HM Revenue and Customs v Khawaja
| Jurisdiction | England & Wales |
| Judge | Mr Justice Mann,MR JUSTICE MANN |
| Judgment Date | 17 July 2008 |
| Neutral Citation | [2008] EWHC 1687 (Ch) |
| Docket Number | Case No: CH/2008/APP/0158 |
| Court | Chancery Division |
| Date | 17 July 2008 |
[2008] EWHC 1687 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Mann
Case No: CH/2008/APP/0158
MR. A. TOLLEY (instructed by The Solicitor to Her Majesty's Revenue and Customs) for the Appellant.
MR. T. HIRST for the Respondent.
Hearing dates: 10 th and 11 th July 2008.
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of thisJudgment and that copies of this version as handed down may be treated as authentic.
Introduction
This is an appeal by Her Majesty's Revenue and Customs (“HMRC”) by way of Case Stated from a decision of the General Commissioners dated 30 th November 2005 concerning the affairs of Mr Khawaja, the taxpayer. Mr Khawaja had appealed to the Commissioners from an assessment to penalties dated 17 th November 2004. The appeal raises a question as to the standard of proof to be applied in such proceedings.
The factual background
Mr Khawaja was the controlling director of Sahib Restaurant Limited, a company which, as its name suggests, ran a restaurant. He received remuneration from the restaurant and submitted tax returns for the years 1993/94 to 1998/99 in which he declared the amounts he had received for each of those years in respect of remuneration from the restaurant, benefits in kind and rental income. HMRC (in its then form) considered that he had under-declared his income and raised its own assessments, estimating the amounts it believed he had obtained. He appealed those assessments first to the General Commissioners and then to the High Court, and his appeal to the High Court was heard by Lawrence Collins J on 27 th November 2003. He reduced the income assessed under each of the heads, but left significant sums owing on the assessments. The total amount of the difference between the final amounts owing on the assessments and the original amounts of income declared by Mr Khawaja was £238,500. The difference in tax was £82,600 odd. They were assessments in respect of his remuneration, benefits in kind and income from the property from which the company traded and which was, apparently, owned by him.
In due course after the hearing before Lawrence Collins J, HMRC served a notice claiming penalties under s.95(1)(a) of the Taxes Management Act 1970 (“ TMA”) for:
“negligently submitting incorrect returns under s.8 of that Act for the years [referred to above].”
The total of the penalties was £41,332, ranging from £2,084 in 1993/94 to £12,865 in 1998/99. Mr Khawaja then appealed that to the General Commissioners, resulting in the decision which is subject to this appeal. The Commissioners heard evidence and submissions and allowed the appeal in part. The Case Stated records their decision as follows:
“9.1 The penalty determination notice dated 17 th November 2004 is valid.
9.2 Applying the standard of proof beyond reasonable doubt, the Appellant has demonstrated that the Respondent negligently understated income in respect of the property and benefits in kind from his returns for the tax years in question.
9.3 Applying the standard of proof beyond reasonable doubt, the Appellant has not demonstrated that the Respondent negligently understated income in respect of remuneration from the restaurant for the tax years in question.”
They reduced the penalties to sums ranging from £900 in the first of the years in question to £1,200 in the last of them.
Lest there be any doubt as to the basis on which they decided the questions before them, the short written decision of the General Commissioners dated 30 th November 2005 says:
“On the facts we are satisfied beyond reasonable doubt that there was negligent submission of incorrect returns for the years mentioned above in respect of property income, but applying the same standard of proof we find that HMRC have failed to prove beyond reasonable doubt that there were understated profits.”
The basis of this appeal
HMRC appeal that determination on the footing that the General Commissioners applied the incorrect standard of proof. HMRC say that they should have applied the civil standard of the balance of probabilities. That, shortly stated, is the principal issue arising.
