TAX Tribunals encourage parties to pursue Alternative Dispute Resolution (“ADR”).
It is no secret that litigation, whether between two private parties or against a government department, is a stressful, time consuming and often expensive exercise. In recent years, ADR has become popular as a means of trying to make the whole process less painful by facilitating settlements between the warring parties in a more costs effective and speedy manner. Now, a recent practice direction, issued by Judge Greg Sinfield, Chamber President, on 15 June 2020 sheds light on the Tribunal’s attitude to ADR.
What is ADR?
ADR provides a voluntary alternative to the tried and tested practice of using the courts to settle civil disputes. The principle forms of ADR are arbitration and mediation. Arbitration is a proceeding in which a dispute is resolved by an impartial adjudicator whose decision the parties to the dispute have agreed, or legislation has decreed, will be final and binding. There are limited rights of review and appeal of arbitration awards. Mediation, with which we are concerned here, is effectively the same as ADR. The idea is that an independent third party (“the mediator”) is appointed by the parties. The mediator, who generally will have experience in the area under dispute, will try to ‘guide’ the parties to reach a voluntary agreement. The process is purely voluntary, however, and the mediator has no power impose a solution if either or both parties do not wish to settle.
How it works
Different mediators have their own individual style. Generally, however, the mediator will ask for a ‘position paper’ to be submitted by each party so that she is aware of the key issues and the specific concerns and arguments of both sides. The parties will also send over any documents which they wish the mediator to look at. The mediator or the parties will then agree on a neutral venue for the mediation. On the day of the mediation, the mediator will ask the parties to sign a ‘mediation agreement,’ which will cover relevant matters such as how the mediation is to proceed, fees of the mediator, the non-binding nature of the mediation, and most importantly confidentiality. The last will ensure a) that what the parties say to each other and the mediator during the mediation process will be kept confidential and b) that what is said, and any documents and information which are produced, may not be referred to in any subsequent court proceedings. This is because it is critical to the success of the mediation process that the parties are able to speak and exchange views frankly, without fear of anything being used against them in subsequent proceedings.
The mediation proceedings will generally open with a short opening statement from the mediator, welcoming the parties and setting out what she hopes will be the objectives of the day and how matters will proceed. She will also invite the parties to make a short opening statement if they wish.
Once this is over, the parties retire to separate rooms and the mediator will ‘shuttle’ between them. The hope is that throughout the day, encouraged by the mediator, the parties will soften their stance and finally arrive at some sort of mutually agreed settlement. Key to this is the skill of the mediator in presenting each sides views to the other in a logical manner, and presenting her own views of how a court might decide matters and pointing out the inherent costs, dangers and uncertainties of the litigation process.
When will HMRC mediate?
Any person, partnership or company can apply for ADR to help resolve a dispute with HMRC, using a relatively simple online form. ADR can be used before and after HMRC has issued a decision that can be appealed against, and at any stage of an enquiry.
HMRC set out the circumstances where ADR may be used:-
‘Communications have broken down between you and HMRC
there are disputes about the facts
a dispute appears to be the a result of a misunderstanding
you want to know why HMRC has not agreed evidence you have given them, and why they want to use other evidence
you’re not clear what information HMRC has used, and you think they may have made wrong assumptions
HMRC need to explain why they need more information from you’
You cannot use ADR for:
complaints and disputes about HMRC delays in using information or giving you misleading advice – find out how to complain about HMRC
debt recovery or payment issues – find out what to do if you cannot pay your tax bill on time
disputes about tax credits – find out how to appeal or complain about tax credits
disputes over default surcharges
automatic late payment or late filing penalties
PAYE coding notices
Extra-Statutory Concessions
cases that HMRC’s criminal investigators are dealing with
pension liberation schemes
High Income Child Benefit Charges
disputes about the National Minimum Wage
accelerated payments and follower notices
cases the First Tier Tax Tribunal have categorised as ‘paper’ or ‘basic’
When you can apply
You can apply for ADR at any stage of an enquiry and at any stage of the tribunal proceedings.’
What does the Tribunal have to say about mediation?
The relevant parts of the Tribunal’s Statement are below:
‘ADR can also be used before an appeal has been made to the Tribunal. This should be discussed with HMRC directly.
