Carbon Six Engineering Limited v The Commissioners for HMRC

I have already set out the terms of the Application in rather more detail than I might ordinarily have done. However, I also propose to forensically summarise HMRC’s submissions to me in order that I may then address them in my explanation of why I refuse to exercise my case management discretion in this case.

HMRC open their submissions by highlighting that I must determine their application acting in accordance with the overriding objective as set out in rule 2 with a particular focus on ensuring both parties are able to participate in the proceedings, avoiding unnecessary formality, seeking flexibility in procedure and dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues and the anticipated costs. I am invited to determine what the procedural consequence of their failure to comply with an unless order should fairly be bearing in mind the interest in compliance with directions and the public interest that disputes be determined on their merits where that can be achieve without injustice to the other party. The evaluative exercise I am required to undertake should, they say, take account of the stage that the proceedings had reached, whether a hearing date has been lost, the extent that the default disrupted efficient conduct of the proceedings, the prejudice to the parties, the promptness of remediation and whether any prejudice to the Appellant can be cured by lesser measures than barring.

It is submitted that I am not bound to allow a procedural default to become dipositive of the proceedings where that outcome is disproportionate and inconsistent with the overriding objective.

Relying on BPP UT and PGPH it is contended that I should exercise caution before refusing to maintain the draconian effect of the Barring Order. In particular because they were not given a proper opportunity to be heard. To fail to give them voice will, it is said, undermine the fairness in the proceedings. The UT judgment in Parnham is relied upon to confirm the importance of the rule 8(4) requirement to allow a party subject to a strike out/barring application to make representations as a point of procedural fairness. The FTT decision in Ince v HMRC [2017] UKFTT 645 (TC) is referenced to support a conclusion that where there is doubt as to the basis of a strike out/barring a hearing is required.

It is acknowledged that the Barring Order was made without evaluative judgment at the moment of default due on the terms of the Unless Order. However, HMRC contend that I retain control of the process through the power to set it aside and reinstate HMRC’s right to participate. I am invited to “be slow to uphold a sanction which, in practical terms, disposes of the substantive appeal without a pleaded case … unless satisfied such an outcome is proportionate and consistent with the overriding objective.” I am told that I “should prefer (where available) measures which secure compliance whilst preserving a merit-based determination.”

Their skeleton addresses the Martland three stage test. They also reference Jumbogate and invite its illustrative application in this case.

Concerning Martland they contend that the stages are not a mechanical checklist but provide for an evaluative judgment to provide just and proportionate relief. HMRC contend that there is a distinction within the first stage of the test between the formal seriousness of breaching an unless order and a breach which has not derailed a hearing timetable, wasted court time or caused irremediable prejudice. It is said that the promptness of an application for relief is a material factor in the stage 3 balancing exercise.

HMRC contend that in the present case their default has been mischaracterised as serious and significant because no fixed hearing date was lost and the appeal can now be effectively managed through a tight timetable. HMRC acknowledge that there was prior non-compliance by them but contend that is not a matter relevant to the first stage of the Martland test but to the third stage.

HMRC accept that the reasons advanced for the delay which are repeated and supplemented as: the mischaracterisation of the present appeal as part of the CKA group, the complexity and size of the TAAG and CKA litigation groups, a change in the legal team plus the use of the clearing house email address, are not “ideal” but contend that they are administrative in nature. They contend that the relief jurisdiction should be exercised to ensure their effective participation in the appeal particularly given the promptness with which they made the Application.

HMRC provide five principal reasons for exercising my discretion in favour of set aside/granting relief:

By reference to BMW, I am reminded that in that case the UT considered that where a sanction has operated without the party being practically aware due to clerical or notification failures, the draconian nature of a strike out/barring is a weighty consideration in the overall balance even where the defaulting party was not blameless.

HMRC rely on FTT examples (Colman v HMRC [2018] UKFTT 141 (TC) (Colman)and XG Concept Ltd v HMRC [2017] UKFTT 92 (TC) (XG Concept))to support a contention that “fairness is not a stand-alone concept”. In respect of each of those cases it is contended that the Tribunal accepted that to exclude one party from the merits-based determination of the appeal represented a real risk to the fairness of the trial.

HMRC describe the maintenance of the Barring Order and determination of the appeal summarily as giving rise to a procedural victory for the Appellant. I assume this to be a response to the Appellant’s invitation for me to apply rule 8(8) though the provision is not referenced. HMRC contend that summary determination is not an appropriate vehicle for disposing of a fact sensitive tax appeal particularly in absence of a pleaded case from HMRC and where there are other appeals proceeding on common issues in the TAAG lead cases. The context of the TAAG group appeals is emphasised: namely, to ensure that all appeals concerning the MSC legislation where TAAG is the putative Provider be litigated consistently with one another. HMRC submit that to be excluded from participation in this appeal when continuing to defend the TAAG group appeals as a consequence of an inadvertent failure which was not deliberate and which had caused no delay or prejudice is an extreme and unfair outcome.

In this context, during the hearing, we explored parts of Lord Neuberger’s judgment in BPP SC and in particular his comment that a procedural or windfall victory was a factor which might “perhaps” be considered in “exceptional circumstances”. The exceptional circumstances which HMRC claim to exist were essentially the same as the reasons for non-compliance i.e. that the legal team with conduct was unaware that the appeal had not been stayed and that the correspondence was sent to the clearing house email address in circumstances in which HMRC was “really very keen” to put its submissions and participate fully in the resolution of the substantive issue.

