DX Lingajothy t/a Flying Dragon v The Commissioners for HMRC

The appellant’s first ground of appeal is that the FTT erred by failing to determine the variation application before considering the reinstatement application. This ground is based on the premise that, if the variation application had been successful, it would, in effect have had retrospective effect so that the Unless Order would not have been breached and there would not have been any need for reinstatement.

This principle is derived from the decision of Alexander Nissen QC (sitting as a deputy High Court judge) in Everwarm Ltd v BN Rendering Ltd [2019] 4 WLR 107 (“Everwarm”). That case concerned an application for extension of time for compliance with an unless order, where the application was made before the deadline for compliance, but was not heard until after that deadline. In that case, the deputy judge drew a distinction between the applicable tests for determining in-time and out-of-time applications for an extension of time for compliance with an unless order. In short, in-time applications did not engage the principles concerning relief from sanctions (because if granted there had been no breach), whereas out-of-time applications did. The deputy judge decided that the application in question should be treated as an in-time application even though it was not heard until after the unless order would have taken effect. In doing so, the deputy judge confirmed that, if the extension of time was granted, the claim would be treated in retrospect as if it had never been struck out (Everwarm [15]).

Everwarm was a decision on the application of the Civil Procedure Rules. It was common ground between the parties that the principle should apply equally in this case. Both parties also proceeded on the basis that the variation application could only have this retrospective effect if it was made in-time. In other words, the variation application had to have been made before the deadline by which the appeal was automatically struck-out by the Unless Order. But it did not matter if the FTT did not determine that in-time variation application until after that deadline.

It thus becomes key to establish whether the variation application was in-time. As no time was specified in the order, it is common ground that the effect of Rule 12 of the FTT Rules is that the Unless Order needed to be complied with by 5pm on 8 October 2019.

Mr Windle accepts that the appellant bears the burden of proof of showing the application was in-time (Footnote: ¹). He submits that it was an error for the FTT not to make a clear finding on the time at which the variation application was made. He also submits that for various reasons it is more likely than not that the variation application was made by 5pm on 8 October 2019 and therefore in-time. The application was focussed on the Unless Order and in the belief it had not already taken effect. It attached an unsigned witness statement dated 4 September 2019, which consequently could not be expected to have required additional work on 8 October 2019. All things being equal, it was more likely that the application was sent before 5pm which was towards the end of the working day rather than after 5pm. Two of the three previous unless orders were complied with on time, and even in relation to the third, Mr Brown at CTM complied with it as soon as he became aware of it.

We disagree with Mr Windle’s assertion that the FTT failed to make a finding on whether the variation application was in-time. As Mr Randle argued, the FTT made that finding. It did so when setting out the chronology of proceedings as it did, where it made a finding of fact that the variation application was made after the appeal was struck out. The FTT’s findings indicate the application, although sent on the day of the deadline, was out of time. That is clear from the way the FTT first found that the appeal was automatically struck out before mentioning the variation application (see [7] above]).

Mr Windle argued it was wrong to attach significance to the FTT’s ordering of points. He submits this section of the FTT’s decision was simply a recitation of the documents and the FTT did not give thought to whether the application was in-time or not. We reject those arguments. The fact the appeal was struck out automatically was specifically noted within the chronology. That was not a recitation from a document and illustrates the FTT was applying some judgment to make its findings. The information the FTT set out in relation to the variation application (in particular, that it attached an unsigned statement dated 4 September 2019) suggests the FTT saw the e-mail Mr Ahmed sent in rather than was reporting what was said somewhere else. Neither party had mentioned the variation application in their submissions and, although the 18 October 2019 letter written on Judge Poole’s instructions mentioned the 8 October 2019 e-mail, it had not given any details of the date of the unsigned witness statement. The FTT’s chronology quite deliberately set out the events, as might be expected, in the order they occurred. The FTT would not have set out the order of the events as it did if the e-mail was sent before 5pm.

We would, in any case, have rejected the suggestion that on the balance of probabilities the variation application was sent in before 5pm on 8 October 2019. We acknowledge that the FTT’s 18 October 2019 letter written on Judge Poole’s instructions does not explicitly rule out the possibility the application was in-time because it might be read as simply saying that by 5pm the FTT had not made any variation before the automatic strike out. However, on balance, we consider the instruction set out in the letter that applying for reinstatement was the “only way forward” is more consistent with the judge having ruled out the need to consider whether there was any possibility that the variation application, if successful, might have prevented the breach occurring in the first place. That suggests that the application although stated to be received on 8 October 2019 was received out of time. Although CTM did comply with two unless orders there were also a number of times when it replied late. Its history of responding to deadlines would, at best, be neutral on the issue. It certainly would not in our view tend towards suggesting the application was in-time.

