Mr Price’s submission that the judgment of the Court of Appeal, though of substantial persuasive effect, would not be binding in any such fresh appeal.

It is common ground that the question in issue is one of jurisdiction. If it was simply a case management question it was open to the Presiding Special Commissioner to appoint His Honour Stephen Oliver QC to fill the vacancy caused by the death of Mr Shirley in order to carry the taxpayers’ appeals to their conclusion in the light of the Court of Appeal’s judgment.

It is also common ground that there is no authority directly in point. The provisions of section 45(3) first made their appearance in legislation as section 43(3) of the Finance Act 1967. In the case of Odhams Press Ltd v Cook [1938] 23 TC 233, a case where the Court of Appeal, having dealt with an appeal, remitted the matter to the Special Commissioners for further findings by which time one of the two Commissioners had retired, the case was continued by the remaining Commissioner with the agreement of the parties. In Commissioners of Inland Revenue v TW Law Ltd [1950] 29 TC 467 both Commissioners who had been dealing with the case had retired by the time the Court of Appeal remitted the matter to the Special Commissioners for further consideration. The report shows that after judgment was delivered counsel, Sir Andrew Clark QC drew the retirement of the two Commissioners to the court’s attention and said that for that reason the remission would be “to the general body of Commissioners”. Nobody appears to have commented adversely.

In making their ruling sought to be challenged the Special Commissioners placed reliance on the TW Law case and also on the decision of the Employment Appeal Tribunal in Quenchers Ltd v McShane unreported 26 January 1993. In that case one of the two lay members of a tribunal died in the middle of a case, which was then continued by the legal chairman and the surviving lay member, to deal with the question of the assessment of damage flowing from what had been found to be an unfair dismissal. The relevant passage in the judgment of Mr Justice Wood is at page 3 of the transcript where he says:-

“There is nothing to indicate that at the hearing of the 21^st March 1991 anyone consented to the Tribunal sitting with only one lay member. The regulation which governs the constitution of tribunals is regulation 5(1) of the Industrial Tribunals (England & Wales) Regulations 1965, that reads subject to the provisions of paragraph 1(a) of this regulation:

“A tribunal shall consist of a chairman and two other members but, in the absence of any one member of a tribunal other than the chairman, an appeal may with the consent of the appellant and of the Board be heard in the absence of such member and in that event the tribunal shall be deemed to be properly constituted”.

Then there are certain situations where the tribunal may be differently constituted but they are not relevant for present purposes.

It seems to us that there was no evidence whatsoever that there was consent from the Company for the constitution of the Tribunal on the 21^st March and on the 11^th February and Mr Lawton confirms that he was not asked to give his consent for the 16^th June, so that for those hearings the Tribunal must be considered to have been improperly constituted. It seems to us therefore that we do not need to examine the substantial criticisms being made of the various other matters because we driven to the conclusion that the decisions of the 21^st March 1991 and 11^th February and 16^th June 1992 have to be set aside.”

With great respect to the Commissioners it does not seem to me that this case was authority for the conclusion which they arrived at. In the recent case of R v Coates [2004] 1WLR 3043 the issue arose from the death of Lord Justice Kay where the Court of Appeal over which he was presiding had agreed the result of an appeal but had not given judgment before his death. It was held by reason of the provisions of section 55 of the Supreme Court Act 1981 requiring appeals against conviction to be determined by a constitution of no fewer than three judges that, notwithstanding the apparent agreement of all three members of the tribunal about the outcome of the appeals, since the decision had not been announced in open court, none of the judges was bound by it, and that, accordingly, the appeals had not been determined by three judges for the purposes of the section and had to be re-heard. That case and the Quenchers case are examples of the jurisdiction of the court being defined by express statutory provision.

By contrast the position at common law is not entirely clear. As a matter of practice as I myself experienced at the bar, the death or incapacity of a judge in the middle of a case will usually require the case to be re-heard before another judge. What is not entirely clear is whether this results from case management considerations or from lack of jurisdiction. In Coleshill v Manchester Corporation [1928] 1KB 776, a personal injuries case, Lord Justice Scrutton commented, after judgment had been delivered, on the fact that in the course of the case the trial judge, Mr Justice Fraser had died and the case had been continued by Mr Justice Acton “at the urgent request of the parties” with earlier witnesses not being recalled but the new judge having recourse to the transcripts. He said:-

“I think it is a precedent which should not be followed in future. I doubt whether a judge has any jurisdiction to continue the hearing of a case in which witnesses have been called in court in the course of the trial before the jury and another judge, it not being a case of evidence being taken on commission or before an examiner.”

In The Forest Lake [1968] Probate Division p 270, an admiralty case, the presiding judge sitting with two elder brethren of Trinity House, was compelled to retire due to ill health in the middle of the case. The report records that the president Sir Jocelyn Simon ordered, in the circumstances, that the action be heard de novo and Mr Justice Karminski was nominated to re-hear it. The plaintiffs applied to that judge for an order restoring the action to the list for hearing and that the evidence already given in court on commission should be used, and an order for directions made by the previous judge be renewed so as to enable the same elder brethren, who had sat as assessors at the first hearing, to sit again. Mr Justice Karminski plainly regarded himself as continuing the proceedings previously heard by Mr Justice Hewson. In the course of his judgment on the application he said this:-

“The matter, so far as I am concerned, would have been quite without difficulty as a matter of principle but for the observations of Scrutton LJ in Coleshill … .”

He distinguished Scrutton LJ’s comments as being obiter and for case management reasons which could not have been appropriate for a challenge to the jurisdiction of the court. In the course of his judgment he drew attention to the decision of Mr Justice McKinnon in The British Reinforced Concrete Engineering Company Ltd’s Application [1929] 45 TLR p 186 where that judge also distinguished Scrutton LJ’s comments on case management grounds. Indeed, had the Court of Appeal in the Coleshill case proceeded on the basis that Mr Justice Acton had no jurisdiction to take that case up and try it to its conclusion, it should have ordered a retrial.

In my judgment the balance of authority leads to the conclusion that the common law position is that the death or incapacity of a judge in the middle of a case (including a Commissioner in the course of a tax appeal) does not mean that there is no jurisdiction for a second judge to take over the case in mid-trial and complete it. It will be open to him, particularly under modern rules of evidence, so to order the trial that costs thrown away are minimised. In a case not involving witnesses this will be relatively easy. However in the majority of cases, and in particular where witnesses are involved it will be necessary, as a matter of case management, to try the matter de novo. It seems to me that in the two tax cases of Odhams Press and TW Law, heard before the Finance Act 1967 the Court and the Commissioners were proceeding along these lines. It follows that the issue in the present application is whether section 45(3) is to be construed as requiring the consent of the parties where, for any reason, one of two Special Commissioners, dealing with an appeal under the Taxes Management Act 1970, is incapacitated before the appeal in question is finally disposed of, so as to enable this to happen by permitting the appeal to be continued in front of the remaining Commissioner or by a reconstituted panel of Commissioners.

I have come to the clear conclusion that section 45(3) is not to be construed in that way. I have arrived at that conclusion for the following reasons:-

For these reasons this application must be dismissed.