I also explored with HMRC why the Application had not been accompanied by their responses to the Appellant’s 8(3)(b) and (c) Barring Order applications thereby complying with the terms of the Unless Order. It was contended, again with no evidence to support the internal consideration that had been given to this issue, that to have done so assumed that the Application would have been successful and was therefore considered to be presumptuous.

In the hearing I invited submissions on Dominic Chappell v The Pension Regulator [2019] UKUT 209 (TCC) (Chappell). HMRC seek to distinguish that case on the basis that Mr Chappell was persistently non-compliant, and the UT had no confidence that such a pattern of behaviour would be remediated.

I deal with these submissions much more shortly.

The Appellant opposes the Application. The Appellant submits that the Application fails every stage of the Martland test and that the Barring Order must stand as the only proportionate outcome given HMRC’s sustained and systemic non‑compliance.

The Appellant argues that the breach was “serious and significant” as there had been a previous breach of the 19 May 2025 directions which could have led to the granting of a Barring Order, but leniency was allowed. HMRC’s default was a direct failure to comply with the Tribunal’s “most serious tool of case management”. In the Appellant’s submission, HMRC’s attempt to re‑characterise the breach as merely “moderate” distorts both the context and the gravity of the Tribunal’s directions. The Appellant distinguishes between the discretionary framework of rule 8(3), relied on by HMRC, and the mandatory operation of rule 8(1), which in this case applied upon breach of an unless order.

On the second stage of Martland, the Appellant maintains that the reasons advanced: administrative oversight, use of the clearing house email, and poor handover, are not credible. The Appellant asserts that HMRC’s explanation omits the long history of foundational errors, most notably the three‑year persistence of the “CKA error”, first made on 25 March 2022 and repeated in February 2025 despite the Appellant’s immediate correction of it on every occasion. The inbox rationale is, in the Appellant’s submission, flatly contradicted by the HMRC’s own conduct: HMRC had already designated specific legal contacts for this appeal, had successfully responded to Tribunal correspondence in the past, and subsequently received the 14 October 2025 listing communication from the same inbox they claim rendered them unaware of the Unless Order. The Appellant states that the failure was therefore an organisational, not accidental, default; and that administrative lapses do not constitute good reason, particularly for a represented litigant.

At the third stage of Martland, the Appellant argues that “all the circumstances of the case” overwhelmingly defeat HMRC’s claim to relief. The Appellant relies on a detailed chronology demonstrating systematic procedural non‑compliance: failure to meet directions of December 2024, April 2025, May 2025, June 2025, and finally the breach of the Unless Order. The Appellant points to cumulative delays exceeding 1,000 days, including a 655‑day statutory review and multiple failures to provide a Statement of Case. This, the Appellant submits, has caused profound prejudice: more than three‑and‑a‑half years after the original claim, HMRC have still not provided the factual and legal basis of their case, obstructing the Appellant’s ability to prepare a defence. The Appellant further contends that HMRC’s conduct has forced the litigation to centre on process rather than substance, in a manner inconsistent with efficient, proportionate adjudication. Their conduct has forced Mr Li to spend hours away from his business.

The Appellant emphasises that HMRC’s reliance on BPP UT is misleading. It argues that HMRC have omitted to disclose that the subsequent Court of Appeal and Supreme Court decisions upheld the correctness of the FTT’s original Barring Order and expressly rejected the notion that public bodies should benefit from relaxed compliance standards. The Supreme Court reaffirmed that a “public duty” argument cannot excuse procedural default, and that courts should expect higher, not lower, standards from state litigants. The Appellant therefore submits that the legal foundation of HMRC’s case is not only incomplete, but it also breaches the duty of candour.

Overall, the Appellant contends that the breach was serious, the reasons advanced are untenable, and that the broader history demonstrates a sustained pattern of non‑compliance and procedural disregard. The Appellant argues that to reinstate HMRC would “reward unreasonable conduct”, undermine the authority of unless orders, and perpetuate the prejudice already suffered.

In this section I review all of the authorities relied on by HMRC and provide my observations on them to ascertain their relevance and veracity to the matter I have to decide. I also include the UT judgments in Chappell and HMRC v Michael Breen [2023] UKUT 252 (TCC) (Breen) and the FTT judgment in Viking Enterprises Limited v HMRC [2020] UKFTT 306 (TC).

I set the summaries of each case out in chronological order rather than grouped by either court level or topic as this demonstrates the evolution of jurisprudence.

Chartwell is not a tax case and does not therefore concern rule 8(1). It concerned the failure of Chartwell to serve witness statements pursuant to a direction requiring their mutual exchange. The failure was said to be justified because the statements could not be prepared without the disclosure of further documents by the other side. Once disclosure had been made Chartwell sought an extension of time to serve the witness statements and relief to be allowed to rely on them despite late service. The application was accompanied by a detailed witness statement setting out the background to the failure to serve earlier.

The Court of Appeal refused to overturn the High Court’s decision to grant relief. The Court did not consider that insufficient weight had been put on the requirement to litigate efficiently and respect time limits. Nor did it consider undue weight had been put on the consequences of refusing to grant relief. The whole history of the directions and the disclosure dispute were weighed together also recognising that the trial date had not been prejudiced and that a fair trial was possible if relief were granted. Further, it was noted that the counterparty to the litigation also needed to be granted similar relief also having not served their witness statement by the due directed date. Accordingly, and the Court accepted that the judge had exercised his discretion to grant relief in a way which should not be interfered with.

