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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 >> Neil Martin Ltd v HM Revenue & Customs [2007] EWCA Civ 1041 (25 October 2007) URL: http://www.bailii.org/ew/cases/EWCA/Civ/2007/1041.html Cite as: [2007] EWCA Civ 1041, [2007] STC 1802, [2008] Bus LR 663, 79 TC 60, [2007] BTC 662, [2007] STI 2459

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IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
(MR ANDREW SIMMONDS QC)
HC05C02703

		Royal Courts of Justice Strand, London, WC2A 2LL
		25/10/2007

Lord Justice Chadwick :

1. This is an appeal from an order made on 28 September 2006 by Mr Andrew Simmonds QC, sitting as a Deputy Judge of the High Court in the Chancery Division, on the hearing of preliminary issues in proceedings brought by the appellant, Neil Martin Limited, against the Commissioners of Inland Revenue (now the Commissioners for Her Majesty's Revenue and Customs).
2. The claim in the proceedings was for damages for breach of duty in failing to process within a reasonable time the claimant's application for a certificate under the scheme established in respect of sub-contractors in the construction industry by provisions which were (at the relevant time) enacted in Chapter IV of Part XIII of the Income and Corporation Taxes Act 1988 ("ICTA").
3. The preliminary issues before the judge – pursuant to an order made on 19 September 2005 in the Manchester District Registry – included: (1) whether a breach by the Commissioners of section 561(2) ICTA would give rise to a cause of action for damages; and (3) whether the Commissioners owed a common law duty of care to process the claimant's application for a certificate under section 561(1) ICTA with reasonable expedition. Issues (2) and (4) required the judge to determine whether, if either duty were established in law, the Commissioners were in breach of that duty in the circumstances alleged in the particulars of claim.
4. The judge answered both issues (1) and (3) in the negative: paragraphs 1(1) and 1(3) of his order. He gave permission to appeal on those issues. But he found that, had either duty been established, the Commissioners would have been in breach of that duty: paragraphs 1(2) and 1(4) of the order. Permission to appeal from the judge's determination under issues (2) and (4) was not granted. The Commissioners seek to challenge that determination (in part, at least) by way of cross-appeal under a respondents' notice. They need the permission of this Court to do so. The judge's decision on issues (1) and (3) led, necessarily, to the dismissal of the claim: paragraph 2 of the order.

Construction industry tax deduction schemes

5. As the judge explained at paragraph [8] of his judgment, [2006] EWHC 2425 (Ch), sub-contractors in the construction industry have been (and continue to be) subject to statutory deduction schemes. The general purpose and effect of such schemes was described by Mr Justice Ferris in Shaw (Inspector of Taxes) v Vicky Construction Ltd [2002] EWHC 2659 (Ch), [3]-[5]; [2002] STC 1544, 1547c-e:

"[3] In the absence of the statutory provision with which this appeal is concerned Vicky would be entitled, like any other sub-contractor, to be paid the contract price in accordance with its contract with the contractor without any deduction in respect of its own tax liability. However it became notorious that many sub-contractors engaged in the construction industry 'disappeared' without settling their tax liabilities, with the consequential loss of revenue to the exchequer.

[4] In order to remedy this abuse Parliament has enacted legislation, which goes back to the early 1970s, under which a contractor is obliged except in the case of a sub-contractor who holds a relevant certificate, to deduct and pay over to the Revenue a proportion of all payments made to the sub-contractor in respect of the labour content of any sub-contract. The amount so deducted and paid over is, in due course, allowed as a credit against the sub-contractor's liability to the Revenue.

[5] The need to make and pay over such deductions can be an irritation to the contractor obliged to carry out this exercise. It also adversely affects the cashflow of the sub-contractor. Accordingly it is advantageous to a sub-contractor to have a statutory certificate rendering such a deduction unnecessary. The provision of such a certificate tends to make the sub-contractor holding the certificate a more attractive party for the contractor to deal with and, by enabling the sub-contractor to receive the contract price without deduction, improves the sub-contractor's cashflow."

The judge referred, also, to the observations of Mr Justice Laddie in Cormack (Inspector of Taxes) v CBL Cable Contractors Ltd [2005] EWHC 1294 (Ch), [3]: http://www.bailii.org/ew/cases/EWHC/Ch/2005/1294.html

"[3] In other words, to avoid the loss to the Revenue caused by sub-contractors defaulting on their tax liabilities, the contractor is obliged to pay the sub-contractor's likely tax liability in advance. The existence of a CIS certificate enables the sub-contractor to be treated like any other trader both by the Revenue and by the contractors for whom it works. It will be appreciated from this that a CIS certificate is very valuable to the sub-contractor. The ability to control the grant of these certificates is also of importance to the Revenue. In substance, the statutory scheme is designed to ensure that they are only granted to sub-contractors who are likely to comply with their tax obligations."

The statutory framework

6. The statutory basis for the tax deduction schemes, prior to the coming into effect of section 76 of the Finance Act 2004, was found in sections 559 to 567 ICTA (which together comprise Chapter IV, Part XIII of that Act). Those sections were amended in material respects with effect from 1 August 1999 by section 139(2) of, and schedule 27 to, the Finance Act 1995 and by section 178(1) of the Finance Act 1996. For reasons which I shall explain later in this judgment, it is necessary to have in mind the position both before and after that amendment.
7. The judge set out the statutory provisions in some detail (at paragraphs [12] to [15] of his judgment). For the purposes of this appeal they may, I think, be summarised as follows:

(1) Section 559(4) ICTA, read with section 559(5), required that, when making a payment to a sub-contractor to which section 559 applies, a contractor should deduct a sum equal to the amount of tax at the basic rate (or such lesser proportion as the Treasury might by order determine) from so much of that payment as was not shown to represent the direct cost to the sub-contractor (or to any other person) of materials used or to be used in carrying out the construction operations to which the sub-contract relates. The sum deducted was to be paid to the Revenue; and was treated for the purposes of income tax (or corporation tax, as the case might be) as tax on the profits of the trade of the person for whose (or for whose employees') labour the contractor made the payment.

(2) Section 559 ICTA applied (subject to sub-section (2)) to any payments made under a contract relating to construction operations (an expression defined in section 567) which was not a contract of employment where one party to the contract was a sub-contractor and the other party to the contract ("the contractor") was either a sub-contractor under another such contract relating to all or any of the construction operations or was a person to whom section 560(2) applied: section 559(1). In that context a person was a "sub-contractor" if he fell within section 560(1) ICTA. Any person carrying on a business which included construction operations was a person to whom section 560(2) applied: section 560(2)(a) ICTA.

(3) Section 559(2) ICTA, read with section 561(1), provided that a person to whom a certificate had been issued under section 561(2) was excepted from the requirement as to the deduction of tax on payments made to him which I have just described. Section 561(2) ICTA was in these terms (so far as material):

"561(2) If the Board are satisfied, on the application of an individual or a company, that -

(a) where the application is for the issue of a certificate to an individual (otherwise than as a partner in a firm), he satisfies the conditions set out in section 562;

. . .

(c) where the application is for the issue of a certificate to a company, the company satisfies the conditions set out in section 565 . . . ,

the Board shall issue to that individual or company a certificate excepting that individual or company . . . from section 559."

(4) A person aggrieved by the refusal of an application for a certificate under section 561 ICTA might, by notice given to the Revenue within 30 days after the refusal, appeal to the General Commissioners (or, if he so elected, to the Special Commissioners): section 561(9) ICTA.

(5) As the judge explained (at paragraph [14] of his judgment) the conditions to be satisfied by an individual applicant, under section 562 ICTA, and those to be satisfied by a company applicant, under section 565 ICTA, were broadly similar. Prior to the coming into force of Schedule 27 to the Finance Act 1995 on 1 August 1999, the relevant conditions in respect of an individual applicant (so far as material) were those set out at section 562(2) and (8) ICTA:

"562(2) The applicant must be carrying on a business in the United Kingdom which satisfies the following conditions, that is to say -

(a) the business consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations;

(b) the business is, to a substantial extent, carried on by means of an account with a bank;

(c) the business is carried on with proper records and in particular with records which are proper having regard to the obligations referred to in subsections (8) to (12) below; and

(d) the business is carried on from proper premises and with proper equipment, stock and other facilities.

. . .

(8) The applicant must, subject to subsection (10) below, have complied with all obligations imposed on him by or under [ICTA 1988] or the [Taxes Management Act 1988] in respect of periods ending within the qualifying period and with all requests to supply to an inspector accounts of, or other information about, any business of his in respect of periods so ending."

Those conditions (respectively "the business test" and "the compliance test") were made applicable to company applicants by section 565(2) and (3) ICTA.

(6) Further conditions ("the turnover test") were introduced by the Finance Act 1995 as sections 562(2A) and 565(2A) ICTA. Section 562(2A) – which applied to individual applicants – was in these terms:

"562(2A) The applicant must satisfy the Board, by such evidence as may be prescribed in regulations made by the Board, that the carrying on of the business mentioned in subsection (2) is likely to involve the receipt, annually in the period to which the certificate would relate, of an aggregate amount by way of relevant payments which is not less than the amount specified in regulations made by the Board as the minimum turnover for the purposes of this subsection "

Section 565(2A) ICTA required that a company must either (a) satisfy the section 562(2A) test or (b) satisfy the Revenue that the only persons with shares in the company were companies which were limited by shares and themselves excepted from section 559 by virtue of a certificate which was in force under section 561.

(7) The Revenue was given power, by section 566(2) ICTA, to make regulations in connection with the issue of certificates under section 561(2). The relevant regulations were made by the Income Tax (Sub-contractors in the Construction Industry) Regulations 1993 (SI 1993/743). Those regulations were amended, with effect from 1 August 1999, by the Income Tax (Sub-contractors in the Construction Industry) (Amendment) Regulations 1998 (SI 1998/2622).

The changes made in 1999

8. As I have said, changes were made, both to the statutory provisions and to the regulations, with effect from 1 August 1999. Those changes were reflected in the introduction of a new scheme (the Construction Industry Scheme, or "CIS") on that date to replace the existing scheme (the Construction Industry Tax Deduction Scheme, or "CITDS"). The principal differences between the CIS and the CITDS were (i) the introduction of more rigorous requirements in relation to the compliance test, (ii) the introduction of the business test and (iii) the provision under the CIS for the issue of a registration card to persons who were (or who were likely to become) parties, as sub-contractors, to any contract relating to construction operations.
9. Provision for the issue of registration cards was made by section 566(2A) ICTA - which was introduced by the Finance Act 1996 - and regulations 7A to 7F of the amended Regulations. An applicant for a registration card did not need to satisfy the tests applicable to the issue of a certificate under sections 562 and 565 ICTA. It was enough that the applicant provided the information as to identity (name, national insurance number, signature and photograph) specified in regulation 7C. Regulation 7F was in these terms, so far as material:

"7F(1) Before making any payment to which section 559 applies to a sub-contractor . . . a contractor shall -

(a) ensure that the sub-contractor's registration card is produced to him and

(b) satisfy himself by inspection of the registration card that the person producing it is the user of that registration card.

