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	England and Wales Court of Appeal (Civil Division) Decisions
You are here: BAILII >> Databases >> England and Wales Court of Appeal (Civil Division) Decisions >> HM Revenue & Customs v Hyde Industrial Holdings Ltd [2006] EWCA Civ 502 (28 April 2006) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2006/502.html Cite as: [2006] EWCA Civ 502, [2006] STI 1439, [2006] BTC 8025

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM TAMESIDE COUNTY COURT
His Honour Judge Tetlow
TS201511

		Royal Courts of Justice Strand, London, WC2A 2LL
		28th April 2006

Lord Justice Waller :

Introduction

1. The broad picture is as follows. On 2^nd May 2002 the Inland Revenue (the Revenue) commenced proceedings against Hyde Industrial Holdings Ltd (Hyde) claiming what it alleged to be unpaid National Insurance Contributions (NICs) in the sum of £743,705.80. An officer of the Revenue had decided that those contributions were due for the 1996/7 and 1997/8 tax years, payable under s.6 of the Social Security Contributions and Benefits Act 1992. Hyde had appealed the officer's decision and in accordance with section 117A(5) the court by order dated 21^st June 2002 adjourned the proceedings, pending that appeal. After various orders made by the court of its own motion against the Revenue with which they failed to comply or to which they failed to react, by an order dated 26^th March 2004 District Judge Osborne, sitting at Tameside County Court, again of his own motion ordered that the "claim (be) struck out on 10^th February 2004". The Revenue failed to respond to that order with any urgency, and by a further order made by District Judge Gaunt, dated 10^th February 2005, the Revenue's application to have the action reinstated was dismissed with an order that the Revenue pay the costs, assessed at £592.50. The Revenue have until recently not paid those costs.
2. His Honour Judge Tetlow gave the Revenue permission to appeal both orders, but by order dated 28^th April 2005 dismissed the Revenue's appeals.
3. By order dated 28^th July 2005 Kennedy LJ granted permission for a second appeal to the Court of Appeal saying:-

"Although this is a second appeal, and the conduct of the appellant Commissioners has been far from exemplary, the points raised in the grounds of appeal are important, and should be considered by the Court of Appeal."

4. Mr Launcelot Henderson QC for the Revenue in arguing the appeal on their behalf did not seek to defend the Revenue's conduct, but submitted that in the light of Section 117A(5) the court should not have struck the action out, or at the very least should have reinstated the same. Mr Bartley Jones QC suggested that Kennedy LJ's words "far from exemplary" were too mild; in his submission the Revenue's conduct was more accurately described as "lamentable". He suggested that the Revenue had treated the court and Hyde with "arrogance" on the basis that court orders simply did not apply to them, and that on the facts of this one-off case HH Judge Tetlow's decision should be upheld.
5. As a more detailed examination of the facts will show, there is force in Mr Bartley Jones' strictures, and the question on the appeal will ultimately be whether, despite that conduct, the administration of justice requires the Revenue's action to be reinstated.

The Background

6. The background involves a scheme for the avoidance of NICs devised by Grant Thornton and widely marketed in the mid to late 1990s. It involved the payment of bonuses to directors and employees in the form of gold coins. In its typical form the scheme involved the purchase by the company employer of a specified number of gold coins situated overseas, transfer of paper ownership of the coins by the company to the recipient director or employee, and the sale back within a short period of time of the coins for cash. The issue in broad terms was whether payment of bonuses in this form successfully avoided liability to Class 1 NICs under the legislation then in force on the ground that it was a "payment in kind" within the meaning of Regulation 19(1)(d) of the Social Security (Contributions) Regulations 1979, or whether, as the Revenue contends, the payment was liable to Class 1 NICs, either on the basis that it is not a payment in kind within the meaning of the legislation, or alternatively because the gold coins are an asset for which "trading arrangements" existed within the meaning of paragraph 9C of Schedule 1A to the 1979 Regulations, read with the definition of "trading arrangements" in s.203K(2)(a) of the Income and Corporation Taxes Act 1988.
7. Under s.8(1)(c) of the Social Security Contributions (Transfer of Functions, etc) Act 1999 (the Transfer Act), officers of the Revenue had decided that employers, including Hyde, were liable for NICs. Many companies, as well as Hyde, were involved in utilising the scheme, and those companies, including Hyde, appealed the decisions of the officers of the Revenue. It was ultimately agreed between the Revenue and Grant Thornton that the question of liability should be determined in the first instance in a lead case to be designated by the Presiding Special Commissioner under Regulation 7A of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994, which deals specifically with pending proceedings under Part II of the Transfer Act, and was inserted into the Regulations with effect from 31^st December 2002. A lead case was ultimately agreed but not until 2005. The hearing of the appeal in that lead case has recently taken place in March 2006, the result is unknown.
8. Proceedings for the recovery of NICs are subject to s.9(1) of the Limitation Act 1980 and thus "an action to recover any sum recoverable . . . shall not be brought after the expiration of six years from the date on which the cause of action accrued."
9. That section makes it necessary for the Revenue to issue protective proceedings for the recovery of NICs, which it considers to be due, in cases where liability has still not been established and the six year limitation period is about to expire. The action commenced by the Revenue in the Tameside County Court on 2^nd May 2002 was just such an action.
10. S.117A of the SSA, which was inserted by s.18 and Schedule 7 paragraph 13 of the Transfer Act with effect from 1^st April 1999, provides so far as material as follows:-

"(1) This section applies to proceedings before a court –

. . .

