Eclipse Film Partners No. 35 LLP v Revenue & Customs [2010] UKFTT 448 (TC)

FTT-Tax
Eclipse Film Partners No. 35 LLP v Revenue & Customs
[2010] UKFTT 448 (TC) · 2010-09-02
[1]The Directions in this appeal made by the Tribunal on 15 January 2010 and on 16 April 2010 are prospectively replaced by the following Directions.[2]By 5 pm on 1 October 2010, the parties shall apply for a pre-trial review to be listed on the first available date on or after 22 October 2010 and shall provide dates to avoid when listing the review. The review will go ahead only if it is perceived by either party or both parties to be required or convenient when the parties inform the Tribunal of the estimated length of time of the hearing of the appeal and provide dates to avoid when listing the hearing pursuant to direction 5 below.[3]By 5.00pm on 1 October 2010 the Appellant shall provide to the Respondents:(i) copies of all documents not hitherto provided by it, which are relevant to the appeal and which came into existence before 1 December 2009, except that the Appellant shall not be required to provide disclosure of any document which has already been disclosed by the Respondents to it; and(ii) a list of all documents on which the Appellant intends to rely in connection with the appeal[4]By 5.00 pm on 15 October 2010 the Respondents shall provide to the Appellant:(i) copies of all documents (not hitherto provided by them) on which the Respondent intends to rely in connection with the appeal; and(ii) a list of all documents on which the Respondents intend to rely in connection with the appeal; and(iii) (if this has not already been provided) a list of names of any expert witnesses on whose evidence the Respondents intend to rely in support of its case, together with an indication in the case of any expert witness of the matters in respect of which expert evidence will be given.[5]By 5pm on 29 October 2010, the parties shall inform the Clerk to the Tribunal (the “Clerk”) of the estimated length of time for the hearing of the appeal and shall provide dates to be avoided between February and July 2011 when listing the hearing.[6]The appeal must be listed to be heard (subject to the availability of Tribunal accommodation and otherwise subject to further direction of a Tribunal Judge) before the end of July 2011.[7]The parties shall if a pre-trial review appears, at the time of compliance with Direction 5 above, to either or both of them to be required or convenient, confirm to the Tribunal the requirement for a pre trial review or alternatively vacate the listing of the pre-trial review.[8]By 5.00pm on 5 November 2010, the Appellant shall serve on the Respondents and on the Clerk full witness statements of the witnesses of fact that it intends to call at the hearing of the appeal, with exhibits thereto. Such witness statements shall stand as evidence in chief of the witnesses subject to such further questions as the Tribunal shall allow.[9]On or before 5.00pm on 19 November 2010, the parties shall endeavour to agree a statement of facts and serve it on the Clerk.[10]By 5.00pm on 28 January 2011 the Respondents shall serve on the Appellant and on the Clerk full expert reports from any expert witness that they intend to call at the hearing of the appeal, with exhibits thereto.[11]Save where the parties agree in advance that the attendance of an expert witness is not required at the hearing, the Respondents are at liberty to call to give evidence at the hearing of the appeal any expert witness who has provided a report in accordance with Direction 10 above. Such report shall stand as the evidence in chief of the expert witness subject to such further questions as the Tribunal shall allow.[12]The parties shall endeavour to agree an indexed and paginated bundle of documents for the hearing (“the Hearing Bundle”):(i) The Hearing Bundle is to be prepared by the Appellant and the Appellant is to serve three copies of the Hearing Bundle on the Respondents not later than 21 days before the date set for the hearing and three copies on the Clerk (or such lesser number as the Tribunal may specify) at such lesser period as the Tribunal may specify,(ii) In default of agreement on the Hearing Bundle, each party shall, by the same date, serve three copies upon the other party and three copies on the Clerk (or such lesser number as the Tribunal may specify) of an indexed and paginated bundle of those documents upon which they wish to rely from the documents that have already been provided to the other party or listed under Directions 3 or 4 above or otherwise.(iii) If the parties intend to provide a CD containing the documents the Clerk should be informed in advance.[13]No later than 14 days prior to the date set for the hearing of the appeal the Appellant shall serve a skeleton argument on the Respondents and lodge the same with the Clerk.[14]No later than 7 days prior to the date set for the hearing of the appeal the Respondents shall serve a skeleton argument on the Appellant and lodge the same with the Clerk .[15]The Appellant shall serve a bundle of authorities referred to in the skeleton arguments prepared under Directions 13 and 14 above (to include copies of any authorities supplied by the Respondents on request by the Appellant) on the Respondents and on the Clerk not later than 5.00pm on the 3rd day before the date set for the hearing. Three copies shall be served on the Respondents and there shall be served on the Tribunal either three copies or such lesser number as the Tribunal shall specify. If the parties intend to provide a CD containing the documents the Clerk should be informed in advance.[16]An official transcript shall be taken of the hearing, the costs of which shall be borne by the parties equally.[17]The parties may vary the dates or times set out in the directions above (except Direction 6) by mutual agreement.[18]There will be liberty for either party to apply for further directions. REASONS Introductory facts[1]Before this appeal was brought there had already been a litigated application by the Appellant for a closure notice direction. That application was heard by Judge Sadler and the Appellant was successful (see: the Special Commissioner’s Decision released on 17 February 2009, [2009] SWTI 627, hereinafter “the Special Commissioner’s Decision”). Subsequently, on 15 May 2009, HMRC issued a closure notice – there was no appeal from the Special Commissioner’s Decision.