. . . "

10. It is important to have in mind that, although payments "to which section 559 applies" are defined by section 559(1) ICTA to include any payments made under a contract relating to construction operations (not being a contract of employment) which are made by a contractor to a sub-contractor, the effect of section 559(2) is to exclude from that definition payments made to a sub-contractor to whom a certificate has been issued under section 561(1) ICTA if the certificate is in force when the payment is made. A sub-contractor holding a current tax certificate (CIS6) after 1 August 1999 was not affected by regulation 7F: a payment could be made to him (as well after that date as before) without the need for a tax deduction under section 559(4) ICTA.
11. But the position in relation to sub-contractors who did not hold a current certificate after 1 August 1999 was changed by the new scheme. From 1 August 1999 (under the CIS) it became unlawful for the contractor to make any payment under a contract relating to construction operations (whether or not a tax deduction had been made from that payment) to a sub-contractor who was not excepted from section 559 ICTA – that is to say, to a sub-contractor who did not hold a current certificate issued under section 561 - unless the sub-contractor's registration card had been produced and inspected: regulation 7F(1). In the case of a sub-contractor who held a current registration card (but not a current certificate) section 559(4) ICTA continued to apply: a contractor was required (as well after 1 August 1999 as before) to make a tax deduction from any payment made under a contract relating to construction operations. The effect of the change from the CIDTS to the CIS was that a person who did not hold a current certificate could not work as a sub-contractor in relation to construction operations unless he was in possession of a registration card.

The introduction of the new scheme

12. It was foreseen that the need, under the CIS, for sub-contractors who did not hold certificates to obtain registration cards – coupled with the additional conditions as to compliance and turnover, introduced by the amendments to sections 562 and 565 ICTA, which applied to the issue, surrender and cancellation of certificates – would be likely to lead to a surge of applications during the months before August 1999. The judge described the steps taken by the Revenue to manage the introduction of the CIS:

"[28] The Revenue began a publicity drive to alert sub-contractors to the new scheme as early as 1995. In 1998 a large number of Press Releases about the CIS were issued. In November 1998 national advertising commenced in the popular press and telephone helplines for both contractors and sub-contractors were opened at the same time. Also in November 1998 application forms for certificates and registration cards, accompanied by guidance notes on how to complete them, were automatically sent to all known contractors and sub-contractors. New leaflets, IR40 (CIS) and IR14/15 (CIS) . . . were published in December 1998 and made available through local tax offices or through the Revenue's order line.

[29] One of the principal objectives behind this publicity drive was to encourage sub-contractors to apply for certificates and registration cards early so as to avoid a glut of applications in the few months prior to the start of the new scheme on 1 August 1999. The Revenue expected to receive a steady flow of new applications from about December 1998 (although the new certificates and registration cards would not actually be issued until April 1999). However, this did not materialise. In response, during the period March to May 1999 the Revenue sent contractors' packs (including the IR14/15 guidance, a poster and certain other flyers and leaflets) to over 100,000 contractors on its database. In May a second phase of publicity commenced . . . The Revenue also made contingency plans to deal with a possible logjam of applications during the summer of 1999."

13. The Revenue leaflet IR40(CIS) - "Conditions for getting a Sub-contractor's Tax Certificate", issued in December 1998 - contained guidance as to the tests which an applicant for a certificate under section 561 ICTA would need to satisfy. By way of introduction it was explained in the leaflet that:

"Under the new Scheme, most subcontractors will not hold Tax Certificates. Most will hold Registration Cards and receive payments after deduction on account of tax and National Insurance contributions (NICs). If you do have a Tax Certificate, a contractor will be able to make payments to you in full.

The certificate is an important document. You will get one only if you are running a proper business in the construction industry in the United Kingdom, your business has a turnover from construction work over a certain amount, and you have a good record of paying your tax and NICs.

You have to pass three tests to get a certificate

business test

compliance test

turnover test.

If you fail any of the tests, you will not get a Tax Certificate, but you will get a Registration Card."

14. The leaflet went on to explain that, in relation to the turnover test, a sole trader could choose between "the standard test" (if he had been in business for three or more years) and "the six month test". The details are not, I think, material in the context of this appeal: but, put shortly, the standard test required a net turnover from construction work of at least £30,000 per year, taking three consecutive years in the four years up to the date of the application and applying an "averaging rule"; the six month test required a net turnover of at least 70% of the annual threshold (£30,000) in a period of no more than six consecutive months in the twelve months up to the date of the application. In a subsequent paragraph – "Change in the status of a business" – the leaflet explained how the turnover test was to be satisfied where the business had changed from that of a sole trader (or partnership) to that of a limited company:

"Where a sole trader or partnership becomes a company, or a partnership becomes a sole trader, a new business is created which in each case will need a new certificate. In all such cases, if the nature of the business has changed, the applicant will have to go through the turnover test again, and would have to use the six month test as soon as possible. However, if the business is essentially the same (same assets, goodwill, same trade) the new business may apply immediately on the basis of the three year test. The applicant should inform us of the change. The exact details of how the three year test is applied depends on the circumstances of the case."

At paragraph [20] of his judgment the judge observed (correctly, in my view) that it was clear from that guidance that "the three year turnover test in respect of a company would, when there was no change in the nature of the business, be judged by reference to the accounts of the previous business entity". He pointed out that that was made explicit in the Revenue's own internal guidance manual (CISM 3141) which directed officers of the Revenue that:

"If the business is essentially unchanged from before the change in type, you can treat it as the same concern, and allow use of the old concern's turnover for the purpose of the Turnover Test. Depending on how long the old concern existed, the new concern can apply immediately on the basis of the three year or six month test."

15. Notwithstanding the Revenue's efforts to manage the change from the CIDTS to the CIS in an orderly manner – and as the Revenue had feared - there was what Mr John Wild, the Processing Manager at the Processing Centre at Netherton at the relevant time, described as a 'bow wave' of work from about mid-May to August 1999. The judge observed:

[30] The effect which this had on the timely production of certificates and registration cards must be examined on two different levels. The increased number of applications during these months plainly had the potential to slow down approval of applications at the local tax office level. However, the degree of delay depended on how busy those offices were in terms of CIS applications. Furness [the office to which application was made in the present case] was a relatively small office with a small sub-contractor population. In the year to December 1999 it dealt with only 700 registration card applications and 200 certificate applications. The bow wave had its most marked effect at the Processing Centre at Netherton as this one centre processed approved applications for certificates and registration cards for the entire country. During those summer months in 1999 processing time at Netherton stretched to about three weeks, compared to the 3 or 10-day periods envisaged in the published literature."

16. The judge's reference, at paragraph [30] of his judgment, to the "periods envisaged in the published literature" was to the targets which the Revenue had set itself, first, in its leaflet IR40 (CIS) and, second, in its own internal guidance manual CISM 3100. As the judge explained, at paragraph [21] of his judgment, although there was a minor discrepancy between the three and ten day periods referred to in these documents, each was the target time between the receipt by the Processing Centre at Netherton of an approved application form from the local tax office and the issue of the certificate. The periods did not include the time required for approval at the local tax office. The judge found that "in practice . . . the period required for processing at Netherton became substantially longer than this during the summer of 1999".

The underlying facts in the present case

17. The judge's findings of fact are set out at paragraphs [31] to [47] of his judgment. They are not now in dispute. In summary:

(1) Until 1999 (or thereabouts) Mr Neil Martin was in business on his own account as a sole trader. On 30 November 1998 he had been sent a CIS2 application form and guidance notes in accordance with the steps which the Revenue were taking to alert sub-contractors to the new scheme (as described by the judge in paragraph [30] of his judgment, which I have already set out). The judge was satisfied that Mr Martin received the CIS2 form shortly after it was sent. Mr Martin took no action at that time.

(2) By February 1999 Mr Martin had decided to transfer his business to a limited company. It is, I think, to be assumed that the claimant company had been (or was shortly thereafter) incorporated or acquired for that purpose. Although advised by his accountant to visit his local tax office to enquire about CIS, the judge made no finding that he did so.

(3) On 14 May 1999 Mr Martin completed and signed the CIS2 application form which he had received some five months earlier. That was the appropriate form on which to make application (whether for a certificate or for a registration card) in relation to a business as a sole trader: but it was not appropriate for an application made by a company. In completing the form Mr Martin stated the trading name of his business as "Neil Martin Limited". He completed the declaration in support of an application for a certificate. He left blank the alternative declaration in support of an application for a registration card.

(4) On 9 June 1999 Mr Martin took the completed CIS2 form to the Furness tax office. He spoke to Mr David Harrison, the nominated CIS local office co-ordinator. He told Mr Harrison of his plans to start trading through the claimant company; and told him that he wanted a CIS6 certificate, not a registration card, for the company. Mr Harrison pointed out, correctly, that Mr Martin needed to complete (on behalf of the company) CIS3 and CIS8 forms rather than the CIS2 form. He told Mr Martin that, on an application on behalf of the company, he could not accept Mr Martin's sole trader accounts in satisfaction of the turnover test: Mr Martin needed to produce company accounts in relation to the company.

(5) Mr Martin reported back to his accountant that Mr Harrison had told him that there was a need for company accounts. The accountant did not agree and recommended Mr Martin to renew the request. Mr Martin returned to the Furness tax office on 16 June 1999 with completed, but unsigned, CIS3 and CIS8 forms. He asked Mr Harrison to accept his sole trader accounts in satisfaction of the turnover test. Mr Harrison again refused. A further telephone conversation to the same effect took place on 22 June 1999.

(6) At a further meeting, which the judge was satisfied took place on 20 July 1999 (and not earlier as Mr Martin had contended), Mr Harrison was prepared to agree that sole trader accounts were acceptable in support of the company's application. The CIS3 and CIS8 forms were left with Mr Harrison; but, by an oversight, they remained unsigned. Mr Harrison wrote to Mr Martin on 23 July 1999 enclosing the forms and asking Mr Martin to sign and return them immediately for processing. Both forms were signed by Mr Martin on 26 July 1999 and were received in the post at the Furness tax office on 29 July 1999.

(7) Those forms (which the judge described as "the July forms") were not brought to the attention of Mr Harrison. They were stamped "as authorised" by more junior staff in the Furness tax office on 30 July 1999. For reasons that were not explained they were treated as applications for a registration card (CIS4) rather than as applications for a tax certificate (CIS6). The judge found that the declaration required to support an application for a registration card on the July CIS3 form was completed ("mistakenly" and contrary to the intentions of Mr Martin and the claimant company) by someone (not identified) at the Furness office. When completed as described, the July forms were sent on by the Furness tax office to the processing centre at Netherton without Mr Harrison's knowledge. That led to the July forms being processed at Netherton as applications for a registration card; and to the issue of a registration card to the company in early September 1999.

(8) As the judge explained, Mr Harrison had been expecting to receive the signed July forms from Mr Martin in response to his letter of 23 July 1999. When the staff at the Furness tax office failed to bring those forms to his attention, Mr Harrison assumed that they had not been received and had been lost in the post. On the basis of that assumption Mr Harrison issued duplicate forms ("the August forms") on 6 August 1999. Mr Martin completed and signed those forms: applying, unequivocally, for a certificate on behalf of the company. That was done (at the latest) by 9 August 1999. There was a further meeting between Mr Martin and Mr Harrison on that day, in the course of which Mr Harrison, conscious of the delays in dealing with the company's application that had occurred, provided Mr Martin with a letter of comfort in these terms:

"I can confirm that Neil Martin Limited qualifies for a Sub-contractors' Certificate (CIS6).

