R (on the application of Archer and Another) v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Mr Justice Green |
| Judgment Date | 28 March 2018 |
| Neutral Citation | [2018] EWHC 695 (Admin) |
| Date | 28 March 2018 |
| Docket Number | Case No: CO/5544/2014 |
| Court | Queen's Bench Division (Administrative Court) |
[2018] EWHC 695 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Green
Case No: CO/5544/2014
Conrad McDonnell (instructed by KPMG LLP) for the Claimant
David Yates (instructed by HMRC Solicitor's Office) for the Defendant
Hearing dates: 6th March 2018
A. Introduction
There is before the court an appeal against the decision of Master Gidden of the 12 th June 2017 relating to costs. The Appellant had commenced judicial review proceedings against the Commissioners for HM Revenue and Customs (“HMRC”). That claim was compromised in the Appellant's favour. However, the Master concluded that there should be no order for costs upon the basis that the claim for judicial review was premature because the Appellant had failed to exploit the statutory right to make representations to HMRC which exists under section 222 Finance Act 2014 (“ FA 2014”) and which could and almost certainly would have led to resolution of the dispute.
The present appeal turns, in substance, upon the correctness of the conclusion of the Master to this effect. Mr McDonnell for the Appellant argues that the issue arising is a discrete issue of principle; Mr Yates for HMRC accepts that there is a point of principle arising but adds that at base the Master's decision was premised upon his condemnation of the litigation conduct of the Appellant and as such is fact sensitive and based upon the exercise of judgment, which this court, on appeal, should be loath to interfere with.
For reasons that I set out below I am of the conclusion that the ruling of the Master was based primarily upon his conclusion that the Claim for judicial review was premature and, as to this, I agree with the Master. In so far as his ruling is based upon conclusions about the conduct of the Appellant then this was secondary but, nonetheless, amounts to an exercise of discretion which on appeal I would not wish to disturb.
I would record my gratitude to both counsel for their focused and thoughtful written and oral submissions. These showed that whilst at first blush the issue might appear straightforward even light excavation reveals a series of complications which flow from the analysis. I have therefore endeavoured to stay within the confines of the facts of the case. However there is at the heart of this case a point of broader significance and I have set out my views on this below. I have also identified other issues that I refrain from expressing a decided view upon. These can be explored in other cases where the facts are more clearly on point.
My end conclusion is that the Master did not err. He correctly concluded that it was premature to commence judicial review proceedings pending the exercise of the statutory right to make representations and a decision thereupon by HMRC. Accordingly, there is no basis for overturning his decision on costs.
B. The relevant facts
The facts are complex. I summarise them as follows. During 2006 the Appellant's husband, Mr Archer, had participated in a tax avoidance scheme which resulted in him claiming an income tax loss pursuant to section 551 Income Tax (Trading and Other Income) Act 2005 (“ITTOIA”). He filed a tax return for 2005/06 declaring income tax payable by him which was, in consequence of the scheme, reduced by circa £6,000,000 than would otherwise have been the case. His tax advisors had disclosed the scheme to HMRC pursuant to the Disclosure of Tax Avoidance Schemes Regulations (“DOTAS”), as they were required by law to do. HMRC had given the scheme a reference number pursuant to the Regulations. Mr Archer duly provided that reference number to HMRC in his return thereby alerting and notifying HMRC that his liability could be subject to the assessment that HMRC might make as to the effectiveness of the notified scheme.
The scheme can be summarised (at the risk of over-simplification) in the following way. Mr Archer sold Certificates of Deposit (“CDs”) at a loss to a third-party bank. This was achieved in three discreet steps. First, Mr Archer granted to his wife an option to purchase the CDs from him at an undervalue. Second, Mrs Archer sold the option to the bank it being of value since it conferred the right to acquire the CDs at below market price. Third, the bank exercised the option. The Appellant analyses the situation in the following way: the acquisition by Mrs Archer of the option and its sale created a liability to capital gains tax unless it was exempt. Under normal capital gains tax rules a gain on the sale of an option relating to CDs was exempt from tax since a gain made in relation to CDs would be exempt from capital gains tax. The correctness of that capital gains tax analysis was in issue between the taxpayer and HMRC at the material times in 2014, but has subsequently been resolved for practical purposes by an agreement reached between the parties pursuant to s.54 Taxes Management Act 1970.
