APPLICATION BY NP FOR LEAVE TO APPEAL A DECISION OF THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER) DATED 14 JUNE 2016 UNDER SECTION 13(4) OF THE TRIBUNALS, COURTS AND ENFORCEMENT ACT 2007
EXTRA DIVISION, INNER HOUSE, COURT OF SESSION
[2017] CSIH 3
XA95/16
Lady Clark of Calton
OPINION
by
LADY CLARK OF CALTON
in the application
by
NP
Applicant
for leave to appeal a decision of the Upper Tribunal (Tax and Chancery Chamber) dated 14 June 2016 under section 13(4) of the Tribunals, Courts and Enforcement Act 2007
Applicant: Francis; Currie Gilmour & Co, Solicitors, Edinburgh
Respondent: R Anderson; Office of the Advocate General for Scotland
24 January 2017
Introduction
[1] The applicant (NP) is a tax payer resident in Scotland. In 2004 he entered into Capital Redemption Contracts (CRCs). Arrangements involving the use of CRCs sought to take advantage of the wording of section 37 of the Taxation and Chargeable Gains Act 1992 as explained in paragraph 11 of the Upper Tribunal decision dated 16 August 2016. In his tax return for the year ended 5 April 2004, the applicant included information and a claim in respect of losses of £2,665,000 from CRCs. For a period there was uncertainty within Her Majesty’s Revenue and Customs (HMRC) about the effect of CRCs and in particular whether loss claims under such schemes should be given effect by HMRC in calculating the tax liabilities of a taxpayer. HMRC eventually sought to recover tax claimed to be due by the applicant, on the basis that the loss he claimed was not properly, under the law as clarified, to be regarded as a loss in the calculation of his tax.
[2] For some years the applicant and HMRC have been in dispute about the tax liability of the applicant and this has generated a variety of legal proceedings. For present purposes, I need refer only to the decision of the First-tier Tribunal dated 26 August 2014 in which the applicant was unsuccessful. The applicant appealed to the Upper Tribunal (Tax and Chancery Chamber) after leave was granted on 28 November 2014. On 14 June 2016, the Upper Tribunal refused the appeal of the applicant.
[3] The applicant wishes to appeal to the Court of Session but there are a number of procedural hurdles. There are procedural rules which include time limits and the requirement to obtain leave to appeal. Leave to appeal must in the first instance be sought from the Upper Tribunal. In the event that leave is refused, an application for leave may be made to this court. It is not disputed in this case that the last day for a timeous appeal was 14 July 2016. On 13 July 2016, the applicant who had legal advice took “an initial decision not to appeal.” He was said to be under financial pressure. Part of the financial pressure identified by the applicant related to various accelerated payment notices in excess of £1 million which were served on him by HMRC. The applicant challenged these notices but they were not withdrawn until 8 August 2016. Nevertheless by 20 July 2016 the applicant stated that he had identified a funding basis upon which an appeal could proceed. Thereafter he required to instruct, through Scottish solicitors, counsel in Scotland. In the result, no timeous application for leave to appeal to the Court of Session was made to the Upper Tribunal. An application to extend time for applying for permission to appeal to the Court of Session was made to the Upper Tribunal. This application was refused by said Tribunal on 16 August 2016.
[4] Thereafter the applicant sought leave to appeal the substantive decision of the Upper Tribunal dated 14 June 2016 from this court. It is that application for leave to appeal which I require to determine. As the nature and effect of the application to the Upper Tribunal which resulted in the decision of the Upper Tribunal dated 16 August 2016 is a matter of some controversy between the parties, it is appropriate to deal with that issue now.