This will be produced by the Processing Centre shortly and should be with the company within the next 14 days."

The judge found that, although Mr Harrison intended that the company, on production of that letter of comfort, would be able to persuade contractors to make payments without deduction on account of tax during the period that would necessarily elapse until the certificate was issued, the letter did not have that effect in practice.

(9) On 11 August 1999 Mr Harrison authorised the issue of a certificate on the basis of the August forms; and those forms were sent on to Netherton. But there was further delay. The judge found that one of Mr Harrison's staff had incorrectly inserted Mr Martin's own unique tax reference ("UTR"), rather than the UTR of the company, on the August CIS3 form. That error (identified at Netherton by an automatic check against the Revenue's data- base) led to the August forms being returned to the Furness tax office. Mr Harrison made the necessary correction, substituting the company's UTR for that of Mr Martin. That was done on or about 7 September 1999. The certificate was issued, by the centre at Netherton, on 10 September 1999.

(10) In the meantime, on or about 7 September 1999, Mr Martin had received the registration card issued pursuant to the July forms. He telephoned the Furness tax office, and followed that call with a letter to Mr Harrison. He wrote:

"As you are already aware of our current position with the delay of our CIS6 registration card. I would like to take this opportunity to update you on our current financial position.

We have made every effort to keep all of our employees in work since the 1 August, but with all our debtors withholding monies due to ourselves we have had no choice but to payoff and terminate the majority of our employees . . . Unless we receive our card by the 24 September our bank will take over and foreclose the business into receivership ...

With reference to the above I hope you can help us to resolve the situation and start back on the long climb to the financial position we were in around July."

The judge observed that the reference in that letter to "our CIS6 registration card" was an obvious mistake: At the date of that letter (or very shortly thereafter) Mr Martin had received the company's registration card (CIS4) –which he had not sought. He plainly intended to refer, in the letter, to the company's tax certificate (CIS6) - for which he had applied.

(11)The CIS6 certificate which had been issued by the processing centre on 10 September 1999 on the basis of the August forms was posted to the address of Mr Martin's parents; rather than to the address of the company, which the Revenue had on file. The judge accepted that it did not arrive there until 18 September 1999. He found that Mr Martin actually received the certificate "no later than 20 September".

18. On the facts found by the judge it can be seen that the earliest date upon which Mr Martin could be said to have made an effective application on behalf of the company for a CIS6 certificate was 16 June 1999: the date on which he returned to the Furness tax office with completed, but unsigned, CIS3 and CIS8 forms. He did not receive the certificate until (say) 20 September 1999, some three months later. That delay can be attributed to five distinct matters: (i) the refusal by Mr Harrison (between 16 June and 20 July 1999) to accept that the company's application could be made on the basis of Mr Martin's sole trader accounts; (ii) the failure of both Mr Harrison and Mr Martin to notice or appreciate, on 20 July 1999, that the July forms had not been signed; (iii) the decision by someone at the Furness office to complete (without authority) the July CIS3 form as an application for a CIS4 registration card (rather than as an application for a CIS6 certificate) leading to delay between 29 July 1999 and 9 August 1999 (the date on which the August forms were signed): (iv) the insertion in the August CIS3 form of Mr Martin's UTR (rather than that of the company) leading to delay between 11 August and 7 September 1999 while that error was identified and corrected; and (v) the period of some ten days between the issue of the CIS6 certificate on 10 September 1999 and its receipt by Mr Martin, some part of which may be attributable to the decision by the Netherton centre to post the certificate to the address of Mr Martin's parents. It is not in dispute that some of those matters – those described under (iii) and (iv) are obvious examples – can properly be regarded as (at the least) administrative errors on the part of staff in the Furness tax office. Nor is it in dispute that the fact that the company received the CIS6 certificate later than it should have done is likely to have caused it some loss.

The company's attempts to obtain redress

19. The judge described Mr Martin's attempts to obtain redress on behalf of the company at paragraphs [48] to [55] of his judgment. He drew attention to the complaints and redress procedure operated by the Revenue and set out in "Code of Practice 1: Mistakes by the Inland Revenue" ("COP1"). He pointed out, as is the case, that the procedure is voluntary and that the grant of financial redress under the procedure is discretionary. Nevertheless, under the heading "Putting things right", COP1 does contain a paragraph in these terms:

"Where we make a serious mistake, or cause a serious delay, you may be entitled to claim any additional costs you have incurred as a direct result of that mistake or delay. Such costs may include loss of earnings and reasonable out-of-pocket expenses, including professional fees, bank charges, loss of interest or interest on overpaid tax or National Insurance contributions. In exceptional cases you may also be entitled to claim for any worry and distress you suffer as a direct consequence of that mistake, or from any excessive delay in the handling of your complaint."

Further, the potential for a claim for loss of earnings is extended to cases in which the Revenue had made errors of a persistent nature which are not, of themselves, serious. Those cases include cases "where we . . . made a lot of unconnected mistakes in any 12-month period for the same tax year or the same period of assessment".

20. Mr Martin sought redress under the COP1 process. On 26 November 1999 his complaint was rejected by the regional Director. On 21 December 1999 the complaint was referred to the independent Adjudicator. She rejected the complaint. In June 2000 the complaint was referred to the Parliamentary Ombudsman. The Ombudsman's investigation led to what the judge described as "a striking and important letter" from the Deputy Chairman of the Inland Revenue.
21. That letter, dated 6 October 2000, contained the following admissions: (i) that "When Mr Martin called in to our Furness office on 9 June [1999] we should not have told him that we could not accept his application without company accounts"; (ii) that "[When] Mr Martin called back to the Tax Office on 16 June [1999] with completed company application forms . . . we should have been able to carry out the necessary identity check and then processed his application . . ."; (iii) that "[When] Mr Martin did visit the tax office he left without signing the forms. As part of our identification check, our instructions require us to check the signatures on the application forms, so it is clear that we should not have let this happen . . . "; and (iv) that "The certificate was sent to the wrong address . . .". The letter concluded:

"We made a number of mistakes in dealing with the company's application. As a result, the certificate was delayed by some six or seven weeks, and Mr Martin had to have some further unnecessary delays with Furness Tax Office in July and August. I think our shortcomings amount to persistent error within our Code of Practice on Mistakes and, therefore, we would be pleased to consider a claim from Mr Martin for any reasonable costs he has directly incurred as a result of our errors. I understand that he has already submitted some figures to illustrate his business losses, but a detailed claim would help us to deal with this as quickly as possible. "

The letter of 6 October 2000 did not address, in terms, the two matters (described under (iii) and (iv) in paragraph [18] of this judgment) which may be seen as causative of most of the relevant delay after 1 August 1999: that is to say (i) the decision by staff in the Furness office to treat the July forms as an application for a registration card (rather than as an application for a CIS6 certificate) leading to delay between 30 July 1999 and 9 August 1999 and (ii) the insertion in the August CIS3 form of Mr Martin's UTR (rather than that of the company) leading to delay between 11 August and 7 September 1999. It may be that those matters had not been identified (either by Mr Martin or by the Revenue) at the time when the complaint was made by Mr Martin or at the date of the Deputy Chairman's letter.

22. On 11 January 2001 the Ombudsman upheld Mr Martin's complaint, essentially on the basis of the admissions in the Deputy Chairman's letter. Following the Ombudsman's decision – and, no doubt, encouraged by the Deputy Chairman's acceptance that there had been "persistent error" within the scope of COP1 - the company's solicitors advanced a claim for compensation. That claim was quantified, in a letter dated 5 February 2001, at £474,242. Correspondence followed; in the course of which the Revenue indicated that it would consider making a payment in the sum of £3,000 or thereabouts in respect of legal fees, postage, telephone and travelling expenses; but that the balance of the claim – based (as the Revenue thought) on the gross value of contracts allegedly lost by reason of the company's inability to produce a CIS6 certificate – would be rejected. That decision was confirmed on 16 July 2003. The judge observed, correctly, that it was no part of his task to determine whether the Revenue's conclusions in relation to the company's COP1 claim were correct.

These proceedings

23. The present proceedings were commenced by the issue of a claim form on 5 May 2005. As originally pleaded it was averred that, in dealing with the claimant company's application for a sub-contractor's tax certificate, the Revenue owed the company a duty of care to act with all reasonable expedition; that the application was not dealt with within a reasonable time; and that, by reason of that breach, the company had suffered loss and damage. In support of that averment the company relied on the Ombudsman's decision and on the admissions made in the Deputy Chairman's letter of 6 October 2000. Paragraph 8 of the particulars of claim contained an assertion of the company's understanding – an understanding that (in retrospect) has proved to be over-optimistic – that "the Defendant accepts and admits liability within these proceedings". The company's loss was put at £45,550.85 – a much more modest sum than that which had been sought in the earlier correspondence – together with "the loss of opportunity to make profit on contracts which might have been awarded to the Claimant" in an amount which the court was invited to assess.
24. A defence was filed on 3 June 2005. It was denied that the Revenue owed the company a duty of care to act with all reasonable expedition in the processing of its application. But, at paragraph 13 of that defence, it was admitted that, on his visit to the Furness tax office in June 1999, Mr Martin was "mistakenly told that it would be necessary to support [the company's] application with accounts for the Claimant"; and, at paragraph 15, it was admitted that, in July 1999, Mr Harrison "ought to have identified that the [July] application forms were not signed".
25. By an order made on 19 September 2005 in the Manchester District Registry it was directed that the following issues be tried as preliminary issues:

"(a) Whether a breach by the defendant of section 561(2) Income and Corporation Taxes Act 1988 would give rise to a cause of action for damages by the claimant.

(b) If so, whether the defendant was in breach of section 561(2) Income and Corporation Taxes Act 1988 in the circumstances alleged by the claimant in the particulars of claim.

(c) Whether the defendant owed a common law duty of care to the claimant to process the claimant's application for a certificate under section 561(1) Income and Corporation Taxes Act 1988 with reasonable expedition.

(d) If so, whether the defendant was in breach of that common law duty [of] care in the circumstances alleged by the claimant in the particulars of claim."

It is not at all obvious that the particulars of claim (as they stood at the date when that order was made) had raised, formally, an allegation of breach of statutory duty. But nothing turns on that: it is clear that the parties were proceeding on the basis that such a claim was (or would be) before the court.

26. The preliminary issues came before the judge for trial on 27 June 2006. On the second day of the trial the Revenue sought permission to amend its defence. In particular, it sought to withdraw the admission, at paragraph 13 of that defence, that Mr Martin was "mistakenly" told that it would be necessary to support the company's application for a certificate with its own accounts. The judge refused to allow that amendment, for reasons which he gave in a judgment delivered on 28 June 2006 ([2006] EWHC 245 (Ch)). In reaching that decision he relied on guidance given in the judgment of Mr Justice Sumner in Braybrook v Basildon & Thurrock University NHS Trust (unreported, 7 October 2004: cited and approved by this Court in Sowerby v Charlton [2005] EWCA Civ 1610, [35]). For completeness I should add that the admission, at paragraph 15 of the defence, that Mr Harrison "ought to have identified" that the July application forms had not been signed on behalf of the company was amended to an admission that Mr Harrison "failed to notice" that the forms were not signed "notwithstanding that Inland Revenue procedures required him to check the signature".
27. A claim for breach of a statutory duty imposed by section 561(2) ICTA was pleaded, in terms, by amendments in the course of the trial. At the same time (by the introduction of paragraphs 2A to 2O in the particulars of claim) the claimant company pleaded a much more detailed account of the history and the matters on which it relied; and it was alleged that, in a number of specified respects, Mr Harrison had acted negligently. In the context of this appeal it is important to note that the particulars of breach of duty contained the following:

"Incorrect Processing as an Application for a CIS4 Registration Card rather than a CIS6 Certificate

(iv) The Claimant's application/s for a CIS6 Certificate were processed by Mr Harrison and/or the Defendant [its] servants or agents incorrectly as an application for a CIS4 Card rather than a CIS6 Certificate even though Mr Harrison and therefore his colleagues were well aware that Mr Martin had emphasised the need for a CIS6 Certificate.