[2]The closure notice stated in relation to the period ended 5 April 2007 that while HMRC agreed with the statement in the Appellant’s tax return that there were no profits or losses to be returned for the period, HMRC’s conclusion was that the Appellant “carried on neither a trade nor a business and there was no trade or business carried on with a view to profit”. The closure notice concluded by informing the Appellant of its right of appeal against HMRC’s conclusion.[3]On 9 June 2007 the Appellant appealed against HMRC’s conclusion on the ground that it was wrong both in law and in fact. The Appellant’s Notice of Appeal was acknowledged by the Tribunal on 15 June 2009 and the parties were notified that the appeal had been assigned to proceed under the ‘Complex’ category. Pursuant to rule 25(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the Rules”) HMRC had 60 days to serve their Statement of Case.[4]HMRC’s first application for an extension of time to serve their Statement of Case was agreed to by the Appellant. HMRC applied for a second extension of time on 29 October 2009 and this was objected to by the Appellant. On 16 November 2009 the Tribunal indicated that the appeal would be listed for a directions hearing. On 2 December 2009 the date for the hearing was fixed for 18 January 2010. On 16 December 2009, HMRC applied for a third extension of time – to 18 January 2010 – to serve their Statement of Case. On 12 January 2010, HMRC applied for a fourth extension of time – to 1 February 2010 – to serve their Statement of Case.[5]On 15 January 2010, after quite extensive negotiations evidenced by correspondence in the papers with which I was provided and to which I make further reference below, the parties agreed directions for the further management of the appeal and informed the Tribunal accordingly. On the same day Judge Berner gave directions in the terms agreed (“the Agreed Directions”) and vacated the hearing fixed for 18 January 2010.[6]The Agreed Directions were quite comprehensive. They provided for an extension of time to 1 February 2010 for HMRC to serve their Statement of Case.[7]The Agreed Directions also provided inter alia(i) for the parties to inform the Tribunal by 9 April 2010 (that is, by a date two weeks after the completed exchange of Statements of Case by the parties) of the estimated length of time for the hearing and to provide dates to be avoided when listing the hearing – direction (c); and(ii) for HMRC to provide to the Appellant by 21 May 2010 copies of all documents on which they intended to rely in connection with the appeal (or a list of documents so far as already provided, together with copies of any further documents that had not been so provided) – direction (e)(ii)(A) – and for the Appellant to provide disclosure in similar terms of documents on which it intended to rely – direction (e)(i)(A).[8]HMRC served their Statement of Case and the Appellant served its Statement of Case within the time limits directed in the Agreed Directions.[9]The Appellant informed the Tribunal of its time estimate for the hearing (7 to 8 days) and dates to avoid on 9 April 2010 in compliance with direction (c) of the Agreed Directions. However on that date HMRC wrote to the Tribunal as follows:
“We are mindful of our duty to the Tribunal to provide a realistic time estimate in accordance with the overriding objective. Any time estimate would need to allow sufficient time for reading any documents that are required to be read, the length of time that will be taken by submissions and the time required to examine witnesses of fact and any experts. No details have been disclosed concerning the number of witnesses and the nature and extent of the evidence that will be adduced by the Appellant. We would therefore suggest that this matter is not listed for hearing until these matters have been clarified by the Appellant. We would anticipate being better able to provide a time estimate following compliance by the Appellant with paragraph (e) of the [Agreed Directions – viz: disclosure of all documents on which the Appellant intends to rely, provision of a draft statement of agreed facts and a list of names of all the Appellant’s witnesses of fact and any expert witnesses, together with an outline of their evidence].”
[10]Thus HMRC failed to comply with direction (c) of the Agreed Directions – or, as they put it in a letter dated 16 April 2010 to the Appellant’s solicitors, proposed a variation of the date of their compliance with direction (c) - and sought to defer compliance until after the Appellant had complied with direction (e), which was directed by the Agreed Directions to be complied with 6 weeks after direction (c).[11]In response to the letters dated 9 April 2010 sent by both parties, the Tribunal stated, in a letter dated 16 April 2010, that:
“A Tribunal Judge has seen and considered the contents of the correspondence and directs the following: The matter should not be listed until all the evidence is in and the parties have attempted to agree time estimates for the hearing.”
[12]I should make it clear that I was not the Tribunal Judge who made this direction.[13]Mr. Maugham at the hearing before me was highly critical of this direction, which was made by the Tribunal of its own motion. However, no objection was raised at the time, following the communication of the direction, and Mr. Gammie told me that HMRC has subsequently proceeded on the basis of the direction (presumably as a variation of the Agreed Directions).[14]The next stage of compliance with the Agreed Directions was for the provision by the Appellant and the Respondent of disclosure of documents and lists of names of witnesses and an outline of their evidence – direction (e) of the Agreed Directions – which had been directed to be done by 21 May 2010. (The Appellant was also directed by that date to provide a draft statement of agreed facts.)[15]However on 19 May 2010, HMRC wrote to the Appellant’s solicitors asking for their agreement to certain (further) variations of the Agreed Directions and making a request for further disclosure of documents by reference to a schedule attached to their letter. HMRC indicated its intention not to comply with direction (e) of the Agreed Directions as it stood. HMRC also stated that they did not intend to call any witnesses of fact, but would call expert witnesses. The Appellant’s solicitors wrote to HMRC on 21 May 2010 acknowledging their letter of 19 May 2010 and stating that:
“In the light of the symmetrical nature of the obligations at paragraph (e) of the [Agreed Directions], and the fact that you have indicated you will not be complying with paragraph (e)(ii), it is plainly inappropriate for the Appellant to comply with paragraph (e)(i).”
