Hope v Revenue and Customs Commissioners

JurisdictionEngland & Wales
Judgment Date06 April 2017
Neutral Citation[2017] EWHC 812 (Ch)
Date06 April 2017
CourtChancery Division

[2017] EWHC 812 (Ch)

High Court (Chancery Division) Decisions

Mr. Registrar Briggs

Hope
and
Revenue and Customs Commissioners

Mark Watson-Gandy and Timothy Brown (instructed by Direct Access) appeared for the claimant

Mark Mullen (instructed by Treasury Solicitor) appeared for the defendant

Value added tax – Bankruptcy Part 7 claim – Judgement of previous High Court whether made through fraudulent misrepresentations – Whether HMRC committed fraud – Whether HMRC negligent – Whether breach of statutory duty – No whether estoppels applies – Yes.

The High Court (HC) struck out a claim that HMRC had acted fraudulently and misrepresented the facts in previous IVA hearings and rejected a claim for damages.

Summary

The claimant (Miss Hope) ran a fashion shop and handbag business with both retail and wholesale outlets and involving overseas activities. She initially traded as a sole trader and later through a limited company, Emma Hope Shoes Ltd, following liquidation the business traded as Emma Hope Ltd.

Following a VAT visit Miss Hope was assessed for VAT (the “2007 assessment”). This was included in a proxy figure at a creditors meeting for Individual Voluntary Arrangements (IVA) under the Insolvency Act 1986, s. 252 against Miss Hope's objections. Miss Hope's proposal to creditors was rejected at that meeting which she blamed on HMRC. A further assessment the “2010 assessment” followed. Both assessments were later withdrawn. Miss Hope appealed the decision of the creditors meeting under IVA rules to the HC. The HC (Registrar Derrett) and on appeal (John Male QC) dismissed her appeals. The Court of Appeal (CA) also dismissed her application to appeal but Vos LJ commented that had there been a question of fraud the matter could be heard.

The issues before the HC were now set out at para. 19 of the decision and were agreed by both parties. Firstly was Registrar Derrett misled by HMRC, (the fraud claim). The HC confirmed that it is not the business of the tax authorities to do the taxpayers work, it is for the taxpayer to make true and proper returns, Van Boeckel v C & E Commrs (1980) 1 BVC 378, see para. 61. HMRC acted reasonably and it was the taxpayer who delayed matters. The HC concluded there was no reasonable prospects of success on the fraud claim, see para. 64. Neither was there any misrepresentation of the facts to satisfy the test of dishonesty see Royal Brunei Airlines Sdn Bhd v Tan [1995] 2 AC 378 and Barlow Clowes International Ltd v Eurotrust International Ltd [2005] UKPC 37, [2006] 1 WLR 1476 see para. 64. Finally in reaching that decision the HC turned to Royal Bank of Scotland plc v Highland Financial Partners LP [2013] EWCA Civ 328, see para. 68.

The HC then considered misfeasance in public office as identified in Three Rivers District Council v Governor and Company of the Bank of England [2003] 2 AC 1. Miss Hope alleges that HMRC intended to harm her (targeted malice) by its actions or inactions prior to the creditors meeting in respect of not withdrawing the 2007 assessment and relying on it afterwards. The HC did not accept this as it would be inconsistent with the findings of the IVA courts challenging facts already found and would abuse the court's process, see para. 74.

Miss Hope alleged that HMRC owed her a statutory duty of care arising from the Value Added Tax Act 1994 (VATA 1994), s. 73 or the Commissioners for Revenue and Customs Act 2005 (CRCA 2005), s. 16A. HMRC failed to show best judgement under VATA 1994, s. 73 and that under CRCA 2005, s. 16A in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 731 Lord Browne-Wilkinson set out principles. The HC disagreed VATA 1994, s. 73 means that an officer uses best judgement based on information from the taxpayer. The HC ruled that to continue with such a claim would be an abuse of the court as it would challenge facts already agreed in the previous courts.

Miss Hope also claimed that HMRC had a duty of care under common law R (on the application of Atapattu) v Secretary of State for the Home Department [2011] EWHC 1388 (Admin). Again the HC dismissed this as it would lead to an abuse of process.

Finally the question of estoppel was dealt with referring to Virgin Atlantic Airways Ltd v Zodiac Seats UK Ltd [2014] AC 160 where Lord Sumption explained how the principles of estoppel should apply. The HC ruled estoppels applies in this case so that Miss Hope cannot challenge the previous IVA court decisions.

