Ritchie; Ritchie
| Jurisdiction | UK Non-devolved |
| Judgment Date | 20 July 2016 |
| Neutral Citation | [2016] UKFTT 509 (TC) |
| Date | 20 July 2016 |
| Court | First Tier Tribunal (Tax Chamber) |
Judge Robin Vos
Mr Keith Gordon, Counsel, instructed by Rodgers Weir & Co, accountants appeared for the appellant
Mr Brendan Hone, officer of HM Revenue and Customs, appeared for the respondents
Procedure – Application to bar the respondents from taking further part in the proceedings – Tribunal Procedure First-Tier Tribunal (Tax Chamber) Rules 2009 (SI 2009/273), r.8(3)(b), r. 8(7) and r. 8(8) – Use of without prejudice material disclosed during ADR hearing – HMRC delay – Application refused – Application for hearing of one ground of appeal to be deferred – Application refused – Application for appellant to be awarded costs of the application on the grounds of HMRC’s unreasonable actions in conducting the proceedings – SI 2009/273, r. 10(1)(b) – Application granted in part.
The First-tier Tribunal (FTT) refused an application by taxpayers to bar HMRC from taking further part in an appeal and an application for one ground of appeal to deferred as a subsidiary issue, but partly allowed the taxpayers’ application for costs.
Mr and Mrs Ritchie (the appellants) had claimed that their disposal of a jointly owned property in 2006–07 qualified for full exemption from capital gains tax as a result of principal private residence relief. Following an HMRC enquiry which started in May 2010 HMRC disagreed. The appellants persuaded HMRC to enter into alternative dispute resolution (ADR) discussions in May 2015, but as these were unsuccessful, in August 2015 the appellants notified their appeals to the tribunal. HMRC were due to submit their statement of case by 14 November 2015, but following the approval of an extension application the statement of case was submitted in December 2015. Approximately a week later the appellants’ accountant (Mr Rodgers) raised various points, including a request to extend the deadlines set by the tribunal and to point out that HMRC’s statement of case contained information obtained from the ADR discussions and requesting HMRC to provide a revised statement of case to exclude the without prejudice material. Mr Rodgers chased HMRC for a response and then made an application to the tribunal on 2 February 2016 for a direction that HMRC be barred from further participation in the proceedings. On 3 March 2016 a second application was made which was the subject of this hearing. On 13 June 2016, following advice from the Solicitors Office, HMRC advised both the tribunal and Mr Rodgers that they were prepared to withdraw the original statement of case and replace it with a statement of case removing any reference to comments made at the ADR meeting.
The two main areas of dispute in the substantive appeal were:
a) whether a garage/outbuilding situated some 80 metres from the main house formed part of the “dwelling house”; and
b) the extent of the “permitted area” and in particular whether, on the facts of the case, an area of more than 0.5 hectares should be allowed.
This hearing related to three applications made by the appellants:
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1) Because HMRC had used without prejudice material obtained as part of the unsuccessful ADR process coupled with a six month delay in agreeing to remedy this, either:
• HMRC had already prejudiced the appellants to such an extent that the tribunal could not deal with the proceedings fairly and justly and therefore HMRC should be barred from taking further part in the proceedings and the tribunal should summarily determine all issues against HMRC pursuant to the Tribunal Procedure First-Tier Tribunal (Tax Chamber) Rules 2009 (SI 2009/273), r. 8(3)(b), r. 8(7) and r. 8(8); or
• HMRC should be ordered to withdraw their statement of case and, within 28 days, issue one that does not include without prejudice material.
• The tribunal should direct that the question of permitted area should be deferred as a subsidiary issue to be resolved following determination of the question of the extent of the dwelling house (which could prevent the need for expert evidence).
• The tribunal should order HMRC to pay the appellants’ costs relating to the hearing and the preparation for the hearing on the basis that HMRC had acted unreasonably in their conduct of the proceedings.
