HM Revenue & Customs v Smart Price Midlands Ltd [2019] EWCA Civ 841

HM Revenue & Customs v Smart Price Midlands Ltd [2019] EWCA Civ 841 concerned two conjoined appeals in the Court of Appeal (Civil Division), heard by Lady Justice Rose, Lord Justice Newey and Lord Justice McCombe, raising the extent of disclosure of documents to be provided by HMRC when a trader challenges a refusal of approval to operate a wholesale alcohol supply business before the First-tier Tribunal. The underlying appeals concerned traders who had been refused approval under the Alcohol Wholesaler Registration Scheme (“AWRS”) on the grounds that they were not fit and proper persons to operate a business selling alcohol.

The AWRS, introduced by Part 6A of the Alcoholic Liquor Duties Act 1979 (inserted by section 54 of the Finance Act 2015), made the selling of liquor wholesale a controlled activity requiring approval by the Commissioners. Section 88C(2) of the 1979 Act provides that the Commissioners may approve a person to carry on a controlled activity only if satisfied that the person is fit and proper to carry on the activity. The Wholesaling of Controlled Liquor Regulations 2015 require that if the Commissioners refuse an application for approval, they must notify the applicant and give the reasons for the refusal. An appeal against a refusal of approval lies to the First-tier Tribunal under section 16(4) of the Finance Act 1994. The tribunal’s powers are confined to a supervisory jurisdiction: it may intervene where the tribunal is satisfied that the Commissioners or other person making the decision could not reasonably have arrived at it. Section 16(6) provides that it is for the appellant to show that the grounds on which the appeal is brought have been established.

Rule 27 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 provides that in Standard or Complex cases, subject to any direction to the contrary, within 42 days after the date the respondent sent the statement of case, each party must send or deliver to the tribunal and to each other party a list of documents of which the party has possession, the right to possession, or the right to take copies, and which the party intends to rely upon or produce in the proceedings. The FTT has wide case management powers under rule 5, including a power to give a direction in relation to the conduct or disposal of proceedings at any time, including permitting or requiring a party to provide documents, information or submissions to the tribunal or a party.

In the first set of proceedings (the “Hare Wines appeal”), Hare Wines Limited was refused approval on grounds including connections with non-compliant or fraudulent businesses, evidence of illicit trading or involvement of key persons in significant revenue non-compliance or fraud, and failure to carry out adequate due diligence. The “minded to refuse” letter of 10 February 2017 from HMRC set out detailed grounds under three headings, including references to numerous tax-loss letters sent to Hare Wines in 2016, allegations about Mr Kulwant Hare (identified as the guiding mind of the business) and another director Ms Kosiorek, and failures in due diligence. Hare Wines’ solicitors, Rainer Hughes, responded in a detailed letter dated 23 February 2017, challenging the reliance on spent convictions, the tax-loss letters (asserting that HMRC had not in fact refused input tax credits in relation to the invoices in question), the allegations regarding Ms Kosiorek, and alleging a policy of victimisation by HMRC against Mr Hare and his companies.

HMRC then sent two letters on 20 March 2017. The first, the “Refusal letter” signed by Ola Onanuga, stated that the application was refused with effect from 31 March 2017 because Mr Kulwant Hare had been identified as a guiding mind of the business and because Hare Wines’ due diligence policy was not being credibly applied, citing transactions with Axhet Ltd. The Refusal letter did not set out the matters raised in the minded to refuse letter. The second letter, the “HMRC Response letter” signed by Edward Fyle, enclosed with the Refusal letter, ran to 12 pages and included lengthy citation from legislation and case law and an answer in combative and at times sarcastic tones to points made in the Rainer Hughes letter. This included a passage stating that spent convictions were a relevant circumstance to be considered as part of HMRC’s assessment and that Hare Wines’ failure to disclose information about Mr Hare’s spent convictions was a material factor leading to the rejection of the application. There was no mention in the HMRC Response letter of the tax-loss letters or of Ms Kosiorek.

Hare Wines lodged its appeal on 23 March 2017, complaining that the Refusal letter did not make clear the reasons for the refusal. On 18 April 2017, directions were agreed between the parties including a direction that the respondents should send or deliver to the tribunal and the appellants a list of all documents which were considered by the respondents’ officer when reaching the decision at issue in the appeal together with any other documents on which the respondents intended to rely in connection with the appeal (the “global disclosure direction”). HMRC later sought to withdraw their agreement and applied to vary the direction to limit it to documents which each party intended to rely upon or produce in connection with the appeal.

