Paul Ellis & Anor v The Commissioners for HMRC

Mr Firth submitted that the FTT erred in law admitting the RSM letter dated 12 October 2020 for six reasons.

No application to admit by HMRC, no reasons given and no evidence in support

In seeking to admit evidence at an extremely late stage he argued that HMRC failed to:

He submitted that the only proper course was for the FTT to refuse to admit the letter. The prejudice to the Appellants was clear:

FTT should have applied the relief from sanctions case law

Mr Firth argued that the FTT should have applied the relief from sanctions case law, as for example set out in Martland v HMRC [2018] UKUT 178 (TCC) (“Martland”). HMRC had no permission to submit any evidence the night before the hearing. The hearing bundle had been prepared some time before and the parties had exchanged skeleton arguments. In those circumstances, the default position was that HMRC should not have been able to rely on the evidence and they would have needed to satisfy the relief from sanctions case law in order to be entitled to do so.

He submitted that it cannot be right, as the FTT appears to have been of the view, that the absence of a direction dealing with evidence means that such principles are inapplicable. Absence of permission is not permission to do anything. The FTT’s approach was essentially an invitation for unrestricted behaviour. There was no incentive for a party to produce and send their evidence to the other side in good time before an application hearing if there was no consequence or detriment to ambushing the other side with that evidence the night before the hearing.

If the FTT had applied that case law it would have refused to admit the evidence

Mr Firth argued that if the FTT had applied the relief from sanctions case law, the only available conclusion would have been to refuse to admit the letter:

Mr Firth submitted that HMRC had been aware that the Appellants were asserting HMRC had access to the information for many months and the Appellants had spelt out the need for witness evidence on this very point in their reply to the application on 2 July 2020. The delay caused obvious prejudice to the Appellants. The purported evidence itself was wholly unsatisfactory – it was a letter, rather than a witness statement, from a person who would not attend to give evidence. In the circumstances, HMRC’s behaviour was wholly inexcusable and the letter should not have been admitted.

The document itself was such that it should not have been admitted or relied on and it was wholly unreasonable and irrational for the FTT to place decisive weight on it

Mr Firth submitted that a letter making contentious statements about disputed matters of fact which is not supported by a witness statement and in respect of which nobody will attend to be cross examinedis not evidence that the FTT should have admitted or placed decisive weight upon.

The particular circumstances of this case

Mr Firth submitted that HMRC had been on notice regarding the issue for months but apparently chose to do nothing about it until the night before the hearing. Poor quality evidence might be explicable where a party has to deal with a new point at the last minute, but it is unacceptable and should not be tolerated where it is an issue the party has been aware of for months and simply chosen not to deal with. If HMRC had dealt with the matter in good time, the Appellants would have had an opportunity to insist on a witness statement and that the author attend for cross-examination. The extraordinary lateness meant that this was not possible. Furthermore, there had never been any explanation as to why Mr Reilly (the HMRC Officer with conduct of the investigation) did not give a witness statement dealing with the points apparently dealt with in the RSM letter. That should have led to an adverse inference.

Absence of consideration of the correct test or provision of reasons by the FTT

Mr Firth argued that the FTT decided that it would admit the letter but did not identify the correct test in law for the admission of evidence and failed to give reasons for that conclusion. This was an error of law.

Mr Watkinson, leading Ms Lemos, opposed the appeal on behalf of HMRC. In reply to Ground 1, he submitted that the decision to admit the RSM letter as evidence at the case management hearing and give it such weight as it saw fit was within the generous ambit of the FTT’s discretion. No FTT acting reasonably would not have admitted the letter bearing in mind the allegations made by the Appellants in their skeleton argument before the FTT.

The position in relation to appeals against case management decisions of the FTT was summarised by Sales, J., as he then was, in HM Revenue & Customs v Ingenious Games LLP [2014] UKUT 0062 (TCC) (“Ingenious”) at [56] that:

“The Upper Tribunal should not interfere with case management decisions of the FTT when it has applied the correct principles and has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the Upper Tribunal is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of discretion entrusted to the FTT…. The UT should exercise extreme caution before allowing appeals from the FTT on case management decisions (Goldman Sachs International v HM Revenue and Customs Commissioners [2009] UKUT 290 (TCC) at [23]-[24]).”