Your statutory appeal rights are not affected by ADR and you must still appeal to the Tribunal in time.
ADR gives you the option of using an impartial HMRC officer who is specially trained in dispute resolution and has not been involved in your dispute. The person leading the ADR acts as a neutral, third party “mediator” or “facilitator”. They will work together with you and the HMRC caseworker to help you both explore ways of resolving the dispute through meetings and telephone conversations. They do not take over responsibility for the dispute.
An external single mediator may be appointed in certain circumstances with the agreement of HMRC, or you can appoint your own mediator or facilitator to work alongside HMRC’s mediator and, by agreement with HMRC, as a co- mediator or co- facilitator.
HOW TO APPLY FOR ADR
HMRC currently only use ADR in cases categorised by the Tribunal following the making of an appeal as “standard” or “complex” under rule 23(2) of the Tribunal Procedure (First-tier) (Tax Chamber) Rules 2009 (‘FTT Rules’).
HOW IS THE TRIBUNAL INVOLVED?
Rule 3(1) of the FTT Rules provides:
“The Tribunal should seek, where appropriate-
(a) to bring to the attention of the parties the availability of any appropriate
alternative procedure for the resolution of the dispute; and
(b) if the parties wish and provided that it is compatible with the overriding
objective, to facilitate the use of the procedure.”
The purpose of this Practice Statement is to further the Tribunal’s obligation under rule 3(1)(a).
All parties should consider whether ADR may be appropriate and to keep the possibility of ADR in mind as the appeal progresses.
The overriding objective in rule 2 of the FTT Rules includes avoiding unnecessary formality and providing flexibility in the proceedings while also avoiding delay.
For the Tribunal to facilitate the use of ADR and meet the overriding objective, it is important that you keep the Tribunal informed of any developments.
HOW AND WHEN WILL THE TRIBUNAL FACILITATE THE USE OF ADR?
If HMRC accepts your application for ADR, you should inform the Tribunal as soon as possible. The Tribunal will usually be willing to stay proceedings in order to facilitate the use of ADR at any stage of the proceedings, including after HMRC have served their Statement of Case or the parties have exchanged lists of documents or witness statements. A stay means that the proceedings are temporarily put on hold. The Tribunal will normally allow a stay of 150 days where an appeal has been accepted for ADR. If you need more time to complete the ADR process, you must ask the Tribunal to grant the parties further time.
Where parties wish to use ADR after a hearing date has been set, the Tribunal will only be willing to stay proceedings if satisfied that the hearing will be able to go ahead on the date set if ADR does not resolve the dispute.
At the end of the ADR process, you should let the Tribunal know as soon as possible whether the dispute has been resolved. If the dispute is not resolved, the Tribunal will still hear your appeal as normal. You may also wish to ask the Tribunal for further case management directions, for example, permission to amend your grounds of appeal or to submit further evidence.’
Conclusion
The Tribunal’s Statement is indicative of the fact that mediation should be kept very much in the minds of the parties at all times. It is always better to try to settle that to litigate.
Mediation between private parties is in our experience extremely effective. This is because both sides will have ‘skin in the game’ and may stand to lose substantial amounts of money in the event that they are unsuccessful, both in terms of any substantive award that may be made against them and also in having to bear the fees of their legal team and those of their winning opponents. Even the winner is likely to lose money, as it is unusual to recover all the costs of he will have incurred on his legal team from the losing party. Even in the most entrenched and bitter of disputes, a full day of mediation under the auspices of a skillful mediator can often lead to a breakthrough and a settlement.
Mediation with HMRC is of course a very different ‘animal’. HMRC are not a private party and are also bound by the Litigation and Settlement Strategy, which puts constraints on the areas where a settlement may be possible. HMRC’s intention is to ‘secure the best practicable return for the Exchequer’ and there are cases such as those involving ‘tax avoidance’ arrangements where they will litigate as a matter of policy. Nonetheless, it is our experience again that mediation can be surprisingly effective, particular in areas where the taxpayer has become entrenched in a dispute with a particular HMRC Officer(s). An independent pair of eyes and a fresh viewpoint may be enough in these circumstances to ‘unstick’ the dispute.
Levy and Levy – the tax resolution specialists.