Jumbogate is an FTT decision from 2015. It concerned an application for reinstatement of an appeal which had been struck out under rule 8(3)(c). Prior to the order striking out the appeal the taxpayer had indicated that it did not contest HMRC’s assessment of the facts of its case and that it did not propose to be represented at the appeal hearing but that it was not withdrawing its appeal, rather it wanted the Tribunal to decide the legal aspects of the case in its absence. HMRC applied to strike out the appeal on the basis that it bore no reasonable prospects of success. The FTT duly struck out the appeal noting that it is not for the Tribunal to make the taxpayers case for it. The taxpayer then sought to reinstate the appeal on the grounds that it had previously misunderstood the Tribunal’s role.

Having determined that the FTT had a general power to reinstate the appeal (derived from the general case management provisions in rule 5 (rather than rule 8(5) which is specific to a strike out under rules 8(1) or 8(3)(a)) the FTT went on to consider the relevant factors to be considered in the exercise of that power. The parties in the appeal accepted that the approach to be adopted was the same as had been applied by the UT in Pierhead in the context of the power to reinstate a withdrawn appeal under rule 17 adopting the relevant jurisprudence, at that time, concerning relief from sanctions under CPR 3.9 (preceding Denton and Mitchell concerning the impact of the 2013 revision of CPR 3.9). It was thus concluded that the correct approach to be adopted was:

“45.

…

(1)

whether the appeal is arguable and has a reasonable prospect of success;

(2)

the reasons for the Strike Out;

(3)

whether there has been any material change since the Strike Out;

(4)

whether HMRC would be prejudiced if the Strike Out were set aside;

(5)

what prejudice would Jumbogate suffer if the Strike Out were not set

aside; and

(6)

the conduct of the parties”

This case is also a FTT judgment. It predates BPP SC but postdated BPP UT. It was an application made by the taxpayer seeking a barring order pursuant to rule 8(3)(b) in consequence of HMRC’s persistent failure to comply with directions of the Tribunal. At paragraph 34 the Tribunal refused the application stating that although HMRC’s conduct had been unsatisfactory the conduct was insufficient to justify them being barred from the proceedings. The Tribunal referenced BPP UT as indicating that a barring order should be considered as a last resort. At paragraph 37 the Tribunal summarised that HMRC’s behaviour in that case was not so egregious as to outweigh the desirability of a full merits’ determination of the appeal. The behaviour did not therefore justify the exercise of the Tribunal’s discretion under rule 8(3)(b).

XG Concept also concerns an application under rule 8(3)(b). In this case HMRC applied to strike out the taxpayer for persistent failure to comply with directions which were not granted on an unless basis they contended the taxpayer’s conduct precluded a fair hearing.

The Tribunal notes that it was not said by HMRC that a strike out for failure to comply with directions other than unless orders justified that the appeal be struck out unless the pattern of behaviour justified a conclusion that the proceedings could not be dealt with fairly and justly. An application under rule 8(3)(b) thereby required both a backward and forward look and to consider whether unless orders represent a more proportionate means of ensuring compliance. On the facts of that case however, the Tribunal considered that there was no evidence that the taxpayer would engage in the proceedings or comply with directions and the appeal was struck out.

The BPP appeals concerned a decision by the FTT to bar HMRC from further participation in the proceedings in consequence of a failure by HMRC to provide a response to a request from BPP for further information. The direction was made on an unless basis and warned that HMRC would be barred if they failed to comply. The direction was made after service of HMRC’s statement of case (which had been served late). HMRC partially complied with the order and BPP applied for them to be barred. The FTT barred HMRC.

The UT reversed that decision. HMRC rely on paragraphs 60 and 61 of BPP UT in which the UT stated:

“60.

However, the consequence of my imposing a barring order will be that the F-tT’s decision on the merits of the appeal, whatever it might be, will be unsatisfactory, in that it may hand an unwarranted windfall to BPP but perhaps more importantly will not adequately determine whether or not its supplies are zero-rated. The consequence of my refusal of a barring order, on the other hand, is that the F-tT will be able to reach a conclusion after full argument, and will be able to deal with the case fairly and justly, and thus in accordance with the overriding objective.

61.

I do not go so far as to say that there should never be a barring order (or, in the case of an appellant, a direction striking out the appeal) unless the overriding objective is incapable of performance. There is nothing in rule 8 which could be read in a way which supports that proposition. Thus even if the F-tT remains able to perform the overriding objective, and even if there is no prejudice to the opposing party which cannot be remedied by a costs direction, a litigant’s conduct might be such that the ultimate sanction is all that remains to mark the tribunal’s disapproval of and unwillingness to tolerate that conduct. It is true, as Judge Mosedale recognised at [83], which I have set out above, that the F-tT has little by way of sanction in its armoury, but it does not seem to me that it is legitimate to impose the ultimate sanction for want of any other.”

The UT’s decision was appealed to the Court of Appeal which reinstated the barring order. A further appeal was made to the Supreme Court [2017] UKSC 55 (BPP SC). The Supreme Court confirmed that the FTT had been entitled to impose the barring order. The rationale of the Supreme Court differed from that applied by the Court of Appeal to reach the same conclusion.

The Supreme Court confirmed that the approach to be adopted when considering whether a Tribunal was to lift or impose sanctions should follow a similar approach to that provided for in the CPR.

Lord Neuberger proceeded to address the various challenges HMRC presented to the application of the approach in Denton v White Ltd [2014] 1 WLR 3926 (Denton)and Mitchell News Group Newspapers Ltd [2014] 1 WLR 795 (Mitchell), subsequently adopted in Martland. In the context of HMRC’s reliance on paragraphs 60 and 61 of BPP UT Lord Neuberger stated:

“30.