In BPP Holdings & ors v HMRC [2017] UKSC 55 (“BPP”), the Supreme Court had to consider whether a barring order made by the FTT against HMRC for a failure to comply with directions was justified. Lord Neuberger said (at [33]):

“…In the words of Lawrence Collins LJ in Walbrook Trustee (Jersey) Ltd v Fattal [2008] EWCA Civ 427, para 33:

[A]n appellate court should not interfere with case management decisions by a judge who has applied the correct principles and who has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge.

In other words, before they can interfere, appellate judges must not merely disagree with the decision: they must consider that is unjustifiable.”

We agree with HMRC that the decision to admit the letter of RSM at the hearing on 12 October 2020 can be characterised as a ‘meta case management decision’. It was a case management decision within the hearing of an application for a disclosure direction, itself a case management application. Placing it in this perspective emphasises the point that the Upper Tribunal should be very slow to interfere with it.

We begin by addressing the second point made by Mr Firth on this ground; that the FTT should have applied the relief from sanctions case law in deciding whether or not to admit the letter as evidence. Mr Firth referred us to the decision of the Upper Tribunal in Martland in this respect. That case concerned an application for permission appeal out of time. However, the Upper Tribunal accepted that the general approach in the relief from sanctions cases (e.g. Denton and others v TH White Limited and others [2014] EWCA Civ 906, and BPP) should apply equally to such applications (Martland [43]). The Upper Tribunal then set out a three-stage test for considering applications for permission to appeal out of time (Martland [44]). In summary, that test requires consideration of: 1) whether the breach of directions or rules or delay was significant or serious; 2) whether there was a good reason or explanation for this breach or delay; and 3) all the circumstances of the case. The balancing exercise in the third stage of this test should take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected (Martland [45]).

We do not accept the submission that the relief from sanctions case law should have been applied by the FTT when deciding whether to admit the RSM letter. There was no particular breach of a direction or the Rules or any given time limit. The applicable rules for admitting the letter were those contained in Rule 15 on the admission of evidence, which has to be read in the light of Rule 2 – the overriding objective to deal with cases fairly and justly. Rule 15(2) provides that the Tribunal may—

Rule 15 is therefore essentially permissive. It provides the FTT with significant discretion in deciding whether or not to admit evidence. That discretion must be exercised judicially, in a manner which promotes the overriding objective in Rule 2. For this purpose, the FTT will need to take into account all the facts and circumstances of the case to determine whether it is just and fair to admit the evidence. This will include consideration of the timing of the production of the evidence, its relevance and significance and the detriment and prejudice to the other party in admitting the evidence – whether it is adequately able to address and respond to it.

Therefore, whilst we do not agree with Mr Firth that Martland and the breach of sanctions case law directly applies to the admission of evidence in this case, nonetheless, we accept that similar factors are likely to be considered when applying Rule 15 in the light of Rule 2 in deciding whether to admit evidence at a late stage in proceedings: the explanation for its late deployment or service; the significance or relevance of the material to the issue to be decided; and the prejudice it would cause to the other party in addressing it.

Further, we accept Mr Firth’s sixth point does highlight a more fundamental error made by the FTT in admitting the letter of RSM. In both its oral reasons at the hearing and in its later written decision, the FTT failed to identify and apply any test in law for admitting the letter at the hearing. It failed to refer to Rules 2 or 15 or the conditions thereunder – at a minimum by reference to the overriding objective or the requirement of fairness, including prejudice to the Appellants in admitting the letter at a late stage. This was an error of law.

