Babergh District Council v Revenue & Customs [2011] UKFTT 341 (TC)

FTT-Tax
Babergh District Council v Revenue & Customs
[2011] UKFTT 341 (TC) · 2011-03-14
[1]This is a decision on an application made jointly by consent of the parties. It concerns a procedural matter of considerable importance. The application is for the appeal of Babergh District Council (“the Council”) to be allocated as a Complex case under Rule 23 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI/2009/273 (L.1)). Unless stated otherwise, references in this decision to “Rule” or “Rules” are to this statutory instrument. If the Tribunal does so allocate the appeal, the parties also apply by consent for the case to be referred to the President of the Tax Chamber with a request that it should be considered for transfer to the Upper Tribunal under Rule 28.[2]Having regard to the common position taken by the parties, Mr Tack and Mr Mantle made joint submissions. Where appropriate, Mr Mantle indicated points where the views of the Respondents (“HMRC”) did not entirely match those expressed by Mr Tack on behalf of the Council. I refer where necessary to such points, but would emphasise that in broad principle the parties’ views were the same. With this degree of agreement, I do not find it necessary to summarise the parties’ arguments. The allocation question[3]I deal first with the application for allocation as a Complex case, as Rule 28 applies only to Complex cases. If the appeal cannot be allocated as a Complex case, it will be precluded from consideration under Rule 28.[4]The difficulty arising with this appeal is that notice of the Council’s appeal was given on 17 March 2009. Thus the appeal shortly preceded the commencement of the First-tier Tribunal, having been made to the VAT and Duties Tribunal. The proceedings are “current proceedings” as defined in paragraph 1(2) of Schedule 3 to The Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (SI 2009/56, which I refer to as the “Transfer Order”).[5]There had been a suggestion that another appellant with a similar case in respect of which notice of appeal had been given after 31 March 2009 might instead have been the principal appellant in relation to the number of similar cases to be determined. If that had occurred, the allocation question might not have arisen in the particular significant way that has occurred in relation to the Council’s appeal. However, for reasons not put before me, that other party chose not to be put forward in this way for the purposes of this hearing. I therefore have to consider the question as it affects the Council’s appeal.[6]Put shortly, the question of principle which the Council’s application raises is whether a pre-1 April 2009 appeal can be allocated as a Complex case under Rule 23. The principle needs to be established before entering into the merits of the Council’s application, since if such allocation is not possible, there is no point in considering the reasons which are put forward in support of the application. Before referring to other cases where this principle has been considered, I set out the terms of Rule 23 itself.[7]It provides:
“(1) When the Tribunal receives a notice of appeal, application notice or notice of reference, the Tribunal must give a direction allocating the appeal allocating the case to one of the categories set out in paragraph (2). (2) The categories referred to in paragraph (1) are: . . . (d) Complex cases, in respect of which see paragraphs (4) and (5) below. (3) The Tribunal may give a further direction re-allocating a case to a different category at any time, either on the application of a party or on its own initiative. (4) The Tribunal may allocate a case as a Complex case under paragraph (1) or (3) only if the Tribunal considers that the case— (a) will require lengthy or complex evidence or a lengthy hearing; (b) involves a complex or important principle or issue; or (c) involves a large financial sum. (5) If a case is allocated as a Complex case— (a) rule 10(1)(c) (costs in Complex cases) applies to the case; and (b) rule 28 (transfer of Complex cases to the Upper Tribunal) applies to the case.”