The Decision of the Upper Tribunal dated 16 August 2016
[5] The application made was not in the form of an application for leave to appeal to this court. It bore to be an application to extend the time for seeking permission to appeal to the Court of Session. This application was refused by the Upper Tribunal. Having given the reasons for that refusal, the Upper Tribunal stated:
“Had I been minded to extend the time I would have refused permission to appeal, for two main reasons:
(1) The application does not attempt to identify alleged errors in law made by me in reaching my decision. Appeals to the Court of Session are on points of law only, and it is incumbent upon any applicant for permission to appeal to identify where and in what respects it is alleged that the Upper Tribunal erred in law;
(2) I do not accept that the proposed appeal would raise important points of principle. As I noted in my decision, the principles to be applied in relation to s29 of the Taxes Management Act 1970 have been identified and rehearsed in a number of recent cases. The result of this particular appeal turned on the application of those principles to the findings of fact made by the First‑tier Tribunal and, to a limited extent, by the Upper Tribunal. This case does not appear to me to raise any general questions which have not already been addressed in the existing case law.”
[6] In relation to the decision of the Upper Tribunal, dated 16 August 2016, the respondents submitted that, properly interpreted, there was no application in which the Upper Tribunal was asked to consider granting leave (albeit late) on the basis of any identifiable grounds of appeal. In the absence of such an application, the applicant cannot competently for the first time now seek such leave before this court relying on the same “grounds of appeal” which are not properly identifiable as grounds of appeal. Reference was made to section 13(5) of the Tribunals, Courts and Enforcement Act 2007 (the 2007 Act).
[7] I accept that the application sought only an extension of time and did not specifically seek leave or permission from the Upper Tribunal to appeal to the Court of Session. I note however that the Upper Tribunal judge did not limit his consideration only to the issue of lateness. He appeared to have had before him and considered documents which are also before this court, that is the documents in Appendix 1 and Appendix 2 which counsel for the applicant identified as grounds of appeal. The Upper Tribunal concluded that the documents did not identify where and in what respects it is alleged by the applicant that the Upper Tribunal erred in law. The Upper Tribunal further concluded that the proposed appeal would not raise important points of principle. In my opinion the plain terms of the refusal by the Upper Tribunal judge should have alerted the applicant to a problem, which in any event is obvious, that is the inadequacy of the form and content of what the applicant describes as the grounds of appeal. Counsel for the respondent submitted, under reference to section 13(5) of the 2007 Act, that the application by failing to identify any relevant grounds of appeal in relation to the decision making of the Upper Tribunal was so inadequate that it could not be treated as satisfying section 13(5). In that event it was not open to the applicant to seek leave before this court. I consider that there was some force in the submission and had I been minded to grant leave, I would have asked for further and more detailed submissions about competency including reference to authorities such as Hakim v Secretary of State for the Home Department 2001 SC 789.
The Application to the Court of Session for Leave to Appeal the Substantive Decision of the Upper Tribunal dated 14 June 2016
[8] There was no dispute by the parties that whatever form of application was made to the Upper Tribunal, the application was not timeous. It was not entirely clear however what their position was in relation to time in relation to the application for leave to appeal made to this court. Taking into account the terms of the note of argument on behalf of the applicant, it seemed to be accepted that the application was not timeous but in oral submission there was less clarity. The focus of the parties was on the non‑timeous application before the Upper Tribunal. Both parties advanced detailed submissions about the pros and cons of permitting the applicant to proceed to appeal taking into account the facts and circumstances of the case so I will consider these submissions.
[9] Counsel for the applicant in presenting this aspect of the case did so on the basis that “he would not expect ‘hugely’ to engage the sympathies of the court for the applicant’s plight”. The appellant had taken expert professional advice about legal and financial matters for many years and yet found himself locked in dispute with HMRC who are seeking substantial tax payments from him. I was advised that this had resulted in the appellant having to sell many acres of a farm which had been in his family for three generations in order to meet tax and legal expenses. The applicant has apparently relied on tax advice and on advice from counsel in relation to matters which both parties accept are complex. There were funding problems complicated by assessments from HMRC which were wrong but not withdrawn until after the date for appeal namely 14 July 2016. A further complication and delay was the need for the applicant to engage solicitors and counsel qualified in the Scottish jurisdiction in relation to proceedings in this court.