Judge Sinfield in the First-tier Tribunal refused HMRC’s application to vary the direction. He held at paragraph 24 that in most appeals before the FTT, the appellant taxpayer might be expected to hold or be aware of the existence of all relevant materials, but in these AWRS appeals HMRC were likely to have material gathered from various sources which was not available to the applicant and of which the appellant had no knowledge. An unsuccessful applicant could only form a view as to whether to challenge the decision on grounds of unreasonableness if the applicant knew what matters were considered by the decision-maker. If the unsuccessful applicant only knew about materials that were considered and relied on by HMRC, the applicant could not plead with any particularity that any other documents, information and other matters considered but not relied on should have been taken into account. The role of the FTT was to decide whether the decision under appeal was reasonable, and if it was to determine that issue fairly and justly, the FTT must know not only the decision arrived at and the reasons relied on to justify it but what matters were taken into account and what matters were not taken into account by the decision-maker. Without the full picture, there was a real risk that the FTT would not be able to make a fair and just determination of the reasonableness of the decision. The judge did not accept that the proposed disclosure exercise would place an unreasonable burden on HMRC’s resources. The judge varied the direction so that the respondents should send or deliver to the tribunal and the appellants a list of all documents which were considered by the respondents’ officer when reaching the decision at issue in the appeal and indicating which, if any, of those documents the respondents did not rely on in the appeal, together with any other documents which the respondents intended to rely on in the appeal.

HMRC appealed to the Upper Tribunal (Henry Carr J and Judge Hellier), which dismissed the appeal on 6 December 2017. The Upper Tribunal held that the judge had been entitled to make the global disclosure direction on the basis that this was necessary for a just and fair resolution of the appeal. The Upper Tribunal rejected a submission that the judge had applied the wrong principles in exercising his discretion to depart from the automatic disclosure provided for in rule 27(2). The Upper Tribunal regarded rule 27(2) disclosure as a starting point or default position which applied unless the tribunal was persuaded that something else was, in the circumstances of the appeal, just and fair. However, it was no more than that. The rule expressly provided that its provisions were “subject to any direction to the contrary”. Where the FTT, in the exercise of its discretion, decided that it should depart from this starting position to enable it to deal with the case justly and fairly, it was entitled to do so. The Upper Tribunal held that the judge had given reasons for departing from the starting position in order to enable the FTT to deal with the appeals justly and fairly. He had not applied an incorrect test in reaching the conclusion that he did. The Upper Tribunal held that the judge had been entitled to make the same direction in each of the appeals because the appeals shared a common factor: they were very serious matters for each of the appellants. In accordance with the overriding objective, the judge was entitled to have regard to the importance of the case to ensure so far as practicable that the parties were able to participate fully in the proceedings. The decision-maker was the only person who knew what material he or she had considered when making the decision, and it would not be possible for the FTT to dispose of these appeals fairly and justly, and for the appellants to participate fully, without the disclosure that he ordered. On the question of proportionality, the Upper Tribunal noted that HMRC had had the opportunity to put forward evidence at the hearing before the judge as to why the orders for disclosure would be disproportionate. HMRC had not done so. It was within the margin of discretion afforded to the judge to make the global disclosure direction. The Upper Tribunal refused permission to appeal, but permission was granted by Lewison LJ on the basis that the widespread implications of the Upper Tribunal’s approach and the desire of HMRC for authoritative guidance on the proper approach to disclosure in AWRS appeals justified consideration of the appeal by the full court. Lewison LJ imposed the condition that HMRC would pay the traders’ costs of the appeal in any event.

