Morris v Roberts (Inspector of Taxes) (Wasted Costs)
| Jurisdiction | England & Wales |
| Judge | THE HONOURABLE MR JUSTICE LIGHTMAN,Mr Justice Lightman |
| Judgment Date | 25 May 2005 |
| Neutral Citation | [2005] EWHC 1040 (Ch) |
| Docket Number | Case No: CH 2004/APP/0301 |
| Court | Chancery Division |
| Date | 25 May 2005 |
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Lightman
Case No: CH 2004/APP/0301
Mr Fred Philpott ( instructed by Messrs Howell & Co, 1341 Stratford Road, Hall Green, Birmingham B28 9HW) for the Appellants
Mr Sam Grodzinski (instructed by Solicitor of Inland Revenue, East Wing, Somerset house, London WC2R 1LB) for the Respondent
Hearing dates: 11 th & 13 th May 2005
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
Mr Justice Lightman
INTRODUCTION
This is an application by the Inspector of Taxes ("the Revenue") for a wasted costs order against Howell & Co ("Howell") made pursuant to directions given on the 13 th October 2004 by Etherton J who held that cause had been shown for the making of the application. The order sought relates to the Revenue's costs of an appeal to the High Court ("the Appeal") brought by Howell on behalf of their clients Mr and Mrs Morris ("the Morrises") against a decision of a Special Commissioner made on the 31 st March 2004 ("the Decision"). Those costs amount to £3,200. The sum is small but the application is justified by the history of events and the principles at stake in this protracted engagement between the Revenue and the Morrises.
The basis on which the application has been made is that: (1) the Appeal was an abuse of the Court's process; (2) Howell (a) knew that the Appeal was an abuse of process; or (b) even if they did not know, they ought to have known this, in the sense that a reasonably competent solicitor would have appreciated this; and (c) the principal reason why the appeal was an abuse was that it was brought for a reason unrelated to its substantive outcome and in particular for the collateral purpose of achieving delay in the Revenue's investigation of the tax liability of the Morrises. Mr Philpott, Counsel for Howell, concedes (as he must) that there is jurisdiction to make the order sought if these grounds are established.
In summary, the Revenue relies in support of its case that the appeal by the Morrises was an abuse of the Court's process on: (1) the history (prior to this last appeal) of protracted delay on the part of the Morrises since March 1999; (2) the outright refusal of the Morrises (since July 2002) to provide the information necessary to enable the Revenue to assess whether the Morrises were liable to UK tax in October 1997 and to which the Revenue was incontrovertibly entitled; (3) the non-compliance by the Morrises with any of their statutory obligations of disclosure to the Revenue; (4) the clear intention of the Morrises not to comply, and their total non-compliance, with any order for payment of costs or penalties; and (5) the continuing series of purposeless and hopeless challenges to notices and appeals and the unprincipled claims to which they had had recourse to avoid payment of tax to the liability for which (on the face of it and on the material now available) there is no answer.
As regards the actual and imputed knowledge of Howell the Revenue rely on (as well as the conduct of Howell itself of which complaint is made) the fact that Howell has represented and acted on behalf of the Morrises in all matters relating to the Revenue (including all correspondence as well as proceedings) and was party to the conduct of the Morrises. The Revenue contend that the inference from the conduct of Howell is that on behalf of the Morrises they have been content to adopt any stance, prosecute any appeal, and advance any argument regardless of merit simply to achieve delay to prevent disclosure of information to which (it is conceded) the Revenue are statutorily entitled and to secure for the Morrises practical immunity from tax liability and that this was the reason why on behalf of the Morrises they brought the appeal against the Decision and then abandoned the appeal at the last moment.
THE DOUBLE TAXATION AGREEMENT
Much of the argument in this case turns on the UK-Spain double taxation treaty (SI 1976 SI No 1919) ("the DTA"). So far as material the DTA reads as follows:
"DT: Spain: double taxation agreement, Article 4: Fiscal domicile
(1) For the purposes of this Convention, the term 'resident of a Contracting State' means, subject to the provisions of paragraphs (2) and (3) of this Article any person who, under the law of that State is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature; the term does not include any individual who is liable to tax in that Contracting State only if he derives income from sources therein. The terms 'resident of the United Kingdom' and 'resident of Spain' shall be construed accordingly.