. . .

Error re Unique Tax Reference Numbers

(vii) Mr Harrison and/or the defendant, its servants or agents negligently filled in the CIS6 application forms with the Tax Reference Number for the said sole trading business rather than the Claimant company's tax reference number."

28. The judge observed (at paragraph [58] of his judgment) that it had become clear during the trial that counsel for the claimant company wished to argue (in the alternative to the direct common law duty of care originally alleged) "that the Revenue was vicariously liable for the negligence of Mr Harrison"; and that he had heard oral evidence directed to that issue. He set out, in summary, the amendments to the particulars of claim for which he had given permission. He explained that, in the light of those amendments, he had treated the third and fourth of the preliminary issues before him "as expanded so as to embrace the claim based on vicarious liability for the acts and omissions of Mr Harrison".
29. In making those observations the judge might be thought to have overlooked the fact that, if the company were to be treated as advancing a common law claim based on vicarious liability, the amendments for which he had given permission (and, in particular, those which I have just set out) alleged negligence not only on the part of Mr Harrison but also (or in the alternative) on the part of other officers or employees in the Furness tax office. That impression is reinforced by the judge's comment (at paragraph [123] of his judgment) that: "The Claimant's vicarious liability claim was based entirely on liability for the acts and omissions of Mr Harrison". Given that, on the facts, it was not established that Mr Harrison had, himself, had any part in the incorrect processing of the application as an application for a registration card (rather than as an application for a tax certificate) or in the error in connection with the UTR, the point is of some significance on this appeal. I shall need to return to it later in this judgment.

The judge's reasons for the conclusions which he reached on the preliminary issues

30. As I have said, the judge held that a breach by the Revenue of the statutory duty imposed by section 561(2) ICTA was incapable of giving rise to a cause of action for damages. His reasons are set out at paragraphs [59] to [71] of his judgment. Those reasons may, I think, fairly be summarised as follows:

(1) The judge accepted that, subject to the Revenue being satisfied that the applicant company satisfied the conditions set out in section 565 ICTA, section 561(2) imposed a duty on the Revenue to issue a tax certificate. He was prepared to assume (without deciding) that that duty had to be fulfilled "within a reasonable time": so that section 561(2) was to be read as if it provided that "the Board shall within a reasonable time issue to that . . . company a certificate excepting that . . . company . . .from section 559".

(2) On that basis the question was whether the legislature intended, by section 561(2) ICTA, to confer a private law cause of action on a sub-contractor who suffered loss as a result of undue delay by the revenue in processing his (or its) application for a tax certificate. That question was to be answered by construing the section in the context of the statute as a whole. The judge referred to the observation of Lord Simonds in Cutler v Wandsworth Stadium Ltd [1949] AC 398, 407, that:

"The only rule which in all circumstances is valid is that the answer must depend on a consideration of the whole Act and the circumstances, including the pre-existing law, in which it was enacted."

(3) The judge reminded himself of the "general rule" laid down by Lord Tenterden in the Bishop of Rochester's case (Doe d. Murray v Bridges (1831) 1 B&Ad 847, 859) that:

". . . where an Act creates an obligation and enforces the performance in a specified manner, . . . that performance cannot be enforced in any other manner. If an obligation is created, but no mode of enforcing its performance is ordained, the common law may, in general, find a mode suited to the particular nature of the case."

But he noted that that general rule was subject to exceptions, as Lord Diplock had explained in Lonrho Ltd and another v Shell Petroleum Co Ltd and another (No 2) [1982] AC 173, 185-186. And he went on to pose these questions:

"[64] . . . (1) Does ICTA provide a remedy for breach of the duty imposed by section 561(2)? (2) Was that duty imposed for the benefit or protection of a particular class of individuals? (3) Did the statute create a public right and has the Claimant suffered 'particular, direct and substantial' damage other and different from that which is common to the rest of the public? "

(4) The judge found no difficulty in answering the third of those questions in the negative. As he said, at paragraph [65] of his judgment, this was not a case in which the statute creates a general public right: "The Revenue's duty under section 561(2) is owed only to the specific sub-contractor who applies for a certificate." But he thought that the other two questions did not admit of easy answers. He said this:

"[65] . . . As for the first, section 561(9) provides an express statutory remedy in the event of the refusal of an application for a certificate or of the cancellation of a certificate under section 561(8). However, it provides no remedy for the breach of which the Claimant complains, namely undue delay. As for the second question, it can be argued that the duty imposed by section 561(2) was obviously imposed for the benefit of a particular class, namely sub-contractors who apply for a tax certificate, because they are the only possible beneficiaries of the exemption provided by that subsection."

(5) The judge rejected the argument that the duty imposed by section 561(2) ICTA was imposed for the benefit of sub-contractors as a class. He was satisfied that the authorities required a broader survey of Parliament's intentions. He pointed out (at paragraph [65] of his judgment) that "the primary purpose of ICTA as a whole is to impose liability for income and corporation taxes on taxpayers for the benefit of the general public (including non-taxpayers)"; and that "the purpose of Part XIII Chapter IV of ICTA, which governs the CIS, is to protect the Revenue, and thus the general public, against tax fraud by sub-contractors". He returned to that point at paragraph [70]:

"[70] . . . I think it is wholly unrealistic to treat any part of Part XIII Chapter IV of ICTA as having been enacted for the protection or benefit of sub-contractors. Those provisions were enacted to protect the Revenue, and thereby the general public, against potential fraud by sub-contractors. The fact that section 561 creates an exemption from the general scheme does not alter this."

(6) The judge was satisfied that section 561(9) ICTA pointed clearly to the conclusion that the legislature did not intend that a wrongful refusal or cancellation of a tax certificate should give rise to a private law claim for damages. The section was in these terms:

"561(9) A person aggrieved by the refusal of an application for a certificate under this section or the cancellation of such a certificate may, by notice given to the Board within 30 days after the refusal or, as the case may be, cancellation, appeal to the General Commissioners or, if he so elects in the notice, to the Special Commissioners; and the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board in the exercise of their functions under this section."

As the judge observed:

"[69] Parliament provided an express but limited remedy in the case of refusals and cancellations. The General/Special Commissioners, on appeal by a sub-contractor, could reverse the Revenue's decision to refuse or cancel a certificate. My understanding is that they could not award any form of monetary compensation for losses incurred by reason of a wrongful refusal or cancellation and neither Counsel argued to the contrary. The conclusion seems to me inescapable that Parliament did not intend sub-contractors who had certificates refused or cancelled to have a claim for monetary compensation against the Revenue. If it had so intended, provision would have been made for such a remedy in section 561(9)."

(7) That conclusion led to the further conclusion that the legislature could not have intended that delay in the issue of a tax certificate would give rise to a private law claim to damages. He said this:

"[69] . . . Since it is clear that the same type of losses as are alleged by the Claimant to have resulted from delay could result from wrongful refusal or cancellation of a certificate, it would be absurd to find that Parliament intended a private law claim to arise in the case of delay but not in the case of refusal or cancellation."

(8) The judge accepted that he was left with no explanation "why no remedy at all for delay is provided by section 561(9)". He speculated that the legislature "simply did not have in mind the possibility of significant delay by the Revenue in performing its functions under the subsection"; and he pointed out that at least part of the delay in the present case had been caused by "the one-off bow wave of applications" on the introduction of the new scheme. But he was satisfied that the denial of a private law claim to the claimant company "would not reduce the duties imposed on the Revenue by section 561(2) to a 'pious aspiration': a reference to an observation of Lord Simonds in Cutler. He said this:

"[69] . . . As I have mentioned, sub-contractors experiencing undue delay would be able to enforce performance of the Revenue's duty by an application for judicial review. The absence of a financial remedy for past losses does not deprive the statutory duty of substance."

31. The judge went on to hold that the Revenue owed no duty of care to the claimant company at common law to process the company's application for a tax certificate with reasonable expedition. He reached that conclusion by a three stage analysis. First, he examined the applicable principles (paragraphs [72] to [79] of his judgment); second, he applied those principles to the question whether the revenue owed a direct duty to the claimant company (paragraphs [82] to [84]); third, he applied those principles to the question whether Mr Harrison owed a duty of care to the company for breach of which the Revenue could be vicariously liable (paragraphs [85] to [110]).
32. The judge began his analysis of the applicable principles by observing that the question whether the law would impose a tortious duty of care in respect of the exercise of statutory powers or the performance of statutory duties by public authorities was "notoriously difficult". He referred to the observation of Lord Browne-Wilkinson in X (minors) v Bedfordshire County Council [1995] 2 AC 633, 735B-E that no one principle was capable of being formulated applicable to all cases; and to the observation of Lord Steyn in Gorringe v Calderdale Metropolitan Borough Council [2004] UKHL 15, [2]; [2004] 1 WLR 1057, 1059D-E, that this was a field in which "an intense focus on the particular facts and on the particular statutory background, seen in the contours of our social welfare state, is necessary". He reminded himself that "the present case is concerned only with economic loss"; and of the recent statement of the principles applicable, "in a purely private law context", in the speech of Lord Bingham of Cornhill in Customs and Excise Commissioners v Barclays Bank Plc [2006] UKHL 28, [4] to [8]; [2007] AC 181, 189G-192F. The judge went on to say this:

"[74] The existence of a public law dimension in the present case has, it seems to me, two principal consequences. First, the authorities indicate that certain additional issues or tests have to be grafted onto the underlying private law foundation. Secondly, the statutory framework will play a very important role in the Court's decision as to how the private law criteria, especially the 'fair, just and reasonable' test, should be applied."

33. In addressing what he described as "the impact of the public law dimension", the judge cited the familiar passages from the speech of Lord Browne-Wilkinson in the Bedfordshire case (ibid, 736A-737G, 739A-E and 739E-740D); passages from the speeches of Lord Nicholls of Birkenhead (dissenting) and Lord Hoffmann in Stovin v Wise [1996] AC 923, 934B-E, 935C, 952F-953A, from the speeches of Lord Hoffmann and Lord Scott of Foscote in Gorringe (ibid, [23] –[25], [32], [38], [71], [73]; 1065A-G, 1067D, 1068G-1069B, 1078A-D, 1078H-1079A) and from the speech of Lord Slynn of Hadley in Phelps v Hillingdon London Borough Council [2001] 2 AC 619, 653C-654E, 654G-655D, 658E; and passages from the judgments of Lord Justice Dyson and Lord Justice Mummery in Carty v Croydon London Borough Council [2005] EWCA Civ 19, [42]-[46], [49]; [83]-[86]; [2005] 1 WLR 2312, 2326C-2327E, 2328D-E, 2337E-2338F.
34. It is unnecessary to rehearse all those passages in this judgment; but I should, I think, set out three on which the judge placed particular reliance in the context of his consideration of the question whether there could be a direct duty of care in the present case. The first is from the speech of Lord Hoffmann in Stovin v Wise (ibid, 952G-953A):

" . . . the policy of the statute is nevertheless a crucial factor in the decision. As Lord Browne-Wilkinson said in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 739C in relation to the duty of care owed by a public authority performing statutory functions:

'The question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done.'