This appeal has an unfortunate timing aspect to it. HMRC applied for a Case Stated within the time required, as, indeed, did Mr Khawaja. Unfortunately it then took a very considerable period of time to have the case finalised. The letter from HMRC requesting a case to be stated was dated 2 nd February 2006; the stated case was not issued until 6 th February 2008. The reasons for the delay were explained by the clerk to the General Commissioners, who accepted responsibility for the delay. It was attributed to a period of illness, a change of his employment from one firm of solicitors to another and to the difficulties the department had in recruiting staff. All that is pretty unimpressive but, to his credit, the clerk has not sought to shuffle off any of his personal responsibility for the delay.
The determination of the issues
The General Commissioners did not give any reason for their selection of the standard of proof. There is no indication in the Case Stated that there was any serious debate about it, though reference to the “criminal nature” of the proceedings was apparently made by Mr Khawaja's representative. I therefore approach the point de novo (as far as this case is concerned). Mr T Hirst, who appeared for Mr Khawaja, supported the stance taken by the General Commissioners. He relied principally on three points or matters – the Scottish case of Inland Revenue v Ruffle [1979] SC 371, which in terms seems to say that the criminal standard applies; second he relied on the application of Article 6 of the European Convention of Human Rights as enacted by the Human Rights Act 1998 (“ HRA”); and third he relied on the proposition that the proceedings should be treated as quasi-criminal so as to attract a criminal standard of proof. In truth, these points are all analytically related. Mr A Tolley, who appeared for HMRC, said that the civil standard applied, distinguishing Ruffle and relying on an analysis extending across some VAT cases and other cases dealing with the standard of proof and the suggestion that there might be a heightened standard of proof in some civil cases.
I think that a convenient analysis would be to consider first of all whether English domestic law, independently of the HRA, requires that the criminal standard of proof be applied to the penalty proceedings in this case. If it does, then there is little or nothing in the HRA to affect it. It can hardly be said (and it was not said in the case before me) that the HRA reduces the standard of proof. If it is the case that English domestic law, without the HRA, requires merely the civil standard of proof, then it becomes necessary to consider Mr Hirst's point that the HRA applies so as to change that. I shall therefore consider the application of English domestic law first.
The question of standard of proof has received recent attention from the House of Lords. In two cases, decisions in each of which were delivered on the same day (11 th June 2008) their Lordships considered the question of standard of proof, in the context of the release of prisoners subject to life sentences in Northern Ireland ( In re Doherty [2008] UK HL 33) and care proceedings ( In re B (Children)(FC) [2008] UK HL 35). Those cases make it clear that there are but two standards of proof – the civil and the criminal. They make it clear that, insofar as it might have been suggested that there was some intermediate standard, that intermediate standard did not exist. In In re B at paragraph 13, Lord Hoffman said:
“I think that the time has come to say, once and for all, that there is only one civil standard of proof and that is proof that the fact in issue more probably occurred than not.”
He referred to a confusion which might have arisen in the cases to the effect that this standard of proof might vary:
“5. Some confusion has however been caused by dicta which suggest that the standard of proof may vary with the gravity of the misconduct alleged or even of the seriousness of the consequences for the person concerned. The cases in which such statements have been made fall into three categories. First there are cases in which the court has for one purpose classified the proceedings as civil (for example, for the purposes of Article 6 of the European Convention), but nevertheless thought that, because of the serious consequences of the proceedings, the criminal standard of proof or something like it should be applied. Secondly, there are cases in which it has been observed that when some event is inherently improbable, strong evidence may be needed to persuade a Tribunal that it more probably happened than not. Thirdly, there are cases in which judges are simply confused about whether they are talking about the standard of proof or about the role of inherent probabilities in deciding whether the burden of proving a fact to a given standard has been discharged.”
It was in that context that he said what I have quoted him as having said in paragraph 13. He went on in paragraph 13 to agree with Lord Steyn in R (McCann) v Crown Court at Manchester [2003] 1 AC 787 to the effect that:
“Clarity would be greatly enhanced if the courts said simply that although proceedings [in the first category] were civil, the nature of the particular issue involved make it appropriate to apply the criminal standard.”
Baroness Hale also referred to cases in that first category.
“69. There are some proceedings, though civil in form, whose nature is such that it is...
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