Outram and Another
| Jurisdiction | UK Non-devolved |
| Judgment Date | 02 February 2021 |
| Neutral Citation | [2021] UKFTT 29 (TC) |
| Date | 02 February 2021 |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 29 (TC)
Judge Nigel Popplewell
Jeremy Woolf instructed by Barnes Roffe LLP appeared for the appellants
Sadiya Choudhury instructed by the General Counsel and Solicitor to HM Revenue & Customs appeared for the respondents
Procedure – Application that HMRC be precluded from raising an alternative argument set out in their skeleton argument that Montpelier acted on behalf of the appellants when considering the 20 year time limit for discovery assessments – Skeleton only submitted a fortnight before the hearing of the appeals – Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm), R & C Commrs v Hicks [2020] BTC 536 and Bessie Taube Discretionary Settlement Trust [2010] TC 00735 considered – Application allowed – TMA 1970, s. 29, Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 2(3), 5(3)(c).
The First-tier Tribunal (FTT) granted the taxpayers' application to preclude HMRC from pursuing an alternative argument which they first raised in their skeleton argument two weeks before the substantive appeal was due to be heard.
Anthony and Ross Outram (the appellants) had participated in a Montpelier tax mitigation scheme. The appellants had conceded that the scheme had been ineffective. HMRC had raised discovery assessments under TMA 1970, s. 29, using the extended 20 year time limit. The assessments could only be valid if there had been a loss of tax brought about deliberately by the appellants or by a person acting on their behalf.
HMRC's statement of case from 2015 alleged deliberate conduct by the appellants, but it did not allege deliberate conduct by a person acting on their behalf. However, HMRC's skeleton argument made two weeks before the substantive appeal was due to be heard in February 2021 contained an allegation that there had been a loss of tax brought about deliberately by Montpelier, acting on the appellants' behalf.
The appellants applied to the FTT for HMRC to be precluded from pursuing the new argument raised in their skeleton argument.
The FTT agreed with the appellants that the new allegation in the skeleton argument was tantamount to HMRC seeking to introduce a new issue which should have been pleaded in their amended statement of case. The FTT's powers to allow a new issue to be pleaded fell within its case management powers in the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 5(3)(c), which could only be done giving effect to the overriding objective in SI 2009/273, r. 2(3) to deal with cases fairly and justly.
The FTT referred to Su-Ling v Goldman Sachs International [2015] EWHC 759 (Comm) (Comm) [36–38], as providing the relevant principles for deciding whether to allow an application to amend. The principles include that an application to amend will be refused if it is clear that the proposed amendment has no real prospects of success, i.e. the applicant has to have a case which is better than merely arguable. And in relation to very late applications the principles can be stated as:
- whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between injustice to the applicant if the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;
- where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;
- a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;
- lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;
- gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that the payment of costs may not be adequate compensation;
- it is incumbent on a party seeking the indulgence of the court to be allowed to raise a late claim to provide a good explanation for the delay;
- a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and that the courts enable them to do so.
Judge Nigel Popplewell accepted that HMRC's alternative argument was at least arguable, as Montpelier had provided information to the appellants' accountants to enable them to complete the appellants' returns. But based on the definition of “acting on behalf of” in Bessie Taube Discretionary Settlement Trust [2010] TC 00735, as approved by the Upper Tribunal in R & C Commrs v Hicks [2020] BTC 536, it would have been difficult for HMRC to establish that Montpelier had acted on behalf of the appellants.
Judge Popplewell accepted that given that the appeal had been stayed it was unrealistic for HMRC to have considered the evidence which formed the basis of the alternative argument when it was submitted in 2016 and 2017. However, he did not consider that was sufficient justification for having failed to review the position following the expiry of the stay in March 2020.
Considering that as set out in Quah a much stricter view is taken nowadays of non-compliance, Judge Popplewell had no hesitation in concluding that given the weakness of HMRC's alternative argument, the lateness of its introduction into the appeals, the inadequacy of the reasons given for that lateness and the impact it would have on the form and timing of the hearing, the balance of prejudice weighed heavily in allowing the appellants' application.
Accordingly Judge Popplewell granted the appellants' application that HMRC should not be permitted to pursue their alternative argument.
Comment HMRC wanted to argue in the substantive discovery assessment hearing that in relation to a tax loss created by an ineffective Montpelier tax mitigation scheme, Montpelier had acted on behalf of the appellants in deliberately bringing about the loss of tax. Although Judge Popplewell accepted that this was arguable, he found that this was outweighed by the lateness of the introduction of the argument, the lack of a good reason for the delay and the impact on the hearing which was due to take place two weeks after the alternative argument was put forward.
[1] This is a case management decision. The substantive appeals to which it relates concern appeals by the appellants which arises out of their use of a Montpelier tax mitigation scheme. The scheme purportedly generated allowable trading losses which the appellants included in their 2005–2006 tax returns. HMRC issued discovery assessments in relation to those returns on 24 February 2015. The validity of those assessments depends on HMRC being able to bring them within the extended time limit of 20 years, and to do this they must establish that there was a loss of tax which was brought about deliberately by the appellants or by a person acting on their behalf.
[2] The substantive appeal is due to be heard on 4 and 5 February 2021. The appellants have conceded that the losses are not allowable. So the only issue to be determined at the hearing of the substantive appeal is the validity of the discovery assessments.
[3] HMRC's amended statement of case dated 29 September 2015 alleges deliberate conduct by the appellants, but it does not allege deliberate conduct by a person acting on their behalf. However, HMRC's skeleton argument dated 21 January 2021 which was prepared for the substantive appeal, does contain such an allegation.
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Tax Bites - May 2021
...HMRC to issue closure notices. Read more Outram - Tribunal prevents HMRC from relying on new argument In Outram and another v HMRC [2021] UKFTT 29 (TC), the FTT has prevented HMRC from relying on a new argument contained in its skeleton argument which had not been included in its statement ......