Fourthly, Ms Simor argued that the Judge should have accepted the relevance of, and taken into account, the fact that the debarring order in this case prevents HMRC from discharging its public duty and could lead to the public interest being harmed in that VAT which should be paid may not be recovered. I consider that it would set a dangerous precedent if that point were accepted, as it would discourage public bodies from living up to the standards expected of individuals and private bodies in the conduct of litigation. It seems to me that there is at least as strong an argument for saying that the courts should expect higher standards from public bodies than from private bodies or individuals. In fairness, it should be said that this point was more attractively developed by Ms Simor when she said that it justified a more relaxed approach to all parties by tribunals than that adopted by the courts. Nonetheless, I find that unconvincing: there is no good reason to have different rules for public law cases. I consider that Moore-Bick V-P in R (Hysaj) v Secretary of State for the Home Department (Practice Note) [2015] 1 WLR 2472, paras 41 to 42 was right to reject a similar point in relation to public law cases in the courts.

…

32.

Sixthly, it was pointed out that a debarring order represents an unjustified windfall for BPP. It is true that the debarring order will either improve BPP’s prospects of success in the substantive surviving appeal (if the appeal goes ahead unopposed) or result in BPP succeeding on the appeal when it might not otherwise have done so (if HMRC concede the appeal). However, that point can always be made by a party facing a debarring order, and to give the point any weight, save perhaps in exceptional circumstances, would appear to me to undermine the utility of the sanction of a debarring order. I can see no exceptional circumstances in the instant case.”

Ince is again a FTT judgment. The decision appealed was an excise duty assessment and penalty raised in circumstances in which the taxpayer had not challenged seizure of the goods. Despite statutory restriction on doing so he nevertheless challenged the assessment and penalty on the grounds that the goods were for personal use. HMRC applied to strike out the appeal on the basis that the Tribunal had no jurisdiction (rule 8(3)(b)) and that it had no reasonable prospects of success. The application was determined on the papers with the consent of both parties. However, the FTT noted that the Tribunal had the clear power under rule 29(3) to determine a strike out without an oral hearing but, in exercise of the overriding objective, needed to consider whether it was appropriate to do so.

This case concerns an application made by the taxpayer that HMRC be barred on grounds that it was contended that during the enquiry HMRC had indicated that the areas of dispute were limited but the closure notice was issued on a basis wider than the indicated areas of challenge. It was claimed that the closure notice as issued constituted a failure to co-operate with the Tribunal such that the proceedings could not be dealt with fairly and justly and justified. Such application meeting the terms of rule 8(3)(b).

On the basis that the Tribunal had no involvement in the dispute between HMRC and the taxpayer prior to the issue of the closure notice and there was no asserted failure to co-operate with the Tribunal it was considered that there was no power to bar HMRC and no power could be imputed by way of a purposive reading of the rule even in the light of the overriding objective. The Tribunal did not accept that the overriding objective represented a general power to ensure fairness in proceedings.

Martland concerned the question as to whether the Tribunal should allow the taxpayer’s application in that case to bring an appeal out of time. However, and as indicated below in Chappell the approach advocated in that context represents the relevant test to be applied when considering a reinstatement application.

The UT considered the relevant authorities of the Court of Appeal and Supreme Court and the appropriate test when considering a breach of the FTT Rules and relief from the associated sanction. The UT summarised the approach taken in the authorities:

“[40] In Denton, the Court of Appeal was considering the application of the later version of CPR Rule 3.9 above to three separate cases in which relief from sanctions was being sought in connection with failures to comply with various rules of court. The Court took the opportunity to “restate” the principles applicable to such applications as follows (at [24]):

“A judge should address an application for relief from sanctions in three stages. The first stage is to identify and assess the seriousness and significance of the 'failure to comply with any rule, practice direction or court order' ... If the breach is neither serious nor significant, the court is unlikely to need to spend much time on the second and third stages. The second stage is to consider why the default occurred. The third stage is to evaluate 'all the circumstances of the case, so as to enable [the court] to deal justly with the application including [factors (a) and (b) in Rule 3.9(1)]”

[41] In respect of the “third stage” identified above, the Court said (at [32]) that the two factors identified at (a) and (b) in Rule 3.9(1) “are of particular importance and should be given particular weight at the third stage when all the circumstances of the case are considered.

[42] The Supreme Court in BPP implicitly endorsed the approach set out in Denton. That case was concerned with an application for the lifting of a bar on HMRC's further involvement in the proceedings for failure to comply with an “unless” order of the FTT

[43] … The clear message emerging from the cases – particularised in Denton and similar cases and implicitly endorsed in BPP – is that in exercising judicial discretions generally, particular importance is to be given to the need for “litigation to be conducted efficiently and at proportionate cost”, and “to enforce compliance with rules, practice directions and orders”. …”

Mr Chappell’s appeal had been struck out under the provisions of the Tribunal Procedure (Upper Tribunal) Rules 2008 identical in terms to rule 8(1). He applied for his appeal to be reinstated. The facts of the case recited by the UT demonstrate that Mr Chappell had systematically failed to comply with directions issued by the UT and when explaining non-compliance and/or requesting extensions of time explanations had changed demonstrating that he had played the UT along. Eventually, Mr Chappell breached an unless order serving an otherwise partially compliant document one minute after the deadline for compliance. The appeal was stuck out. The notification of strike out provided that the judge was prepared to reinstate it if an application was received by a specified deadline and that Mr Chappell had also, by that date, ensured full compliance. The reinstatement application was made by the directed date but was not accompanied by full compliance with the previous unless order. The Pensions Regulator objected to the reinstatement. Directions were proposed for the hearing of the application. Mr Chappel continued his pattern of non-compliance.