The same is true of omission to perform a statutory duty. If such a duty does not give rise to a private right to sue for breach, it would be unusual if it nevertheless gave rise to a duty of care at common law which made the public authority liable to pay compensation for foreseeable loss caused by the duty not being performed. It will often be foreseeable that loss will result if, for example, a benefit or service is not provided. If the policy of the Act is not to create a statutory liability to pay compensation, the same policy should ordinarily exclude the existence of a common law duty of care."

The second is from the speech of Lord Hoffmann in Gorringe (ibid, [23]; 1065A-B):

"[23] Since the existence of the statutory power is the only basis upon which a common law duty was claimed to exist, it seemed to be relevant to ask whether, in conferring such powers, Parliament could be taken to have intended to create such a duty. If a statute actually imposes a duty, it is well settled that the question of whether it was intended to give rise to a private right of action depends on the construction of the statute . . . If the statute does not create a private right of action, it would be, to say the least, unusual if the mere existence of the statutory duty could generate a common law duty of care."

And he added (ibid, [32]; 1067E) :

"[32] Speaking for myself, I find it difficult to imagine a case in which a common law duty can be founded simply upon the failure (however irrational) to provide some benefit which a public authority has power (or a public law duty) to provide. . . ."

The third passage is also from Gorringe. After expressing agreement with the observations of Lord Hoffmann in Stovin which I have just set out, Lord Scott said this (ibid, [71]; 1078 A-D):

"[71] . . . Indeed, I would be inclined to go further. In my opinion, if a statutory duty does not give rise to a private right to sue for breach, the duty cannot create a duty of care that would not have been owed at common law if the statute were not there. If the policy of the statute is not consistent with the creation of a statutory liability to pay compensation for damage caused by a breach of statutory duty, the same policy would, in my opinion, exclude the use of the statutory duty in order to create a common law duty of care that would be broken by a failure to perform the statutory duty. I would respectfully accept Lord Browne-Wilkinson's comment in X (Minors) v Bedfordshire County Council, at p. 739, that 'the question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done'. But that comment cannot be applied to a case where the defendant has done nothing at all to create the duty of care and all that is relied on to create it is the existence of the statutory duty. In short, I do not accept that a common law duty of care can grow parasitically out of a statutory duty not intended to be owed to individuals."

35. On the basis of the principles which he had identified, the judge was in no doubt that he should reject the submission that the Revenue owed a direct duty of care at common law. He pointed out (at paragraph [82] of his judgment) that, in the circumstances that he had already held that the claimant company was not entitled to claim for breach of a statutory duty to process its application within a reasonable time, the observations in Stovin and Gorringe to which he had referred "present a major obstacle to the success of the claim". He noted that counsel for the claimant company had accepted that "something more" than the mere failure of the Revenue (if established) to process the application within a reasonable time was required under this head; and that the "something more" that was relied upon was "the relationship between Mr Martin and Mr Harrison which developed during the several meetings which took place in June, July and August 1999 and involved the giving of advice by Mr Harrison as to the requirement for company accounts upon which Mr Martin placed reliance. But, even if Mr Harrison had placed himself in a position in which Mr Martin was entitled to rely upon his advice, that would not give rise to a direct duty on the Revenue to process the application with reasonable expedition: as the judge observed (at paragraph [83] of his judgment) there was no logical link between the duty which Mr Harrison may have assumed in relation to advice and a duty to process the application with reasonable expedition. The judge saw no prospect of the claimant company establishing direct liability if vicarious liability were not established. In that context it is pertinent to note that, earlier in his judgment (at paragraph [78]), the judge had referred to the observation of Lord Slynn in Phelps (ibid, 658E) that:

"Since the authority can only act through its employees or agents, and if they are negligent vicarious liability will arise, it may rarely be necessary to invoke a claim for direct liability.".

36. The judge introduced the third stage of his analysis by recording (at paragraph [85] of his judgment) that: "The focus of the debate before me was whether Mr Harrison owed a common law duty of care to the Claimant". He addressed that issue "by reference to the three-stage Caparo test". In adopting that approach the judge followed the guidance given by Lord Browne-Wilkinson in X (Minors) v Bedfordshire (ibid, 739A-B):

"If the plaintiff's complaint alleges carelessness, not in the taking of a discretionary decision to do some act, but in the practical manner in which that act has been performed (e.g. the running of a school) the question whether or not there is a common law duty of care falls to be decided by applying the usual principles: i.e. those laid down in Caparo Industries plc v Dickman [1990] 2 AC 605, 617, 618. Was the damage to the plaintiff reasonably foreseeable? Was the relationship between the plaintiff and the defendant sufficiently proximate? Is it just and reasonable to impose a duty of care? . . ."

37. The judge noted that the Revenue accepted that the first limb of that three-fold test was satisfied: it was reasonably foreseeable that the delay in processing the claimant company's application for a tax certificate could cause it to suffer some economic loss. And he found "no real difficulty" with the second limb. As he said (at paragraph [88] of his judgment): "Any duty which Mr Harrison owed arose in connection with the processing of a specific application (for a certificate under section 561(2)) made by a specific, ascertained person". It was the third limb – the "fair just and reasonable" element – which gave rise to difficulty.
38. It is important to keep in mind that, as the judge had explained, the question which he was seeking to address in the third stage of his analysis (at paragraphs [90] to [110] of his judgment) was whether it would be fair just and reasonable to impose a common law duty of care on Mr Harrison. He concluded (at paragraph [110]) that he should answer that question in the negative. He said this (ibid):

"[110] Weighing up the factors which I have examined in the preceding paragraphs of this judgment, I have reached the conclusion that it would not be fair, just and reasonable to impose a common law duty of care on Mr Harrison. The factors which ultimately have had the greatest influence on me are the absence of anything that can properly be described as an assumption of responsibility by Mr Harrison; the involuntary nature of the Revenue's involvement with the Claimant; the interrelationship between the claims based on common law and statutory duties; and the availability of the COP1 scheme."

39. The steps which led the judge to that conclusion may be summarised as follows:

(1) He was satisfied, on the evidence, that Mr Harrison was an officer exercising relevant skills and experience in operating the CIS and for whom the Revenue might be vicariously liable (paragraph [92]).

(2) He rejected a submission that, as there was no private sector equivalent to the Revenue – and no CIS independent of ICTA – there was no comparator group to set the standard against which Mr Harrison's conduct was to be judged. As he put it (at paragraph [94] of his judgment), the submission "amounts to saying that, because the revenue has a monopoly on tax collection, the conduct of its officers, however incompetent, cannot be judged by a Court in civil proceedings based on negligence".

(3) He rejected the submission, made on behalf of the claimant company, that Mr Harrison had assumed responsibility in relation to the "advice" which he gave as to the need for company accounts. He pointed out (at paragraph [97] of his judgment) that, if there were any assumption of responsibility, it was not voluntary: as he put it, "it is plain that everything Mr Harrison did was part of a compulsory process, namely the processing of an application which the revenue was bound by section 561(2) to deal with". And, in any event, it was not right to suggest that Mr Martin relied on Mr Harrison's statements about the need for company accounts in the way that a client would rely on a professional adviser. Mr Martin had consulted his own accountant; and, on the basis of the accountant's advice, had made further attempts to persuade Mr Harrison to change his mind on that point.

(4) He rejected the submission, made on behalf of the Revenue, that the imposition of a duty of care would create a conflict (or potential conflict) with the duties which Mr Harrison owed to the Revenue, as his employer, in connection with the proper administration of the CIS. As he pointed out (at paragraph [99] of his judgment): "it is hard to see any real conflict between the interests of the Revenue and those of the applicant in relation to the avoidance of simple administrative errors".

(5) He was concerned that the imposition of a duty of care on Mr Harrison would be inconsistent with – and would undermine – his conclusion that the legislature did not intend to confer a private law cause of action, giving rise to monetary compensation, on sub-contractors experiencing delay in the processing of applications under CIS. In this context he had in mind the concerns expressed by Lord Justice Mummery in Carty (ibid, [83]; 2337H): that "the result would be to introduce by the backdoor an action for breach of statutory duty in a case where . . . no cause of action for breach of statutory duty was created by the relevant legislation".

(6) He rejected the submission, made on behalf of the Revenue, that the resource implications – "both in terms of potential exposure to claims for damages and in terms of the waste of staff time and money involved in ensuring that proper records were kept and administrative procedures were followed so as to allow claims to be better defended" - were such that, if the Revenue were to be held to be subject to a common law duty of care, it might be led to discontinue its current practice of providing assistance to taxpayers. As he explained (at paragraph [102] of his judgment): "The Revenue does not provide assistance to taxpayers for altruistic reasons. It does so because it significantly improves the administration of tax collection and thus increases the overall tax take".

(7) He rejected a "floodgates" argument advanced by the Revenue: noting "to be fair" that little reliance had been placed upon it.

(8) He accepted that "the existence of the COP1 scheme is something upon which the Revenue can legitimately rely as a factor pointing away from the imposition of a duty of care": notwithstanding that, as he acknowledged, that scheme did not provide the claimant company with as good a remedy as the ability to pursue a claim for damages at law.

(9) He found little assistance in what he described (at paragraph [109] of his judgment) as "a painstaking comparison of the case in question with the facts of other cases in different fields". Once it was accepted (as it must be accepted) that "public authorities exercising statutory functions might, in appropriate cases, be liable at common law for the negligence of their employees causing economic loss", there was "no substitute for a detailed analysis of the policy considerations affecting the particular public authority in relation to the particular statutory background on the particulars facts of the case".