[16]On 21 May 2010, HMRC wrote to the Tribunal informing it of these developments and requesting a stay of the Agreed Directions pending an agreement being reached between the parties to vary the Agreed Directions, or alternatively pending the Tribunal making further directions in the absence of such agreement.[17]The Tribunal treated that request as an application for a stay of 21 days and wrote on 3 June 2010 to the Appellant’s solicitors informing them of the position. The Appellant’s solicitors did not object to the application and themselves wrote to the Tribunal on 11 June 2010 requesting that the Agreed Directions be stayed for an additional 7 days.[18]On 18 June 2010, the Appellant’s solicitors wrote to the Tribunal reporting that they had been unable to reach full agreement with HMRC on a variation of the Agreed Directions and applying for a case management conference to resolve the outstanding points of disagreement. The Appellant’s solicitors sent to the Tribunal under cover of their letter a draft set of revised directions varying the Agreed Directions and highlighting the points that had been agreed between the parties and those that had not.[19]On 2 July 2010, the Appellant’s solicitors sent to the Tribunal revised dates to avoid for a hearing in December 2010 and January 2011.[20]On 6 July 2010, HMRC wrote to the Tribunal reminding it of the direction made on 16 April 2010 and stating that until all the evidence is in there would be difficulties in providing a reliable time estimate as a prerequisite for listing the appeal for hearing. The letter also referred to ‘unresolved questions relating to the extent of the disclosure to be given by the Appellant and [Future]’. (Future was involved in the design and implementation of the transactions undertaken by the Appellant, and was also closely involved in negotiations with third parties regarding the commercial terms of those transactions.) HMRC suggested that instead of a case management conference, ‘the most sensible course would be for a pre-trial review to take place following the exchange of evidence’. HMRC indicated that they hoped the Appellant’s Solicitors would agree their proposed variations to the Agreed Directions.[21]On 9 July and 14 July 2010, the Appellant provided to HMRC responses to particulars requested and copies of documents in the categories originally set out in the schedule to HMRC’s letter of 19 May 2010. The documents provided were documents within the Appellant’s control which had not already been provided to HMRC. They amounted to 3 boxes, one folder and, according to the Appellant, 2 envelopes of documents. This was stated to be compliance by the Appellant with paragraph (f)(i) of the draft set of revised directions varying the Agreed Directions which had been sent to the Tribunal under cover of the Appellant’s solicitors’ letter dated 18 June 2010. The Appellant did not comply with HMRC’s additional request (also indicated in the draft set of revised directions) to ‘list those documents to which [it] no longer [had] the right to possession or the right to take copies’. The Appellant provided HMRC at the same time with a report summarising the approach it had taken in determining what documents to disclose.[22]On 15 July 2010, the Appellant’s solicitors reported to the Tribunal that the Appellant had to the extent indicated complied with paragraph (f)(i) of the draft set of revised directions and informed the Tribunal that HMRC had not complied to any extent with the reciprocal disclosure obligation contained in paragraph (f)(ii) of the draft set of revised directions.[23]This last point was disputed by HMRC in a letter to the Tribunal dated 16 July 2010. Copies of the documents concerned were provided to the Appellant’s solicitors by HMRC under cover of a letter dated 23 July 2010, although the Appellant’s solicitors informed HMRC in a letter dated 30 July 2010 that they considered the disclosure was inadequate. This was denied in a letter dated 12 August 2010 from HMRC to the Appellant’s solicitors.[24]On 20 July 2010 this directions hearing was listed for 13 August 2010. The issues for my determination[25]The parties ask me to make directions varying the Agreed Directions in the light of the developments which I have outlined above.[26]The draft set of revised directions attached to the Appellant’s solicitors’ letter to the Tribunal dated 18 June 2010 is before me. They have been further revised in the light of events which have happened and informal compliance by both parties.[27]In the result the outstanding points of dispute are:(i) whether or not a pre-trial review should be listed (and dates to avoid provided);(ii) whether or not the Appellant should be directed to provide to HMRC a list of documents to which the Appellant no longer has the right to possession or of which the Appellant no longer has the right to take copies;(iii) whether or not the Appellant should be directed to provide, additionally, copies of all documents which support HMRC’s case or which adversely affect the Appellant’s case (or a list of such documents so far as already provided) save to the extent that HMRC have already disclosed such documents to the Appellant and, if so, whether HMRC should be directed to provide, additionally, copies of all documents which support the Appellant’s case or which adversely affect HMRC’s case, subject to similar savings as those stated above in relation to the Appellant’s obligation;(iv) whether or not there should be a requirement for a pre-trial review (if it is listed) to be confirmed, or the listing of it be vacated, when the parties inform the Tribunal of their estimates of the time required for the hearing and dates to avoid [1] ; and(v) whether the hearing should be listed (if the Tribunal is able to do so) in the period February to April 2011 or in some other, and if so what, period. Further relevant facts[28]The documents before me (and the evidence of Mr. Gregg) show (and I was told) that there are 29 other Eclipse Film partnerships which have been engaged in similar transactions (described by Future as the exploitation of various distribution rights to franchise films) to those in issue in this appeal in the same period, and their tax affairs are being investigated by HMRC (through Mr. Hagan, the officer working in the office of the Special Investigations team who gave evidence before Judge Sadler at the hearing of the Appellant’s application for a closure notice direction). The enquiries in relation to those partnerships have not been closed (unlike the enquiry in relation to the Appellant).[29]The Appellant partnership is composed of 289 partners (or 291, a figure mentioned in the correspondence), all but two of whom are individuals liable to UK income tax. Those members contributed some £840m. to the capital of the Appellant, comprised of £50m. (some 6%) from the members’ own resources and £790m. (some 94%) from loans made available to the members on a collective basis as part of the arrangements summarised by Judge Sadler at paragraph 4 of the Special Commissioner’s Decision (which summary I need not repeat here).