[10] Counsel for the respondents prayed in aid the approach in Advocate General for Scotland v General Commissioners for Aberdeen City [2006] STC 1218 paragraphs 22-23. He emphasised that in circumstances where the applicant had specialist advice throughout and was aware of the importance of time limits, it is difficult to find a reasonable excuse for the non‑observance of time limits. There was a need for finality in litigation. This is a case in which the applicant himself accepts that he made an informed decision not to proceed to appeal and he had professional advice to assist him in that decision. The main reason for changing his position appears to be that he eventually decided that he could fund an appeal in this court.
[11] I consider that counsel for the applicant made as strong a case as was possible in favour of the applicant on this issue. The applicant was plainly in a very difficult financial situation and required to make difficult decisions albeit with professional advice. The period of delay in the context of the complexity of the case was not substantial. Nevertheless the applicant made an informed decision about the appeal with professional legal advice. In my opinion that makes the position of the applicant very difficult. Taking into account all the factors prayed in aid on behalf of the applicant, I am not persuaded that the reasons for the late appeal would merit the exercise of my discretion in favour of the applicant to allow a late application in a case such as this.
The Grounds of Appeal Presented in the Application to the Court of Session
[12] It was accepted by both parties that an applicant seeking leave to appeal required inter alia to set out in writing the grounds on which the applicant seeks leave to appeal. To succeed an applicant must also bring the application within the terms of Rule of Court 41.57 which provides that permission shall not be granted unless the court considers that (a) the proposed appeal would raise some important point of principle; or (b) there is some other compelling reason for the court to hear the appeal. The applicant sought to argue that important points of principle arose. The important points of principle said to arise are set out in paragraph 5 of the application.
[13] In my opinion the application for leave to appeal is designed to be a relatively quick process in which the court, by reference to the written application setting out the grounds of appeal, can consider and identify whether or not leave should be granted. The application is also designed to give fair notice to the respondent. The oral hearing in a leave to appeal application is not designed to be a test run of the full appeal hearing. Unfortunately in this case the oral hearing seemed likely to expand to become the equivalent of a full hearing had I allowed the hearing to take that course. By time limiting counsel and asking questions of counsel to focus issues which were plainly of concern in this case, the hearing was completed almost within the allocated time.
[14] My primary issue of concern was to try and identify what grounds of appeal, the applicant sought to rely on in any appeal hearing. The applicant identified the grounds of appeal in paragraph 4.1 of his application which stated that:
“the applicant relies on those grounds of appeal in which he relied before the First‑tier Tribunal (tax chamber) and Upper Tribunal (tax and chancery chamber) which are set out in appendices 1 and 2 produced with his application”.
Appendix 1 included a note of appeal in general terms to the First‑tier Tribunal. This was of no assistance but had the merit of brevity. Appendix 2 set out the grounds of appeal focussed on the decision of the First‑tier Tribunal dated 26 August 2014 under reference to paragraphs in said decision. I did not find this helpful. The case has moved on from the decision making of 26 August 2014 to the decision making of the Upper Tribunal dated 14 June 2016. Without any reference to the reasoning or alleged errors of law made by the Upper Tribunal, Appendix 2 set out three errors of law (1) in relation to “discoveries”; (2) the approach to staleness of discoveries and; (3) “in paragraphs [59] to [81] by concluding that the test in section 29(5) was satisfied (effectively deviating from the precedents) of Charlton and Landsdowne Partners”. The reference to paragraphs [59] to [81] is a reference to the First-tier Tribunal. In addition some 15 findings of fact made by the First‑tier Tribunal were challenged albeit there is no reference at all to the decision making of the Upper Tribunal about these matters or any attempt to explain what errors of law the Upper Tribunal made in not interfering with the First‑tier Tribunal’s findings of fact.
[15] In paragraphs 4.2 to 4.3.3 of the application, the applicant also seeks to develop a ground of appeal which I understand was not before the Upper Tribunal. Counsel for the respondent submitted that this court could not entertain grounds of appeal which were not presented to the Upper Tribunal. I do not accept that very general submission but I do accept the respondents’ submission that on a fair reading of the application, it is very difficult if not impossible to identify grounds of appeal focussed on the decision making of the Upper Tribunal.