(c) for the recovery of any sums due to the Inland Revenue or the National Insurance Fund.

(2) A decision of an officer of the Inland Revenue which –

(a) falls within section 8(1) of [the Transfer Act]; and

(b) relates to or affects an issue arising in the proceedings,

shall be conclusive for the purposes of the proceedings.

. . .

(4) Subsection (2) above does not apply where, in relation to the decision –

(a) an appeal has been brought but not determined;

(5) In a case falling within subsection (4) above the court shall adjourn the proceedings until such time as the final decision is known; and that decision shall be conclusive for the purposes of the proceedings."

11. By an application dated 18^th June 2002 the Revenue applied for an order that the action be adjourned to allow for the statutory appeals procedure to determine the final liability of the defendant. The application explained the basis on which it was made including a reference to s.117A and to s.9(1) of the Limitation 1980 concluding with these words:-

"The claimant has commenced proceedings in order not to be statute barred from the recovery of any amount that may ultimately be held to be due as a result of the defendant's appeal against the decision made, so frustrating the purpose of the statutory appeals procedure.

In these circumstances the court is requested to adjourn the proceedings commenced in respect of this matter until the defendant's liability has been finally determined by the above-mentioned statutory appeals procedure."

12. By order dated 21^st June 2002 District Judge Gaunt, sitting at Tameside, ordered that "the case be stayed until the final decision is known in the defendant's appeal to the Tax Commissioners."
13. In the context of the CPR, Tameside County Court kept an eye on how the action was progressing. The file was referred back to District Judge Fox in April 2003, who asked for a comment to be forwarded to the Revenue in the following terms:-

"Claimant must notify the court in writing by 28^th April 2003 of the present position regarding defendant's appeal, and supply suggested case management directions."

14. The comment was forwarded by letter dated 14^th April 2003. The Revenue responded by letter dated 28^th April 2003, explaining in some detail the situation including how, with "hundreds of defendant companies", the outcome of a selected case was awaited and how it was difficult for the Revenue to give the court "a finite date as to when the defendant's appeal is likely to be concluded." It referred again to s.117A(5) and respectfully requested that the court allow the order made by District Judge Gaunt on 21^st June 2002 to stand. District Judge Fox, on 24^th May 2003, directed that the order of 21^st June 2002 remain in force. No criticism can be made of the Revenue at this stage, indeed they acted promptly and helpfully.
15. By notice dated 18^th August 2003 the Tameside County Court notified the Revenue and Hyde that a directions hearing was to take place on 2^nd September 2003. In this instance the Revenue did not respond promptly but they faxed a letter on the day of that hearing dated 2^nd September 2003 to be placed before the District Judge stating:-

"Whilst the claimant is keen to bring this matter to a conclusion, I have to advise the court that little progress has been made to date. However it is envisaged that the claimant will be seeking to progress this case by writing to the defendant in the near future."

The letter asked for the order of 21^st June 2002 to remain in force.

16. The solicitor for Hyde attended the directions hearing. We were informed on the appeal by Mr Bartley Jones on instructions that at the directions hearing the only order made by District Judge Osborne was in the following terms:-

"(1) There be a stay until 2^nd February 2004.

(2) Unless by 9^th February 2004 the claimant file a case summary indicating precisely when this case is to be determined by the Commissioners and what the issues are, the claim be struck out on that date."

17. Despite what we were told on the same day, 2^nd September 2003, District Judge Osborne is recorded as having ordered by a further order (the second order) that:-

"This claim is stayed until 2^nd February 2004 to enable the parties to attempt settlement.

On or before 16^th February 2004 one of the following steps must be taken: either the claimant must notify the court that the whole of the claim has been settled; or the claimant or defendant must write to the court requesting an extension of the stay period, explaining the steps being taken towards settlement and identifying any mediator, expert or other person helping with the process. The letter should confirm the agreement of all the other parties. Or all the parties must file a completed allocation questionnaire at the court . . ."

