23 July 2014

Failure to comply with directions in the Fist-tier Tribunal can be grounds for the award of a barring order against further proceedings. This was the conclusion reached in BPP University College of Professional Studies v The Commissioners for Her Majesty’s Revenue & Customs [2014] UKFTT 644 (TC).

In a joined appeal against two VAT assessments and a decision by HMRC concerning BPP's alleged VAT liabilities, HMRC were directed to provide a joined statement of case ('SOC'). HMRC were late serving the SOC and BPP applied to HMRC directly for further and better particulars. Following no response, BPP applied to the Tribunal to strike out HMRC's case for non-compliance unless ('an Unless Order') replies were forthcoming in 14 days. The judge granted the following order:

…if HMRC fail to provide replies to each of the questions identified in BPP’ Request for Further Information by 31 January 2014, HMRC may be barred from taking further part in proceedings.

The reply provided by HMRC stated that they would not list all the facts and matters on which they, at that time, intended to rely on at the hearing.

In her judgment the Tribunal Judge found that this was in breach of the Unless Order by relying on the position in Fearis v Davis [1989]; namely that, it is open to the Tribunal to direct that more detailed pleadings than those that are ordinarily required, be provided, following the agreement of the parties and that, in the present case, HMRC had failed to provide the details that they had agreed to, as requested by the Appellant.

The reply was also found to contain no facts on which HMRC would base its case. Reference had merely been made by HMRC to the 'voluminous correspondence', which contained all the facts known to HMRC, but which did not identify the specific facts on which HMRC intended to rely in the proceedings.   

In both respects, therefore, HMRC failed to comply with the Unless Order.

In holding that HMRC be barred from participating in further proceedings, the Tribunal Judge, citing Lord Dyson in Mitchell, accorded particular weight to the Overriding Objective to treat cases justly and fairly and in particular (a) for litigation to be conducted efficiently and at proportionate cost and (b) to enforce compliance with rules, practice directions and orders.

Strictly, the Mitchell authority relates to the considerations that the court should apply when there is an application for relief from sanctions.  In the instant case no sanction had been applied, however, CPR Rule 3.9, as applied in Mitchell, does apply where there has been a failure to comply with any rule, practice direction or court order. As such the considerations of Lord Dyson were deemed to be helpful guidance by the Tribunal Judge.

The Upper Tribunal’s decision in McCarthy & Stone [2014] UKUT196 was also cited to lend credence to the fact that Mitchell was as applicable in a Tribunal as in Court proceedings.

In the process of reaching her decision, the Tribunal Judge disregarded HMRC's submissions that: (i) the case was to be a test case on the application of notes (2) and (3) following the amendment to s 72 VATA 1984; (ii) a bar would likely cause HMRC to lose the appeal and give the Appellant licence to treat HMRC's decision as wrong ad infinitum and (iii) the unless order was not an automatic strike out under Rule 8(1) as applied for, but a discretionary strike out under Rule 8(3)(a).

The conclusions to be drawn are reasonably clear: litigation in the tax tribunals is to be conducted within the purview of the Overriding Objective; 'well-intentioned incompetence' for which there is no good reason should not usually attract relief from sanctions unless the default is trivial; and poorly prepared statements of case, or unjustified delays to the proceedings can result in the award of 'draconian' remedies (the Tribunal's words).

Key contact

Headshot John Barnett

John Barnett Partner

  • Head of Partnerships
  • Private Client Services
  • Tax

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