We also agree with Mr Firth about the lack of reasons given by the FTT orally and in writing. The FTT gave some indications in its oral exchange with counsel as to why it might admit the letter. During the hearing, as set out above, the FTT observed amongst other things: that there were no directions for the provision of evidence for the purposes of the disclosure application; that there did not need to be an application to admit evidence within the context of a case management application; that the letter was relevant evidence that HMRC did not already have the material they sought by way of disclosure; that the FTT was not bound by the strict rules of evidence as applied by the High Court; that it was not the hearing of the substantive appeal; and that any criticism of the form or content of the evidence contained in the letter, and its reliability, could be considered when considering the weight to be attached to it.

However, in both its oral ruling and in its written decision, the FTT announced its conclusion that it would admit the letter and give it appropriate weight but gave no express reasons for doing so. The FTT’s reasons for admitting the document, whether oral or written, need only have been expressed very briefly – the duty to give reasons is context specific (Footnote: ¹). The FTT had made a number of observations during the hearing from which its reasons for admitting the document might, at least to some extent, be inferred – some of which might have been expressly adopted as its reasons.

The failure to articulate any reasons for the grant of the application was an error of law, just like the FTT’s failure to identify and apply the correct test in law, in particular, by failing to consider fairness or the prejudice to the Appellants of admitting the evidence.

Notwithstanding that these two errors of law were material in the context of the decision to admit the RSM letter, we are not satisfied that they were sufficiently material to the decision to make the disclosure direction. For the reasons that we have set out below, we do not regard the errors as having a material bearing on the outcome of the application for disclosure. Therefore, they do not justify disturbing the FTT’s decision to grant the application for disclosure. This is all the more so given the generous ambit of discretion that must be afforded to case management decisions of the FTT and the caution with which this Tribunal should approach challenges to those decisions.

As a starting point, we bear in mind that the appeal before this Tribunal is an appeal against the decision of the FTT to grant the application for disclosure. It is not an appeal against the decision to admit the RSM letter as evidence itself. The errors of law in the FTT’s decision to admit the letter relate to an element of the decision to grant the disclosure application – we accept a potentially important element – but only part of the overall decision. There is no challenge to the FTT’s decision to grant the application for disclosure on the grounds that it failed to apply the correct test or that it failed to give reasons for that decision.

We do not regard the failure to give reasons for the decision to admit the RSM letter, or to identify the correct test for that decision both at the hearing and in its written decision, as demonstrating that the decision to grant the application for disclosure was plainly wrong or unjustifiable.

Furthermore, we are satisfied, for the reasons we set out below, that there were ample grounds for the FTT to reach its decision to admit the RSM letter applying Rule 15(2) in the light of the overriding objective in Rule 2.

In giving our reasons we answer the remaining points made by Mr Firth and accept and adopt much of the argument relied upon by Mr Watkinson.

Further and in any event, had the FTT not admitted the RSM letter as evidence that HMRC did not have a copy of the hard drive as alleged, the remaining evidence relied on by the Appellants did not establish that HMRC had possession of the material. Mr Ellis’s own evidence to the contrary amounted to nothing more than a mere belief.

During the hearing Mr Ellis gave oral evidence as to why he believed that HMRC already had the material that they sought by way of disclosure. However, as the FTT found (FTT Decision [32]), and as is clear from the transcript of Mr Ellis’s cross-examination at the hearing of the disclosure application,the assertion that HMRC already had the material sought, and the consequential allegations of bad faith, was based only upon Mr Ellis’s belief. His evidence was that HMRC must have had the information on the hard drive because they appointed the provisional liquidators of the Skelwith companies who removed the material from the offices. He believed that representatives of HMRC were present when the liquidators attended and removed the material, however he accepted he had not seen the liquidators hand over the material to HMRC.

For these reasons therefore, it would have been open to the FTT to reach its decision to grant the application for disclosure with or without admitting the RSM letter in evidence. Having admitted the RSM letter and heard Mr Ellis’ evidence the FTT was entitled to conclude that HMRC did not already have the material it sought by way of disclosure. The weight to be put on the RSM letter was a matter for the FTT, as it recognised at[3]. Having found at[32]that the letter was from (i) a reputable third party, (ii) in the position of an officer of the court, and (iii) who had no reason not to tell the truth, the FTT preferred the contents of the RSM letter to the evidence of Mr Ellis. That was more than a reasonable approach for the FTT to take.