(2) Where by reason of the provisions of paragraph (1) of this Article an individual is a resident of both Contracting States, then his status shall be determined in accordance with the following rules:
(a) he shall be deemed to be a resident of the Contracting State in which he has a permanent home available to him. If he has a permanent home available to him in both Contracting States, he shall be deemed to be a resident of the Contracting State with which his personal and economic relations are closer (centre of vital interests);
(b) if the Contracting State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either Contracting State, he shall be deemed to be a resident of the Contracting State in which he has an habitual abode;
(c) if he has an habitual abode in both Contracting States or in neither of them, he shall be deemed to be a resident of the Contracting State of which he is a national;
(d) if he is a national of both Contracting States or of neither of them, the competent authorities of the Contracting States shall settle the question by mutual agreement…."
HISTORY
The Morrises are and have been at all material times UK nationals. In October 1997, the Morrises sold their shares in Empress Car Company (Abertillery) Ltd to The Car Group Plc for £20.3m ("the Sale"). Mr Philpot confirmed that, aside from the issue of residence and accordingly whether the Morrises were liable to UK tax, this transaction would have given rise to a Capital Gains Tax liability of around £7m. At some date thereafter they acquired a home at "Croeso", 16 Ricardo Corazon de Leon, Sotogrande, Cadiz, Spain ("Croeso").
On the 28th January 1999 the Morrises filed tax returns for the year 1997/98. These returns claimed that they were not resident or ordinarily resident in UK in that tax year. The returns required the Morrises to provide information if they were resident in another country for the purposes of a Double Taxation Agreement and were claiming relief under it. No such information was provided. The returns claimed that the Morrises had spent only 71 days in the UK in that tax year and accordingly less than the 91 days maximum for permanent residence abroad.
In March 1999, the Revenue commenced its investigation into the Morrises' liability to Capital Gains Tax in relation to the Sale writing to the Morrises' accountant enclosing Notices under section 9A of the Taxes Management Act 1970 ("the TMA") asking, among other things, for a detailed schedule in relation to the 71 days allegedly spent in the UK, showing arrival and departure dates for each visit, the purpose of each visit and the address of the accommodation used and whether credit cards had been used here.
As nothing was received from the accountant, a further letter enclosing the notices issued pursuant to section 19A of the TMA was sent direct to each of the Morrises in Spain on the 18 th June 1999 asking for this information. The letter stated that failure to comply with the notices might render them liable to a penalty; and that the Morrises were entitled to appeal against the notices within 30 days.
No appeal was lodged against the notices. But around the 6 th July 1999, the Morrises instructed Howell to represent them in relation to their tax affairs. On the 28 th October 1999, Howell wrote to the Revenue, not answering the questions raised, but merely setting out a list of days the Morrises had spent in the UK over the relevant period. This list set out a total of 69 days (not 71 as stated in the tax returns), and contained no dates of departure/arrival as had been requested, nor did it explain the precise purpose of the visits, nor did it provide any documentation. The letter also asserted that no non-interest bearing bank accounts and no UK credit cards, had been operated over the relevant period.
In order to verify the information provided, the Revenue used its powers under section 20(3) of the TMA to obtain copies of credit card and mobile phone records from a third party. This information suggested that the Morrises had in fact been in the UK for much longer than they claimed in the relevant tax years.
Further correspondence ensued between the Revenue and Howell. On the 15 th May 2000 a further unsatisfactory letter was written by Howells, stating that they had "made a mistake" in the schedule of dates in their letter of the 28 th October 1999. They asserted that this mistake had arisen principally from the fact that they had had to deal with the matter with their clients by telephone "at long range". The letter then stated that Howell were proposing to visit their clients in Spain so as to prepare "once and for all" an accurate schedule. The letter stated that Howell would revert...
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