The UT set out the relevant legal principles to be applied when considering a reinstatement application where the appeal had been struck out in consequence of a breach of an unless order under rule 8(1) at paragraphs 65 – 101. I summarise these as follows:

The UT refused to reinstate Mr Chappell’s appeal because his breaches of the unless order were serious, prolonged and aggravated. He failed to comply fully with the unless order by the time the reinstatement application was made, misled the Tribunal, and repeatedly ignored deadlines and correspondence. The UT found no good reason for the breaches and no indication of future compliance. It also considered that reinstatement would cause significant prejudice to the Pensions Regulator, whereas the merits of the case were neutral. Giving particular weight to the need for efficient litigation and compliance with orders, the balance firmly favoured refusal.

This was a judgment of the then Chamber President of the FTT on an application to reinstate an appeal struck out following a breach of an unless order. In refusing to reinstate the appeal the Tribunal considered it relevant that the taxpayer had never complied or sought to comply with the original terms of the directions which led to the unless order. The Tribunal stated:

“45.

… Where proceedings have been struck out on the ground that an appellant has failed to comply with a direction and consequential unless order then it seems to me that any application for reinstatement should not be granted unless the appellant has complied or provided a compelling explanation for the failure to comply. …

This was an appeal to the UT against a decision of the FTT refusing reinstatement of an appeal which had been struck out for breach of an unless order. It was determined post BPP SC. In BMW the representative had completed the notice of appeal form and given a particular email address for correspondence purposes. The representative in fact had no access to that email address. He communicated with the Tribunal via an alternative email address to which he had access. Some correspondence from the Tribunal was sent to the accessible email address; however, some was sent to the inaccessible one. The emails sent to the inaccessible email address included the general directions for the management of the appeal and ultimately an unless order for failing to comply with the directions. The appeal was therefore automatically struck out for breach of the unless order.

BMW applied for the appeal to be reinstated. The representative acknowledged that the Tribunal had sent the direction to the email address shown on the notice of appeal and could not therefore be criticised. He accepted that it was his fault that he had used an inaccessible email address and that he had failed to diarise the matter such that he did not follow up as time passed and a statement of case and when directions should have been received. The FTT applied Marland to determine whether to reinstate. It considered that the default was serious and significant, it expressed no view at the second stage as to the adequacy of the reason for the default. At the third stage the FTT balanced all the circumstances. It noted that the representative had not received the unless order and although that was in consequence of having included the wrong email address on the notice of appeal, the error concerning the address had not been apparent as the Tribunal had also communicated with the accessible email address. The Tribunal determined that the prejudice to the Appellant if the appeal was not reinstated was significant, the tax at stake was in excess of £3m and, as a freight forwarder, acting as agent it had not retained any of the gross consideration from which the import VAT arose. The merits of the case were neither very strong nor very weak. In the circumstances the Tribunal reinstated the appeal.

HMRC challenged the reinstatement contending that the FTT had failed to apply a stricter approach to compliance with time limits advocated by Chappell, further that “well intentioned incompetence” should not justify relief; and too much weight had been given to the prejudice to BMW if the appeal was not reinstated. The UT determined that the FTT had misapplied Martland because it had not placed particular weight at the third stage on the need to conduct litigation efficiently and proportionately expecting time limits to be complied with.

The UT went on to remake the decision on reinstatement again in favour of the taxpayer. In this regard, the UT was clear that a breach of an unless order is serious and significant. At the second stage the UT noted that it would be too simplistic to conclude that the breach occurred because the taxpayer was not aware of the directions and unless order, that was because the representative had contributed to that state of affairs by including the wrong email address on the notice of appeal. The Tribunal considered that to be a “minor clerical error” with serious consequences particularly when combined with a failure to diarise. When undertaking the balancing exercise, the UT accepted that a serious and significant default without a good reason may still be relieved at the third stage. At paragraph 53 a distinction is drawn between reasons which are “not particularly “good”” and those that are “bad”. The not particularly good reason and the nature of the default must still be weighed including relative prejudice. The UT decided “by a slender margin” that as BMW had in fact and substance not received warning before the appeal was stuck out a refusal to reinstate was considered to be disproportionate to the prejudice of strike out. The UT stated, “if the facts were different, and the reasons for beach weaker it is unlikely that we would have reinstated the appeal.”

Mr Breen’s appeal had been struck out in consequence of the breach of an unless order pursuant to rule 8(1) and following a pattern of persistent and prolonged failure to comply with Tribunal directions, including unless orders providing that a failure to comply may result in the appeal being struck out. The substantive appeal involved allegations that Mr Breen had deliberately failed to bring income tax into account and the burden of proof of showing deliberate conduct thereby fell on HMRC.

I was the judge in the FTT which considered and determined Mr Breen’s reinstatement application. I found as facts that Mr Breen had failed over a considerable period to give proper attention to the conduct of his appeal and had provided no reason the matters leading to his failure to comply and he had been obstructive with HMRC and the Tribunal. As a consequence of a misunderstanding, he had failed to comply with the precise terms of the unless order but had provided all the documents that the unless order sought. I applied Martland and Chappell but by the finest of margins allowed the reinstatement because HMRC bore the burden of proving deliberate failure to bring income tax into account.

On appeal by HMRC the UT considered that I had failed to take full and proper account of Mr Breen’s non-compliance. It also determined that I had inappropriately given weight to where the burden of proof lay in the appeal. The UT considered that in doing so I had come “perilously close” to considering the merits of the substantive appeal contrary to the guidance given in Chappell.