We dismiss this ground of appeal. The errors of law identified were not material to the FTT Decision.

Mr Firth submitted that Ground 2 also concerned lateness and lack of a good explanation, but this time in relation to the timing of HMRC’s application for disclosure itself. In their skeleton argument and at the hearing, the Appellants argued that HMRC’s application for disclosure was very late and that HMRC had been aware that the hard-drive with the relevant material was in the possession of the Appellants since at least January 2018. This meant that there was no good reason for the delay in HMRC’s application for disclosure dated 2 June 2020. Accordingly, the application should have been refused by the FTT.

The essence of Ground 2 was that the disclosure application was late because:

HMRC’s explanation, in their application, was that the witness statements and exhibits were “the first time in the course of the proceedings that Mr Ellis has disclosed that he has access to the significant reservoir of documents and electronic material that he plainly has access to”.

The Appellants’ submission was that the January 2018 letter made this explanation untenable. HMRC did not provide any evidence in respect of this issue or, indeed, provide any factual explanation as to how the January 2018 letter did not undermine the asserted basis for the timing of the application.

Mr Firth submitted that the FTT was required to consider and resolve this dispute, but it did not. In its decision, it did not address the timing of the application at all, HMRC’s claimed justification for that timing, or the January 2018 letter. In its decision the FTT purported to find that HMRC had not had access to the information sought (FTT Decision [34]). However, he argued that this was a separate point to the question of whether, in any event, HMRC had been aware of the hard drive since January 2018, which they plainly had been.

Accordingly, Mr Firth contended that the FTT erred in law because it failed to deal with and decide the key dispute on the justification for the timing of the application, failed to take into account a highly relevant consideration (that HMRC had been aware of the hard-drive of documents since January 2018 and their unsupported claims not to have been were wrong) and, in general, failed to consider and address a substantial submission made by the Appellants.

In relation to Ground 2, Mr Watkinson relied on the FTT’s findings that: the material sought had not previously been disclosed by the Appellants; that HMRC could not know what material would be relied upon by the Appellants until the service of their evidence; and that the application was responsive to that evidence. He submitted that these findings were sufficient to dispose of the Appellants’ argument that HMRC were already aware that Mr Ellis held a hard disk containing the material from which disclosure was sought. In any event, that assertion was not made out on the evidence. Further, the application could not properly be construed as “late”.

We accept Mr Firth’s submissions. The FTT did err in law by failing to address the letter from the Appellants’ representative (Mr Roseff) dated 16 January 2018 in making its decision. The Appellants relied upon the wording of the letter to submit that HMRC had been aware since that time that the Appellants were in possession of the material they now sought, in particular the hard drive. The FTT did not identify the letter nor consider this issue in its decision.

The Appellants relied upon the January 2018 letter as a key document when submitting that they had told HMRC more than two years before that they had the material and that therefore the disclosure application was very late and should not be granted. The FTT did not address the issue despite hearing clear and opposing submissions from both parties on the topic. This was a material error of law because the January 2018 letter was relevant to deciding whether the disclosure application was made late and should therefore be refused.

Under section 12 of the Tribunals Courts and Enforcement Act 2007, where the Tribunal finds that the making of a decision of the FTT involved the making of an error on a point of law, the Tribunal may (but need not) set aside the decision of the FTT. We have found that the FTT Decision did involve an error of law as identified by Mr Firth and we exercise our discretion to set aside the decision on this ground. Nevertheless, we go on to re-make the decision and grant HMRC’s disclosure application.

Having had access to the written evidence that was before the FTT and to the transcript of the hearing, we are satisfied that HMRC’s application for disclosure was not “late” as suggested by the Appellants. We are also satisfied that if the FTT had properly addressed this issue, it would have reached the same conclusion. Our reasons are set out below.