For these reasons, in our view, the FTT made a finding of fact that the variation application had been submitted after the Unless Order had taken effect to strike out the appeal and so out-of-time. On the facts before it, the FTT was entitled to reach that conclusion. It follows that the variation application could not have had retrospective effect to prevent the breach of the Unless Order. It was not therefore an error of law for the FTT to consider the reinstatement application without first determining the variation application; the Unless Order had taken effect and the appeal had been struck out. The only avenue available to the appellant to continue her appeal was to make an application for reinstatement.

Our conclusion on those issues is sufficient to dismiss this ground of appeal. However, even if it could be said that the application was in time, there would, in the particular circumstances of this case, have been no error in the FTT Decision under appeal in the FTT not determining it for the reasons Mr Randle advanced. The hearing that was listed before the FTT concerned the appellant’s application to reinstate her appeal. Although the FTT was clearly aware of the variation application (having made a finding regarding it at FTT [27]), the FTT was entitled to consider the application was not being pursued or had been abandoned. The variation application was not mentioned either in the reinstatement application made by CTM on 19 November 2019 or in the further reinstatement application made by L&L Law on 2 January 2020. The FTT was entitled to assume the appellant’s new representatives were aware of the documents the previous representative had filed. It would not have had any reason to know L&L Law were not aware of it. In any case CTM obviously knew about the variation application which they themselves had made. The FTT might reasonably expect that, they would alert the FTT to that application if it was considered that it still needed to be determined. Mr Windle argued the representatives would have taken their lead from the FTT’s letter of 18 October 2019 that reinstatement was the “only way forward”. That may or may not be correct but does not undermine the point that the FTT could reasonably expect that if a party, and all the more so a represented party, disagreed with the FTT’s proposed course, it would say so.

The appellant’s second ground of appeal relates to the application by the FTT of the first stage of the test in Martland. In summary, the appellant says that the FTT erred in law by failing to take into account, in deciding the seriousness or significance of the appellant’s breach for the purposes of the reinstatement application, the fact that the appellant had made the variation application and submitted an unsigned witness statement within hours of the deadline for the Unless Order.

For the purpose of this ground, both parties proceeded on the basis that the 8 October 2019 variation application attaching the unsigned witness statement was filed after the Unless Order took effect. Mr Windle says that the FTT erred in its application of the Martland test by focussing on the receipt of the signed witness statement on 19 November 2019. Mr Windle accepts that there was a breach of the Unless Order in two ways, firstly because the statement was late (by a matter of hours) and secondly because it was unsigned (which failure was remedied by 19 November 2019). Mr Windle argues the FTT should have considered whether, taken together, these failings were serious or significant. This was particularly relevant as the FTT considered the need for the witness statement was so that HMRC were aware of the appellant’s evidence so they were able to prepare properly and efficiently for the hearing. However, neither the absence of a signature nor the unsigned witness statement being provided a few hours late detracted from HMRC’s ability to prepare for the hearing. (Regarding paragraph b) of this Ground (see [19] above), Mr Windle accepted that the FTT did consider the fact that the appellant provided a signed witness statement by 19 November 2019.)

Mr Randle submits that any failure by the FTT to consider the appellant’s provision of an unsigned witness statement late was not unreasonable and did not affect the FTT’s decision on Stage 1 of the Martland test. The FTT’s focus was on the true breach: the appellant’s failure to meet the Unless Order requirement for a duly signed witness statement by the specified deadline. The appellant did not meet that requirement until six weeks after the deadline passed. Even if the FTT could have considered the earlier filing of the unsigned witness statement at Stage 1 of the Martland test, it had broad discretion not to. The Stage 1 test was a relatively low threshold as was clear from its function, which was to decide the level of time spent on Stages 2 and 3.

Both parties’ positions acknowledge the fact the order breached was an unless order, pointed on its face to the breach being serious and significant. That conclusion was in line with the observations of the Court of Appeal in British Gas Trading Ltd v Oak Cash & Carry Ltd [2016] EWCA Civ 153 (“British Gas”) (at [41]) where Jackson LJ explained:

“The very fact that X has failed to comply with an unless order (as opposed to an 'ordinary' order) is undoubtedly a pointer towards seriousness and significance. This is for two reasons. First, X is in breach of two successive obligations to do the same thing. Secondly, the court has underlined the importance of doing that thing by specifying an automatic sanction in default (in this case the Draconian sanction of strike out).”