[30]The arrangements provided for payment by the borrowers (partners in the Appellant) in advance, of interest on their loans payable in respect of the first 10 years of the repayment period of the loans. Approximately £292m. was paid by way of pre-paid interest. The partners in the Appellant claim to be entitled to tax relief on the interest paid by them. The total amount of tax relief claimed by the partners in the Appellant is some £117m. It is a necessary (but not sufficient – see: paragraph 21 of the Special Commissioner’s Decision) pre-condition to entitlement to such tax relief that the Appellant should have been carrying on a trade (or carrying on a trade with a view to profit) in the period ended 5 April 2007. Whether or not the Appellant was carrying on a trade (at all or with a view to profit) in that period is the issue to be decided in the appeal.[31]The same (or a very similar) issue arises in relation to the 29 other Eclipse Film partnerships. I understand that HMRC proposes that this appeal will in effect determine the issue in relation to those other Eclipse Film partnerships as well as in relation to the Appellant.[32]The claims to tax relief made by the partners in the Appellant are the subjects of individual investigations or enquiries by HMRC.[33]Mr. Maugham told me that in at least most of the cases of the partners in the Appellant, the enquiries into their returns have not been closed by HMRC and therefore the question of their appeals against the refusal of tax relief has not yet arisen. Nevertheless I note that HMRC in effect stated before Judge Sadler that a conclusion that the Appellant did not carry on a trade in the year ended 5 April 2007 would have effect in relation to the enquiries into the tax returns of each partner in the Appellant.[34]I assume (because I was not informed to the contrary) that none of the appeals against refusal of tax relief on interest paid by the partners in the 29 other Eclipse Film partnerships is yet pending.[35]In 2009 HMRC, having opened enquiries into the other 29 Eclipse Film partnerships in the period from December 2007 to March 2008, concentrated their investigation (in order to avoid duplication of effort) on 3 partnerships, including the Appellant. In June 2009, HMRC (through Mr. Hagan) sought to obtain production of documents ‘relating in any way to the Eclipse model film scheme’ over a 5½ year period (1 January 2004 to 31 May 2009) from Future using their powers under paragraph 2 of Schedule 36 to the Finance Act 2008. This met with opposition from Future (Mr. Gregg), who took the point in relation to the Appellant and the partners in the Appellant that those powers could not be used following the issue of the closure notice to the Appellant. This was because Future considered that the further information and documents requested could not be ‘reasonably required … for the purpose of checking the tax position’ of the Appellant or the partners in the Appellant. I note that this was not a point which was raised before Judge Sadler in the application for a closure notice direction.[36]Future suggested that HMRC’s purpose in requesting the further information and documents (so far as that request related to the Appellant) was to assist in HMRC’s conduct of the ongoing appeal proceedings and that the use of the Schedule 36 powers was therefore not permitted. Future expressed the view (in Mr. Gregg’s letter to Mr. Hagan dated 7 December 2009 and earlier correspondence) that HMRC was not entitled to any further documentation regarding the Appellant.[37]Future also expressed the view that it would be an inappropriate use of the Schedule 36 powers to require the production of further documents for the purpose of checking the tax position of the other 29 Eclipse Film partnerships. However, in an attempt to find a way forward, Future offered to provide documentation relating to the period from 6 April 2005 to 5 April 2007.[38]This was the basis of the “Agreed Information Request” which Mr. Gregg referred to in his evidence. Future agreed with HMRC that it would provide emails and correspondence from the period 6 April 2005 to 5 April 2007 which related to the other 29 Eclipse Film partnerships. In return, it appears, HMRC agreed to issue closure notices for 2006/07 and, where relevant, 2005/06 ‘for the remaining Eclipse partnerships (other than Eclipse 40)’ (see: Mr. Hagan’s letter to Mr. Gregg dated 29 December 2009).[39]In relation to the Appellant, HMRC accepted that a request could not be made using the Schedule 36 powers. Mr. Gregg stated in evidence that he had ‘no doubt that Future would ultimately have agreed to supply this information had HMRC requested it as part of disclosure for the purpose of resisting [the Appellant’s] appeal’. However, he agreed with Mr. Gammie in cross-examination that the information (emails and correspondence from the period 6 April 2005 to 5 April 2007 relating to the Appellant) had not been volunteered to HMRC, and indeed Future had objected to the provision of it.[40]Mr. Gregg gave information as to how the material to comply with the Agreed Information Request was gathered. He explained that as part of the review of emails, approximately 1,700 emails relating specifically to the Partnership were identified and excluded. Emails which Future considered to be covered by legal advice privilege were also excluded. Following the review, Future provided to HMRC on 24 March 2010 43 boxes of emails and related documentation concerning the other 29 Eclipse Film partnerships.[41]Mr. Gregg explained that HMRC’s request for further disclosure of documents relating to the Appellant, made on 19 May 2010 and referred to at paragraph 15 above, was a request for disclosure of the emails and documents relating to the Appellant which had been withheld from the disclosure relating to the other 29 Eclipse Film partnerships pursuant to the Agreed Information Request. Future agreed to provide (and did provide on 9 July 2010) 3 boxes, one folder and one envelope of documents, together with 3 CDs, being emails and correspondence from the period 6 April 2005 to 5 April 2007 relating to the Appellant. Mr. Gregg confirmed in cross-examination that the disclosure relating to the Appellant was ‘full disclosure’, that is, it was not confined to the documents on which the Appellant intends to rely at the hearing of the appeal.[42]Mr. Gregg said that Future had also conducted a review of the emails and documents (including documents from the period after 5 April 2007) in order to identify those which are helpful to the Appellant’s case and on which it intends to rely at the hearing of the appeal. This was done for the purpose of producing a list of such documents or providing copies to the extent not already provided.[43]There have therefore been 3 reviews of the material carried out by Future: first, to comply with the Agreed Information Request, secondly, to comply with the parallel request in relation to the Appellant, and, thirdly, to prepare the list of documents on which the Appellant intends to rely at the hearing of the appeal. Mr. Gregg emphasised that this had been very onerous work.[44]Mr. Gregg stated in re-examination that if Future were required to make disclosure of emails postdating 5 April 2007 (which would be numbered in tens of thousands), that would be a further major exercise involving gathering the documents from different places, reviewing them for relevance and reviewing them for privilege.[45]Mr Gregg also said that Future had suffered a serious fire at its business premises on 10 July 2009, which had made a relocation of its business necessary. Hard copy documents and also some electronically stored documents had been lost in the fire.