18. There is an inconsistency between that latter order and the first order made on 2^nd September 2003, as both sides recognised. The direction made by the first order that the Revenue file "a case summary indicating precisely when this case is to be determined" (my emphasis) was an order with which the Revenue might have had some difficulty in complying. But no attempt was made by the Revenue to challenge either of the orders made on 2^nd September 2003.
19. By letter dated 12^th February 2004 the Revenue wrote to the Tameside County Court referring to the second order made by District Judge Osborne, ordering that ". . . this claim is stayed until 2^nd February 2004 to enable the parties to attempt settlement . . ." It did not refer to the first order made on 2^nd September 2003. The letter of 12^th February 2004 referred back to the Revenue's letter of 2^nd September 2003, stating that that letter set out the position in which the Revenue currently found itself. The Revenue undertook to advise the court when significant progress towards a settlement had been made. It "respectfully request that the court grant an adjournment in the terms of the order made by District Judge Gaunt on 21^st June 2002."
20. The court, by letter dated 20^th February 2004, informed the Revenue of District Judge Gaunt's comment "When is the appeal hearing likely to be heard?" To that letter there was absolutely no response from the Inland Revenue until 17^th May 2004. By that time District Judge Osborne of his own motion had ordered, on 26 March 2004, that the claim be struck out on 10^th February 2004. That order was received by the Revenue on 30^th March 2004; it notified the Revenue that if they objected to the order they must make an application to have it set aside, varied or stayed within seven days of receiving it.
21. The Revenue took no action within seven days of receiving that order, indeed took no action at all until their letter of 17^th May 2004 referring simply to the court's letter of 20^th February 2004, and the question from District Judge Gaunt as to when the appeal hearing was likely to be heard. The letter apologised for the delay in replying, stating that the officer at Stockport who was dealing with the case was currently absent from duty on sick leave.
22. The letter of 17^th May 2004 informed the court that little progress had been made and further stated that the cases were, by their nature, contentious and the Revenue was unable to give the court a finite date as to when the defendant's appeal was likely to be concluded. It then referred to s.117A and respectfully requested that the court should grant an adjournment.
23. By letter dated 18^th June 2004 the Revenue were informed by the court of the comment on the above letter of the District Judge that "the claim appears to have been struck out on 12^th February 2004." That letter did produce a response from the Revenue by letter dated 24th June 2004, but at this stage no application to reinstate. The letter simply "formally" requested that the case be reinstated and adjourned to allow for the statutory appeals procedure to determine the final liability of Hyde, as requested in the Revenue's original application dated 18^th June 2002. The letter spelt out the history, indicating that it was only now, "on closer inspection of papers", that the Revenue had appreciated there was (a) an order of 2^nd September 2003, ordering that unless by 9^th February the client filed a case summary the action would be struck out, and (b) what they described as a "general form of judgment or order" made on 26^th March 2004 that the claim had been struck out on 10^th February 2004. The letter registered some surprise at receiving the letter dated 18^th June 2004.
24. By letter dated 14^th July 2004 the court made clear they required a formal application for relief from sanctions and the letter enclosed the necessary application form, N244. The Revenue did nothing for two and a half months.
25. The order of 26^th March 2004 had expressly made clear that an application to set it aside should be made within seven days of receiving it, and CPR 3.9 provides as one of the relevant considerations as to whether there should be relief from any sanction imposed by an order of the court, whether "the application for relief has been made promptly." The Revenue on any view failed to act promptly. They made their application for the action to be reinstated only by application dated 6^th October 2004.
26. Furthermore the application was not supported by a detailed statement with full explanations of precisely how the Revenue came to be in the position they were with some fulsome apology. It was supported by a very short statement, verified by a statement of truth, referring to the unless order of 2^nd September 2003, and the order of 26^th March which struck out the claim, as once again being orders noted "on closer inspection of our papers" with no further explanation. The statement does however refer back to the letter dated 17^th May 2004 and to the position set out in that letter.
27. That application was due to be heard on 5^th November 2004 but was adjourned to 22^nd December 2004. On that date District Judge Gaunt ordered that by 4pm on 26^th January 2005 the Revenue disclose to Hyde and to the court certain information. This the Revenue did by letter dated 24^th January 2005. That letter enclosed certain correspondence indicating what had been transpiring between the Revenue and Grant Thornton acting for Hyde in the meanwhile.
28. By letter dated 27^th August 2004 the Revenue had confirmed to Grant Thornton that Hyde had agreed that pursuit of their appeal should be left in abeyance pending the outcome of other cases addressing payment of remuneration in non-cash form. The Revenue in that letter then referred to various authorities and invited Grant Thornton on behalf of Hyde to withdraw their appeals. The response from Grant Thornton dated 25^th October 2004 (also enclosed with the Revenue's letter of 24^th January 2005) is of some relevance. I will quote certain passages. Having indicated that they would not wish to withdraw their appeals, the letter then went on as follows:-

"We are aware in other cases we have that the Inland Revenue is calling for substantial documentation and particulars relating to payments by way of gold coins preparatory to a hearing of open appeals before the general commissioners.

Before you call for any of this information, it may assist you to know that tax counsel has been preparing a Grant Thornton ("lead") case involving substantially identical arrangements to go before the special commissioners.

Grant Thornton has been liaising with the Inland Revenue Avoidance Intelligence Unit at Somerset House and we confirmed at our last meeting that the lead case is ready to go before the special commissioners and the necessary action is being taken to request a transfer of the appeal.

