Uk Uncut Legal Action Ltd v Commissioners of HM Revenue and Customs Goldman Sachs International and Another (Interested Parties)
| Jurisdiction | England & Wales |
| Judge | Mr Justice Nicol |
| Judgment Date | 16 May 2013 |
| Neutral Citation | [2013] EWHC 1283 (Admin) |
| Docket Number | Case No: CO/12618/2011 |
| Court | Queen's Bench Division (Administrative Court) |
| Date | 16 May 2013 |
[2013] EWHC 1283 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Justice Nicol
Case No: CO/12618/2011
and
Ingrid Simler QC and Ben Jaffey (instructed by Leigh Day and Co) for the Claimant
James Eadie QC and Gemma White (instructed by General Counsel and Solicitor to HM Revenue and Customs) for the Defendant
The Interested Parties were not represented
Hearing dates: 2 nd May 2013
Approved Judgment
On 19 th November 2010 there was a meeting between representatives of Her Majesty's Revenue and Customs ("HMRC") on the one hand and Goldman Sachs International and Goldman Sachs Services Ltd (except where it is necessary to distinguish between them, I shall refer to them collectively as "Goldman Sachs") on the other. There were a number of outstanding and long running disputes between HMRC and Goldman Sachs. Among these was an issue as to whether Goldman Sachs was required to pay National Insurance Contributions ("NICs") in consequence of an arrangement they had with some of their employees. A related question was whether, if NICs were payable, Goldman Sachs should also pay interest on the outstanding contributions. The arrangement which Goldman Sachs had entered into with their employees was one which a number of other companies had also adopted. HMRC had engaged in a similar dispute with them. However, all but Goldman Sachs had settled with HMRC in 2005 on terms that they would pay 100% of the claimed NICs, but no interest. Goldman Sachs continued to contest liability, in part on the basis that HMRC had assessed the wrong company within the group.
At the meeting on 19 th November 2010, HMRC was represented by, among others, Mr David Hartnett who was, at the time, Permanent Secretary for Tax at HMRC and one of the Commissioners. It was his understanding that the outcome of the meeting was that there had been agreement on all issues. In particular, Goldman Sachs had promised to pay 100% of the NICs; HMRC had promised to forego any interest on the NICs. Some of the remaining issues were settled in favour of HMRC, others in favour of Goldman Sachs.
HMRC accepts that their representatives made mistakes at this meeting. First, Mr Hartnett was under the impression that there was a barrier or potential barrier to HMRC recovering interest on the unpaid NICs. He had not consulted the lawyers litigating the matter on behalf of HMRC about this. His recollection was flawed. Second, internal HMRC procedures required settlements of over £100 million (and where the Department was proposing to concede one or more of the issues) to be approved by the High Risk CorporatesProgramme Board ("the Programme Board"). That was not mentioned at the meeting of 19 th November 2010. Mr Hartnett and the other representatives of HMRC had not appreciated this would be necessary. They should have done. As I have said, Mr Hartnett believed an agreement had been concluded on 19 th November 2010.
When the Programme Board met on 30 th November 2010 it approved (retrospectively) all elements of the agreement with Goldman Sachs except the concession to forego interest on the NICs. When Goldman Sachs was told about this, they were agitated. They said that they believed that they had a concluded agreement with HMRC from which it could not or should not resile.
The arrangements within HMRC allow the Commissioners to act through two of their number. As I have said, Mr Hartnett was one of the Commissioners. On 9 th December 2010 he met with another, Melanie Dawes, who was also the Director General for Business Tax within HMRC. In addition, Freda Chaloner, the chair of the Programme Board, was present and took part in their discussion, but it was Mr Hartnett and Ms Dawes who decided to approve and endorse the 19 th November settlement agreement with Goldman Sachs.
Some of these matters were disclosed by a lawyer working within HMRC in the course of 2011. That led to hearings by the House of Commons Public Accounts Committee and the Committee's 61 st Report HC 1531 on 14 th December 2011.