Both parties recognised however that the “unless” nature of the order was not determinative. Again, that conclusion was consistent with Jackson LJ’s observation in the paragraph following that above, that not every breach of an unless order is serious or significant. It is also helpful to note that the Court of Appeal’s preceding discussion on the assessment of seriousness and significance in relation to unless orders was the source for the proposition the FTT in the current case noted from Dominic Chappell (see [14] above), that in order to assess the seriousness and significance of breach of an unless order, it is necessary to look at the underlying breach. Jackson LJ explained:

“39…The court must look at what X failed to do in the first place, when assessing X's failure to take advantage of the second chance which [X] was given.

40.

In my view the phrase "the very breach" in paragraph 27 of Denton, when applied to an unless order, means this: the failure to carry out the obligation which was (a) imposed by the original order or rule and (b) extended by the unless order.”

With the above in mind, we do not think the consideration under Stage 1 should be as narrowly focussed solely on the breach of the Unless Order as HMRC’s position suggests. At the level of principle, the appellant’s case, correctly in our view, suggests the taking of a broader perspective of looking not just at the breach of the Unless Order but the underlying breach.

The ground of appeal is that the FTT did not take into account the provision of an unsigned statement on 8 October 2019 in the Stage 1 test. Taking the provision of that statement into account would, we note, be consistent with the need to analyse the underlying breach, namely the failure to comply with the tribunal’s directions, standard in this type of case, to serve witness statements on the other party before the hearing is listed. We therefore agree with Mr Windle that the provision of the unsigned witness statement would, in principle, be of potential relevance. The FTT did not however take the unsigned witness statement into account at Stage 1. It wrongly focused on the breach of the unless order (to the exclusion of the underlying breach). That, in our judgment, represented an error of law.

That error of law would mean we have to decide whether or not to set aside the FTT decision (s12 Tribunal Courts and Enforcement Act 2007). We should only not set aside the FTT decision having found an error if we think the error was not material.

For the reasons below the error, in our view, was clearly not material, in the sense that it might have made a difference, to the assessment of seriousness or significance under Stage 1, so as to warrant setting the FTT Decision aside.

Mr Windle advanced a number of other arguments for why the breach was not serious or significant. He argues the fact that HMRC were allowed to file unsigned witness statements indicates the signature requirement cannot have been viewed as that important. He suggested the FTT had only been prompted to make that a requirement by Mr Brown’s e-mail of 29 August 2019 which had flagged the witness statement had not yet been signed. He also relied on minutes from the published FTT Tax Chamber and UT Tax and Chancery Chamber Users Group Annual Meeting of 13 April 2021 which emphasised the tribunal’s informality and flexibility. In response to a question regarding whether witness statements were required, and if they were so needed, what minimum requirements they needed to meet, the minutes recorded the FTT’s response as:

“…A general requirement that a witness statement must be produced, or if produced, must meet minimum requirements could constitute a barrier for many tribunal users, especially litigants in person”

We disagree that any of these points help the appellant. None of them alter the analysis above that the FTT’s error in failing to take account of the unsigned witness statement in its consideration of the Stage 1 test was not an error that was material. As Mr Randle pointed out, HMRC were not made the subject of unless orders. They had made clear when writing to the tribunal and copying the appellant, that signed witness statements would be provided upon request. The FTT’s requirement for a duly signed witness statement (in circumstances where Mr Brown had indicated he had a draft unsigned statement) highlights rather than detracts from the importance the FTT placed on delivery of a signed statement. If an unsigned statement had been regarded by the FTT as adequate we would expect the FTT to request a copy of that be delivered rather than take the trouble to issue an unless order specifying a signed copy was required. There was nothing unreasonable about the insistence on a signed witness statement in that it would provide the reassurance that the witness had had the opportunity to consider the contents. It would reduce the risk of parties making the preparations on an erroneous view of the evidence. As for the user group minutes, even if these are taken at face value as evincing a considered policy position they are clearly talking about general requirements and are obviously subject to the specifics of the actual direction which is made and which will take account of the particular circumstances of the case. Here, the appellant was not a litigant in person and the particular background was that the FTT had specifically required the witness statement to be duly signed.