In addition, Grant Thornton and the Avoidance Intelligence Unit are exploring whether an acceptable proposal for settlement can be reached on a national basis for all our clients rather than for either side to face the time and costs of litigation. However if these discussions fail to produce a solution then the lead case is intended to represent all Grant Thornton clients who awarded gold coins as bonuses.

On that basis there appears to be little to be gained for either us or you in collating substantial documentation and information for a separate hearing, when a lead case involving in effect identical arrangements is being actively pursued." . . . .

29. The letter then elected for the case to go, if necessary, before the Special Commissioners and then continued with the following comment:-

"On the basis of the comments above, we request that you refrain from pursuing documentation or listing the case for hearing until either the outcome of the lead case is known or until the avenues for a national settlement for Grant Thornton clients have been exhausted. We would refer you to your colleagues in the Avoidance Intelligence Unit or at NICO should you require further information."

30. It is in the context of that correspondence that the letter dated 24^th January 2005 from the Revenue to the court and to Hyde said that:-

"The solicitor is now preparing these appeals for the hearing before the Special Commissioners under the lead case arrangements. While no date has yet been set for this hearing it is hoped that an initial direction hearing will be held as soon as possible.

In the circumstances the claimant respectfully requests that an order in the terms of the enclosed draft directions be granted. The claimant is keen to bring this matter to a speedy conclusion and, if an order in the above terms can be granted, undertakes to advise the court of the outcome of the Special Commissioners' hearing within twenty-eight days of receiving the same, and seek further directions at that time."

31. I do not think we have a copy of the "enclosed draft directions" but I assume that they involved reinstatement of the action, but an adjournment pending the result of any appeal to the Special Commissioners.
32. At the hearing dated 10^th February 2005 a further letter was produced by those representing Hyde. The letter did not appear to relate directly to Hyde but to a case raising the same issues. It indicated that the Revenue had instructed Mr Launcelot Henderson to consider whether it was appropriate to litigate all these cases under the lead case procedure. The letter requested appeals not to be listed before the Special Commissioners whilst consideration was given to the other related cases. This letter, so the representative for Hyde submitted to District Judge Gaunt, seemed to be in contrast to what the Revenue were saying in their letter of 24^th January 2005 to the effect that appeals were now being prepared for hearing.
33. A transcript of the hearing before District Judge Gaunt indicates that at first, despite the possible conflict between the two letters, he was not inclined to confirm that the action should remain struck out. But the representative acting for Hyde submitted that what the court was concerned with was relief from sanctions; that it had taken a very long time for the Revenue to make their application and that if regard were paid to CPR 3.9 there was no basis on which the Revenue should be entitled to relief.
34. That argument then seemed to persuade the District Judge to refuse relief on the basis that the Revenue could bring a further action. But the representative of the Revenue pointed out that there was a limitation problem and that gave rise to further argument. The representative of the Revenue reminded the District Judge of s.117A but the District Judge was of the view that that did not mean that the court was bound to reinstate under CPR 3.9 and ultimately he so ruled saying simply this:-

"I think it is contrary to the interests of the administration of justice for this to be indefinitely adjourned under the legislation to which you have referred. I think under the overriding objective it is unfair to have these matters hang over the head with running interest at a substantial sum of money. In those circumstances I am not prepared to reinstate this case."

35. The Revenue issued two notices of appeal dated 24^th February 2005. The first sought to challenge the order of 26^th March 2004, i.e. the order striking out the action. It did so on the grounds that the court had no power to strike the proceedings out, having regard to the terms of s.117A(5) of the SSA. By a second notice it challenged the refusal of District Judge Gaunt to reinstate the action, but essentially on the same basis, i.e. that since the court had no power to strike out the proceedings on 26^th March 2004, the only proper course for the court to take was to order reinstatement on 10^th February 2005. The notices of appeal did not suggest that, if there was power to strike out or if there was simply a discretion whether or not to reinstate, the district judge had somehow erred in the exercise of his discretion.
36. The skeleton argument on behalf of the Revenue also maintained that the decisions of 26^th March 2004 and of 10^th February 2005 were wrong on the basis that "the court had no power to strike out the proceedings in the first place and, having purported to do so, it ought to have reinstated them." The position thus being taken by the Revenue was that the court retained no discretion in the matter and had no power to strike out the proceedings. The Revenue's position was that the court was bound by the wording of s.117A(5) to adjourn, pending the appeals of Hyde.
37. In a skeleton in response those representing Hyde pointed out that there must be at least extreme examples where the court would retain jurisdiction, e.g. where proceedings were commenced more than six years after the debt arose, or where two sets of identical proceedings were commenced, where one would surely be struck out. [The second example given by the respondent was actually a fair example, having regard to the fact that in a statement placed before us without objection it is revealed that the Revenue did inadvertently start another action, which claimed part of the sums claimed in these proceedings and which has in fact been struck out. In that instance the Revenue themselves requested the court to strike out the identical action and that, it seems, was done.]
38. When the matter came on for hearing before His Honour Judge Tetlow it is clear that the primary argument of the Revenue was that the court simply had no discretion in the matter. The submission was that the language of s.117A(5) was clear. It required the court to adjourn and there remained no discretion in the court to do other than adjourn.
39. His Honour Judge Tetlow rejected that argument. It appears that, even during the course of argument, it became clear to Mr Westwood, representing the Revenue, that the jurisdiction argument, at least in its most extreme form, was unlikely to succeed. In reply, it seems, he suggested that in the exercise of his discretion the District Judge should not have made the order to strike out or if that were wrong, should not have refused the order to reinstate.
40. His Honour Judge Tetlow in his judgment rejected the argument that the court had no jurisdiction to strike out. He ultimately approached the matter as a matter of discretion. His conclusions were as follows:-