40. The judge recognised (at paragraph [112] of his judgment) that, having held that no duty was owed to the claimant company in relation to the processing of its application with reasonable expedition (whether under statute or at common law, and whether directly or indirectly), it was unnecessary for him to make findings on the issue of breach. Nevertheless, he went on to do so, at paragraphs [113] to [122]. As he explained, he approached that issue on the alternative bases: (i) that the Revenue did owe a duty (whether under statute or at common law) to process the company's application with reasonable expedition and (ii) that Mr Harrison owed a common law duty of care to the company in respect of its application, for breach of which the Revenue was vicariously liable.
41. In addressing the issue of breach on the assumption that the Revenue owed a duty to the claimant company the judge asked himself, first, what (prima facie) would have been a reasonable period for the processing of the application. He concluded - for the reasons which he set out at paragraphs [114] and [115] of his judgment) - that one month should be allowed for processing at the Furness tax office and a further three weeks should be allowed for processing at the Netherton centre: a total of seven weeks and two days. On the basis that Mr Martin's first meeting with Mr Harrison took place on 9 June 1999, the certificate should have been received by 30 July 1999.
42. The certificate was not, in fact, received until 20 September 1999. The judge asked himself whether the whole of the period from 1 August 1999 – that is to say, the period of 52 days during which the claimant company did not have the tax certificate which it needed after the CIS had come into operation - was attributable to unreasonable delay. He accepted (at paragraph [117] of his judgment) that, if the delay which had occurred were not attributable to fault on the part of the Revenue, he should not find it to have been in breach of duty. But, for the reasons which he set out at paragraph [118], he found that the whole period of 52 days was attributable to fault.
43. The judge identified four distinct periods of delay, each (as he held) attributable to default on the part of the Revenue: (i) the period from 9 June to 20 July 1999 (41 days) – which was "entirely attributable to Mr Harrison's insistence on the provision of company accounts"; (ii) the period from 20 to 29 July 1999 (9 days) – which was caused by Mr Harrison's failure to check, on 20 July 1999, that the July forms had been signed; (iii) the period from 29 July to 9 August 1999 (11 days) – which was caused "by the incorrect processing of the application made by the July forms as an application for a registration card"; (iv) the period from 9 August to 20 September 1999 (42 days, of which the excess over the 21 days which the judge would have allowed for processing at Netherton was unreasonable) – which was caused in part by "the insertion of the wrong UTR on the August CIS3 form" and in part "to the posting of the certificate to [the address of Mr Martin's parents]". In an earlier paragraph of this judgment (paragraph [18]) I indicated that the delay in issuing the certificate could be attributed to five distinct matters. The judge elided two of those matters (the insertion of the wrong UTR on the August CIS3 form and the posting of the certificate to the address of Mr Martin's parents) and he adopted an earlier date for the start of the period of delay attributable to the first of those matters (the refusal to accept sole trader accounts); but nothing, I think, turns on that. The important feature of the judge's findings in this context is that each period was attributable to default on the part of the Revenue.
44. The judge then addressed the issue of breach on the basis that Mr Harrison owed a duty of care to the claimant company: he referred to the six specific allegations of negligence made against him in the pleaded case. He found Mr Harrison negligent in respect of his insistence on company accounts; in failing to check that the July forms had been signed; and in failing to ensure that Mr Martin's change of address "was logged on the system". But Mr Harrison was not personally responsible for the incorrect processing of the July forms as a registration card application; and he did not insert the wrong UTR on the August CIS3 form. Those findings led the judge to conclude that the total period of delay attributable to Mr Harrison's negligence was 57 days: that is to say, the period from 9 June to 29 July 1999 (50 days) and the period from 13 September 1999 (when, as the judge found the certificate would have been received by the claimant company if it had been sent to the correct address) to 20 September 1999 (when it was actually received) (7 days). So the whole of the period of 52 days from 1 August 1999 during which the claimant company did not have the tax certificate which it needed after the CIS had come into operation was attributable to matters in respect of which Mr Harrison had been negligent.
45. As I have emphasised, the judge's focus, in the context of a claim based on vicarious liability, was on the acts and omissions of Mr Harrison. I suggested (at paragraph [29] of this judgment) that the judge might be thought to have overlooked that, if the company was treated as advancing a common law claim based on vicarious liability, the amendments for which he had given permission alleged negligence not only on the part of Mr Harrison but also (or in the alternative) on the part of other officers or employees in the Furness tax office. At paragraph [123] of his judgment the judge said this:

"[123] The Claimant's vicarious liability claim was based entirely on liability for the acts and omissions of Mr Harrison. As appears above, I have rejected two of the allegations made on the basis that Mr Harrison was not himself responsible for what went wrong although other unidentified Revenue employees undoubtedly were. I should make it clear, for the avoidance of doubt, that even if the Claimant had been able to identify the Revenue employees responsible for those failings and had mounted a vicarious liability claim based on their conduct, I would have held that those employees did not owe a common law duty of care to the Claimant. The reasons I have given for reaching that conclusion in respect of Mr Harrison apply a fortiori to more junior Revenue staff."

This appeal

46. By an appellant's notice filed on 18 October 2006 the claimant company challenges the judge's conclusion on issues (1) and (3). As to the first of those issues it is said that the judge erred in law in holding, at paragraph [69] of his judgment, that the Revenue's breach of section 561(2) ICTA (which the judge found to be established) could not give rise to a private law cause of action sounding in damages. As to issue (3), it is said, first, that the judge erred in law in that (a), contrary to his holding at paragraph [83] of his judgment, the Revenue did owe a direct common law duty of care to the appellant to process its application for a certificate under section 561(2) with reasonable expedition and (b) the negligent acts of the Revenue and its servants (as found by the judge at paragraphs [118] to [122] of his judgment) did constitute a breach of that direct duty; and, second, that the judge erred in failing to hold, at paragraphs [110] and [122] of the judgment, that employees of the Revenue (including, but not limited to, Mr Harrison) did owe a duty of care to the appellant for breach of which the Revenue was vicariously liable.
47. The submissions advanced on behalf of the appellant in support of its grounds of appeal were set out in a document (described, inaptly, as a skeleton argument) which extended over 64 pages and 256 paragraphs. The written submissions were developed in oral argument with extensive reference to authority. I hope that I will not be thought discourteous, or to have treated those full and careful submissions with less than the respect which they merit, if I do not travel as widely over the material as counsel might wish. The applicable principles of law are well established: in so far as general principles can provide an answer in individual cases in this field. They have been set out and analysed by the judge in the passages of his judgment to which I have referred. The task of this Court, as it seems to me, is to determine whether the judge erred in applying those principles to the particular facts which he found established in this case.

Did the legislature intend to confer a private law cause of action in a case where the Revenue failed to perform the duty imposed by section 561(2) ICTA?

48. It is important not to overlook the fact that, although (subject to the Revenue being satisfied that the relevant conditions set out in sections 562 or 565 ICTA – as the case might be - were met) section 561(2) imposed a mandatory duty to issue a tax certificate, the section did not specify, in terms, the period within which that duty was to be performed. The appellant accepts – as I think it must – that, unless it is possible to read into section 561(2) ICTA a statutory duty to issue a tax certificate to a person in respect of whom the relevant conditions are satisfied within an ascertainable period (which the appellant defines as "a reasonable time"), the question posed must be answered in the negative. If the section is read as enacted, it is clear that the legislature did not intend to confer a private law right of action for damages in a case where a certificate ought to have been issued to an applicant under section 561(2) ICTA – that is to say, to an applicant in respect of whom the relevant conditions were satisfied – but was not issued. In such a case the legislature conferred a specific remedy under section 561(9) ICTA: the disappointed applicant was given the right to appeal to the General or Special Commissioners against the refusal. A successful appeal could be expected to lead to the issue of a certificate. Absent a duty to issue a certificate within an ascertainable time, there was no need for the legislature to provide a remedy in damages.
49. The judge was content to assume (without deciding) that the section 561(2) duty had to be performed within a reasonable time. In one sense that proposition, for which the appellant contends, is plainly correct. The Revenue accepts that there was a public law duty to issue a tax certificate to an applicant within a reasonable time once it was satisfied that the relevant conditions in respect of that applicant were met. For my part, I would hold (if it were necessary to do so) that there was a public law duty to determine within a reasonable time whether the relevant conditions were met; and (if satisfied that they were met) to issue the certificate without avoidable delay once that determination had been made. It is not in dispute that proceedings for judicial review provided a means of enforcing the public law duty; whatever the precise scope of that duty might have been. But the public law duty to act with reasonable dispatch in the issue of a certificate under section 561(2) ICTA arises under the general law: it is unnecessary to read words into the section in order to provide a basis for enforcement of that duty.
50. Counsel for the appellant referred, in this context, to the well known observations of Lord Atkin in his dissenting speech in East Suffolk Rivers Catchment Board v Kent [1941] AC 74, 91-2:

"I treat it therefore as established that a public authority whether doing an act which it is its duty to do, or doing an act which it is merely empowered to do, must in doing the act do it without negligence, or as it is put in some of the cases must not do it carelessly or improperly. Now quite apart from a duty owed to a particular individual which is the question in this case I suggest that it would be difficult to lay down that a duty upon a public authority to act without negligence or not carelessly or improperly does not include a duty to act with reasonable diligence by which I mean reasonable dispatch. I cannot imagine this House affording its support to a proposition so opposed to public interests where there are so many public bodies exercising statutory powers and employing public money upon them. . . . "

It was submitted on behalf of the Revenue, correctly in my view, that Lord Atkin was plainly directing those observations to what, as the law has developed since 1941, would be recognised as the public law duties imposed on public authorities; rather than on the private law duties owed by public authorities to particular individuals. I am not persuaded that those observations provide a sufficient foundation from which to read into section 561(2) ICTA words which the legislature did not think fit to include.

51. The judge recognised that, on the basis of the assumption which he was content to make, it might have been expected that the legislature would have conferred powers on the General or Special Commissioners (when allowing an appeal under section 561(9) ICTA from a refusal to issue a certificate) to award damages in respect of loss suffered by the applicant as the result of that refusal: a refusal which (on that hypothesis) would have led to unreasonable delay in the issue of the certificate. He accepted that the absence of such powers called for an explanation: paragraph [69] of his judgment. As I have said, he speculated that the explanation might lie in the fact that "Parliament simply did not have in mind the possibility of significant delay by the revenue in performing its functions under the subsection". For my part, I do not find that explanation tenable. In a case where an appeal under section 561(9) ICTA from the Revenue's refusal of a certificate had been allowed, it must have been obvious that the certificate would be issued (following the successful appeal) later than it would have been issued if the Revenue had, itself, issued the certificate as section 561(2) required. The Revenue's decision to refuse a certificate will have led to the delay occasioned by the appeal process; that delay may well be significant; and (the Revenue's decision having been held to be wrong) it must follow (prima facie, at least) that the delay could and should have been avoided. If the legislature had in mind the possibility that the Revenue might err in refusing a certificate – as, plainly, it did – I find it impossible to think that the legislature did not also have in mind that the consequence of a wrong decision might be delay in the issue of a certificate. And, given that the legislature had the possibility of delay in mind, it must have appreciated that there would be cases in which that delay was both significant and unreasonable.
52. The need to explain the absence of powers, under section 561(9) ICTA, to award damages in respect of loss suffered by the applicant as the result of a wrongful refusal to issue a certificate (when allowing an appeal from that refusal) arises if, and only if, it is assumed that section 561(2) ICTA was to be read as if it required the issue of a tax certificate within an ascertainable time. The inability to find a satisfactory explanation for the absence of such powers calls in question the assumption which, alone, gives rise to that need.
53. The better view, as it seems to me, is that the legislature, when enacting section 561(9) ICTA, did not confer powers to award damages in respect of loss suffered by the applicant as the result of a wrongful refusal to issue a certificate (when allowing an appeal from that refusal) because it did not intend to impose a statutory duty to issue a certificate within an ascertainable time (or, as the appellant submits, within a reasonable time). I am led to that conclusion by two factors:

(1) The right to appeal conferred by section 561(9) ICTA arises (so far as material in this context) only after there has been a refusal of an application for a certificate. There is no provision for an appeal on the basis of a deemed refusal: c.f. section 78(2) of the Town and Country Planning Act 1990. If the legislature had intended to impose a duty to issue (or refuse) a tax certificate within an ascertainable time, it could have been expected to reinforce that duty by providing that, if no certificate were issued within that time, the applicant could appeal to the General or Special Commissioners as if there had been an actual refusal.

