Eclipse Film Partners No 35 LLP
| Jurisdiction | UK Non-devolved |
| Judgment Date | 22 June 2011 |
| Neutral Citation | [2011] UKFTT 401 (TC) |
| Date | 22 June 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 401 (TC)
Edward Sadler (Chairman), John Walters, QC
Jolyon Maugham, counsel, instructed by Freshfields Bruckhaus Deringer for the Appellant
Rajesh Pillai and Rebecca Murray, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Expert evidence - application for a direction to exclude expert evidence - whether expert evidence inadmissible on grounds that it is an opinion as to UK tax and therefore trespasses on the special expertise of the Tribunal - whether decision as to admissibility of the evidence should be a case management matter or deferred until the hearing of the appeal - questions as to admissibility and weight to be attributed to evidence admitted to be determined following hearing of the appeal - application refused
1.Eclipse Film Partners No 35 LLP ("E35") is a limited liability partnership which is appealing against a decision of The Commissioners For Her Majesty's Revenue and Customs ("the Commissioners") that, in the tax year ended 5 April 2007, E35 was not carrying on a trade of exploiting film rights, or if it was carrying on such a trade, it was not doing so with a view to profit. That appeal has been listed for hearing before us for thirteen days beginning on 13 July 2011.
2.The principal significance of E35's appeal relates not to the tax position of E35 itself, but to that of its individual members. Each of the 239 members of E35 borrowed funds to make their respective investments in E35 and made a prepayment of the interest payable on those borrowings for which they have claimed tax relief. The aggregate amount of that tax relief is in the order of £117 million. It is a necessary precondition to a successful claim for such relief on the part of the members that E35 should be carrying on a trade with a view to profit in the tax year in which the members made the interest prepayment. The members wait in the wings, as it were, whilst E35 pursues its appeal against the Commissioners' decision on the trading issue.
3.Although the issue to be determined at the forthcoming hearing of the appeal is apparently straightforward, the film exploitation and financing arrangements entered into by E35 and it members are complex. The briefest of summaries of those arrangements is given below. The parties are engaged upon a substantial piece of litigation and have twice before brought matters to the Tribunal: in January 2009 E35 applied to a Special Commissioner for a direction that the Commissioners issue a closure notice in relation to the enquiry which they were making into E35's tax return for the relevant tax year: that direction was given in a decision of Mr Sadler released on 17 February 2009 ((2009) Sp C 736). The resulting closure notice comprised the decision against which E35 is now appealing. In August 2010 there was a dispute as to disclosure and certain other case management issues which was heard by Mr Walters, and his directions (with reasons) were given in his decision released on 13 August 2010.
4.The parties are now in dispute about a further case management issue. On 10 April 2011 the Commissioners served on E35 the witness statement of Mr Marcus Stanton in the form of an "Expert Report". As is explained in more detail below, Mr Stanton claims to be expert in structured finance and banking transactions, and the evidence he offers in his Report, and which the Commissioners wish to adduce in the course of the hearing of the appeal, relates to the financial basis which underlies the transactions entered into by E35 and its members. The analysis he makes leads him to conclude that those transactions were structured so as to secure tax relief for the members of E35 rather than to achieve the commercial prospect of a trading profit.
5.On 4 May 2011 Freshfields Bruckhaus Deringer, acting for E35, informed the Commissioners that E35 objected to the admission of Mr Stanton's evidence in these appeal proceedings. Subsequently E35 applied to the Tribunal for a direction excluding that evidence, or the majority of it, on the grounds that it is inadmissible, since it relates to UK tax matters, which is the province of the Tribunal itself, and since, further, it puts forward a partial version of the facts, dressing as expert evidence matters which properly should be made by way of submission by the Commissioners when they make their case at the hearing.
6.We heard E35's application on this matter at a lengthy hearing with full arguments from each party.
7.section 3(1) of the Civil Evidence Act 1972 provides that the opinion evidence of a witness called in any civil proceedings on any relevant matter on which the witness is qualified to give expert evidence shall be admissible in evidence. Section 5(3) of that Act provides that nothing in that Act prejudices a court's power to exclude evidence at its discretion. It should be noted that for the purposes of the Civil Evidence Act 1972 "civil proceedings" means "civil proceedings, before any tribunal, in relation to which the strict rules of evidence apply (section 5(1)): strictly, therefore, proceedings before this Tribunal are not within the scope of the Civil Evidence Act 1972, but on matters of evidence that Act provides a point of reference for the Tribunal when it exercises its discretion as to the evidence it will admit.
8.As to our particular powers to admit or to refuse to admit expert evidence in proceedings before us, Rule 15 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 provides:
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(2) Without restriction on the general powers in rule 5(1) and (2) (case management powers), the Tribunal may give directions as to-
(a) issues on which it requires evidence or submissions;
(b) the nature of the evidence or submissions it requires;
(c) whether the parties are permitted to rely upon expert evidence …
(3) The Tribunal may-
(a) admit evidence whether or not the evidence would be admissible in a civil trial in the United Kingdom; or
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(b) exclude evidence that would otherwise be admissible where-
(i) the evidence was not provided within the time allowed by a direction or a practice direction;
(ii) the evidence was otherwise provided in a manner that did not comply with a direction or a practice direction; or
(iii) it would otherwise be unfair to admit the evidence.
Rule 15, as with all other the other Tribunal Procedure Rules, must be applied with regard to the provisions of Rule 2 of the Tribunal Procedure Rules, which states that the overriding objective of those Rules is to enable the Tribunal to deal with cases fairly and justly, and that to...
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Eclipse Film Partners No 35 LLP v HM Revenue and Customs
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