As a starting point, we note that during the FTT hearing, Mr Watkinson made the same arguments about the wording of the 16 January 2018 letter that he made to us, which were that it did not say what the Appellants suggested it said. The relevant paragraph from the letter is set out at [17] above. We repeat it here for ease of reference:

“Subsequent to our engagement we have reviewed the available information to which Mr Ellis has access. This predominantly comprises extracts from the company's financial records and copies of email correspondence extracted from back-up versions of company hard drives (we understand that these hard drives were seized by the administrators appointed by HMRC such that you have access to these records, albeit may not have undertaken a detailed review).”

Mr Firth submitted that the only natural meaning of this paragraph in the letter was that Mr Ellis had possession of the company financial records and email correspondence which were on the company hard drives which he had retained and that he retained copies of these as of January 2018. Thus, HMRC were informed of this.

Mr Watkinson submitted to the FTT and to us that the paragraph in the letter needed to be read carefully in order to divine its reasonable or natural meaning. We agree. First, it might appear from the paragraph in the January 2018 letter that Mr Ellis was in possession of material beyond extracts, hence the word “predominantly”, but the reader is not told what that material is. HMRC were entitled to understand the letter as not being clear as to what material Mr Ellis held.

Secondly, Mr Watkinson submitted that the paragraph suggests that Mr Ellis has access to extracts of financial information: “extracts from the company’s financial records and copies of email correspondence extracted from back-up versions of company hard drives”. What was being said here, as HMRC reasonably understood it, is that Mr Ellis had access to material that had been extracted from something. That is not the same as saying that Mr Ellis has possession of all the material from which the extracts have been taken.

Mr Watkinson argued that the letter did not say that Mr Ellis had possession of an image of Mr Broadbent’s computer, as is now said to be the case. It did not say that Mr Ellis had access to the computer systems and office files to which he referred at paragraph 355 of his witness statement dated February 2020. It did not say that the Appellants had access to Mr Broadbent’s email account, which is what Mr Chambers said in his witness statement, without providing any explanation of how he had accessed it. It did not say that Mr Ellis had access to and would rely upon emails that postdate the attendance of the liquidators, which he did in the form of his emails exhibited to his witness statement.

We agree with Mr Watkinson. The wording of the letter is ambiguous. While Mr Firth’s interpretation is one reading of the letter, there are other interpretations equally and reasonably open to the reader. HMRC were entitled to rely upon another understanding of the letter in submitting that they had not been put on notice in January 2018 nor understood that the Appellants held the material HMRC sought. They were entitled to consider that it only became clear once they received the Appellants’ evidence in February 2020 that Mr Ellis had access to the material on the companies’ computer systems. Hence the disclosure application was not made late but in response to that evidence.

Therefore, we are satisfied that HMRC was entitled to respond to the Appellants as it did: “Your witness statements are the first time that you have said you have access to this reservoir of electronic material and documents”. This is not undermined by the contents of Mr Roseff’s letter of January 2018. HMRC were reasonably entitled to the view that the documents relied upon by Mr Ellis and Mr Chambers in their witness statements go beyond extracts of financial records and limited extracts from the companies’ hard drives. What HMRC relied upon to make the disclosure application was not demonstrably false by reference to a comparison between Mr Roseff’s letter and what Mr Ellis and Mr Chambers have said in, and exhibited to, their witness statements.

There is a further point that was made before the FTT and at the hearing before us. Some 15 days after the January 2018 letter, on 31 January 2018, Mr Ellis filed his amended notice of appeal which was a central pleading before the FTT. The amended grounds of appeal for Mr Ellis stated at paragraph 10:

“The administrators of the Skelwith companies seized the companies' books and records following their appointment. Mr Ellis has not had access to these records subsequent to this date.”