"26. The conclusions I have come to are that:

(1) The court retains the power to strike out claims including proceedings of the kind involved in this case, i.e. it has jurisdiction to do so.

(2) The power to strike out is a discretionary power.

(3) It would be a wrong exercise of that discretion to strike out proceedings of this sort where a stay has been asked for or ordered where the appellate procedure is being properly progressed or negotiations pursued.

(4) By the same token, it would be a correct exercise of that discretion to strike out where the claimant has demonstrated an unwillingness to progress the appellate procedure or negotiations timeously, as that would be abusing the purpose for which the stay was granted and hence an abuse of the process of this court.

(5) It follows that the court must be entitled to ask about the progress of such matters and, if no or no satisfactory answer is given, come to the conclusion, whether by inference or otherwise, that the court's process is being abused, and the court may in those circumstances impose a sanction including the sanction of striking out.

(6) District Judge Osborne was entitled to ask for details of progress as he did on 2^nd September 2003. He got no answer. It is to be inferred from the correspondence and in particular the claimant's letter of 27^th August 2004 that despite the defendant's concurrence in 2000 with the pursuit of a selected case procedure no progress had been made by the claimant in that behalf nor had any negotiations to settle commenced. In other words, the claimant could not have provided any satisfactory answer to the District Judge's request. My conclusion is fortified by the fact that claimant's counsel, by asking for an adjournment to gather material to justify if possible what had been going on, recognised the lack of any proper explanation before the court.

(7) Although there is some confusion as to the precise date on which the proceedings were struck out in February 2004, it seems to me District Judge Osborne was entitled to infer that the claimant was not getting on with the appeal in the parallel proceedings and hence abusing the process of the court and to impose the sanction of striking out.

(8) When the matter came before District Judge Gaunt on 22^nd December 2004, he was entitled to order the claimant to disclose the current position in relation to the appeal.

(9) Although the response to his order of 22^nd December might give the impression of a claimant desirous of bringing a lead case or cases to a speedy conclusion, the letter of 7^th February 2005 painted a picture of extreme reluctance to do so. That was against the background of no progress as regards the selected case procedure, certainly up to August 2004, and negotiations inferentially thereafter which foundered on 12^th December 2004.

(10) District Judge Gaunt was entitled to refuse to grant relief from sanctions as he did given that background and for the reasons he gave. He would also, it seems to me, have been entitled to strike out on the grounds of abuse of process.

(11) In reviewing on appeal the decision of both the district judges, I conclude that they were acting well within the ambit of their discretion. Indeed, absent a jurisdiction point, the claimant has not sought to argue otherwise.

(12) I have slightly more information than District Judge Gaunt had before him. The totality of the evidence before me gives me no confidence that even now the claimant will progress matters speedily or would do so. Mr Westwood's desire to be allowed to fielf further evidence is a recognition that the court had not been treated with the frankness and openness it is entitled to expect. The claimant's attitude even now is that it does not have to provide proper or accurate information, simply that it can demand and get a stay. That, in my judgment, is the wrong approach. The defendant is entitled to have a determination of the tax issue within a reasonable time. That has not happened and the prospect of it happening now does not look good. The court should have no part in sanctioning such a delay or its continuance. If I were deciding the matter even now, I would strike out the proceedings."