Parnham was an appeal to the UT in which that Tribunal was called to consider both whether the FTT had erred in in its decision refusing to bar HMRC and also refusing to strike out the Appellant or otherwise stay the appeal indefinitely in circumstances where both parties had agreed that a fair hearing was not possible. The factual circumstances in which the various applications had been made the to the FTT are complex following a protected related dispute. HMRC’s strike out application was made pursuant to rule 8(3)(c) (no reasonable prospects of success). The taxpayer’s application was made referencing the overriding objective in rule 2, the Tribunal’s general case management powers in rule 5(3) and rule 8(3). In essence the taxpayer contended that if the Tribunal was not satisfied that there was a power to bar HMRC under the provisions of rule 8 the combined effect of rules 2 and 5 permitted a barring order on the grounds of natural justice, in this regard the taxpayer relied on Foulser v HMRC [2013] UKUT 38 (TCC) (Foulser).

The FTT decision to refuse to bar HMRC and/or stay the appeal indefinitely (or to strike out the taxpayer’s appeal). The UT considered that such decision was founded in a conclusion that a fair trial was not impossible.

The passages relied on by HMRC in this appeal concern the challenge by the taxpayer in Parnham to the FTT decision to refuse to bar and/or stay indefinitely and its application of Foulser. Foulser concerned a taxpayer’s application to bar HMRC for asserted abuse of process by HMRC in circumstances in which HMRC had arrested the taxpayer’s advisors on the first morning of the hearing and the taxpayer considered a fair trial impossible. Morgan J (in the UT) drew a distinction between abuse of process within proceedings (over which the FTT has jurisdiction) and abuse collateral to the proceedings (where the Tribunal does not because jurisdiction in that regard is by way of judicial review). Morgan J determined that a barring order could be made under rule 5 in order to ensure fairness in proceedings even where the conditions for a rule 8 order not met. The FTT in Parnham interpreted Foulser as requiring that the exercise to bar or strike out a party under rule 5 required the party barred/struck out to be at fault.

Before the UT the taxpayer contended that Foulser provided authority for an appeal to be indefinitely stayed under rule 5 where natural justice called for it because a fair trial was impossible and did not require fault to be established. Having considered further authority put to it, the UT agreed with the FTT’s conclusion that “for a party to be struck out or in this case barred – the party must have done something wrong”.

As indicated above the Court of Appeal judgment in Medpro was delivered after the hearing of the Application. I did not consider it necessary to seek representations from the parties on it because HMRC had appeared to accept that I was required to place particular weight, at the third stage of the Martland test on the requirement to comply with Tribunal orders, directions etc and efficient litigation.

In its judgment the Court of Appeal confirmed the observations of Ryder LJ in BPP in the Court of Appeal ([2016] EWCA Civ 121 paragraphs 37 and 38 (BPP CA)):

“37.

… It should not need to be said that a tribunal’s orders, rules and practice directions are to be complied with in like manner to a court’s. If it needs to be said, I have now said it.

38.

A more relaxed approach to compliance in tribunals would run the risk that non-compliance with all orders including final orders would have to be tolerated on some rational basis. That is the wrong starting point. The correct starting point is compliance unless there is good reason to the contrary which should, where possible, be put in advance to the tribunal. The interests of justice are not just in terms of the effect on the parties in a particular case but also the impact of the non-compliance on the wider system including the time expended by the tribunal in getting HMRC to comply with a procedural obligation. Flexibility of process does not mean a shoddy attitude to delay or compliance by any party.”

The Court in Medpro states:

“27.

This decision plainly held that there would be a change of culture in the tax tribunals and that the approach in Denton should be followed, even though the tribunal rules were silent on the weight to be attributed to the various factors to be considered. …”

In view of HMRC’s conduct in the enquiry and in the proceedings the Appellant considered HMRC should be barred from the proceedings on the basis that HMRC had failed to co-operate such that a fair hearing was no longer possible and/or that absent a statement of case HMRC’s position in the appeal bore no reasonable prospects of success. Fully particularised applications were made by the Appellant inviting the Tribunal to make such an order; the first of which was made on 11 February 2025.

Initial consideration of those applications was deferred by the Tribunal though it would have been open to HMRC to have responded to the applications at any point. However, and consistent with the requirements of rule 8(4), HMRC were formally invited to make representations in respect of those applications by directions dated 7 August 2025. HMRC were plainly therefore given the opportunity to make any representations they considered appropriate in respect of the Appellants rule 8(3)(b) and (c) application.

Given HMRC’s shambolic and haphazard conduct in the proceedings I directed that the representations be made on a mandatory unless order basis. HMRC accept that they received the unless order. However, for the reasons given, to which I will come, they did not comply with it, and the appeal was therefore barred pursuant to rule 8(1).

On that basis HMRC’s confused narrative in both the Application and the skeleton asserting that they have been unfairly denied their right to make representations before being barred in accordance with rule 8(4) is wrong. Rule 8(4) applies only to a Barring Order made pursuant to the discretionary power under 8(3)(b) and (c). There were applications made by the Appellant under both provisions and HMRC were provided with an opportunity to make representations of which they did not avail themselves but, in the end, they were not barred under rules 8(3) but under rule 8(1).

Thus, whilst I accept the general propositions made by HMRC before me in this hearing as to the right prescribed in rule 8(4) and by reference to Ince and Parnham which confirmed the correct approach to the determination of a rule 8(3) Barring Order, the analysis is not directly relevant here.

That said I accept that a similar approach should be adopted when exercising my discretion under rule 8(5) to set aside the Barring Order. However, in that context HMRC cannot contend that they have been denied the right to make representations or have a hearing. Representations have been made and I listened carefully to them at the hearing for which this is the judgment.