[8]The Rules came into force on 1 April 2009, and therefore paragraph (1) of Rule 23 did not apply to the Council’s notice of appeal. Under the VAT Tribunal Rules 1986 (SI 1986/590) there was no corresponding form of allocation of cases, and thus no basis for treating the Council’s appeal as a Complex case. Paragraph (1) of Rule 23 does refer to an “application notice”, but it is clear from the terms of Rule 21 (which I do not set out in this decision) that this refers to starting proceedings by an originating application, and not to a notice of an application of the type under consideration here.[9]I consider the construction of Rule 23(3) later in this decision.[10]As the proceedings are “current proceedings” for the purpose of the Transfer Order, they are subject to paragraphs 6 and 7 of Schedule 3 to that[11]In Capital Air Services Limited [2009] UKUT 175 (TCC) the Upper Tribunal considered what attributes of a case could lead to the conclusion that it should be allocated to the Complex category. That issue can only be considered here if it is possible to allocate current proceedings to that category, and therefore the logical approach is to address the latter question first.[12]The parties referred me to the decision of the Upper Tribunal in John Wilkins Motor Engineers) Limited and others v Revenue and Customs Commissioners [2009] UKUT 175 (TCC) . It is clear from all the appeal reference numbers listed on the title page of the decision, as well as paragraph 1 of the decision itself, that the respective appeals of the appellant parties were all lodged before 1 April 2009. Paragraph 1 states:
“. . . the appeals came within the jurisdiction of the Tax Chamber of the First-tier Tribunal. They were then allocated to the Complex category in accordance with [Rule 23], following which a direction was made, pursuant to [Rule 28], that the appeals be transferred to and determined by the Upper Tribunal.”
Thus the appellants in that case achieved the objectives which the Council wishes to achieve in the present case. However, there is nothing in the decision of the Upper Tribunal which indicates whether any consideration was given to the question of the eligibility of pre-1 April 2009 appeals to be allocated as Complex within the procedure laid down by Rule 23. It does not appear unreasonable to assume that the question did not occur to any of the parties or to the First-tier Tribunal Judge who determined that the appeals should be so allocated.[13]The allocation issue was referred to in the case of Surestone Limited [2009] UK FTT 352 (TC) , TC00290, at paragraph 18. The President, Sir Stephen Oliver QC, said:
“For completeness, it was put to me (in response to a possible argument for the Appellant) that a costs award could only be made after 1 April 2009 where the Tribunal had already allocated the appeal to the complex category under rule 23(1) of the 2009 Rules and the Appellant had not “opted out” under rule 10(1)(c) of those Rules. I do not think this is correct. Rule 23 and the allocation of appeals and “application notices” has no application to “current proceedings”; it applies only to appeals or appeal notices (e.g. to extend time for appealing) that have been made from 1 April 2009 onwards. There is no power in paragraph 7(3) of Schedule 3 to the TTF Order to make rule 23 apply in order to enable an allocation of an appeal to the complex category. In any event, the Tribunal’s power to make any costs award after 1 April 2009 is constrained by paragraph 7(7) of Schedule 3.”
The President thus gave a firm indication that allocation was not possible in respect of appeals lodged before 1 April 2009. These comments were made in the context of costs; I return to this later.[14]In Hawkeye Communications Ltd v Revenue and Customs Commissioners [2010] UK FTT 636 (TC) , also relating to costs, Judge Roger Berner followed the authority of the President in Surestone . In this case, an appeal commenced before 1 April 2009, HMRC applied for a direction that rule 29 of the Value Added Tax Tribunal Rules 1986 should be applied to the proceedings, and that consequently Rule 10 of the present Rules should be disapplied. As Judge Berner explained at paragraph 3 of his decision, the effect of granting HMRC’s application would have been to give the tribunal wide discretion in respect of costs shifting, whereas if Rule 10 applied, this would result in the more restrictive costs regime under the present Rules.[15]In arriving at the decision to refuse HMRC’s application, he cited the latter part of the paragraph of the President’s decision in Surestone cited above. In agreeing with the President’s comments, Judge Berner added that although he had earlier formed the view that categorisation was nevertheless possible under the tribunal’s general case management powers, he had now concluded that this was not the case. He further explained his views at paragraph 10 of his decision, and stated his agreement with HMRC that the case could not have been categorised as a Complex case.[16]In contrast, the Tribunal had taken a different view in Everest Limited [2010] UKFTT 621 (TC) (TC00863), a decision released on 1 December 2010, nine days before the release of the decision in Hawkeye . The Tribunal, also chaired by Judge Berner, expressed the view at paragraph 110 that Rule 23 did not constrain the tribunal from allocating in current proceedings.[17]It is open to question whether it was necessary in these cases to arrive at a firm and universal view as to the impossibility of allocation to the Complex category. For costs, the combination of the Rules and Schedule 3 to the Transfer Order provides a specific and self-contained regime. The reason for this is historical.