(2) The time which the Revenue might properly require in order to determine whether the relevant conditions were satisfied could have been expected to vary from case to case and to be difficult to predict in any particular case. It is important to have in mind, in this context, that the relevant conditions included the need for the applicant to have complied with all obligations imposed under ICTA or the Taxes Management Act 1990 in respect of periods ending within the previous three years and with all requests to supply to an inspector accounts of, or other information about, any business of the applicant in respect of that period: sections 562(8) and (14) and 565(3) and (9) ICTA. Further, there was a judgment to be exercised as to whether non-compliance had been minor and technical: sections 562(10) and 565(4). To require a certificate to be issued (or refused) within a specified time would have been to introduce a degree of inflexibility which was foreign to the legislative purpose.

54. For those reasons I am not persuaded that (unless reliance can be placed on section 3 of the Human Rights Act 1998) words are to be read into section 561(2) ICTA which have the effect that the section required that a certificate be issued to an applicant (in respect of whom the relevant conditions were satisfied) within a reasonable time of the application. As I have said, it is accepted that if, on a true construction, the section does not have that effect, then it is clear that the question posed by the first preliminary issue must be answered in the negative.

Does section 3 of the Human Rights Act 1998 require words imposing a "reasonable time" requirement to be read into section 561(2) ICTA?

55. Given the assumption that he was content to make, the judge did not find it necessary to address the submission that section 3 of the Human Rights Act 1998 required him to read section 561(2) ICTA as if it required that a certificate be issued to an applicant (in respect of whom the relevant conditions were satisfied) within a reasonable time. That submission was pursued in this Court. For my part I would reject it.
56. Section 3(1) of the Human Rights Act 1998 requires that: "So far as it is possible to do so, primary and subordinate legislation must be read and given effect in a way which is compatible with the Convention rights". It is said, on behalf of the appellant, that to read section 561(2) ICTA as enacted – that is to say, without reading in words which require that a certificate be issued within a reasonable time of the application – would be incompatible with its rights under article 1 of the First Protocol to the European Convention for the Protection of Human Rights and Fundamental Freedoms. The article is in these terms, so far as material:

"Every natural and legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law . . .

The preceding provisions shall not, however, in any way impair the right of a State to enforce such laws as it deems necessary to . . . secure the payment of taxes . . ."

It is said that the certificate itself, the gross payments which the employing contractor must withhold in the absence of a certificate and the goodwill of the applicant's business (damaged by reason of the delay in issuing the certificate) are all possessions for the purposes of article 1 of the First Protocol. In that context the appellant places reliance on observations of Mr Justice Ferris in Shaw v Vicky (ibid, [47]; 1555b-c).

57. In my view it is impossible to contend that section 559 ICTA contravened a sub-contractor's Convention rights under article 1 of the First Protocol. The need for a tax certificate, imposed by that section, was plainly within the scope of the qualification, in the second paragraph of article 1, of the right conferred by the first paragraph. Nor can it be said that section 561(2) ICTA was incompatible with those Convention rights. In a case where the relevant conditions are satisfied, section 561(2) excepted the sub-contractor from the effect which section 559(4) would otherwise have. The most that can be said is that, read as enacted, section 561(2) did not go far enough; because it did not require the issue of a certificate (in a case where the relevant conditions are satisfied) within an ascertainable time. But that point was met, as it seems to me, by the availability of a public law remedy (by way of judicial review) by means of which the Revenue might be directed to decide, within a reasonable time, whether it would issue or refuse a certificate, coupled with the statutory right to appeal from a refusal.
58. The appellant submits that "where [the Revenue] does not process an application by a compliant sub-contractor with due care and expedition his business will be damaged and the need to protect the collection of taxes cannot justify [the Revenue] carrying out the vetting process to differentiate between compliant and non-compliant taxpayers in a slow or less than careful manner". It is suggested that, in resisting the contention that words requiring that a certificate be issued within a reasonable time be read into section 561(2) ICTA, the Revenue is seeking to argue for "a statutory right to provide a slow and inefficient service". I reject that suggestion. There is no statutory right to provide a slow and inefficient service. It cannot have been the intention of the legislature that the Revenue should take longer than reasonably necessary to satisfy itself of the applicant's entitlement to a certificate; or that, once satisfied that the relevant conditions were met, the Revenue should not issue the certificate without delay. But, as I have explained, the need for the Revenue to exercise reasonable diligence and reasonable dispatch in carrying out its statutory functions exists under the general law. It is unnecessary to read words into section 561(2) ICTA in order to provide a basis for enforcement of those duties or to protect an applicant's Convention rights.
59. I should add that, even if I were persuaded that section 561(2) ICTA, as enacted, were incompatible with the applicant's Convention rights, I would find it difficult to accept the appellant's contention that reliance could be placed on section 3 of the Human Rights Act 1998 in the circumstances of the present case. The 1998 Act did not come into force until 2 October 2000. The acts and omissions of the Revenue of which complaint is made in these proceedings took place some twelve months or more before that date. As Lord Nicholls of Birkenhead observed in Wilson v First County Trust Ltd (No 2) [2003] UKHL 40, [20]; [2004] 1 AC 816, 832B:

". . . in general the principle of interpretation set out in section 3(1) [of the 1998 Act] does not apply to causes of action accruing before the section came into force. The principle does not apply because to apply it in such cases, and thereby change the interpretation and effect of existing legislation, might well produce an unfair result for one party or the other. The Human Rights Act was not intended to have this effect."

In reaching that conclusion Lord Nicholls expressed his agreement with the view of Lord Justice Mummery in Wainwright v Home Office [2001] EWCA Civ 2081, [61], [2002] QB 1334, 1352B – when resiling from an observation which he had made earlier in J A Pye (Oxford) Ltd v Graham [2001] EWCA Civ 117, [43]; [2001] Ch 804, 821G. The judgments in this Court in R (Hurst) v London Northern District Coroner [2005] EWCA Civ 890; [2005] 1 WLR 3892 on which the appellant seeks to rely – and which must, now, be read in the light of the speeches in the House of Lords on appeal from this Court ([2007] UKHL 13; [2007] 2 WLR 726) – provide no support for a contrary view. It is true, of course, that – as Lord Nicholls recognised – the general rule against retrospective interpretation and effect admits of exceptions; but the underlying principle is that to change the interpretation and effect of existing legislation, when applying that legislation to events which occurred before 2 October 2000, is to be avoided where there is a danger that the change would give rise to a result which is unfair to one or other of the parties. To hold, now, that the Revenue owed a statutory duty to an individual sub-contractor in respect of acts and omissions which were done at a time when there was no such duty would, as it seems to me, breach that underlying principle.

Did the Revenue owe a common law duty of care to the appellant to process its application for a certificate with reasonable expedition?

60. In addressing this question it is, I think, pertinent to have in mind that the provisions in Chapter IV, Part XIII, ICTA had the effect that sub-contractors in the construction industry were subject to a regime which did not apply to other corporate taxpayers or to other individuals who were self-employed. The requirement that a deduction in respect of tax must be made by the contractor from any payment made to a sub-contractor who did not hold a tax certificate necessarily had an adverse effect on that sub-contractor's cash flow: in that respect the sub-contractor was treated in a way which was less favourable than the treatment of those who were not in the construction industry. Following the coming into effect of the amendments made by the Finance Act 1995 – and the introduction of the CIS in place of the CITDS – the position of a sub-contractor without a certificate became much worse. Unless he held a registration card, no payments could be made to him: the effect was that he could not work as a sub-contractor in the industry. Even where he did hold a registration card, it was said (although the judge made no findings on the point) that, in practice, the inconvenience of making tax deductions from payments to an un-certificated sub-contractor was seen by contractors as an unacceptable burden; so that the absence of a certificate made it difficult, if not impossible, to obtain work.
61. There were sound policy reasons why the regime was necessary – as Mr Justice Ferris explained in Shaw v Vicky (in the passage to which I have referred earlier in this judgment) – but fairness required that it be operated in such a way as to limit (so far as possible) the discriminatory treatment to which it gave rise. In particular, the legislature must be taken to have expected and intended that the sub-contractor who could satisfy the relevant conditions set out in sections 562 or 565 ICTA (as the case might be) should be issued with a tax certificate without avoidable delay. Nevertheless, for reasons which I have explained, I have found it impossible to hold that section 561(2) ICTA imposes a statutory duty, enforceable by an individual in a private law suit, to process an application within a reasonable time.
62. In those circumstances it seems to me impossible to avoid the conclusion that the duty which section 561(2) ICTA does impose – a duty to issue a tax certificate to an applicant in respect of whom the relevant conditions are satisfied – does not, of itself, give rise to a common law duty owed to the applicant to process the application with reasonable expedition. Powerful support for that conclusion is found in the passages in Stovin v Wise and Gorringe on which the judge relied. To those passages may be added Lord Hoffmann's observations in the recent appeal in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181.
63. The issue in the Barclays Bank case was whether the bank – which, after a freezing order had been served in respect of the assets of two VAT debtors which were its customers, had made payments out of those assets - owed a duty of care to the Commissioners. The House of Lords held that there was no duty of care. Lord Hoffmann said this (ibid, [39]; 200E-H):

"[39]  There is, in my opinion, a compelling analogy with the general principle that, for the reasons which I discussed in Stovin v Wise [1996] AC 923, 943-944, the law of negligence does not impose liability for mere omissions. It is true that the complaint is that the bank did something: it paid away the money. But the payment is alleged to be the breach of the duty and not the conduct which generated the duty. The duty was generated ab extra, by service of the order. The question of whether the order can have generated a duty of care is comparable with the question of whether a statutory duty can generate a common law duty of care. The answer is that it cannot: see Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 The statute either creates a statutory duty or it does not. (That is not to say, as I have already mentioned, that conduct undertaken pursuant to a statutory duty cannot generate a duty of care in the same way as the same conduct undertaken voluntarily.) But you cannot derive a common law duty of care directly from a statutory duty. Likewise, as it seems to me, you cannot derive one from an order of court. The order carries its own remedies and its reach does not extend any further."

In my view the judge was plainly correct to hold that the Revenue owed no common law duty of care – or, as he put it, no direct duty – to process the claimant company's section 561(2) application with reasonable expedition.