The Claim Form in these proceedings was issued shortly afterwards on 22 nd December 2011. The Claimant campaigns against what it sees as the harmful effects of tax avoidance and the use of tax havens. HMRC are the Defendants. The two Goldman Sachs companies are named as Interested Parties, although they have taken no part in the proceedings. The Claimant challenges the decisions to enter into the agreement on 19 th November 2010 and to ratify the agreement on 9 th December 2010. Originally, the Claimant sought a quashing order in respect of those decisions. However, Simon J. was prepared to grant permission only for the Claimant to seek declaratory relief. He subsequently granted a protective costs order with a similar limitation. The Claimant has not sought to enlarge the nature of relief beyond a declaration.
Subsequent to the issue of these proceedings, the National Audit Office ("the NAO"), which is led by the Comptroller and Auditor General, conducted a review of the settlement of large tax disputes. By the Exchequer and Audit Departments Act 1921 s.2 the Comptroller and Auditor General is required to examine the accounts of HMRC to ascertain that adequate regulations and procedures have been framed to secure an effective check on the assessment, collection and allocation of revenue and that they are being duly carried out. The report examined 5 cases in particular. It anonymised them, but Mr Eadie QC, on behalf of the Defendants, agreed that one of these cases, Case E, was the Goldman Sachs settlement. The NAO commissioned a retired High Court Chancery Judge, Sir Andrew Park, to provide advice. This led to a report by the Comptroller and Auditor General, Amyas Morse, on 14 th June 2012 (HC 188). It will be necessary for me to say more about this report in due course.
The Litigation and Settlement Strategy grounds of challenge
The Claimant relies on the HMRC policy which is published under the title "Litigation and Settlement Strategy". The version which was in force in 2010 had been published in 2007 and it is that which is relevant to the present matter. It was later revised in 2011. Paragraph 1 of the 2007 edition says, "This guidance sets out principles for bringing tax disputes to a conclusion whether by agreement with the taxpayer, or by litigation." It continues:
" Settlement by Agreement
13. Settling disputes by agreement allows both HMRC and our customers to avoid the expense and delay of litigation and so agreed terms for settlement should always be sought before going to litigation. However, settlement terms must be consistent with the reasons for undertaking an enquiry in the first place, which are to influence taxpayer behaviour positively and to challenge behaviours that contribute to the tax gap [the tax gap is the gap between tax which is due and that which is paid]. The guidance below indicates what represent sufficient settlement terms.
Settlement terms
14. General Principles
• Deal with each dispute on its own merits. Do not enter into "package deals", in which a range of issues are settled for a single payment that is not subdivided amongst individual disputes.
• Some disputes have an all-or-nothing character, involving a single point of law that would be decided one way or the other by the courts, with no middle ground. Such disputes should be settled on all-or-nothing terms: do not split the difference or offer any discount for an agreement not to litigate.
….
• Do not undercharge tax, interest or penalties in the interest of quick settlement, even if doing so would provide a good return on time spent on the case. Always consider whether settlement terms do enough to promote positive customer behaviour and deter non-compliance.
15. In avoidance cases
….
• If our advice is strong, do not accept settlements for less than 100% of the tax and interest due." [emphasis in the original]
The Litigation and Settlement Strategy was published on the HMRC's website and its importance was promoted by, among others, Mr Hartnett. In the magazine Tax Journal for 11 th June 2007, he wrote that, for the most part the policy aimed to articulate principles which should underpin what would inevitably be questions of judgment, but it also contained "some rules which should be followed strictly…bright lines, not to be crossed." They included, "no horsetrading between unrelated points and no package deals that settle a range of issues for a single undifferentiated sum of money and, where there was an all-or-nothing dispute, there should be an all-or-nothing settlement."
The Claimant argues that, because the Litigation and Settlement Strategy was a published policy, HMRC was obliged to follow it in order to ensure fairness between taxpayers. Furthermore, it was for the Court to decide what the policy meant — see for instance R (Raissi) v SSHD [2008] QB 836 [120] – [123] and Tesco Stores Ltd v Dundee City Council [2012] UKSC 13 at [18]-[20].
The Claimant's case is that the agreement on 19 th November 2010 infringed this guidance. Contrary to paragraph 14 it was a package deal which traded a promise to pay 100% of the NICs for HMRC's promise to forego interest on those contributions. Principal and interest were effectively a single issue. In county court proceedings against Goldman Sachs which had been issued in 2003 the Revenue...
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