[18]The integration of the former tax tribunals into the Tribunals Service meant that a change was required in relation to costs, as the general approach for other tribunals was to have no provision for costs, whereas there had been a specific regime for costs in the VAT and Duties Tribunals. Under the new system, there are only limited situations in which it is appropriate for costs to be awarded. For appeals made after 31 March 2009, the possibility of an award is limited to Complex cases where the taxpayer has not given notice under Rule 10(1)(c)(ii) that the proceedings are to be excluded from the potential liability to costs, or any category of case where the circumstances fall within Rule 10(1)(a) or (b).[19]For pre 1 April 2009 appeals, this could have caused some element of prejudice because of the change from the former basis. Therefore paragraph 7(3)(a) of Schedule 3 to the Transfer Order provides the tribunal with a discretion to apply the previous rules, with a corresponding discretion under paragraph 7(3)(b) to disapply the relevant 2009 Rule, namely Rule 10. It is clear from the way in which this combination of discretions has been exercised, for example in Hawkeye , that tribunals take a cautious approach in deciding whether the previous costs regime should be applied to the particular appeal. Paragraph 7(7) also makes it clear that no award can be made in respect of current proceedings if it could not have been made in comparable circumstances before 1 April 2009.[20]As the basis for the treatment of costs is self-contained, attempts to modify that basis by requesting a direction that a “current proceedings” case should be allocated to the Complex category have, not surprisingly, been resisted by tribunals dealing with the costs issue. In Surestone , the President was dealing for completeness with an argument put to him by HMRC in response to a possible argument for the appellant in that case; the appellant was not present or represented at the costs hearing. On the basis of Mr Mantle’s submissions to me in the present case, there seems to be some doubt whether HMRC would seek now to make a submission in the form made in Surestone .[21]The President’s comments in Surestone on the question of allocation were followed by Judge Berner in Hawkeye . As the parties submitted to me, the probable reason for the difference between the approach taken in Hawkeye and that in Everest was that Everest was based on the tribunal’s case management powers, whereas in Hawkeye Judge Berner had been persuaded that these did not enable the tribunal to categorise a continuing appeal. Mr Mantle submitted that the President’s views on categorisation in Surestone related to Rule 23(1), whereas in Hawkeye they had been taken as applying to the whole of Rule 23. I do not read the President’s comments in paragraph 18 of Surestone as limited to Rule 23(1), even if the terms in which the question had been put to him had been based on Rule 23(1). The view appears to me to be a general statement relating to the whole of Rule 23.[22]In Hawkeye

Judge Berner said at paragraph 6:

“Cases that were current proceedings remain without any categorisation under the 2009 Rules, unless a judge has made a specific direction in an individual case.”
However, his comments at paragraph 10 of that case appear to result in such a direction being impossible.[23]Inevitably, as the point in issue in both Surestone and Hawkeye was that of costs, no consideration appears to have been given to the other issue raised by a general statement that a pre-1 April 2009 case cannot be allocated to the Complex category, namely that of the possible application of Rule 28. As the cases in which this view has been expressed concern costs, which are governed by the self-contained regime described above, there must be some doubt whether it was necessary for the purposes of those decisions to express a view in such definitive terms without considering the wider implications of that view. I therefore consider that in this other context of Rule 28 it is open to me to reconsider the construction of the provisions reviewed in those cases.[24]The first question arising in the context of those wider implications is the construction of Rule 23. Paragraph (3) of Rule 23 refers to “re-allocating a case to a different category”. On the face of this provision, the use of the word “re-allocating” appears to imply that there must already have been an allocation for this paragraph to apply. As indicated in Hawkeye at paragraph 6, there was no general categorisation for appeals already before the tribunal on 1 April 2009 (ie, where notice of appeal had been given before that date). Against this argument based on the use of the word “re-allocating”, Rule 23(4) uses the single word “allocate” to qualify the cross-references to both paragraphs (1) and (3). However, this is probably a device to avoid a more complicated cross-reference such as “allocate (or re-allocate)”, and is not a persuasive factor in the construction of paragraph (3). Thus in relation to the construction of Rule 23, I am drawn towards the same conclusions as Judge Berner arrived at in Hawkeye and before him the President in Surestone .[25]Mr Mantle submitted that the word “re-allocating” in Rule 23(3) should be construed as “allocating”. In the alternative, he submitted that the Tribunal should use its general powers in order to direct that allocation should take place.[26]I have considered whether, despite the argument considered above, I can stretch the construction of Rule 23(3) to read “re-allocating” as if it included or implied the word “allocating”. Although this would be a relatively simple way of solving the problem raised by the Council’s application, I do not feel that the construction can be stretched that far. The parties drew attention to the overriding objective in Rule 2(1). I am conscious of the requirement in Rule 2(3):
“(3) The Tribunal must seek to give effect to the overriding objective when it— (a) exercises any power under these Rules; or (b) interprets any rule or practice direction.”