Based on the legislation and various cases (including the FTT decisions of First Class Communications Ltd TAX[2016] TC 02508 and Nutro UK Ltd TAX[2014] TC 04083, and the Court of Appeal decision of BPP Holdings Ltd v R & C Commrs VAT[2016] BVC 9) the FTT decided that when looking at possibly barring HMRC from the appeal process it should:
a) Decide whether HMRC had failed to co-operate with the tribunal.
b) Consider whether the result of the failure to co-operate was that the tribunal could not deal with the proceedings fairly and justly. This could be because the appellant had been prejudiced by HMRC’s conduct in a way which could not be remedied and which meant that the proceedings could not be dealt with fairly and justly or alternatively it could be that, whilst HMRC’s failure to cooperate had not yet meant that it was not possible to deal with the appeal fairly and justly, it was part of a pattern of conduct which it thought was likely to continue and which, if it did continue, would mean that the appeal could not be dealt with fairly and justly or it could be for some other reason.
c) If (and only if) it was of the view that both of these conditions were satisfied, it had to consider whether HMRC should be barred from participating further in the proceedings.
d) In coming to its conclusions on each of these matters it must take account of all of the relevant circumstances, having regard to the overriding objective of the tribunal to deal with cases fairly and justly. This included giving appropriate weight to the need for litigation to be conducted efficiently and at proportionate cost and to enforce compliance with rules, practice directions and orders of the tribunal.
The FTT concluded that the inadvertent use of the without prejudice material in HMRC’s statement of case and the subsequent delay in agreeing to remedy the situation did not amount to a failure to co-operate with the tribunal to such an extent that the tribunal could not deal with the proceedings fairly and justly and that HMRC should not therefore be barred from further participation in the proceedings on this basis. The FTT also found that HMRC’s conduct more generally did not give rise to a material risk that the tribunal would not be able to deal with the proceedings justly and fairly.
Considering whether the permitted area issue should be deferred the FTT decided that it would be much more efficient for this aspect to be dealt with at the same hearing as the remaining issues and it therefore refused the application.
On the costs issue the FTT awarded the appellants all of their costs relating to the applications from and including the preparation of the application dated 2 February 2016 up to and including the preparation of their skeleton argument. It also awarded the appellants 50% of their costs relating to these applications incurred after this up to and including the hearing itself (but not any costs incurred after that date). This was pursuant to SI 2009/273, r. 10(1)(b).
While the FTT refused to bar HMRC from the appeal process it was clearly not impressed with some of their actions. For example Judge Robin Vos described the four month delay in the Solicitors Office providing a response regarding the original statement of case containing without prejudice material as “inexcusable”. He also advised HMRC that if it did not already have them, HMRC needed to put in place procedures to ensure that follow up correspondence from an ADR meeting which still forms part of the ADR process is kept separate and is not included in the case file which is then passed to the litigation team.
[1] These applications relate to two separate appeals made by each of Mr and Mrs Ritchie concerning capital gains tax in respect of a property which they jointly owned and which they disposed of in the tax year ended 5 April 2007. The Tribunal has ordered that both appeals should be heard together by the same Tribunal. These applications are therefore also being heard together.
[2] The appellants have made two unconnected applications. At the hearing, the appellants made a further application for the Tribunal to order that HMRC should pay the appellants' costs relating to the hearing and the preparation for the hearing on the basis that HMRC has acted unreasonably in its conduct of the proceedings.
[3] The first application relates to the use by HMRC in its statement of case of without prejudice material obtained as part of an unsuccessful alternative dispute resolution (“ADR”) process carried out in 2015. The application is either for HMRC to be barred from taking further part in the proceedings on the basis that it has failed to co-operate with the Tribunal to such an extent that the Tribunal cannot deal with the proceedings fairly and justly and that, as a result, the Tribunal should summarily determine all issues against the respondents (see Tribunal Procedure rules 8(3)(b), 8(7) and 8(8)) or that the respondents be ordered to withdraw their statement of case and, within 28 days, issue one that does not reveal without prejudice material.
[4] The second application relates to the last of four grounds of appeal. The application is for a direction that the determination of the fourth ground of appeal be deferred as a subsidiary issue, to be resolved following determination of the first three grounds of appeal.
[5] As a result of an enquiry into the appellants' partnership tax return relating to their fish and chip restaurant business for the tax year ended 5 April 2007, HMRC queried whether the gain arising on the disposal of their house in Moneymore, County Londonderry qualified for full exemption from capital gains tax as a result of principal private residence relief. The...
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Ritchie; Ritchie
...an agreement using HMRC's Alternative Dispute Resolution (ADR) procedures. There had been a previous hearing (see Ritchie; Ritchie TAX[2016] TC 05258) in which the appellants had sought to bar HMRC from taking part in the proceedings (which would have resulted in the appeals succeeding) or ......