I am bound to follow the approach set out in Chappell when considering whether to set aside the Barring Order. In that regard I am to apply the three stage Martland test recognising that the sanction of non-participation in this appeal was imposed in the context of the breach of an Unless Order.

HMRC accept that a breach of an Unless Order is serious. However, they contend that it is not a significant breach, rather it is “moderate” because it was not deliberate but inadvertent and arose from an internal and administrative failing.

Chappell confirmed that when considering the seriousness and significance of a breach of an Unless Order it is necessary to consider the underlying breach and failure to carry out the obligation compliance of which necessitated the issue of an Unless Order. Applying the overriding objective the UT carefully examined the breach and what led to it including all aggravating factors to determine the significance of the breach

In determining the significance of the breach that led to the Barring Order I note that HMRC had not previously been directed to respond to the Appellant’s applications that HMRC be barred and in that sense the Unless Order was not a second chance at compliance. However, the Appellant’s first barring application was made on 11 February 2025 following HMRC’s failure to serve their statement of case. HMRC were therefore aware that, unless withdrawn, the application would need to be determined and that representations would be required before it could be determined. HMRC’s response to serve an application for the appeal to be stayed but behind lead cases unrelated to the Appellant’s appeal. That error was identified by the Appellant in its objection to the stay. Despite directions providing for a reply to the objection HMRC failed to respond and left the Tribunal with an extant application for an inappropriate and unexplained stay. When HMRC were directed to clarify the position, they failed to do so in accordance with the terms of the direction and also provided no statement of case. It is in this context that I made the Unless Order. It should have been apparent, upon service of the Unless Order, that the tolerance of the Tribunal was being stretched.

I therefore consider that the breach; it was not a moderate breach, it was a serious and significant breach.

In the Application and by their skeleton HMRC did not specifically address the reason for the breach of the Unless Order. The focus was the period between the accepted receipt of the Barring Order and the application that it be set aside. However, the Application and skeleton both reference that on 5 August 2025 (and thereby 2 days before the issue of the Unless Order) the legal team for both the CKA and TAAG legal teams had changed and that the present appeal had not been mentioned in the handover. Both documents also state that the Barring Order had been sent to the clearing house email address. As was all correspondence in accordance with the general agreement between the Tribunal and HMRC, that agreement specifically in place to ensure that correspondence sent by the Tribunal is directed to the correct legal team by those inside HMRC to manage team changes, departures etc. The reason also evolved in the skeleton and in argument that HMRC had considered that the appeal had been stayed as a stay represented a sensible course of action.

Despite a decision not to call those responsible for the management of the clearing house email inbox, or the lawyers from either the old or the new team I have accepted the explanation given vis a vis the email address and team hand over, and that it was not a deliberate failure to comply. I have not accepted that a belief that a stay had been granted was reasonable. Thus, I do not consider the explanations represent “good” reasons for failure to comply either individually or collectively.

HMRC contend that their case is substantively similar to that in BMW in terms of the reason for the breach i.e. it was an administrative error. As noted above the UT in BMW did not consider that the reason for breach in that case was a “good” reason, but it accepted that it was not a “bad” reason. There are differences between BMW and the present appeal. Firstly, in BMW it was accepted that neither the taxpayer nor the representative had actually received the directions or the Unless Order and as such could not have complied with them; here HMRC received all directions and the Unless Order; they simply did not comply with it. Secondly, in BMW the Tribunal had used both email addresses when communicating with the taxpayer’s representative such that it was not so readily apparent that the wrong email address was being used. In my view, these differences tip the balance in the present appeal such that I consider that the reasons given by HMRC are “bad” reasons.

At the third stage of the analysis, I am required to consider all of the facts and circumstances and determine, in accordance with the overriding objective whether to set aside the Barring Order. As now confirmed in Medpro I am required to give particular or significant weight to the need for compliance with Tribunal directions and the need for efficient conduct in litigation.

In this context I have regard to the following facts and circumstances:

I have expressly not taken account of the following facts and matters:

The balancing of the factors identified in paragraph 112 is an evaluative exercise I must undertake to balance the fairness and justice to both sides.

I have placed “particular” weight on the need for compliance with directions. For the reasons articulated by Ryder LJ in the Court of Appeal in BPP CA and adopted in Medpro all directions should be complied with and if Unless Orders are not upheld there will be a “shoddy attitude to delay”. In my view therefore the starting position should be that the Barring Order should be maintained unless to do so is disproportionate i.e. when taking account of all the other factors the balance of prejudice weighs sufficiently in favour of setting it aside.

The reasons given by HMRC for contending that maintaining the Barring Order is disproportionate essentially come down to two things:

That this appeal is part of a putative group of appeals appears to me to be the argument which Lord Neuberger confirmed in BPP SC should be given little weight “save, perhaps, in exceptional circumstances”. It is not clear to me that he was satisfied that it would ever be a factor which would bear weight but certainly not unless there were exceptional circumstances. For reasons reflecting those which cause me to consider that the use of the very email that HMRC ask the Tribunal to use and an internal failure to effect a proper handover between legal teams represent “bad” reasons for a breach of an Unless Order I cannot accept that they represent exceptional circumstances permitting me to put any weight on the wider context in which this appeal sits. They are errors which should not have occurred in properly run litigation and which could easily have been prevented. There was nothing exceptional about them.

This Tribunal determines strike out applications in the context of group appeals all the time. The fact that a matter is part of a wider group of appeals does not exonerate the non-compliance with directions.