However, I do not read this as permitting the Tribunal to adopt an interpretation which would appear to bend or stretch the construction of Rule 23(3) beyond its elastic limit. This would go beyond interpretation and amount to rewriting the Rule.[27]I have also considered whether Rule 5, which relates to case management powers, provides any basis for directing an allocation of a “current proceedings” case. I am not satisfied that Rule 5 does so. I accept that the powers given by paragraphs (1) and (2) of Rule 5 are general in nature; this is reinforced by the initial words of Rule 5(3). However, the context of Rule 5 is procedural, whereas I consider the question of allocation to be more administrative in character; once the step of allocation is taken (in a case where this is possible) the consequences of that allocation, as set out in the Rules, follow automatically. I accept that those consequences are themselves procedural, but I do not consider that the allocation itself is a procedural matter falling within Rule 5.[28]I therefore conclude that there is nothing in the Rules which permits allocation of a pre-1 April 2009 appeal to any of the categories set out in Rule 23. However, that does not finally determine the question raised by the Council’s application. As already explained, the Council’s appeal falls to be treated as “current proceedings” under paragraph 1(2) of Schedule 3 to the Transfer Order. The appeal is therefore subject to paragraph 7 of that Schedule. Paragraph 7(3), set out above, opens with general words, and then goes on to give specific examples of directions which the tribunal may make. As I read the President’s comments in paragraph 18 of Surestone , the construction which he applied to this paragraph was that the powers available to the tribunal were limited to those set out in sub-paragraphs (a) and (b). I do not read paragraph 7(3) in that way. I consider that (a) and (b) are merely particular examples of the possible use of the general discretion, and that they do not limit in any way the scope of the initial words:
“The tribunal may give any direction to ensure that proceedings are dealt with fairly and justly”
. These words mirror those in Rule 2(1) describing the overriding objective.[29]As I have found in relation to the second aspect of Rule 23(5), the relationship with Rule 28, there is no specific provision in the Rules indicating a basis for continuing proceedings to be brought within the terms of Rule 28. Bearing in mind that the John Wilkins appeal was categorised as Complex, whether or not as a result of any conscious decision based on the terms of the Rules and the Transfer Order, and also the question whether it is fair and just in the light of this for the Council’s application for its case to be shut out from consideration for transfer to the Upper Tribunal, I consider it appropriate to use the discretion provided by paragraph 7(3) of the Transfer Order. (Further, I am reluctant to arrive at a contrary view which could result in a challenge based on grounds such as legitimate expectation.) I consider it to be in the interests of justice for the possibility to be kept open of a pre-1 April 2009 appeal being transferred to the Upper Tribunal. If the Council’s appeal has characteristics which, taken overall in the light of the comments of the Upper Tribunal in Capital Air Services , bring it within Rule 23(4), I consider that it will be appropriate to direct under paragraph 7(3) of Schedule 3 to the Transfer Order that the case should be allocated as a Complex case.[30]In summary, I hold that it is open to me to direct that the case should be allocated to the Complex category, subject to it satisfying the criteria in Rule 23(4). Is the Council’s case “Complex?[31]In order to determine that question, I review below the various characteristics of the case. However, before doing so, I should emphasise that allocating a pre-1 April 2009 case to the Complex category does not change its status as “current proceedings” within paragraph 1(2) of Schedule 3 to the Transfer Order. Thus paragraph 7(7) continues to apply, precluding any order for costs to the extent that it could not have been made before the commencement date, 1 April 2009. Although these are “current proceedings”, it is clear that the majority of costs will have been incurred after 31 March 2009.