Arguments before us

41. Mr Henderson sought at first to retain some elements of the argument on jurisdiction. He accepted that there could be extreme examples where the court must retain a power to strike out, for example if proceedings were started after the expiry of the limitation period. However, he suggested that jurisdiction was limited to such extreme cases. His argument that s.117A(5) limited the court's jurisdiction was not however (in my view rightly) finally pursued. It would be difficult if not impossible to define the ambit of jurisdiction by reference to "extreme examples". Furthermore on any view, it seems to me that there must be retained by the court a power to strike out if an order of the court is not complied with. For example in this case, whether or not the order originally made by the District Judge to provide information was one with which the Revenue could reasonably comply, the court must on any view retain the jurisdiction to make an order requiring information as to how matters are proceeding. If a court has jurisdiction to make an order, then it must have the power to impose sanctions if that order is not obeyed. Ultimately, as it seems to me, the sanctions must include the power to strike out the proceedings if there is a refusal to obey the order.
42. Mr Bartley Jones in his submissions suggested that what the Revenue had failed to appreciate at all times was that this was just such a case, i.e. a case where the court had made an order, the Revenue had failed to comply with it, and the court had imposed a sanction as a result. Furthermore, it was a case in which the Revenue had failed to apply for relief from sanctions promptly; their failure could be described almost as intentional, having regard to their attitude vis à vis the court, and if one went through a check list of the matters referred to in CPR 3.9 the Revenue failed on almost all factors. The application was not made promptly; there was no good explanation for the failure to comply with the original order to provide information; the Revenue had not complied with court orders; the failure to comply was that of the Revenue as well as its legal representatives.
43. He furthermore suggested that the application for relief could scarcely be said to have been supported by evidence, as required by CPR 3.9(2).
44. Mr Bartley Jones took us through the history, which I have endeavoured to set out, demonstrating as it does the numerous failures by the Revenue.
45. Mr Bartley Jones further submitted that it should not be open to the Revenue in the Court of Appeal to seek to attack either the orders of the District Judge or the judgment of His Honour Judge Tetlow on the basis that there had been a failure to exercise discretion. He submitted that the Revenue had taken their stand on the basis that there was no jurisdiction in the court to exercise a discretion, and they should be made to stand by that in the Court of Appeal. If they lost on that aspect then they should not be entitled to fall back on the position of suggesting that in some way the discretion should have been exercised in a different way.
46. Mr Bartley Jones submitted that this was a one-off case. Hyde's position was simply that the court made an order, it had not been complied with, the court had imposed sanctions, and the court below had ruled that the Revenue had failed to persuade it that they were entitled to be relieved from sanctions. Unless it could be shown that the court had misdirected itself in some way, that decision was one which should be upheld by this court.

Discussion

47. The submissions of Mr Bartley Jones are powerful. I am quite clear that Section 117A does not deprive the court of jurisdiction, but the existence of the Section which is there for the protection of parties in the position of Hyde is highly material. I cannot think of circumstances where the court could refuse a stay when it is first applied for, pending appeals as contemplated by s.117A, unless the proceedings were issued outside the limitation period and the taxpayer chose to seek dismissal of the same as opposed to an adjournment. But as already indicated, the fact that the court could not refuse a stay does not mean the court thereafter is not entitled to be kept informed of progress. Furthermore it does not mean that if an order was made that one or other of the parties should supply information to the court, and if one or other of the parties refuse to obey that order, that the court did not retain its jurisdiction to sanction that party and ultimately to sanction that party by strikeout if appropriate.
48. Equally there is force in the submission that the Revenue did for a time rest its position on s.117A(5) and an absence of jurisdiction. But it is clear that Judge Tetlow (albeit without the further evidence from the Revenue to which he refers) decided the matter on the basis that the court did have a discretion, and in my view we too should decide the matter on the basis that the court does have a discretion. That does not mean that Section 117A(5) is irrelevant; indeed Mr Henderson recognised that without s.117A(5) his position in the Court of Appeal would be difficult.
49. I must consider first the two orders made by the District Judges. Assuming that both orders were made in the exercise of discretion, it follows that in the appellate court Judge Tetlow could only have interfered if he considered that the district judge had:-

"either erred in principle in his approach or has left out of account or taken into account, some feature that he should, or should, not have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale." (see Lord Woolf MR, in AEI Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507 at 1523)

