“For the avoidance of doubt, we confirm that HMRC do not seek to allege dishonesty or fraud against CCA or Mr Trees. HMRC’s case is based on the Kittel test of knew or should have known.”
“[73] It is true, as Mr Trees says, that the issue to be decided in his appeal is different: the FTT hearing his appeal will have to decide whether he was dishonest, not whether he knew the transactions were connected with fraud. But that does not give him an unfettered right to put forward any grounds of appeal. In Gore Wood Johnson v Gore Wood & Co (a firm)[2002] 2 AC 1 – see paragraph 26 below. , Lord Bingham approved the dictum that it would be an abuse of process to allow a person “to litigate a second time what has already been decided between himself and the other party to the litigation”
“In any case where— (a) for the purpose of evading VAT, a person does any act or omits to take any action, and (b) his conduct involves dishonesty (whether or not it is such as to give rise to criminal liability), he shall be liable…to a penalty equal to the amount of VAT evaded or, as the case may be, sought to be evaded, by his conduct.”
“Where it appears to the Commissioners— (a) that a body corporate is liable to a penalty under section 60, and (b) that the conduct giving rise to that penalty is, in whole or in part, attributable to the dishonesty of a person who is, or at the material time was, a director or managing officer of the body corporate (a “named officer”), the Commissioners may serve a notice under this section on the body corporate and on the named officer.”
“(2) […] an assessment under section 76 of an amount due by way of any penalty […] may be made at any time before the expiry of the period of 2 years beginning – (a) in the case of a penalty under section 65 or 66, […]; and (b) in any other case, with the time when the amount of VAT due for the prescribed accounting period concerned has been finally determined.”
“115. In trying this question I believe I state the rule of the Court correctly when I say that, where a given matter becomes the subject of litigation in, and of adjudication by, a Court of competent jurisdiction, the Court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points upon which the Court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time... Now, undoubtedly the whole of the case made by this bill might have been adjudicated upon in the suit in Newfoundland, for it was of the very substance of the case there, and prima facie, therefore, the whole is settled. The question then is whether the special circumstances appearing upon the face of this bill are sufficient to take the case out of the operation of the general rule.”
“[17] Res judicata is a portmanteau term which is used to describe a number of different legal principles with different juridical origins. As with other such expressions, the label tends to distract attention from the contents of the bottle. The first principle is that once a cause of action has been held to exist or not to exist, that outcome may not be challenged by either party in subsequent proceedings. This is “cause of action estoppel”
“But Henderson v Henderson abuse of process, as now understood, although separate and distinct from cause of action estoppel and issue estoppel, has much in common with them. The underlying public interest is the same: that there should be finality in litigation and that a party should not be twice vexed in the same matter. This public interest is reinforced by the current emphasis on efficiency and economy in the conduct of litigation, in the interests of the parties and the public as a whole. The bringing of a claim or the raising of a defence in later proceedings may, without more, amount to abuse if the court is satisfied (the onus being on the party alleging abuse) that the claim or defence should have been raised in the earlier proceedings if it was to be raised at all. I would not accept that it is necessary, before abuse may be found, to identify any additional element such as a collateral attack on a previous decision or some dishonesty, but where those elements are present the later proceedings will be much more obviously abusive, and there will rarely be a finding of abuse unless the later proceeding involves what the court regards as unjust harassment of a party. It is, however, wrong to hold that because a matter could have been raised in earlier proceedings it should have been, so as to render the raising of it in later proceedings necessarily abusive. That is to adopt too dogmatic an approach to what should in my opinion be a broad, merits-based judgment which takes account of the public and private interests involved and also takes account of all the facts of the case, focusing attention on the crucial question whether, in all the circumstances, a party is misusing or abusing the process of the court by seeking to raise before it the issue which could have been raised before. As one cannot comprehensively list all possible forms of abuse, so one cannot formulate any hard and fast rule to determine whether, on given facts, abuse is to be found or not. Thus while I would accept that lack of funds would not ordinarily excuse a failure to raise in earlier proceedings an issue which could and should have been raised then, I would not regard it as necessarily irrelevant, particularly if it appears that the lack of funds has been caused by the party against whom it is sought to claim. While the result may often be the same, it is in my view preferable to ask whether in all the circumstances a party's conduct is an abuse than to ask whether the conduct is an abuse and then, if it is, to ask whether the abuse is excused or justified by special circumstances. Properly applied, and whatever the legitimacy of its descent, the rule has in my view a valuable part to play in protecting the interests of justice.”