[32]Mr Mantle accepted on behalf of HMRC that if allocation to the Complex category was allowed, the costs consequences of the application of Rule 10 would follow. I do not consider that this makes a great deal of difference to the overall result, as it appears likely to me that any application for the former costs regime to be applied would almost certainly be rejected on the grounds that no significant costs would have been incurred before 1 April 2009. In any event, if the Council’s application for transfer of its appeal to the Upper Tribunal succeeds, the costs regime within the First-tier Tribunal will have only limited relevance. The costs of any appeal to the Upper Tribunal will instead have to be considered under Rule 10 of the Tribunal Procedure (Upper Tribunal) Rules 2008 (SI 2008/2698 (L.15)).[33]For the purposes of examining the case by reference to the Rule 23(4) criteria, I take the following description of the case from the parties’ joint application. I emphasise that I am not involved in considering the merits of the case, and have merely reviewed its nature based on the limited information provided to me for the purposes of the application. Although I include in this description the factors mentioned by the parties in relation to the request for transfer to the Upper Tribunal, I deal separately below with this part of the joint application.[34]Although the Council’s case itself concerns only a relatively small amount of VAT, the legal issues of the case are important and complex, and the outcome of the case involves a very considerable sum of money for the taxpaying community as a whole. A large number of similar appeals have been lodged which, the parties submit, have the potential to be affected by the Tribunal’s decision in respect of the Council’s appeal.[35]The dispute concerns the UK legislation introducing a three year cap under s 80(4) of the Value Added Tax Act 1994 with retrospective effect by virtue of s 47 of the Finance Act 1997. The House of Lords has already found in the case of Fleming [2008] STC 324 (HL) that a similar provision in regulation 29(1A) of the Value Added Tax Regulations 1995 (SI 1995/2518) should be disapplied for periods prior to the introduction of the relevant legislation due to Parliament’s failure to provide a transitional period in compliance with EU law.[36]In the Council’s appeal, it argues that the provision as a whole was rendered ineffective by the manner of its introduction. (The reason for this contention is set out in summary in the Council’s notice of appeal and in more detail in the further and better particulars of the grounds of appeal which have been served in the course of these proceedings.)[37]The parties submit that underlying such reasoning are complex issues spanning areas of constitutional law, statutory interpretation, the implementation of taxing legislation as well as the influence of EU law on the manner in which the UK introduces legislation affecting rights derived under European law. They further submit that in its determination of this appeal the Tribunal may be required to consider whether the national law of the UK complies with principles of European law such as the principles of effectiveness, the protection of legitimate expectation and legal certainty.[38]The central issue of the dispute is whether national legislation which was introduced in a manner which has been ruled as inconsistent with the principles of European law can properly be regarded as effective in relation to periods arising after its legislative implementation. Both parties have identified this issue of law as one of significant public interest. They submit that although the matter is legally complex, there will be little evidence for the Tribunal to consider, and the facts would probably be agreed. Consequently the Upper Tribunal would not be required to consider any lengthy or disputed testimony and could thus confine itself to a detailed consideration and determination of the matters of law in the appeal. The parties further submit that this is an appropriate role for the Upper Tribunal sitting as a court of first instance in a matter of public interest.[39]The parties submit that this is an important case having the potential to provide an authoritative and legally binding decision, thereby bringing clarity and legal certainty to an area of law which has been the subject of longstanding dispute between substantial numbers of taxpayers and HMRC. For that reason and all those previously stated, the parties consider that the case meets the criteria for allocation to the Complex track and should also be regarded as an exceptional case meriting transfer to the Upper Tribunal.[40]In support of the joint application, the parties put various further points to me in the course of the hearing:(1) Mr Mantle mentioned that HMRC’s Solicitor’s Office is currently dealing with many similar cases involving a very substantial amount of money. Further claims were still being decided. There was therefore a heavy weight of numbers of such cases, leading to uncertainty both for taxpayers and for the public finances.