We also reject Mr Windle’s submission that it was not serious or significant that the witness statement was filed the day of the deadline but after 5pm because in contrast to the preceding unless orders a specific time on the particular date was not stated. He argued it was not unreasonable for representatives (such as CTM) who were not lawyers to assume they would have the whole of the day to file. Given that a person’s status as a litigant in person does not generally provide a good reason for failing to comply with rules (Footnote: ²), it cannot be that representatives (who are instructed for their expertise (as observed in Katib at [59])), whether legally qualified or not, would be held to a lower standard. Taking account of the potentially severe consequences of not meeting the deadline, it would reasonably be expected that a representative on the receiving end of the Unless Order would not make any assumptions about the deadline but would check the position in good time.

We accordingly are in no doubt that, even if the FTT erred in failing to take account of the unsigned witness statement in conjunction with the filing of a signed one on 19 November 2019, that error was not material to its decision at Stage 1 of the Martland test that the breach should be considered both serious and significant. We will therefore not set aside the FTT decision on this ground.

The focus of this ground, as refined in Mr Windle’s submissions, was in the FTT not having requested submissions from the parties on the variation application. (It was inferred the FTT had access to the application as the front of its decision recorded that the documents the FTT had regard to were those held on the tribunal file.) It is argued that the FTT ought to have directed submissions on the variation application given the application’s potential relevance to the FTT’s decision, and because neither party had referred to the variation application in their submissions. (Mr Windle, rightly, in our view, did not emphasise the aspects of the ground which alleged the FTT should have known that neither the appellant’s new advisers, nor HMRC were aware of the 8 October 2022 application.)

Mr Windle relied on the authority of Employment Appeal Tribunal decision in Balls v Downham Market High School & College [2011] IRLR 217 at [7], where Lady Smith said, regarding an Employment Tribunal’s consideration of an application for strike out:

“I would add that it seems only proper that the Employment Tribunal should have regard not only to material specifically relied on by parties but to the Employment Tribunal file. There may, as in the present case, be correspondence or other documentation which contains material that is relevant to the issue of whether it can be concluded that the claim has no reasonable prospects of success. There may be material which assists in determining whether it is fair to strike out the claim. It goes without saying that if there is relevant material on file and it is not referred to by parties, the Employment Judge should draw their attention to it so that they have the opportunity to make submissions regarding it but that, of course, is simply part of a Judge's normal duty to act judicially.”

In so far as Balls suggests that there is an obligation on the judge to have regard to the tribunal file, to identify any relevant material and to seek submissions from the parties if there is any matter to which the parties have not referred, then we do not consider that should apply to the FTT (Tax Chamber).

The starting point will be that in making decisions, in circumstances where the parties have had the opportunity to make their representations, the judge will expect the parties to identify the issues on which a decision is required and to refer to the documents from the file which are considered to be relevant to those issues (because either they have come from the party, or if not, they have been copied to them by the tribunal or the other party). In this case, we can see detailed directions were issued to flush out the submissions and the documents each party intended to rely on.

To impose an obligation, in these circumstances, to consider the file to see if there is anything relevant in it which the parties have not referred to puts an unwarranted burden on judicial resource. Parties may reasonably be assumed to know what they have filed and because they are routinely expected to copy the other side on any communications with the tribunal to know what the other party has filed. Practical difficulties arise in that judges will not necessarily have ready access to the full file because the file may be located in a different location to where the judges sit. Even if accessible, the files can in some cases contain volumes of correspondence and applications stretching over a number of years.

Mr Windle, perhaps in recognition of these concerns, did not go to the extreme of suggesting that the FTT should be expected to peruse the file to identify any relevant material and then put all documents not referred to by the parties back to the parties for submissions. He put the obligation more narrowly: the tribunal should seek submissions where there was a document on the file that was considered potentially relevant such that it warranted mention in the FTT’s decision.

In our view the relevant principles, grounded as they are in the fairness of giving parties the opportunity to deal with information the tribunal relies on, but which the parties have not had the opportunity to comment, require no elaboration. The application of the principles will depend on the particular facts. If the judge sees material on the tribunal file, which the judge considers relevant, in the sense that the FTT proposes to take account of it when making its decision, and it is clear one or more of the parties has not seen it (for instance because the material has not emanated from the parties, or if it did, it is clear that it was not copied to the other) then of course the FTT ought to invite submissions from the parties on it. As Balls indicates that is part of the normal duty to act judicially.

Applying the above to the facts, it should be noted that the challenge raised under the preceding grounds is that the FTT did not in fact consider the variation application relevant. On that basis it is difficult to see how any separate error arises over and above that alleged in the preceding grounds (which we have dismissed) in the FTT not seeking submissions. We do not consider the fact that the FTT mentioned the application in its decision as significant. The FTT clearly did not rely on it in its reasoning.

The appellant’s appeal is dismissed.