Litigation at the First-tier Tribunal – all parties beware!

A new case at the Court of Appeal, BPP Holdings Limited v HMRC [2016] EWCA Civ 121 is a warning for taxpayers and HMRC alike.

The facts

This was an appeal by BPP Holdings Limited [“BPP”], described by the Upper Tribunal as “a matter of considerable importance to practitioners and the tribunals themselves”.

The First-tier Tribunal (“FTT”) debarred HMRC from further participation in the proceedings for their serious and prolonged breach of an order requiring them to give proper particulars of their pleaded case against BPP. The Court of Appeal then had to decide whether the FTT was right to do so.

The substance of the three cases before the FTT was the chargeability to VAT of the supply of books and other printed materials by BPP.

In terms of their conduct:

  • HMRC delayed service of their Statement of Case and failed to plead the facts on which they relied to justify their contention that the supply should be treated as part of a standard rated supply of education services with the consequence that BPP served a detailed Request for Further Information;
  • HMRC agreed to provide replies to each of the requests but refused to commit themselves to a timetable for the replies.

The FTT was not amused by HMRC’s lack of compliance. Judge Mosedale said:-

‘[75] “I did not leave the hearing with any clear understanding of why this default had occurred […] I consider that anyone reading the Reply should have known it was inadequate as, so far as the Notes (2) and (3) point [i.e. The position following amendment to the VAT Act], as well as other issues, it failed to state a single fact on which HMRC relied.

[77] […] Moreover the Reply as a whole failed to deal with the factual matters HMRC relied on to establish that there was a single supply for the pre-2011 position as well as post 2011 position.

[78] HMRC were represented by HMRC solicitors’ office throughout. I consider it should have been obvious to a lawyer that the Reply delivered on the due date did for not comply with Judge Hellier’s Order.”

In the Court of Appeal

The Court began by stating that the key question was whether the strict approach of the Courts to compliance with rules and directions made under the CPR (Civil Procedure Rules) applied to cases in the tax tribunals.

The Court set out the different wording of the FTT Rules and the Civil Procedure Rules for cases before the Courts. The FTT Rules state:

“Overriding objective and the parties’ obligation to co-operate with the Tribunal

(1)         The overriding objective of these rules is to enable the Tribunal to deal with cases fairly and justly.

(2)         Dealing with a case fairly and justly includes-

  1. Dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;
  2. Avoiding unnecessary formality and seeking flexibility in the proceedings;
  3. Ensuring, so far as is practicable, that the parties are able to participate fully in the proceedings;
  4. Using any special expertise of the Tribunal effectively, and
  5. Avoiding delay, so far as compatible with proper consideration of the issues.

(3)         The Tribunal must seek to give effect to the overriding objective when it-

  1. Exercises any power under these Rules; or
  2. Interprets any rule or practice direction.

(4)         Parties must-

  1. Help the Tribunal to further the overriding objective; and
  2. Co-operate with the Tribunal generally.”

The CPR Rules state:

“The Overriding objective

(1)         These Rules are a new procedural code with the overriding objective of enabling the court to deal with cases justly and at proportionate cost.

(2)         Dealing with a case justly and at proportionate cost includes, so far as is practicable-

  1. Ensuring that the parties are on an equal footing;
  2. Saving expense;
  3. Dealing with the case in ways which are proportionate-
  4. to the amount of money involved;
  5. to the importance of the case;

iii.          to the complexity of the issues; and

  1. to the financial position of each party;
  2. ensuring that it is dealt with expeditiously and fairly;
  3. allotting to it an appropriate share of the court’s resources, while taking into account the need to allot resources to other cases; and
  4. enforcing compliance with rules, practice directions and orders.”

The appellant argued that there was nothing in the difference in the wording of the CPR and the tax tribunal rules which suggested that the wording of the tax tribunal rules was contrary to or inconsistent with that adopted by the Courts under the CPR.

HMRC argued, on the other hand, that the weight given to the factors set out in the CPR by the FTT, i.e. the need to ensure compliance with rules and practice directions, which was “significant, albeit not paramount” was nevertheless disproportionate. HMRC further argued that the consequence of the barring order was a) to prevent a fair and just hearing on the merits, b) remove HMRC’s ‘entitlement’ to put their case, c) hand BPP a windfall to which they were not entitled and d) potentially lead to a decision on the VAT status of a supply that is erroneous and accordingly contrary to the public interest.

Finally HMRC argued that the non-compliance by HMRC was unfortunate but not intentional.

The Court of Appeal was not amused by HMRC’s arguments. The Court said:

‘I found the approach of HMRC to compliance to be disturbing. At times it came close to arguing that HMRC, as a State agency, should be treated like a litigant in person and that the constraints of austerity on an agency like the HMRC should in some way excuse unacceptable behaviour. I remind HMRC that even in the tribunals where the flexibility of process is a hallmark of the delivery of specialist justice, a litigant in person is expected to comply with rules and orders and a State party should neither expect to nor work on the basis that it has some preferred status – it does not….

If HMRC have a difficulty with compliance they should, where possible, make application to the tribunal to be relieved of compliance on the basis of some alternative proposal which should be canvassed with the taxpayer prior to the application. The reasons for non-compliance and the merits of the alternative should be explained. HMRC had no good reason indeed no stated reason at all for their non-compliance.’

Levy and Levy conclusion

For many years both HMRC and taxpayers and certain less knowledgeable advisers have taken the comfortable and comforting view that they could ‘muddle along’ without paying proper attention to the FTT Rules and the possible consequences of non-compliance with orders of the Tribunal. This case is a wake up call to both parties that this is no longer the case. It is to be hoped that the warning will be heeded.


Levy and Levy – the tax resolution specialists in London and Tunbridge Wells