“Two subsidiary arguments were advanced by Mr ter Haar in the courts below and rejected by each. The first was that the rule in Henderson v Henderson 3 Hare 100 did not apply to Mr Johnson since he had not been the plaintiff in the first action against GW. In my judgment this argument was rightly rejected. A formulaic approach to application of the rule would be mistaken. WWH was the corporate embodiment of Mr Johnson. He made decisions and gave instructions on its behalf. If he had wished to include his personal claim in the company's action, or to issue proceedings in tandem with those of the company, he had power to do so. The correct approach is that formulated by Sir Robert Megarry V-C in Gleeson v J Wippell & Co Ltd[1977] 1 WLR 510 where he said, at p 515: “Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest.’”...” “Second, it seems to me that the substratum of the doctrine is that a man ought not to be allowed to litigate a second time what has already been decided between himself and the other party to the litigation. This is in the interest both of the successful party and of the public. But I cannot see that this provides any basis for a successful defendant to say that the successful defence is a bar to the plaintiff suing some third party, or for that third party to say that the successful defence prevents the plaintiff from suing him, unless there is a sufficient degree of identity between the successful defendant and the third party. I do not say that one must be the alter ego of the other: but it does seem to me that, having due regard to the subject matter of the dispute, there must be a sufficient degree of identification between the two to make it just to hold that the decision to which one was party should be binding in proceedings to which the other is party. It is in that sense that I would regard the phrase 'privity of interest.’”...”
“... The rule is not based on the doctrine of res judicata in a narrow sense, nor even on any strict doctrine of issue or cause of action estoppel. It is a rule of public policy based on the desirability, in the general interest as well as that of the parties themselves, that litigation should not drag on for ever and that a defendant should not be oppressed by successive suits when one would do. That is the abuse at which the rule is directed.”
“54. A significant refinement to the test for dishonesty was introduced by R v Ghosh[1982] QB 1053 . Since then, in criminal cases, the judge has been required to direct the jury, if the point arises, to apply a two-stage test. Firstly, it must ask whether in its judgment the conduct complained of was dishonest by the lay objective standards of ordinary reasonable and honest people. If the answer is no, that disposes of the case in favour of the defendant. But if the answer is yes, it must ask, secondly, whether the defendant must have realised that ordinary honest people would so regard his behaviour, and he is to be convicted only if the answer to that second question is yes. … [74] These several considerations provide convincing grounds for holding that the second leg of the test propounded in Ghosh does not correctly represent the law and that directions based upon it ought no longer to be given. The test of dishonesty is as set out by Lord Nicholls in Royal Brunei Airlines Sdn Bhd v Tan and by Lord Hoffmann in Barlow Clowes: see para 62 above. When dishonesty is in question the fact-finding tribunal must first ascertain (subjectively) the actual state of the individual’s knowledge or belief as to the facts. The reasonableness or otherwise of his belief is a matter of evidence (often in practice determinative) going to whether he held the belief, but it is not an additional requirement that his belief must be reasonable; the question is whether it is genuinely held. When once his actual state of mind as to knowledge or belief as to facts is established, the question whether his conduct was honest or dishonest is to be determined by the fact-finder by applying the (objective) standards of ordinary decent people. There is no requirement that the defendant must appreciate that what he has done is, by those standards, dishonest.”
“But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances too, the court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination.”
“78. Finally in this regard, I should say something about what Judge Mosedale said at paras 31–32 of her decision. She concluded there that there was nothing in the Mobilx case[2010] STC 1436 which cast any doubt on what Briggs J had said to the effect that “A person who knows that a transaction in which he participates is connected with fraudulent tax evasion is a participant in that fraud” and “has a dishonest state of mind”, so that what he (Briggs J) had said must be right in law. For the reasons I have already given, I do not think that such a bald proposition is right in law, because, as is acknowledged by all parties to this case, a person who knows that a transaction in which he participates is connected with fraudulent tax evasion may or may not have a dishonest state of mind. 79. There was, in my judgment, on the basis of these allegations, no foundation for either the F-tT or the UT to have required HMRC to plead dishonesty against Citibank in order to be allowed to allege that Citibank knew that its transactions (a) were contrived, (b) facilitated fraud by others, or (c) were connected to fraud. 85. The key point, in my judgment, is that, whilst HMRC can, of course, allege that a taxpayer has acted dishonestly and fraudulently in relation to the transactions to which it was a party, they do not need to do so in order to deny that taxpayer the right to reclaim input tax under the Kittel test. … It might be, of course, that if some or all of the allegations made in the statement of case were proved, that might (in theory, though not, of course, in practice) have allowed a tribunal to go on to make a finding that the taxpayer had been dishonest. But if HMRC does not seek such a finding, and if such a finding is not needed to support the conclusion that the taxpayer cannot recover its input tax, there is neither any need nor any utility in asking the F-tT to undertake that exercise.” (Emphasis added)
“Applying a broad merits-based judgment, the failure to rely upon dishonesty at the CCA Appeal does not cause HMRC’s defence of the present appeal to be an abuse of process pursuant to the rule in Henderson v Henderson. Whilst dishonesty could have been raised in the CCA Appeal, it cannot be said that it should have been raised.”
“40. […] Once it is accepted that there is no obligation to issue a penalty prior to the two-year period in section 77 of VATA 1994 (as we must in the light of Kishore) it cannot be said that HMRC has an obligation to treat the Kittel proceedings as if a penalty had been issued. To do so would have the same effect as saying that HMRC could issue a penalty but not rely on dishonesty in any appeal, despite that being central to upholding a notice pursuant to section 60 or section 61. Even if that were strictly correct, this is a strong reason for rejecting the submission that dishonesty should have been raised in Kittel proceedings. This is because it is artificial to distinguish between attacking the issuing of the penalty and attacking the reliance upon dishonesty. In reality, they are the same complaint and would amount to saying that whilst HMRC had the power to issue a penalty or director’s liability notice, they are under an obligation not to do so if they have not laid the groundwork first by alleging dishonesty in any previous Kittel appeal.”
“44. We agree with Mr Pickup that the reason for not pleading dishonesty earlier does not matter. However, we do not accept that Mr Trees is prejudiced such that it is an abuse for HMRC to rely upon dishonesty in this appeal. This is for the following reasons. 45. First, we agree with Mr Hayhurst that Mr Trees' complaint about his inability to explore all facts at the same time as a consideration of dishonesty is really a complaint about his inability to relitigate the matters in the 2020 Decision as a result of the 2023 Decision. Given that it has already been held to be an abuse of process for him to reopen the 2020 Decision, it follows that it is not an abuse of process for him not to be able to do so. 46. Secondly, we do not accept that Mr Trees has been denied the ability to challenge or examine the evidence. He (through the CCA Appeal) had the ability to do this in the CCA Appeal in respect of knowledge and means of knowledge and is able to do so within this appeal as regards dishonesty. As noted by Judge Redston in the 2023 Decision, CCA was expertly represented in the CCA Appeal and it took place before a very experienced tribunal. Judge Redston found at [76] that, "It would thus be extremely surprising if there had been any unfairness in the cross-examination process, and I do not accept that this was the case." 47. Thirdly, we do not accept that paragraph 114 of the 2020 Decision disposes of issues of dishonesty. Indeed, the combination of the 2020 Decision and the 2023 Decision expressly leaves open the question of dishonesty. Mr Pickup particularly relies upon the words in paragraph 114 "even if the allegations were consistent with a state of dishonesty on the part of the appellant and/or its director, the allegations were not allegations of dishonesty." This is not saying (or at least does not have the effect) that Judge Mosedale and Mrs Hunter were making findings of or equivalent to dishonesty. Indeed, they expressly say that they would, "reach no conclusion about whether the appellant's and/or its director's behaviour was dishonest or fraudulent." We also have in mind paragraph 74 of the 2023 Decision, which we quoted earlier and which again marks the dividing line between Mr Trees' knowledge that the transactions were connected to fraud (which was decided in the 2023 Decision and cannot be relitigated) and whether or not he was dishonest, which is a matter for this appeal. 48. Fourthly, the whole context of the present appeal is that the CCA Appeal did not deal with dishonesty and that HMRC must now establish dishonesty in the present appeal. Mr Trees is entitled to submit that he was not dishonest (and expressly does so). This is the answer to Mr Pickup's question as to what more Mr Trees can do. He can present evidence that he was not dishonest insofar as doing so does not reopen matters decided in the 2020 Decision, he can challenge HMRC's position that he was dishonest, and he can submit that HMRC have not proved their case. The extent to which the evidence is available to do this and the extent to which such challenge or submission is possible or successful are matters for the substantive appeal rather than the Application. 49. Fifthly, Mr Trees has had CPR disclosure on matters relating to dishonesty. Whilst it is common ground that HMRC was not required to give CPR disclosure in the CCA Appeal, there may well be a dispute as to whether it was given anyway. We do not descend into that dispute and, for the purposes of this Application, assume that it was not upon the basis that there was no order for HMRC to do so. Importantly, however, Judge Redston has already made a determination in the 2023 Disclosure Decision that Mr Trees has had within this appeal all the disclosure to which he is entitled in respect of dishonesty. The failure to plead dishonesty in the CCA Appeal, therefore, has not deprived Mr Trees of CPR standard disclosure relating to dishonesty in this appeal.”
“The difference between this appeal and a case where dishonesty is to be considered in circumstances where knowledge has not already been the subject of a concluded Kittel appeal is that the 2020 Decision will provide evidence (which cannot be relitigated) that Mr Trees knew that the transactions were connected with fraud. Indeed, the 2020 Decision has been admitted into evidence by virtue of the 2023 Decision for precisely that purpose.”
“56. […] As regards unreasonable delay, Mr Trees has not suffered sufficient (or any) prejudice for the purposes of this appeal as regards his ability to challenge the DLN or to have a fair trial. There was no suggestion that CCA did not have a fair trial in the course of the CCA Appeal (which, again, has already been dealt with by Judge Redston in the 2023 Decision). Given Mr Pickup’s rhetorical question as to what more Mr Trees can do in this appeal, no category of evidence has been identified that is not available to Mr Trees now than would have been available at an earlier stage.”
“The parties agreed that the evidence of Stage One of the Ivey test for dishonesty was to be found in the 2020 Decision. They also agreed that it was then a matter for this tribunal as to whether such conduct was objectively dishonest when considered in accordance with Stage Two of the Ivey test.”
“88. HMRC also applied for the judgment in CCA 2020 to be “admitted as evidence” in the DLN proceedings. Mr Kerr [Counsel for HMRC] relied on Hackett, where having decided that it would be an abuse of process to allow the appellant to challenge the facts or issues decided in period 09/01 because they had already been finally determined in Intekx 2014, Judge Berner said at [75]: “It follows from my conclusion that there can be no dispute as to the facts and issues determined by the tribunal in Intekx 2014 that, in relation to period 09/06, the decision of the tribunal in that appeal is admissible.” 89. In Hackett, HMRC had also applied for the Intekx 2014 judgment to stand as evidence in relation to periods 07/09 to 10/12 and 01/13 to 07/13, on the basis that the circumstances were similar. Judge Berner allowed that application, holding at [48] that relevant evidence should be admitted unless there is a compelling reason to the contrary, and continued at [49]: “This is a case where, although questions of input tax recovery are necessarily viewed by reference to individual accounting periods, transactions must be examined not in isolation but having regard to their attendant circumstances and context, the relevance of ‘similar fact’ evidence and the fact that the tribunal, in examining the state of knowledge of the company and Mr Hackett, is entitled to look at the totality of the deals effected by Intekx, and their characteristics…It will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to the Intekx 2014 decision outside the confines of its own facts and circumstances. It cannot, however, in the circumstances of this appeal, be regarded as irrelevant, nor have I been able to identify any compelling reason why the decision should not be admitted.” 90. When Hackett reached the UT, there was no challenge Judge Berner’s decision to admit Intekx 2014 as evidence in relation to period 09/06. In relation to the later periods, the UT upheld Judge Berner’s decision, saying at [95]: “The FTT decided that the decision in Intekx 2014 was relevant for the reasons it gave at [49] of the Decision. We can detect no error of law in the FTT’s approach. The FTT made the point that it will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to Intekx 2014 outside the confines of its own facts and circumstances. In those circumstances, there is no basis on which we can interfere with the FTT’s decision on this point and indeed we agree entirely with the FTT’s reasoning.” 91. In response to Mr Kerr, Mr Trees reiterated that he did not agree with the conclusions of the FTT in CCA 2020 and wanted to dispute various findings of fact. The Tribunal’s view 92. HMRC’s application is that CCA 2020 be admitted as relevant evidence in relation to Mr Trees’ appeal against a DLN issued in relation to exactly the same VAT periods as already had been considered by the FTT. 93. Hackett provides a helpful parallel. Mr Hackett did not seek to challenge Judge Berner’s decision that Intekx 2014 be admitted as relevant evidence in his appeal against the part of the PLN which related to period 09/06, in other words, the self-same period considered and decided in Intekx 2014. CCA 2020 likewise provides highly relevant evidence in relation to Mr Trees’ DLN appeal. Indeed, the UT in Hackett went further, upholding Judge Berner’s decision that Intekx 2014 was also to be admitted as relevant evidence in Mr Hackett’s appeal against the parts of the PLN which related to other VAT periods not considered in Intekx 2014. 94. I also considered Rule 15(2) of the Tribunal Rules, which allows relevant evidence to be excluded if it would be “unfair” to admit it. Although not put in those terms by Mr Trees, in essence he was arguing that it would be unfair to admit CCA 2020 because he wanted to submit at the hearing of his appeal that he did not “know” about the connection to fraud, and also to rely on the related factual points set out earlier in this decision, see §78ff. 95. I have already decided it would be an abuse of process for Mr Trees to advance those grounds at the FTT hearing of his appeal against the DLN. Consistently with that conclusion, I find that it is fair for the judgment itself to be admitted as relevant evidence in the hearing of his appeal.” “It follows from my conclusion that there can be no dispute as to the facts and issues determined by the tribunal in Intekx 2014 that, in relation to period 09/06, the decision of the tribunal in that appeal is admissible.” “This is a case where, although questions of input tax recovery are necessarily viewed by reference to individual accounting periods, transactions must be examined not in isolation but having regard to their attendant circumstances and context, the relevance of ‘similar fact’ evidence and the fact that the tribunal, in examining the state of knowledge of the company and Mr Hackett, is entitled to look at the totality of the deals effected by Intekx, and their characteristics…It will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to the Intekx 2014 decision outside the confines of its own facts and circumstances. It cannot, however, in the circumstances of this appeal, be regarded as irrelevant, nor have I been able to identify any compelling reason why the decision should not be admitted.” “The FTT decided that the decision in Intekx 2014 was relevant for the reasons it gave at [49] of the Decision. We can detect no error of law in the FTT’s approach. The FTT made the point that it will be for the tribunal that hears Mr Hackett’s appeal to determine what weight, if any, is to be accorded to Intekx 2014 outside the confines of its own facts and circumstances. In those circumstances, there is no basis on which we can interfere with the FTT’s decision on this point and indeed we agree entirely with the FTT’s reasoning.”