(a) from the Appellant

[46]Mr. Maugham, making reference to the introductory facts given above, submitted that HMRC have failed to comply with the generally applicable time limit under the Rules in relation to the service of their Statement of Case and, once the Agreed Directions had been made on 15 January 2010, they also failed to comply with direction (c) of the Agreed Directions (provision of their estimate of the time required for the hearing and of their dates to avoid) and direction (e) of the Agreed Directions (disclosure).[47]He strongly criticised HMRC for these failures and he urged me to bear well in mind the following (as stated in his Skeleton Argument):(i) that the already extensive delays to the agreed litigation timetable (HMRC’s application dated 12 January 2010 to the Tribunal for directions had stated that their proposed directions would permit the hearing of the appeal in October 2010 which was in line with the Appellant’s timetable) were attributable to HMRC’s conduct;(ii) that those delays ‘amounted to’ unilateral breaches of agreed directions;(iii) that HMRC were clearly benefitting financially from those delays and breaches;(iv) that the Appellant should not be further disadvantaged by HMRC’s ‘failures to make sensible and timely requests for documents’; and(v) that HMRC had agreed to the Agreed Directions as part of a negotiation which, prima facie , they should be held to.[48]He reminded me of Judge Sadler’s finding (in February 2009) that the Appellant had given every assistance to HMRC in the enquiry, consistent with its desire to have matters resolved as speedily as possible, and had volunteered documents and information from the outset and had for the most part responded fully and promptly to subsequent requests from HMRC (see: paragraph 24 of the Special Commissioner’s Decision).[49]He also reminded me that Judge Sadler had noted that speed in the resolution of the dispute was important to the partners in the Appellant who are being denied a claim for repayment of, or relief for, a very substantial amount. If the claims are eventually found to be successful, the partners in the Appellant may find themselves to be considerably out of pocket (notwithstanding any repayment supplement which may be payable). (See: paragraph 18 of the Special Commissioner’s Decision.) Mr. Maugham drew my attention to the low, and sometimes nil, rates of interest applicable to relevant repayment supplements. He made the point that this is a loss (exacerbated by delay in the resolution of the dispute) which cannot be compensated for in costs.[50]Mr. Maugham said that the directions which HMRC seek and with which the Appellant takes issue are not objectionable in substance. In relation to disclosure, he says that the Appellant has no desire to hold back any documents which could be disclosed. He says that HMRC already have all the documents which are relevant to the issue in the appeal (trade or no trade). The Appellant’s objection is to the fact that compliance with the directions which HMRC seek will further delay the hearing of the appeal, and, moreover, because such directions would be a departure from the Agreed Directions, they involve an objectionable ‘moving of the goal posts’ by HMRC. In essence, Mr. Maugham says that HMRC’s departure from the Agreed Directions is unfair to the Appellant (and the partners in the Appellant) and should not be countenanced by the Tribunal, particularly having regard to the overriding objective to avoid delay, so far as compatible with proper consideration of the issues (rule 2 of the Rules).[51]He submitted that rather than direct more disclosure to be made by the Appellant, the Tribunal should leave it to HMRC to make specific targeted requests for disclosure, which he assured me would be addressed in good faith by the Appellant.[52]Mr. Maugham objected to a direction that the Appellant should provide, additionally, copies of all documents which support HMRC’s case or which adversely affect the Appellant’s case (or a list of such documents so far as already provided) save to the extent that HMRC have already disclosed such documents to the Appellant, on the ground that it would ‘require us to conduct the enormous exercise of reviewing everything we have given them in order to determine whether or not it adversely affects our case’. He said that a review would be necessary to isolate the relevant documents from the documents disclosed in the full disclosure which had already been made. He said:
‘that which we have hitherto provided them with is not that which is relevant, it is what they have asked for, and we say that much of it, indeed most of it, is irrelevant’
. He stressed that the identification of what was relevant was an onerous process involving a number of stages. The Appellant ought not, in his submission, to be required to review the documents yet another time in order to identify what was relevant for further disclosure. HMRC should instead be encouraged to make targeted requests for specific disclosure.[53]He said that the only documents not so far disclosed are emails post-dating 5 April 2007. He submitted that it was difficult to see how they could be relevant to the question of whether the Appellant was carrying on a trade before 6 April 2007. He objected to a direction requiring the Appellant to review emails post-dating 5 April 2007 on the grounds of its burdensome nature and also because HMRC had not asked for these documents before (indeed they had withdrawn their parallel request in relation to the other 29 Eclipse Film partnerships in agreeing with Future the terms of the Agreed Information request). He objected to the unfairness of HMRC coming back with this further extensive disclosure request at this stage and made the point that HMRC had not in correspondence identified any relevant documents in the post 5 April 2007 category. He reiterated that the Appellant would do its best to comply with targeted specific disclosure requests. He said that while in principle he accepted that HMRC ought to have everything they want, the fact remained that HMRC had agreed the Agreed Directions and had departed from them to the detriment of the Appellant. The right way for me to balance the interests of the parties in the situation which has arisen was for me to confirm the disclosure directions in relation to the Appellant at (e)(i) of the Agreed Directions and to leave it to HMRC to make any specific targeted requests for further disclosure, to which, as he had said, the Appellant would respond favourably.[54]On the timing of the hearing, Mr. Maugham reminded me that HMRC had originally anticipated a hearing of the appeal in October 2010. The Appellant was prepared to move to a window between February and April 2011, but objected to any further delay, the responsibility for which was entirely HMRC’s.[55]Mr. Maugham said that the Appellant would be prepared to serve its witness statements in September 2010 and 4 months from then would give HMRC adequate time to prepare for the hearing and, if they are in difficulties – of their own making – the remedy was to instruct further counsel.[56]He submitted that it would serve no useful purpose for the Appellant to be directed to list documents that it no longer has the right to possession of, or the right to take copies of. This referred to documents which may once have existed, but which were lost in the fire at Future’s offices. He submitted that there is no such requirement normally made in complex cases before the First-tier Tribunal, nor was any such requirement included in the Agreed Directions. This was not a case where the Appellant has misbehaved in relation to disclosure and the proposed direction was inappropriate.[57]If the Appellant were, contrary to his submissions, to be directed to provide copies of documents adverse to its case, he submitted that HMRC should be directed to provide, additionally, copies of all documents which support the Appellant’s case or which adversely affect HMRC’s case. This was necessary to provide symmetry in the directions and to ensure fair and equal treatment of both parties by the Tribunal.[58]On the need for a pre-trial review, Mr. Maugham submitted it was now unnecessary and would only serve to delay further the time when the appeal comes on for hearing. He said that costs was ‘a modest consideration, but not a strong one in view of the amount of tax at stake’ but that the real objection was that HMRC ‘will seek to use it as a further tactic to delay a hearing of the appeal’.