[16] In fairness to counsel for the applicant, he accepted in oral submissions that there were difficulties with the terms of the application in relation to the specification of the grounds of appeal. He made a robust attempt to focus on the one ground of appeal on which he now sought to rely. He did this by departing from grounds 1 and 2 and the challenge to the findings of fact as set out in Appendix 2. This left ground 3 in Appendix 2 which raised the proper interpretation of section 29(5) of the Taxes Management Act 1970 albeit no longer under any reference to any challenge to findings in fact and without any focus on the reasoning of the Upper Tribunal. As I understood counsel’s oral submission, the ground of appeal on which he sought to rely raised the issue of whether the notional officer contemplated by section 29(5) of the 1970 Act, when considering the information disclosed in the applicant’s return, should have understood the information disclosed by the applicant and should be taken to have knowledge of the general taxation scheme such as section 37(1) of the Taxation of Chargeable Gains Act 1992. Such a notional officer should be taken to know that section 37 was by way of a double (income tax and CGT) relieving provision and that the information disclosed by the applicant which showed a massive CGT loss incurred in the course of a few days with no corresponding commensurate income tax liability coupled with receipt of proceeds little short of what was invested did not fall within section 37(1). Accordingly the notional officer could and should properly have issued a discovery assessment.
[17] Underlying this submission, there was a more general submission that an appealable error of law can arise when the decision‑maker errs in the interpretation of the general law and applies that incorrectly to the facts of the case. I consider that general submission is not in itself controversial but its applicability to the facts of this case was not clear.
[18] Counsel for the respondent in adopting his written argument submitted that it is plain from the discussion of the section 29(5) issue by the Upper Tribunal that both the First‑tier Tribunal and the Upper Tribunal accepted that the characteristics of a hypothetical officer will vary from case to case and are fact specific. In paragraph 82 of the Upper Tribunal decision, it is also plain that the Upper Tribunal accepted that the First‑tier Tribunal, despite their difficulties with the test, did in fact apply the test of the hypothetical officer imbued with the characteristics of knowledge and expertise to be expected of someone receiving and considering the type of information put before it. The Upper Tribunal also supported that approach.
Decision
[19] I am not persuaded that there is any important principle of law raised in this case. My understanding of the submissions made by counsel for the applicant is that he supported the approach taken by Norris J in Charlton and others v R and CC [2012] UKFTT 770 (TCC) and by Moses LJ in R and CC v Lansdowne Partners Ltd Partnership [2011] EWCA Civ 1578 at paragraph 70. Although it was argued before the First-tier Tribunal on behalf of the applicant that the FTT had erred in law in its approach to the question arising under section 29(5) inter alia because it had failed properly to follow the guidance in Charlton, such an error was not accepted by the Upper Tribunal in paragraph [74]. In my opinion the Upper Tribunal appear justified in that conclusion. I consider that there is merit in the submissions on behalf of the respondents that there is no real dispute about the legal test to be applied in this case. No doubt many interesting issues might be explored in the case law but in my opinion this is not the case to attempt any clarification of the law even assuming that was necessary. An important part of the submission on behalf of the applicant was concerned with the application of the proper test to the particular facts and circumstances of the case. It is not clear whether the focus, which appears to be a new focus, now placed by counsel on section 37(1) of the Taxation of Chargeable Gains Act 1992 was explored in evidence or canvassed in submission before the First-tier Tribunal or the Upper Tribunal. I do not think it is now possible to reshape the case in which findings of fact were made in relation to the case as presented before the First-tier Tribunal. In any event such a dispute about the application of generally accepted principles of law to the particular facts of this case does not in my opinion raise any important point of principle.
[20] As I am unpersuaded that the case raises important points of principle as specified in paragraph 5 of the application and certainly none which are capable of resolution in the context of this case, I am not prepared to grant this application even if the applicant was capable of overcoming the other hurdles in the case.
[21] For the reasons given leave to appeal is refused.