(2) It was submitted that if the case were to be started at the First-tier Tribunal level, it would be most unlikely that it would stop at that level without an appeal to the Upper Tribunal. The issue had been considered at Tribunal level in the Scottish Equitable case, but Scottish Equitable had withdrawn its appeal before the Court of Session.(3) The parties had considered whether the appeal could be dealt with on the basis of the “lead cases” regime provided by Rule 18. Their conclusion was that this would not achieve the objectives of interested parties in pursuing the appeal. In particular, it was strongly desirable to have a binding precedent from a court of record, as would be the result of a decision of the Upper Tribunal.(4) The matters raised by the appeal were particularly suited to consideration at the level of the Upper Tribunal rather than by the First-tier Tribunal with its specialised tax jurisdiction.(5) There was a possibility of a reference to the European Court of Justice.(6) In summary, the parties submitted that everything pointed to designation of the appeal as Complex, and for it to be referred with a request that it be considered for transfer to the Upper Tribunal.[41]On the basis of the parties’ submissions, I am satisfied that the case satisfies the condition in Rule 23(4)(b), and that having regard to the accepted similarity of a large series of other appeals regarded as depending on the outcome of the Council’s appeal, the case indirectly satisfies the condition in Rule 23(4)(c). I therefore direct that the case be allocated to the Complex category. The Rule 28 application[42]I am satisfied on the basis of the parties’ joint application and their submissions made at the hearing, particularly those noted at paragraph 40 above, that the Council’s appeal is an appropriate case for referral to the President under Rule 28 with a request that it be considered for transfer to the Upper Tribunal. Conclusions and directions(1) I hold that it is open to me to direct that the case should be allocated to the Complex category, subject to it satisfying the criteria in Rule 23(4);(2) I am satisfied that the case does satisfy those criteria;(3) I accordingly direct, under the general power in paragraph 7(3) of Schedule 3 to the Transfer Order, that the case be allocated to the Complex category;(4) I consider it appropriate for the case to be referred to the President of the Tax Chamber with a request that the case be considered for transfer to the Upper Tribunal, and accordingly I so refer it.[43]This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. JOHN CLARK TRIBUNAL JUDGE RELEASE DATE: 14 March 2011

Order

“6. Any current proceedings are to continue on and after the commencement date as proceedings before the tribunal. 7.—(1) This paragraph applies to current proceedings that are continued before the tribunal by virtue of paragraph 6. (2) Where a hearing before an existing tribunal (except for the Commissioners for the general purposes of the income tax) began before the commencement date but was not completed by that date, the tribunal must be comprised for the continuation of that hearing of the person or persons who began it. (3) The tribunal may give any direction to ensure that proceedings are dealt with fairly and justly and, in particular, may—(a) apply any provision in procedural rules which applied to the proceedings before the commencement date; or(b) disapply any provision of Tribunal Procedure Rules. (4) In sub-paragraph (3) “procedural rules” means any provision (whether called rules or not) regulating practice or procedure before an existing tribunal. (5) Any direction or order made or given in proceedings which is in force immediately before the commencement date remains in force on and after that date as if it were a direction or order of the tribunal relating to proceedings before that tribunal. (6) A time period which has started to run before the commencement date and which has not expired will continue to apply. (7) An order for costs may only be made if, and to the extent that, an order could have been made before the commencement date (on the assumption, in the case of costs actually incurred after that date, that they had been incurred before that date).” These provisions continue to govern the proceedings, and take precedence over the Rules, even though this is not expressly stated. It is, however, clearly implied by paragraph 7(3)(b). Previous authority on the question of allocation.

Cited in 4 later judgments