Further, I reject HMRC’s contention that there is some wider prejudice which arises if they are barred from this appeal in respect of those appeals. Those appeals will be litigated with the full participation of HMRC in accordance with the directions I have given in those appeals. I deal below in paragraphs 130 - 134 with how this appeal should be managed in light of my decision to maintain the Barring Order; however, in the context of the third stage evaluative exercise I simply note that HMRC’s assumption that the present appeal should be stayed if the Barring Order is maintained is presumptive and does not justify the lifting of the Barring Order.

Turning therefore to whether the Barring Order, which deprives HMRC of contributing to a merits-based determination of the appeal, is counter-balanced by the inadvertent and administrative error I have reflected on the cases of Chappell, Breen and BMW. I recognise that Chappell and Breen are removed from the present case and are significantly more egregious. The period of delay and pattern of behaviour was more significant but, as in both those cases, in this case HMRC had persistently failed to comply with Tribunal directions. Further, the CKA stay application had been inappropriately made with the Tribunal having to force the appropriate application out of HMRC.

Further, the Application itself was incorrect and/or misleading in the following respects:

Ms Dhanoa sought to explain these errors as arising from the hurried review of an incomplete file presented in early September once the Barring Order had been issued. However, HMRC had 28 days in which to prepare the Application; they made the Application in 12 days. Perhaps the other 16 may have permitted a fuller review of the file and consideration of the case law such that the errors were not made.

However, even that seems unlikely as HMRC’s skeleton argument also contained similar statements. Those in 122(1) and 122(2) were not repeated but their inaccuracy was not acknowledged. Those in paragraphs 122(3) – (6) are repeated (at paragraphs 48(iii) (on this occasion in more adamant terms “Tribunal correspondence was sent to a generic HMRC mailbox rather than directly to the relevant live case team”), 19(iii), 21 (as regards 27(4) and (5)), 31 – 35).

As was the case in Chappell and Viking the Application was not accompanied by compliance with the direction made on unless terms i.e. HMRC’s response to the Appellant’s rule 8(3) barring applications. To have complied would not have been, as HMRC contended, presumptuous, it would have demonstrated a willingness to now comply with the direction to facilitate the determination of those applications before progressing this appeal further. This is a factor to which I consider it appropriate to give some weight. I do so because it seems to me to be entirely consistent the requirement that weight be given to the need for compliance with directions.

I have already noted the differences between the circumstances in BMW and the present appeal and for present purposes note that in that case the UT stated that “if the facts were different, and the reasons for the breach of directions were weaker, it is unlikely that we would have reinstated the appeal.” In my view the facts of this appeal are different, the reasons for breach are weaker and as the decision in BMW was a marginal one this case falls on the wrong side of the line.

If the Barring Order is not set aside HMRC will not participate in a merits-based determination of the issues in this appeal. £134,000 will not be collected on behalf of taxpayers generally (assuming that the TAAG group appeals fail) but that is because HMRC failed to effect an adequate handover when legal teams changed and/or did not forward an email they accept they received for action. I have not reviewed more extensively the case law on strike out/reinstatement but from the decisions I have taken in the past that appeals are struck out for less and not reinstated. Whenever an appeal is struck out there is a risk of a windfall benefit that the outcome of the appeal is different to that which would have been determined on the merits of the appeal.

Having undertaken the evaluative exercise I do not consider that maintaining the Barring Order is disproportionate.

I do not consider the cases referred to by HMRC and which I have not already addressed, drive an alternative conclusion:

For those reasons I refuse the Application and HMRC are barred from further participation in these proceedings

Rule 8(8) provides that “If a respondent has been barred from taking further part in proceedings under this rule and that bar has not been lifted, the Tribunal need not consider any response or other submissions made by that respondent and may summarily determine any or all issues against that respondent.”

The Appellant has made an application under rule 8(8) for the summary determination of the appeal which I should now consider.

HMRC’s skeleton argument (which strictly I should not consider having maintained the Barring Order) indicates the barring presents a pyrrhic victory as the appeal remains one which can and should be grouped with the TAAG group appeals and which should therefore be determined following the outcome in that appeal. In my view that cannot be right because to stay the appeal pending the outcome of the TAAG group lead cases and then to apply the judgment in this case (even on contested facts) is ultimately to allow HMRC to participate in the merits determination of the appeal when I have already determined that it is not in accordance with the overriding objective to allow them to do so. As such I consider it inappropriate to stay this appeal.

Whilst the Appellant bears the burden of proof in this case no statement of case has been served and as such there is no response to the Appellant’s appeal that it is not an MSC in law or fact. As such I consider that it is in accordance with the overriding objective that the appeal be summarily determined in the Appellant’s favour.

The appeal is therefore allowed.

The Appellant has applied for its costs in connection with the reinstatement application and more generally relating to the appeal.

A costs application represents separate proceedings from the substantive appeal. As I indicated in the hearing, even were I to refuse the Application HMRC would be entitled to participate in the costs proceedings. Pursuant to rule 10(5) I cannot make an award of costs without giving HMRC the opportunity to make representations as the paying party.

The Appellant has made two applications for costs. The first application was dated 23 June 2025. It was a claim for unreasonable costs pursuant to rule 10(1)(b). It did not, however, comply in form with the requirements of rule 10(3)(b) as it was not accompanied with a summary of the costs incurred. The second application was made on 8 October 2025 and indicates that a detailed schedule of costs will be submitted.

The Appellant now has 28 days from the date of this decision to renew its claim for costs in a manner which complies with rule 10. Any such claim should be served on HMRC who will have 14 days from receipt of the application to provide any representations on it they wish to make. Any application and representations will then be considered and determined.

This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.