This pleading, coming very shortly after the letter, implied that Mr Ellis did not have access to the relevant records that HMRC sought. HMRC were reasonably entitled to read the pleading in this way. When the letter and grounds of appeal are read together, HMRC were reasonably entitled to understand that Mr Ellis did not have access to material from the companies’ records, at that time. Therefore, HMRC were reasonably entitled to the view that the disclosure that they sought only arose out of receiving the evidence in the Appellants’ witness statements of February 2020.

Further, the pleading of 31 January 2018 does not sit easily with Mr Ellis’s oral evidence given in cross examination to the FTT at the October 2020 hearing. He stated that he had a portable hard drive with an image of the hard drive which had been in existence in 2015 but he did not look at the portable hard drive until the middle of 2017. This was his explanation for not complying with the information notices served by HMRC in late 2016 for him to provide such information. However, the pleading of 31 January 2018, on one view, implies that he did not have access to the material from the companies’ hard drives.

We are satisfied that HMRC did not know as of January 2018 that Mr Ellis had retained a copy of the hard drives, where Mr Ellis had not complied fully with the information notices and where no list of documents had been served by the parties. We find that the first time HMRC knew that the Appellants had access to the range of material which HMRC sought was after the service of their witness statements.

In all these circumstances, we agree with Mr Watkinson that the FTT was entitled to find (FTT Decision [12]) that the Appellants had not previously disclosed the material sought, that HMRC could not know what documents the Appellants would rely on until they served their witness evidence(see FTT Decision[43]) and that the application for disclosure was responsive to the Appellants’ evidence (at FTT Decision [44]). We are satisfied that those findings would have remained the same even if the FTT had addressed and determined the arguments regarding the 16 January 2018 letter. HMRC’s disclosure application was made in correspondence in March 2020, little more than a month after the Appellants’ evidence was served, and formally made in June 2020, some two months thereafter. The application was not “late” in any conventional sense and we are satisfied that its timing was no bar to its being granted.

For these reasons, whilst we accept that there was a material error of law in the FTT’s Decision and set it aside on this ground, we re-make the decision granting HMRC’s disclosure application.

Mr Firth submitted that the FTT erred in granting an extremely wide and unfocussed disclosure application. The Appellants accepted that some relevant documents may fall within the very broadly drafted categories (indeed, it would be surprising if they did not, given its breadth). Nonetheless he submitted that the direction was disproportionate and not necessary to deal with the case fairly and justly. For instance, there is no limit in the direction on:

He argued that the party that makes a disclosure request without any attempt to limit it to relevant documents should expect it to be refused. Even if the FTT had been minded to grant some disclosure, one would have expected it to examine the drafting of the request to ensure that it was, so far as reasonably possible, limited to relevant documents. The FTT failed to dothis.

Mr Firth submitted that the test is not whether the FTT is satisfied that a class of documents sought will include some relevant documents (irrespective of what proportion of the documents required to be disclosed those relevant documents are likely to represent) but whether the applicant (HMRC) has satisfied the FTT that the materials sought (i.e. the class itself) is both relevant and necessary to deal with the case justly (Royal Bank of Scotland Group plc v. HMRC [2020] UKFTT 321 (TC), [56] and [75]).

The FTT was, accordingly, in fundamental error in deciding that all the documents for which disclosure was sought were relevant and, indeed, would fall within categories (1) and (2) as explained in paragraph 31.6.3 of the White Book (see [50] above).

He therefore argued that the FTT failed to address its mind to whether the disclosure request was properly formulated so as to target relevant documents in the most proportionate way (because, apparently, the FTT believed that any document falling withthe classes identified would be relevant). That was a further error of law.

In relation to Ground 3, Mr Watkinson argued that the FTT’s fundamental decision to order disclosure was unimpeachable. The disclosure ordered was not disproportionate; its breadth was a function of the general nature of the assertions made by the Appellants in their evidence and the wide-ranging nature of the material referred to by them.

We are satisfied that for the reasons given at[44] and [49] of the FTT Decision, the decision to order disclosure of the material identified was justifiable. It was entitled to find that disclosure of the categories and sources of material directed was relevant to the issues in the case and was necessary and proportionate to deal with the appeals fairly and justly.