This tax avoidance scheme was investigated by HMRC over the course of a number of years. On the 22 nd September 2011 HMRC concluded that the scheme was effective and that the losses claimed were accordingly permissible and on that date HMRC communicated with Mr Archer's advisors, KPMG, their decision not to pursue further arguments in respect of Mr Archer's claimed loss under Section 551 ITTOIA.
In the same letter, however, HMRC stated that they considered that Mrs Archer had approximately £6,000,000 of capital gains tax to pay for 2005/06 in consequence of her participation in the tax avoidance scheme entered into by Mr Archer. Mrs Archer, the Appellant in the present proceedings, had not claimed any tax advantage for herself pursuant to the scheme but she had been a counterparty to transactions concluded by Mr Archer.
As of 2011 the position of HMRC was that Mr Archer had no further tax to pay for 2005/06 but, instead, Mrs Archer was liable to pay £6,000,000 in capital gains tax.
On the 27 th March 2013 HMRC wrote to KPMG to summarise the position: HMRC confirmed that it had already accepted the loss arising on Mr Archer so “… the dispute is now solely on the tax effect on Mrs Archer.” The position adopted by HMRC was that there was a liability. It was that of either Mr or Mrs Archer; but not both.
Subsequently, on 11 th July 2013 HMRC, in a telephone call with KPMG, indicated that they had changed their position in relation to the efficacy of the scheme and that they no longer accepted Mr Archer had a loss for 2005/06.
On the 30 th July 2014 various Commissioners of HMRC met to consider a formal settlement proposal submitted by Mr Archer. His proposal involved neither Mr Archer nor Mrs Archer paying additional tax for 2005/06. That proposal was rejected. However, the Commissioners indicated that they would accept a proposal pursuant to which Mr Archer conceded his loss for 2005/06 and in return, HMRC would not pursue capital gains tax from Mrs Archer.
On the 22nd August 2014 a letter was sent by HMRC to Mr Archer which indicated that an accelerated payment notice (“APN”) would be shortly issued to him (see below for a brief explanation of the APN system). That APN was issued on the 19 th September 2014.
Also, on the 19 th September 2014 a letter was sent by HMRC to the Appellant indicating that an APN would shortly be issued to her. That APN was issued on the 4 th November 2014.
The position now reflected in these communications was that HMRC was intent on seeking payment from both Mr and Mrs Archer.
On the 28 th November 2014 a letter on behalf of the Appellant and Mr Archer (said to amount to a Pre-Action Protocol letter) was sent to HMRC. A Claim Form was issued by Mr and Mrs Archer on the same day. It was served on HMRC on the 2 nd December 2014.
On the 17 th December 2014 statutory representations under section 222 FA 2014 were made to HMRC on behalf of the Appellant and Mr Archer. These incorporated by cross-reference all of the grounds and arguments advanced in the judicial review. The representations included the following:
“The purpose of this letter is to make representations under section 222 of the Finance Act 2014 as we consider that HMRC should withdraw the APNs, using the power to do so in sections 222(4) and 227 Finance Act or otherwise. In the case of Mrs Archer, the representations are made under section 222(2)(a) on the basis that none of Conditions A, B or C in section 219 is met in respect of her APN. In the case of Mr and Mrs Archer, the representations are made under section 222(2)(b) on the basis of objecting to the amount specified under section 220(2)(b).
Our representations are made on the same basis as the application for the judicial review Case Number CO/5544/2014, namely that we consider the APNs to have been issued without HMRC having power lawfully to do so, and we append a copy of the sealed Claim Form, statement of facts and detailed statement of grounds for ease of reference.
We put you on notice that should HMRC wish to confirm that APNs under section 220(2), we have our clients' instructions to apply for interim relief in the judicial review proceedings to restrain this course of action.
As an alternative to expensive and protracted judicial review proceedings, our clients propose that following these representations, the parties agree that there be a stay on proceedings provided that HMRC does not confirm the APNs under section 220(4) or at all (such that they do not become payable) and issues a closure notice so that an appeal could be made to the First Tier Tribunal without any further delay.”
Whether due to the issuance of proceedings or the letter of representations or both HMRC...
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