(b) from HMRC

[59]Mr. Gammie said (in answer to a point made by Mr. Maugham) that it would have been completely inappropriate, and a time-wasting exercise, for HMRC to have appealed the Special Commissioner’s Decision. Instead, they accepted it and issued the closure notice as directed. He submitted that after the delay in serving their Statement of Case (caused, at any rate in part, by the need to instruct replacement Junior Counsel), HMRC have been progressing the appeal expeditiously and with the appropriate resources, having regard to the size and complexity of the case and the amount of tax at stake.[60]He rejected Mr. Maugham’s point that that HMRC were benefitting financially from any delays and non-compliance with the Agreed Directions. He said that HMRC do not hold money and nor are they under any instruction from the government to delay repaying tax where good claims for repayment are made. He said that it is a question of whether taxpayers (here, the partners in the Appellant), who claim large amounts of tax back from HMRC, are actually entitled to the sums that they claim.[61]He stressed that it was important that the appeal is properly prepared for hearing and that the full disclosure appropriate to it has been made. Rather than concentrate on departures from the Agreed Directions (in relation to which the most he would say was ‘that people were overoptimistic as to what they could achieve within the particular time’), he submitted that it was for me to decide what the appropriate directions are at this point in time, given where preparation stands and given the steps that will need to be taken between now and whenever the tribunal can accommodate a hearing of the requisite length.[62]Mr. Gammie’s submission is that HMRC will be able to give an estimate of the length of time required for the hearing of the appeal after full disclosure has been made, but before witness statements have been served.[63]His submission on a pre-trial review is not that there absolutely should be one, but that provision should be made for there to be one if it is needed. He saw no reason why a pre-trial review need delay the hearing of the appeal.[64]On disclosure, which he described as the significant aspect of disagreement between the parties, he rejected Mr. Maugham’s suggestion that HMRC’s successive requests for disclosure had been made in defiance of the Agreed Directions to push the timetable for the appeal out.[65]He said that HMRC’s efforts in dealing not just with the Appellants’ appeal but also with the investigation into the tax affairs of the 29 other Eclipse Film partnerships had quite understandably made it necessary to ask for further disclosure from the Appellants as HMRC’s investigation and analysis of the material produced progressed.[66]He submitted that the relevant question for me was whether it was appropriate to direct full disclosure or only disclosure of the materials on which the Appellant seeks to rely. He submitted that a direction of full disclosure was appropriate and that did not require the Appellant to list documents which adversely affect the Appellant’s case.[67]Mr. Gammie asked for a direction requiring the Appellant to list the documents of which it no longer has the right to possession or the right to take copies. When pressed by me as to the utility of such a direction, he said that this was not a fundamental requirement of HMRC, but it was asked for so that HMRC should know what documents the Appellant once had but does not have now – because, most obviously of the damage caused by the fire at Future’s offices.[68]He submitted that the disclosure required was of all relevant documents in the appeal (which would include documents which support HMRC’s case or which adversely affect the Appellant’s case). There should not, he submitted, be any time limit referring to the time of origin of any documentation to the effect that documents coming into existence before or after a certain date need not be disclosed, even if they are relevant to the appeal. He accepted that ‘the prime focus’ in the appeal is going to be on the period before 6 April 2007 but asked for disclosure of relevant documents which came into existence on or after that date. As Mr. Maugham had indicated that there was nothing originating before 6 April 2007 which had been withheld from disclosure by the Appellant, Mr. Gammie said that the direction required by HMRC would not impose a further obligation on the Appellant except in relation to documents which came into existence after 5 April 2007.[69]Mr. Gammie said that the approach suggested by Mr. Maugham, that the Appellant would provide any particular document requested by HMRC was not satisfactory. He said it was for the Appellant to disclose all relevant documentation. If there were to be an end-date for the origin of documents required to be disclosed, he suggested November 2009 (being the end-date of a relevant marketing services agreement). A direction for full disclosure now would avoid the risk of disclosure having to be reopened once the witness evidence is in.[70]Mr. Gammie resisted Mr. Maugham’s request for reciprocal disclosure by HMRC. He said that it was inconceivable that there would be anything in HMRC’s documents which would be relevant to the Appellant’s case that it was trading in the last days of the period ending 5 April 2007.[71]On the anticipated time for the hearing of the appeal, Mr. Gammie submitted that there was not much between the parties. The Appellant was pressing for a commitment to a hearing in February to April 2011, while HMRC were saying that perhaps it should be in May to July 2011. He mentioned that any fixture would depend on the availability of all involved and the ability of the Tribunal to provide accommodation. Discussion and Decision[72]The burden of the Appellant’s case on prejudice arising from HMRC’s departure from the Agreed Directions and delay in making disclosure requests, and indeed on their resistance to providing the disclosure as requested by HMRC, has to do with the Appellant’s desire to have the appeal heard as soon as possible. The Appellant wants this to happen so that (on the basis that the Appellant is successful) the partners in the Appellants will have their tax repayments or reliefs from tax sanctioned at the earliest possible time and that they will be out of their money for the shortest practicable period, and therefore suffer the least practicable loss which cannot be compensated in costs.[73]When I raised the point that the claims for tax repayments or reliefs from tax were not the Appellant’s claims, but the claims of partners in the Appellant, and so could not be determined in the appeal, Mr. Maugham accepted that ‘formally speaking’ that must be correct, but stressed that Judge Sadler had recognised that the Appellant’s success in the appeal was a precondition to the partners in the Appellant establishing their entitlement to relief and that ‘a pragmatic approach is required, recognising an alignment or correspondence, in a broad sense, of the interests of the [Appellant] with those of its partners or members’ (the Special Commissioner’s Decision, paragraph 22).[74]As I read the Special Commissioner’s Decision, this comment relates to a point which had troubled him, namely ‘why should the [Appellant] be concerned to bring the enquiry to an end?’ (the Special Commissioner’s Decision, paragraph 21) in the context of the Appellant applying for a closure notice direction. Judge Sadler decided that the interests of the partners in the Appellant in having the ‘trade or no trade’ point litigated in the Appellant’s appeal should sensibly be attributed to the Appellant so that there was no difficulty in recognising the partners’ interests when balancing the different interests of HMRC and the Appellant in deciding whether or not to direct the issue of a closure notice (see: Judge Sadler’s reference to a ‘reasonable balance’ in paragraph 19 of the Special Commissioner’s Decision).[75]The context in which I have to consider the fact that the claims for tax repayments or reliefs from tax cannot be determined in the appeal, is different. I do not have simply to consider whether the Appellant can be taken to have a bona fide interest in bringing the appeal on as quickly as possible. I have to consider whether the bona fide interests of the partners in the Appellant in bringing the appeal on as quickly as possible justifies(i) a curtailment of the full disclosure for which HMRC ask (albeit also taking into account Mr. Maugham’s point that HMRC has unilaterally departed from the terms of the Agreed Directions),(ii) there not being a pre-trial review when otherwise it might be sensible to have one, and(iii) directing that the appeal be brought on some months before HMRC say they are likely to be ready.[76]The question for me is whether a further delay of (probably) something less than six months beyond the time when the Appellant wants the appeal to be heard (February to April 2011) would be unfair and unjust (in terms of the overriding objective) to the Appellant, having regard to the bona fide interests of the partners in the Appellant in bringing the appeal on as quickly as possible and the fact that HMRC has unilaterally departed from the terms of the Agreed Directions.[77]In my judgment a significant factor weighing with me when I address this question is the fact that the appeal will not itself determine the issues which the partners in the Appellant need to have determined before they can secure their entitlement to tax repayments or tax relief.[78]Those issues can only finally be determined when the enquiries into the partners’ tax returns are closed or (more likely) when appeals against closure notices issued in those enquiries are determined. I have no means of knowing when such determination is likely to be achieved. I accept that an early determination of the Appellant’s appeal would accelerate the process in the sense of removing one of the obstacles to achieving such determination. But I am unwilling to assume that an advance of some six months in the date of determination of the Appellant’s appeal would bring forward the time when such determination is achieved by that amount of time, or even at all.[79]I also bear in mind that the decision in the Appellant’s appeal is likely to be determinative of the same or very similar issues arising in relation to the other 29 Eclipse Film partnerships. This is a factor which strengthens HMRC’s case to be allowed the full preparation for the hearing of the appeal for which they are arguing. Although I accept that issues arising in relation to the other 29 Eclipse Film partnerships are of no concern to the Appellant, the legitimate concern of HMRC in the resolution of those issues and its effect on their approach to the preparation and conduct of the Appellant’s appeal has not been adequately taken into account by the Appellant in putting its case at this hearing.[80]I turn to consider what effect HMRC’s unilateral departure from the terms of the Agreed Directions should have when I address the question posed in paragraph 76 above.[81]I entirely accept that the Appellant has a genuine grievance. HMRC agreed the terms of the Agreed Directions after quite extensive negotiations on 15 January 2010. HMRC knew full well (after the application for a closure notice direction) of the importance the Appellant quite legitimately placed on bringing on the appeal as quickly as possible. Mr. Gammie was not able to enlighten me as to why HMRC had agreed the terms of the Agreed Directions, because his instructing solicitor and his junior counsel on the case were not present at the hearing. He surmised that ‘people were overoptimistic as to what they could achieve within the particular time’ and suggested that such overoptimism was ‘certainly not an uncommon event’. However that may be, it is a truism that directions made by the Tribunal are meant to be complied with and the Appellant was certainly entitled to rely on HMRC’s commitment (and indeed agreement) to comply with the Agreed Directions. If HMRC’s non-compliance with the Agreed Directions has led to wasted costs being incurred by the Appellant, I consider that would prima facie be a justification for a costs direction being made in the Appellant’s favour, if it were otherwise appropriate to make such a direction. However, that is not a matter to be addressed now.[82]On the other hand, I bear in mind that the Appellant (or Future, its litigation consultant) knew in June 2009, six months before the Agreed Directions were made, that HMRC was seeking production of documents ‘relating in any way to the Eclipse model film scheme’ over a 5½ year period ending 31 May 2009, and considering or intending the use of their powers under paragraph 2, Schedule 36, Finance Act 2008 to that end.[83]The Appellant, through Future, took the point (quite fairly) that those powers could not be used against the Appellant, or the partners in the Appellant by reason of the closure notice having been issued on 15 May 2009.[84]I have already noted that this point was not aired before Judge Sadler in the application for a closure notice direction.[85]The point was used by Future in negotiating a less full disclosure than that which HMRC had originally wanted. “The Agreed Information Request” as referred to by Mr. Gregg in his evidence (which related to the other 29 Eclipse Film partnerships) covered emails and correspondence over a 2 year period ending 5 April 2007.[86]It required HMRC’s request for further disclosure of documents relating to the Appellant made on 19 May 2010, and the second departure from the terms of the Agreed Directions, to achieve Future’s agreement to provide disclosure of the emails and correspondence over the 2 year period ending 5 April 2007 which had been ‘withheld’ from the disclosure made in relation to the other 29 Eclipse Film partnerships.[87]Although Mr. Maugham laid emphasis in his submissions on Judge Sadler’s finding (in February 2009) that the Appellant had been very cooperative with HMRC in their conduct of the enquiry (see: paragraph 48 above), I would qualify that comment in relation to the Appellant’s cooperation since the issue of the closure notice. Although I do not criticise their raising the point relating to the use of the Schedule 36 powers in order to use it to negotiate a lighter burden of agreed disclosure, such conduct is not highly cooperative.[88]Mr. Maugham accepted in submissions that the directions which HMRC seek and with which the Appellant takes issue are not objectionable in substance and that ‘in principle [HMRC] ought to have everything they want’. By negotiation of agreed disclosure since 19 May 2010, the Appellant has put this into practice, thus recognising that, in practice, HMRC cannot (and, I suggest, should not) be held to strict compliance with the Agreed Directions.[89]Taking all of the foregoing into consideration, my conclusion is that a further delay of (probably) something less than six months beyond the time when the Appellant wants the appeal to be heard (February to April 2011) would be not be unfair and unjust (in terms of the overriding objective) to the Appellant, and is necessary to ensure that the appeal is dealt with fairly and justly to both parties.