Comment

The HC has confirmed that taxpayers have a responsibility for submitting returns and it is not the role of HMRC to carry out exhaustive enquiries. HMRC was in its right to include an assessment when it submitted a proxy to a creditors meeting even though that assessment was later withdrawn. The previous IVA courts had already shown that the taxpayer had failed to explain and provide information and this delayed matters. HMRC are not expected to carry out exhaustive enquiries and a taxpayer cannot rely on that even after a visit. There was no evidence to suggest HMRC acted dishonestly or misrepresented facts at any time. Estoppel is a principle in law that stops a matter from being dealt with again on the same facts.

JUDGMENT
Mr Registrar Briggs:
Introduction

[1] By a Part 7 claim, the Respondent to a bankruptcy petition presented by Her Majesty's Revenue & Customs (“HMRC”), Emma Hope, seeks to set aside a previous judgment of the High Court, on the ground that the it was obtained as a result of fraudulent misrepresentations. The claim also seeks damages for HMRC's “acts of fraud and/or negligence/and or breach of statutory duty”. The fate of the petition will depend upon an application now made by HMRC to strike out the Part 7 claim or obtain summary judgment.

The factual background

[2] Miss Hope is a specialist designer of bags and shoes with a national and international reputation for quality and design. In a judgment of Mr John Male QC, which I shall return to later, given in October 2014 he explained:

Since 1985 Miss Hope has made her living as a shoe designer, based in the UK. For over 25 years, the shoes have been made in factories outside the UK (usually located in Italy) which then ship direct to her customers around the world. For the last 20 years the same factories have shipped shoes to her retail stores in London. So, there were and are both wholesale and retail businesses. Until November 2007, Miss Hope operated as a sole trader. On 30th November 2007 she transferred her business as a going concern to Emma Hope Shoes Limited. This company went into liquidation in April 2009. Since then the business has operated through a company called Emma Hope Limited

On the 8th January 2007 an officer of HMRC, Surinder Aulak, visited Miss Hope to carry out a VAT audit … After that visit and audit, correspondence ensued between HMRC and Miss Hope and her advisers. Requests for information were made by HMRC, information was provided and the correspondence carried on throughout 2007 …

[3] In December 2007 HMRC made an assessment against Miss Hope of £120,725.54 in respect of VAT. This has become known as the “2007 Assessment”. HMRC issued a statutory demand based on the 2007 Assessment and a petition was subsequently presented in October 2008. This led to an application for an interim order pursuant to s. 252 of the Insolvency Act. HMRC submitted a proxy at the meeting of creditors in the sum of £722,326.67. The sum was calculated on the basis of unpaid direct taxes, surcharges, interest, the 2007 Assessment, and an estimated VAT claim in respect of post-November 2007 trading. The chairman of the meeting admitted the proxy despite Miss Hope raising objections with the result that the proposal to creditors was rejected.

[4] Miss Hope applied to court appealing the decision of the chairman (the “IVA Appeal”). Before the IVA appeal was heard HMRC raised what has become known as the “2010 Assessment”. The 2010 Assessment related to post-November 2007 trading and calculated that £320,566.00 was due and owing. In early 2010 the IVA Appeal against the chairman's decision was adjourned to permit Miss Hope to appeal the 2007 and 2010 Assessments to the Tax Tribunal. As the adjournment was caused by Miss Hope she was ordered to pay HMRC's costs.

[5] Subsequently, Mr Neal of HMRC and Mr Welby of BDO Stoy Hayward (acting for Miss Hope) met to discuss the situation. The outcome was that HMRC agreed to withdraw the 2007 Assessment. I shall deal with this in greater detail below. As regards the 2010 Assessment, Mr Welby was informed by Mr Neal that a declaration in lieu of a return would be accepted to replace the 2010 Assessment as a result of bad debt relief. Miss Hope duly submitted the declaration in lieu, and the 2010 Assessment was withdrawn.

[6] The IVA Appeal came before Registrar Derrett in May 2013. She dismissed the appeal concluding that the 2007 Assessment created a statutory debt due at the date of the creditors' meeting. Miss Hope was granted permission to appeal the decision of Registrar Derrett but the appeal was dismissed by John Male QC on 3 December 2014. A paper application for permission to appeal to the Court of Appeal was made but also dismissed. The application to appeal was renewed at an oral application in July 2015. Vos LJ refused the application for permission to appeal. Vos LJ considered that the appeal stood no reasonable prospects of success, but added that if there had been fraud he would have decided otherwise. This led to an application by Miss Hope to re-open her appeal, alleging fraud on the part of HMRC. That hearing was heard by Morgan J who dismissed the application in December 2015. Giving reasons for dismissing the application Mr Justice Morgan commented:

On 5 October 2015 the Claimant was notified by the Court of Appeal that her application to re-open her appeal could not be made under CPR 52.17. The Court of Appeal informed the Claimant that she may have an alternative remedy namely to...

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