In the second set of proceedings (the “Gardner Shaw appeals”), the global disclosure direction had been made by the FTT in each of 10 appeals, but the proceedings, including HMRC’s compliance with the direction, were stayed pending HMRC’s appeal against the Hare Wines FTT decision. That appeal was dismissed on 6 December 2017. HMRC applied for a further stay pending the outcome of their application to the Court of Appeal for permission to appeal against the Hare Wines UT decision. On 20 June 2018 Judge Mosedale refused to continue the stay. HMRC then applied for a variation to the global disclosure direction to exclude from disclosure any document that was considered sensitive by HMRC and did not either support the appellant’s case or adversely affect HMRC’s case. Judge Mosedale considered first whether she had jurisdiction to amend the direction given that the legality of the global disclosure direction had been the subject of an unsuccessful appeal to the Upper Tribunal and was now on appeal to the Court of Appeal. She referred to the tribunal’s apparently unfettered discretion under rule 5(2) of the FTT Rules to amend any direction made. She also referred to the case of Tibbles v SIG plc [2012] EWCA Civ 518, discussing how that discretion should be exercised. She said at paragraph 17 that it did not matter whether the issue was seen as a question of jurisdiction or discretion; directions should only be revoked or varied where it was in the interests of justice to do so. She rejected HMRC’s contention that the application to vary was the kind of application contemplated by Judge Sinfield in the Hare Wines FTT decision. She also rejected the submission that there had been a change in circumstances; what had changed was HMRC’s realisation that some of the material to be disclosed was confidential. The only basis on which HMRC could justify the variation they sought would be by showing that “the circumstances are something out of the ordinary”, a phrase taken from Tibbles. Judge Mosedale accepted that if the global disclosure direction were to be implemented, HMRC would need four months to produce its list of documents and the cost would be in excess of five hundred thousand pounds. She concluded, having regard to the likely irrelevance of much of the material covered by the global disclosure direction, that the circumstances of HMRC’s application fell within the category of being out of the ordinary, or even exceptional. The exercise would delay appeals which should be expedited; it would cost an extremely large sum of taxpayers’ money while at the same time none of the information disclosed by it would be of any proper assistance to the appellants. It was a pointless exercise to require HMRC to disclose legally irrelevant material. She therefore varied the global disclosure direction by adding the words “save that the Respondents need not include a document on that list if both (a) it is considered to be sensitive by HMRC and (b) it does not support the case of the Appellant nor adversely affect that of HMRC.”

The Gardner Shaw appellants appealed and the Upper Tribunal (Fancourt J and Judge Hellier) overturned Judge Mosedale’s decision. The Upper Tribunal held that the judge was entitled to make the findings about the costs and the time needed for carrying out the exercise, but she had been wrong to consider and determine the question of relevance of the documents or to come to her own conclusion as to the best way to balance the competing interests of the parties. There was no basis on which the judge could reasonably have concluded that the circumstances justified her in varying the order. The Upper Tribunal noted, correctly, that the interplay between the nature of appeals against HMRC’s determination and the notions of relevance engaged when considering disclosure would be central to the argument in the Court of Appeal about the appropriateness of the global disclosure direction. The Upper Tribunal concluded that the fact that Judge Mosedale was persuaded that there was a more appropriate and better approach to disclosure, contrary to the Hare Wines UT decision, was not capable of being a reason why exceptionally the FTT should revisit and change its earlier direction. The fact that there had been an appeal to the Upper Tribunal was a strong reason not to revisit the global disclosure direction because the interests of justice included upholding the finality of court and tribunal decisions and not undermining the appeal process. There had been no change of circumstances and a re-hearing could not be justified on the basis that a party had belatedly put in better evidence to support its case. Approaching the matter on the basis of Tibbles, the Upper Tribunal concluded that there was no basis on which a judge could reasonably conclude that this was a rare instance of the unidentified, residual cases where it was appropriate for the FTT itself to vary the terms of the direction previously issued. The Upper Tribunal granted permission to appeal to this court.

In the Court of Appeal, Lady Justice Rose gave the leading judgment. She began by considering the nature of the tribunal’s task in these appeals. The tribunal’s role, following the principle in Gora v Customs and Excise Commissioners [2003] EWCA Civ 525, was to decide for itself any disputed primary facts on which HMRC’s decision was based and then consider whether the refusal to grant approval was one which a reasonable officer could make on the basis of the facts as found. In CC&C v HMRC [2015] 1 WLR 4043, Underhill LJ noted that the fact that the criterion for the tribunal’s intervention was formulated in terms of unreasonableness reflected the fact that the management of the excise system was a matter for the administrative discretion of HMRC, because decisions such as whether a registered owner remained a fit and proper person to trade in duty-suspended goods were ones which HMRC

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Lindsay v Customs and Excise Commissioners [2002] 1 WLR 1766
John Dee Ltd v Customs and Excise Commissioners [1995] STC 941
Gora & Ors v Commissioners of Customs & Excise [2003] EWCA Civ 525
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Tibbles v SIG plc [2012] EWCA Civ 518
Mobilx Ltd (in administration) v The Commissioners for HM Revenue and Customs [2010] EWCA Civ 517
Shah & Anor v HSBC Private Bank (UK) Ltd [2011] EWCA Civ 1154
The Commissioners for Her Majesty’s Revenue & Customs v Smart Price Midlands Ltd [2017] UKUT 465