Rule 5 gives the FTT, as part of its general case management powers, the power to direct a party to provide documents and information to another party. The FTT also has a specific power, under Rule 16, to order a person to “produce any documents in that person’s possession or control which relate to any issue in the proceedings”. When exercising a case management discretion or power, the FTT must have due regard to the overriding objective set out in Rule 2.

The FTT was entitled to find that the material sought was of central relevance to the case at [49(1)]. It took into account that it was applying the normal standards of fairness and justice to a high value and complex dispute. This followed the approach laid down in McCabe v HM Revenue [2020] UKUT 266 (TCC) at [22]-[25]:

We agree with the submissions of Mr Watkinson that the FTT was entitled to permit HMRC to test the credibility of the Appellants’ generalised assertions in relation to important factual disputes in the appeal by reference to the full set of contemporaneous documents identified in the disclosure request. The FTT was entitled to accept HMRC’s submission that the material exhibited to or referred to in the Appellants’ statements had been selected by the Appellants’ witnesses in support of their own case from a deeper reservoir of material that they held.

As a matter of principle, if the circumstances of a case require comparatively wide or general orders for disclosure to deal with it fairly and justly then the Rules permit such a request. Where material has not been revealed by the taxpayer during an investigation (such as here, where the FTT found that the material should have been produced in response to the information notices), and the default disclosure regime under Rule 27 of the Rules has been set aside, the fair determination of the case may require such further disclosure.

We also agree with Mr Watkinson that the FTT was entitled to find (at FTT Decision [48]–[49]) that the breadth of the disclosure sought was an inevitable consequence of (i) the wide-ranging nature of the material exhibited to Mr Ellis’ witness statement, (ii) the generalised nature of the assertions made by Mr Ellis in his witness statement, and (iii) and the fact that HMRC did not know the precise contents of the hard drive held by Mr Ellis. It would be impossible and impractical to further restrict the categories or sources of material sought without having had sight of the material itself. It was all potentially relevant.

In this case, the categories and sources of disclosure directed, if not the specific documents themselves, were either mentioned in the witness statement or to be reasonably inferred to be relevant from the witness statements themselves. The disclosure sought was not “too broad” because the material mentioned in the Appellants’ witness statements was similarly broad in range and the assertions based on it were general in nature.

The FTT also acted reasonably and fairly in providing an alternative form of disclosure that would produce something akin to the same result of the primary direction for disclosure but reduce the burden on the Appellants. This was for them toprovide the hard drive and the software used to search it. If anything, production of the hard drive was narrower in scope than the disclosure sought since e.g. it did not involve any hard copy documents that Mr Ellis had access to, and did not involve any of his own email accounts or text messages that were not preserved on that drive. That was not giving HMRC “more disclosure than they have asked for” since it is difficult to see what material on the only hard disk that Mr Ellis admitted to having access to, that was an image of Mr Broadbent’s company computer, would not have fallen within the scope of the disclosure request.

For the most part, the Appellants have not established that the breadth of the disclosure ordered was so plainly wrong that it must be regarded as outside the generous ambit of discretion entrusted to the FTT except in one regard.

We are satisfied that there is merit in one of Mr Firth’s criticisms. It was neither justified nor proportionate for the FTT to make such a disclosure direction without any limit on the timescales to which the material related. As Mr Firth submitted, if there was no limit to the time periods, any material relating to the personal expenditure of Mr Ellis or Mr Broadbent since their childhoods could potentially fall within the scope of the disclosure request. This was unjustified and disproportionate. Placing no time constraints upon the material to be disclosed amounted to a material error of law.

We therefore allow this ground of appeal in part. We set aside the disclosure direction and re-make it in the same terms but limited in time to material which falls within the tax periods which are the subject of the substantive appeals (namely, 11 July 2008 to 5 April 2015). This does not prevent the parties making further applications for specific disclosure as a result of the material provided.

In summary: