The Supreme Court dismissed HMRC’s appeal and upheld a First-tier Tribunal order debarring HMRC from defending the surviving VAT appeal. The bar followed HMRC’s failure to provide the further information required by a tribunal direction. An appellate court should interfere with such a case-management decision only where it is unjustifiable.
The VAT dispute and the procedural history
Between 1999 and 2006, BPP Holdings Ltd supplied education and books to students. After a corporate rearrangement in 2006, one company supplied books and another supplied education. BPP treated these as separate supplies, education being standard-rated and books zero-rated, and did not account for VAT on the books. HMRC disagreed. It said that BPP’s analysis was flawed or, alternatively, that the 2006 changes were an abuse. The relevant law was later changed by section 75 of the Finance Act 2011.
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In November 2012 HMRC issued two VAT assessments on the basis that BPP should have accounted for VAT at the standard rate on book supplies from 2006. In December 2012 it also issued a decision concerning supplies from 19 July 2011. BPP appealed to the Tax Chamber of the First-tier Tribunal in May 2013 against both assessments and the decision.
BPP asked HMRC to explain its case. Judge Hellier directed HMRC to answer each of BPP’s questions by 31 January 2014 and warned that a failure to do so might bar it from further participation. That wording would matter when BPP later sought the sanction.
HMRC served a response on 31 January. BPP said that it did not answer the questions and, on 14 March, applied for a debarring order. On 24 April HMRC withdrew the two assessments and therefore conceded two appeals, but maintained the decision, so the third appeal continued. HMRC’s disclosure statement and list were defective and eight days late, and an extension was sought only four weeks later. Judge Mosedale granted the debarring order on 1 July 2014. Judge Herrington refused to lift it but gave permission to appeal. The Upper Tribunal allowed HMRC’s appeal. The Court of Appeal restored Judge Mosedale’s order, and HMRC appealed to the Supreme Court.
The applicable rule and the First-tier Tribunal’s reasons
The relevant provision was rule 8 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. Rule 8(1) provides for automatic striking out where a direction states that non-compliance will lead to that result. Rule 8(3)(a) confers a discretion where the direction states that non-compliance could do so. By rule 8(7), those provisions apply to a respondent as a power to bar the respondent from further participation and, where appropriate, later to lift the bar. BPP had sought an automatic order. Judge Hellier made the discretionary form.
Judge Mosedale found that HMRC’s statement of case made hardly any reference to the facts of the surviving appeal, so BPP’s request was justified, and that the January response did not comply. She treated the guidance in Mitchell v News Group Newspapers Ltd as useful by analogy when applying the overriding objective of dealing with cases fairly and justly, while accepting that Mitchell concerned relief from an automatic sanction rather than whether a discretionary sanction should be imposed. She gave significant weight to efficient conduct of litigation and enforcement of compliance.
She regarded the prejudice as the delay of about eight months in obtaining a proper statement of HMRC’s case. There was no clear explanation for the default, and it should have been obvious that the reply did not comply. Earlier, less serious breaches were also relevant, although HMRC had not ignored the Tribunal entirely. A debarring order was draconian and virtually the only available sanction, costs not being an adequate remedy, but it was not confined to breaches that were irremediable. The importance of the case to HMRC, a possible res judicata consequence, and Judge Hellier’s refusal to make an automatic order did not justify refusing the bar. Weighing all the factors, she barred HMRC.
Why the Supreme Court upheld the order
Lord Neuberger, with whom Lord Clarke, Lord Sumption, Lord Reed and Lord Hodge agreed, said that the ultimate issue was whether Judge Mosedale’s decision could be justified. An appellate court may interfere if irrelevant matters were considered, relevant matters ignored, the wrong principles applied, or the decision was one no reasonable tribunal could reach. The Court agreed with the Court of Appeal’s conclusion, but not necessarily with all its reasoning.
Judge Mosedale had correctly treated the question as whether to impose a sanction, not whether to grant relief from one already applied. Her reliance on Mitchell was analogical and formed part of an unexceptionable balancing exercise. The later clarification in Denton v TH White Ltd did not show that she had misunderstood that guidance. Although her concluding paragraphs concentrated on delay, the absence of an excuse and prejudice to BPP, she had already examined the other relevant factors and taken them into account.
The Court rejected the submission that HMRC’s public duty, or the risk that VAT which ought to be paid might not be recovered, called for greater leniency. Accepting that argument would discourage public bodies from meeting the standards expected of private parties; there was at least as strong a case for expecting higher standards from them. There was also no good reason for tribunals, or for public-law cases, to adopt a more relaxed approach to compliance. Seeking the sanction expressly contemplated by the January direction was not disproportionate. A benefit to the other party is inherent in a debarring order and, absent exceptional circumstances, does not remove its utility.
The Civil Procedure Rules do not apply directly to tribunals, and tribunals sometimes require a slightly different procedural approach. They should nevertheless pay close regard to the courts and should not generally take a more relaxed view of compliance. Guidance to that effect given by the Upper Tribunal in Revenue and Customs Comrs v McCarthy & Stone, and confirmed by the Court of Appeal, was appropriate and was not for the Supreme Court to disturb. Because many tribunal rules and tax law apply throughout the United Kingdom, English procedural authority should not be applied without regard to Scottish and Northern Irish jurisprudence.
The decision was tough, and some First-tier Tribunal judges might have reached a different one. A debarring order can determine the substantive claim, so there is a limit to permissible harshness, and this case was not far from that limit. It remained within the generous ambit of the discretion because of the nature and extent of HMRC’s failure to reply, the length of the delay in correcting it and of the resulting delay to the proceedings, the absence of any remedy compensating BPP, the lack of explanation, and HMRC’s other failures to comply with directions.
Verdict: The Court unanimously dismissed HMRC’s appeal. HMRC remained barred from defending the surviving VAT appeal. The Supreme Court decided the procedural question without ruling on the VAT liability.
Source: BPP Holdings Ltd and others v Commissioners for Her Majesty’s Revenue and Customs [2017] UKSC 55