50. This court should correspondingly only interfere with Judge Tetlow's order if he should have decided that the District Judge erred in principle or was wholly wrong, or if and in so far as Judge Tetlow was exercising a discretion afresh it can be shown that he erred in principle, has failed to take into account some feature he should have taken into account or was wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.
51. Considering first the order to strike out, I do not think it could be said that the District Judge erred in making the strike out order of 26^th March 2004. He was faced with a situation in which an unless order had been made (which has not been challenged) and in which no attempt had been made by the Revenue to comply with that order. He would not, in exercising the discretion he was, have looked carefully at the question whether compliance with that order was necessarily easy or difficult. He would simply see that there had been no attempt to challenge the order and no attempt to comply therewith. He made an order which allowed for an application by the Revenue within 7 days and in my view that order cannot be said to have been wrongly made. It also follows that in so far as Judge Tetlow dismissed the appeal against that order, he cannot be criticised.
52. So far as reinstatement is concerned, it seems to me that the position is rather different. By this stage there was before the District Judge the correspondence in 2004 plus the letters of explanation indicating first that it was very difficult to be clear as to the date on which any appeal to the Special Commissioners would be heard. Furthermore that material demonstrated that Hyde themselves were content to await the decision of a lead case and indeed requested no action against them until that lead case had been heard. Grant Thornton in the correspondence in 2004 placed no reliance on the fact that the action in the County Court had been struck out and made no suggestion that a trial would ultimately be unfair because of any delay by the Revenue. The District Judge did not give a fully reasoned judgment which since he was dealing with the striking out of a claim for over £750,000 is somewhat surprising. In the result it is not clear whether District Judge Gaunt paid full regard to the fact that the proceedings had been brought by the Revenue for sums which an officer had found to be due, and that it was only because of Hyde's entitlement to appeal the officer's decision, that the Revenue could not proceed with their action. Furthermore, although clearly there had been some delay in fixing the lead action, there was no indication that Hyde had pressed for that lead action to be brought on early or any indication that Hyde were in any way prejudiced by the delay. Indeed the evidence was that as late as October 2004 Hyde were asking for the Revenue to hold their hand while a lead action was being identified. It is furthermore unclear whether the District Judge took fully into account that if Hyde were entitled to strike out the action then, even if Grant Thornton and their clients lost the appeal before the Special Commissioners, Hyde would be relieved from having to pay NICs properly due of over £750,000.
53. In my view it would be unfair to hold the Revenue guilty of intentionally not complying with a court order. Indeed the original order requiring a precise date of the appeal to be identified was an impossible order with which to comply, and the letter of 17^th May 2004 did provide as up to date a picture as the Revenue could give (albeit late and after the court had in fact struck the action out). It is certainly true that the Revenue failed to apply promptly for relief from sanctions, but there was no prejudice from that whatever. It is certainly true that their explanation was unsatisfactory. It is also true that the court was entitled to make clear to the Revenue that orders of the court are required to be complied with. But such criticisms as could rightly be made had to be balanced against the fact that if the action remained struck out, Hyde (who in October 2004 were still asking the Revenue to hold their hand while a lead case was selected), would be relieved from liability, even if the lead case was decided against them. In such circumstances it must be incumbent on the court to consider whether the administration of justice requires that result. In my view it did not, and in my view one is forced to the conclusion that the District Judge was wrong not to reinstate.
54. Furthermore, despite the points made by Judge Tetlow, in my view, for the same reasons Judge Tetlow was wrong not to allow the appeal and reinstate the action. In the case of both the District Judge and Judge Tetlow costs sanctions should have been imposed on the Revenue and indeed, having regard to the way they sought to argue the case until they put their case more clearly in the Court of Appeal, those costs sanctions can be imposed by this court too.

Conclusion

55. For the reasons I have endeavoured to give I would allow the appeal and reinstate the action in the Tameside County Court.

Lord Justice Longmore :

56. I agree.

Lord Justice Lloyd :