[90]Before turning to my conclusions on the outstanding points of dispute in relation to the directions sought, I will state my view on Mr. Maugham’s submission that HMRC were clearly benefitting financially from the delays to the agreed litigation timetable and the breaches of the Agreed Directions for which they were responsible.[91]I have no reason not to accept Mr. Gammie’s assurances that HMRC’s conduct of the litigation is in no way motivated by the wish to inflict financial detriment on the partners in the Appellant or to achieve financial benefit for the fisc. The Court of Appeal in the recent case of Tower MCashback v HMRC [2010] STC 809 observed that the Tribunal, in the exercise of its statutory functions, is not deciding a case inter partes but is determining the amount on which, in the interests of the public, the taxpayer ought to be taxed ( ibid. [28] citing with approval R v Income Tax Special Commissioners ex p. Elmhurst (1936) 20 TC 381 at 387, [1936] 1 KB 487 at 493). This proposition to my mind requires the Tribunal to assume that HMRC’s interest in any normal tax litigation (such as this appeal) is to determine the amount on which a taxpayer ought to be taxed and not, in the absence of direct evidence to such effect, to secure any private advantage to itself or the government or private disadvantage to any appellant. There was of course no such direct evidence led before me and Mr. Maugham stopped short of positively suggesting that HMRC’s motivation in its conduct of the litigation was in any way improper.[92]Turning then to the outstanding points of dispute listed at paragraph 27 above.[93]First, I consider that a pre-trial review should be listed (and dates to avoid provided). This will be done as a precaution, in case a pre-trial review should become necessary. I am not satisfied that holding a pre-trial review would materially delay the bringing on of the appeal for hearing. Even if it did cause a delay, I consider the delay would be relatively short and, as indicated above, I have concluded that the requirements for the fair and just preparation, hearing and disposal of the appeal should take precedence over the need to avoid delay of this order.[94]Secondly, I am not convinced that a direction that the Appellant should provide to HMRC a list of documents to which the Appellant no longer has the right to possession or of which the Appellant no longer has the right to take copies would be of any practical utility. It would certainly be burdensome to comply with, and such compliance is likely to be incomplete in the nature of things. If HMRC have any particular concerns that there may have been in existence documents which are not disclosed pursuant to the disclosure directions, they are of course at liberty to make specific enquiry of the Appellant (or Future). I will not, therefore, make the direction sought by HMRC in this regard.[95]Thirdly, I consider that the interests of fairness and justice require that the Appellant should be directed to provide, additionally, copies of all documents (not hitherto provided) which support HMRC’s case or which adversely affect the Appellant’s case. This in practice concerns emails and correspondence postdating 5 April 2007. Although I will direct that all relevant documents should be disclosed (and not just those which support HMRC’s case or adversely affect the Appellant’s case), I do not envisage that it will be necessary for the Appellant (or Future) to embark on a detailed exercise to determine relevance. As in the past, there can be full disclosure (including disclosure of material the Appellant considers may be irrelevant). In the interests of convenience and practicality, I will put an end-date of 30 November 2009 to the period during which disclosable documents came into existence.[96]Fourthly, I see no reason to direct the Appellant to provide to HMRC a list of documents already provided which support HMRC’s case or which adversely affect the Appellant’s case. It seems to me that the identification of such documents is for HMRC to achieve, having had disclosure of all (or all relevant) documents. I will insert the saving that the Appellant is not required to disclose documents which have already been disclosed to the Appellant by HMRC.[97]Fifthly, I have considered whether I should direct HMRC to provide, additionally, copies of all documents which support the Appellant’s case or which adversely affect HMRC’s case. I have concluded that I should not make such a direction. The Court of Appeal in Tower MCashback v HMRC emphasised that the jurisdiction of the Tribunal on an appeal is not limited to the issue whether the reason given for a conclusion in a closure notice is correct. Therefore any evidence or any legal argument relevant to the subject matter of the conclusion (that the Appellant did not carry on any trade or business or any trade or business with a view to profit) may be entertained by the Tribunal subject only to its obligation to ensure a fair hearing ( ibid. [41]).[98]In relation to its obligation to ensure a fair hearing, it is for the Tribunal to identify the subject matter of the conclusion (and of the enquiry). In doing so, the Tribunal must balance the need to preserve the statutory protection for the taxpayer afforded by the notification that the inspector has completed his enquiries and the need to ensure that the public are not wrongly deprived of contributions to the fisc ( ibid. [38]).[99]The disclosure being directed now is aimed at satisfying HMRC’s requirement that they should see all relevant documentation, which is uniquely in the possession or control of the Appellant. In the appeal HMRC will simply be defending the conclusion that there was no trade. They will not put up a positive case of their own. In such circumstances there is no rationale in directing HMRC to make equivalent disclosure. If the Appellant has any particular concerns that HMRC may have in its possession relevant documents, it is of course at liberty to make specific enquiry for disclosure of HMRC. I would expect HMRC not to decline disclosure without good reason.[100]Sixthly, I will direct both parties to provide lists of documents.[101]Seventhly, it will be convenient to direct that the requirement for a pre-trial review should, when the parties inform the Tribunal of their estimates of the time required for the hearing and dates to avoid, be confirmed, or the listing of it be vacated. A pre-trial review should only go ahead if it is perceived to be necessary at that stage.[102]Eighthly, I will direct that the hearing of the appeal should be listed (subject to the availability of Tribunal accommodation) as soon as convenient and in any event before the end of July 2011 (subject to further direction of the Tribunal). Right to apply for permission to appeal 102. This document contains full findings of fact and reasons for my decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Rules. 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. JOHN WALTERS QC TRIBUNAL JUDGE RELEASE DATE: 22 September 2010 [1] N.B. The parties were effectively in agreement at the hearing before me that they should be directed to provide estimates of the time required for the hearing and dates to avoid after disclosure has been completed but before witness statements or experts’ reports have been served. To that extent the parties agree that the Tribunal’s direction of 16 April 2010 should be departed from.

Cited in 1 later judgment