57. For the Inland Revenue, the collection of NICs is unlike any other collection process, because it is subject to the Limitation Act 1980 as from the time when the NICs should have been paid. The Revenue knows that it has to start collection proceedings within the 6 year period, though we were told that it does not always succeed in doing so in time. It may have to start several successive claims against the same employer, as has happened in the present instance. It may not be common for there to be lengthy appeal processes in relation to NICs, but they can arise, as this case demonstrates.
58. If proceedings of this kind are unusual for the Revenue, so they are also for the court, not least because the court is not the tribunal in which any issue as to liability or quantum is to be decided. That task is entrusted to the General or the Special Commissioners, with the possibility of further appeals to the High Court and beyond. While any such appeal is pending, the collection proceedings, once commenced, have to remain in being, so as to preserve the Revenue's claim, safe from a Limitation Act defence, but in suspended animation, because there is no point in steps being taken in the proceedings. This is what gives rise to the need for section 117A(5). However, this fits ill with the provisions of the Civil Procedure Rules, with their emphasis on court control, on getting on with proceedings once commenced, and on active case management.
59. Just as the relevant staff of the Revenue need to be alert not only to the need to issue proceedings in time but also to the obligation to respond properly and promptly to any orders by way of directions or other communications from the court in which the collection proceedings are pending, so the District Judges of those courts need to be aware of the unusual nature of proceedings of this kind, and of the very limited relevance (if any) to them of the normal imperative under the CPR to see that a claim, once commenced, is got on with.
60. The unfamiliarity of some Revenue staff with collection proceedings of this kind may explain, though it does not excuse, the extensive failure on the part of the Revenue to respond appropriately and in due time to, and to comply with, orders made in these proceedings in the Tameside County Court. It may also explain the rather quixotic step taken by the Revenue, when the existence of other proceedings in the same court was discovered, in one of which a claim had been made for part of the sums claimed separately in these proceedings, namely for the liability for the 1997/8 tax year, one of the two years' liabilities sued for in this claim, of requesting on 18 November 2005 the striking out of those other proceedings even though, at that time, the present proceedings had already been struck out, so that there were not at that time two pending proceedings claiming the same sum.
61. That said, if a court in which collection proceedings are pending makes an order, as the Tameside County Court did in this case from time to time, the Revenue must either comply with that order or, if it objects to doing so, either apply to have it set aside, for example under CPR 3.3 if it was made of the court's own initiative, as the order made on 26 March 2004 was, or appeal against it, in either case within the time allowed.
62. In the present case, up to 28 April 2003 nothing had gone awry as regards either the Revenue or the court. It is not clear why a directions hearing was convened for 2 September 2003. It is unfortunate that this hearing led to the making of two orders which were not consistent with each other. But it is a good deal more unfortunate that the Revenue completely ignored the more serious order, that which contained the sanction of striking out. The Revenue should either have complied with both orders, as best it could, or have sought clarification and a resolution of the inconsistency well before the time for compliance. The Revenue's lengthy delay in responding to the court's enquiry by letter dated 20 February 2004 is extraordinary, as is its failure to react to the 26 March 2004 order striking the claim out and giving notice that it could apply, within 7 days of receiving notice, to set the order aside. The courts are accustomed to failures on the part of unrepresented litigants to react to such an order and notice within the due time. It should not be necessary to extend an indulgence on the same point to an experienced litigant such as Her Majesty's Commissioners of Revenue and Customs.
63. These failures, and the others later in the history to which Waller LJ has referred, show that the administration within the Revenue of NIC collection proceedings may well need systematic review.
64. However, lamentable and extraordinary as were the failures of the Revenue to engage appropriately with the court process, I agree with Waller LJ that justice requires that the Revenue's appeal be allowed, by way of affording relief from sanctions on what I hope will be the last occasion on which it is necessary to consider giving such relief to the Revenue in these proceedings. While the court is perfectly entitled to enquire as to the progress of the appeals whose outcome the collection proceedings must await, it would in my judgment be altogether disproportionate to refuse to reinstate the claim in the light of the information which was available to District Judge Gaunt.
65. Counsel for the Revenue was perhaps forensically tactless, as well as substantively wrong, to mount the appeal to Judge Tetlow on the basis that the court had no power to strike out the proceedings at all. A more attractive basis for the appeal against the striking out order might have been that to strike the claim out was (a) disproportionate in any event having regard to the nature of the proceedings, and (b) inappropriate, despite the Revenue's failure to comply with the first order made on 2 September 2003 by 9 February 2004, in the light of the inconsistent second order which allowed for compliance by 16 February and of the letter sent by the Revenue pursuant to that order dated 12 February. I agree with Waller LJ that the striking-out order itself cannot be said to have been an incorrect exercise of the court's discretion. The real issue would have arisen on the Revenue's application to reinstate the claim which, if made promptly, would have been a re-hearing of the question of striking out. Then the issue would have been whether striking out was a proper course, in the light of the particular and unusual nature of the proceedings, and in the light of the Revenue's failure to comply with the first of the 2 September 2003 orders.
66. District Judge Gaunt had to consider much the same question at the hearing before him in February 2005. His refusal to reinstate the claim seems to me to have been based on a misunderstanding of the position when he referred to it being unfair for the claim to remain outstanding. But for the Defendant's appeal and the fact that it was for another tribunal to determine liability, the claim would not have been outstanding. The Defendant is in a better position than that of those liable in respect of many other fiscal obligations because it is often the case that a taxpayer must pay the tax claimed on the due date even if he contends that it is not due and intends to appeal, or has already appealed.
67. Mr Bartley Jones Q.C. pointed out that, although the relevant appeal is that of the Defendant, in practice what would be (and has been) pursued is a lead appeal selected, from among many raising the same point, according to the relevant rules. In those circumstances, he submitted, much would depend, as regards the progress of the matter generally, on the Revenue's position and conduct. That is true, although the Defendant, having taken advantage of the scheme which appears to have been devised by Grant Thornton, cannot properly dissociate itself from the conduct of that firm in launching the various appeals and in dealing with the Revenue as regards the conduct of the appeals generally, and the selection and conduct of the lead appeal in particular. On that basis, and bearing in mind the effect of the appeal in suspending liability to pay, it seems to me that Judge Tetlow's comment quoted by Waller LJ, that

"the defendant is entitled to have a determination of the tax issue within a reasonable time. That has not happened and the prospect of it happening now does not look good"

does not seem altogether apposite.

68. I agree with Waller LJ that the Revenue did, albeit belatedly, apply for relief against sanctions under CPR rule 3.9 by its application notice of 6 October 2004. The evidence, relevant though limited, set out in Part C of that notice was supplemented by the letter dated 24 January 2005 pursuant to the District Judge's direction. The case was argued before District Judge Gaunt by reference to rule 3.9, though of course also by reference to section 117A(5) which is a crucial part of the context in relation to which the court had to exercise its discretion. Despite the rather absolute terms in which the case was originally put to Judge Tetlow, it is also clear that the argument before him proceeded at least in part by reference to rule 3.9. Accordingly, despite Mr Bartley Jones' cogent submissions about the history of the case and the appeal, it does not seem to me that, when Mr Henderson Q.C. for the Revenue accepted that the court did have jurisdiction to make a striking out order, and to argue instead that it had not been proper to exercise it in the present case, or alternatively that it had not been proper to refuse reinstatement by way of relief against the sanction, he was adopting a position which had not been put to the courts below.
69. For those reasons, and more generally for those set out in the judgment of Waller LJ, I would allow the appeal and order that the claim be reinstated, by way of relief under rule 3.9.