Vicarious liability

64. The judge took the view – correctly, as it seems to me – that the more pertinent question in the circumstances of the present case was whether the company could establish a duty of care owed by employees of the Revenue, for breach of which the Revenue would be vicariously liable. As I have said, in addressing that question, the judge focussed on the acts and omissions of Mr Harrison. On the facts which he found, there were two periods of delay which were attributable to Mr Harrison's acts or omissions: (i) the period from 9 June to 20 July 1999, during which Mr Harrison was insisting on the provision of company accounts, and (ii) the period from 20 to 29 July 1999, during which the Furness tax office did not have signed CIS3 and CIS8 forms (the July forms). On the facts found by the judge the other periods of delay were not attributable to Mr Harrison's acts or omissions.
65. In this context it is necessary to have in mind the findings of fact which the judge made. I have referred to these earlier in this judgment; but it is, I think, convenient to do so again:

(1) In relation to the first of those two periods the judge found: (i) that on 9 June 1999 "Mr Harrison . . . told Mr Martin that he could not accept Mr Martin's sole trader accounts in support of the turnover test. Mr Martin needed to produce company accounts in relation to the Claimant" (paragraph [36] of his judgment); (ii) that on 16 June 1999 "Mr Harrison again refused [to accept Mr Martin's sole trader accounts in support of the turnover test]" (paragraph [37]); and (iii) that "a further telephone conversation to the same effect took place on 22 June" (paragraph [37]. It was common ground that "at the next meeting Mr Harrison relented and agreed that sole trader accounts were acceptable in support of the Claimant's application". The judge rejected Mr Martin's evidence that that meeting was on 2 July 1999: he accepted Mr Harrison's evidence that there was no further meeting until 20 July 1999. There was no finding to explain why Mr Harrison changed his mind; nor to explain why four weeks had elapsed between the refusal to accept sole trader accounts (on 22 June 1999) and the acceptance of sole trader accounts (on 20 July 1999).

(2) In relation to the second of the two periods the judge found: (i) that Mr Martin completed CIS3 and CIS8 forms (the July forms) at the meeting on 20 July 1999 and left them with Mr Harrison (paragraph 38 of his judgment); (ii) that "by an oversight" the July forms were left unsigned on 20 July 1999; (iii) that, shortly thereafter, Mr Harrison realised "that he had omitted to obtain Mr Martin's signature to the [July] forms"; (iv) that Mr Harrison wrote to Mr Martin on 23 July 1999, enclosing the July forms and asking him to sign and return them immediately for processing; and (v) that the July forms were signed by Mr Martin on 26 July 1999 and received back at the Furness tax office on 29 July 1999.

66. The judge made no finding on the question whether Mr Harrison was correct (or entitled) to take the view on 9, 16 and 22 June 1999 that sole trader accounts were not acceptable in support of the company's application. He did not need to do so in the circumstances that he had refused to allow the Revenue to withdraw the admission which it had made in its pleaded defence: that is to say, the admission that "In or about June 1999 . . . Mr Martin was told the application could not be accepted because it was for a sole trader rather than a limited company. . . . Further he was mistakenly told that it would be necessary to support the application on behalf of the Claimant company with accounts for the Claimant". By a respondent's notice filed on 6 November 2006 the Revenue sought permission to appeal from the judge's refusal to allow the admission to be withdrawn. In the course of the hearing of this appeal we refused that application. In my view the judge was entitled to conclude that, in the circumstances that the admission had been made in the Deputy Chairman's letter of 6 October 2000 and acted upon thereafter, it should stand.
67. The effect, in this Court, is that we must approach this appeal on the basis that Mr Harrison was wrong to tell Mr Martin, in June 1999, that the company's application for a tax certificate could not be accepted unless supported by the company's own accounts. The question which we have to consider is whether Mr Harrison assumed a responsibility to give Mr Martin, on behalf of the company, information which was correct. In my view the judge was right to hold that Mr Harrison did not assume a responsibility in that respect. It must be kept in mind that it was for the company to decide the basis upon which it would make an application under section 561(2) ICTA; and it was for the company to make that application in the manner (and in the form) prescribed by the Regulations. It was not for individual officers of the Revenue to tell applicants what had to be done: and there is nothing in the facts found by the judge to suggest that Mr Martin (or the company) thought that it was. They had consulted their own accountant; and, on the basis of his advice, they did not accept that the information which Mr Harrison had given was correct.
68. The real complaint, in this context, is that in June 1999 Mr Harrison refused to accept an application which was not supported by the company's own accounts. But the remedy in respect of that refusal lay in the company's hands. It could have sought an order (in judicial review proceedings) requiring the Revenue to accept its application. Or it might have sought to treat the refusal to accept the application as a refusal to issue a certificate; and appealed from that refusal under section 561(9) ICTA.
69. As I have said, it was for the company to make its application for a tax certificate in the manner (and in the form) prescribed by the Regulations. That, as it seems to me, provides the answer to the question whether it would be fair, just and reasonable to impose a duty of care on Mr Harrison in relation to the lack of a signature on the July forms at the time when those forms were left with him on 20 July 1999. We have copies of those forms in the documents supplied to us. The CIS3 form (Company Application Form) contains (on its face) the printed instruction: "To apply for a Certificate, read CIS3 Booklets A and B and then complete all of this form". The form provides for a declaration by the company secretary that he or she is applying for the company to hold a CIS6 tax certificate; and there is a box for his or her signature. The CIS8 form (Application Form for a Director or Company Secretary) contains the printed instruction: "If you want to apply for a Subcontractors Tax Certificate, fill in the rest of this page, sign the declaration at 3 overleaf . . .". Again, there is a box for the applicant's signature. In those circumstances Mr Martin could have been in no doubt that the forms required his signature. If an application was to be made on behalf of the company, it was his responsibility to ensure that the forms were signed. Although it was plainly sensible for the Revenue's internal procedures to make provision for its officer to check, when the application forms were lodged, that they had been signed, there is no basis for the imposition of a duty of care. In my view the judge was correct to hold that no duty arose in relation to Mr Harrison's failure to notice, on 20 July 1999, that the forms were unsigned.
70. As I have said, it is clear that the judge answered the question posed by preliminary issue (3) in the negative on the basis that he did not need to consider a contention that the Revenue was vicariously liable for the acts or omissions of any officer or employee other than Mr Harrison. But he went on to observe that, had the claimant company mounted a vicarious liability claim based on the conduct of other employees – in particular, on the conduct of those whose acts gave rise to the other periods of delay which he had identified – he would have held that those employees did not owe a common law duty of care to the claimant. By ground 3 in its grounds of appeal the appellant challenges the judge's view that the vicarious liability claim was confined to the acts and omissions of Mr Harrison. I think there is force in that challenge. The amendments to the particulars of claim, for which the judge gave permission in the course of the trial, did raise vicarious liability claims based on the conduct of the Revenue's servants or agents other than Mr Harrison. In particular, the amendments raised those claims in relation to the delays arising from (i) the treatment of the July forms as an application for a registration card (CIS4) rather than as an application for a tax certificate (CIS6); (ii) the insertion on the August CIS3 form of the incorrect UTR; and (iii) the posting of the certificate to an address which was not that of the company. It is, I think, no answer to those claims to assert that the claimant was unable to identify the particular employee whose act led to the delay.
71. It is convenient to set out, again but in more detail, the judge's findings of fact in relation to those matters:

(1) Both the CIS3 form and the CIS8 form provided for declarations to be made and signed in support of (i) an application for a registration card and (or in the alternative) (ii) an application for a tax certificate. The judge found (at paragraph [43] of his judgment) that, on 26 July 1999, Mr Martin completed and signed the declaration in support of an application for a tax certificate on each of the July forms: He did not complete or sign the declarations in support of an application for a registration card. But, as the judge found (at paragraph [42]), "The surviving copy of the July CIS3 form shows the declaration in support of an application for a registration card as having been completed", although the writing was illegible. Examination of the copy provided to this Court shows writing (also illegible) in the signature box appropriate to an application for a registration card. There was no corresponding entry on the July CIS8 form (paragraph [42]). The judge accepted (at paragraph [43]) that "when the July forms arrived at the Furness office by post (on 29 July 1999) one of Mr Harrison's staff mistakenly processed them as applications for a registration card and sent them off to Netherton without consulting Mr Harrison". Implicit in his findings on this point, as it seems to me, is a finding that an employee at Furness chose to complete (and, I think, sign) the declaration in support of an application for a registration card on the July CIS3 form without the authority of Mr Martin or the claimant company. That led to delay between 29 July 1999 and 9 August 1999, the date on which the (duplicate) August forms were received by Mr Harrison.

(2) On 11 August 1999 Mr Harrison authorised the issue of a tax certificate on the basis of the August forms (paragraph [45] of the judgment). But, as the judge found, "In the case of the August CIS3 form, one of Mr Harrison's staff had incorrectly inserted Mr Martin's own UTR rather than that of the Claimant". That led to delay between 11 August 1999 and 7 September 1999, the date on which a corrected version of the August CIS3 form was received at the Netherton processing centre.

(3) On 10 September 1999 a CIS6 certificate was issued by Netherton pursuant to the August forms but was posted to the address of Mr Martin's parents. The judge was prepared to accept (at paragraph [47]) that "the posting of the certificate to an address at which Mr Martin did not then live did result in a short additional delay in his becoming aware of its arrival". He found (at paragraph [118]) that the address to which the certificate was posted "was never an address held on the Revenue's records in respect of the Claimant [Neil Martin Limited]".

72. In my view the judge would have been correct to hold that no common law duty of care was owed to the claimant company by either (i) the unidentified employee at the Furness office who inserted the incorrect UTR on the August CIS3 form on or about 11 August 1999 or (ii) the unidentified employee at the Netherton processing centre who posted the CIS6 certificate to the wrong address. As it seems to me, those were plainly administrative mistakes made in the ordinary course of processing the application under section 561(2) ICTA. In the circumstances that, as I have held, the legislature did not intend to impose a statutory duty, enforceable by an individual in a private law suit, to process such applications within a reasonable time, it would be wrong for the courts to recognise a common law duty owed by the Revenue's employees to take care to avoid delay. I respectfully share the concern, expressed by Lord Justice Mummery in Carty v Croydon London Borough Council [2005] EWCA Civ 19, [83]; [2005] 1 WLR 2312, 2337H, that to impose liability on the employee in such circumstances – a liability for which the employer would be vicariously liable - would be "to introduce by the back door an action for breach of statutory duty in a case where . . . no cause of action for breach of statutory duty was created by the relevant legislation".
73. Nevertheless, I take the view that the judge would have been wrong to hold that no common law duty of care was owed to the claimant company by the unidentified employee in the Furness office who chose to complete the declaration in support of an application for a registration card on the July CIS3 form without the authority of Mr Martin or the claimant company. That, as it seems to me, goes beyond an administrative mistake made in the ordinary course of processing the application under section 561(2) ICTA. In completing the declaration in support of an application for a registration card the employee took it upon himself (or herself) to make an application on behalf of the claimant company: an application which the claimant company had chosen not to make, and which it had not made. The employee was not processing an application which had been made: he was assuming an authority to make an application which had not been made. I can see no reason why, in assuming that authority, the employee should not be taken to have assumed a responsibility to the applicant. In those circumstances it does seem to me fair just and reasonable that the common law should recognise that a duty of care exists.

Conclusion

74. I would dismiss the appeal from paragraph 1(1) of the order of 28 September 2006; albeit for reasons which differ from those which led the judge to answer preliminary issue (1) in the negative. I would refuse permission to cross- appeal from paragraph 1(2) of that order; on the basis that it is clear that some part of the delay after 30 July 1999 did result from the Revenue's failure to process the claimant company's application with reasonable expedition, but that it is unnecessary, in the context of an allegation of breach of statutory duty, to determine the extent of the delay so attributable. I would allow the appeal from paragraph 1(3) of the order to the limited extent of qualifying the judge's answer "No" by the words "save as indicated in paragraph 73 of this judgment". And I would grant permission to cross-appeal from paragraph 1(4) of the order; and would allow that cross-appeal to the limited extent of substituting for the judge's answer: "Yes, but only to the extent indicated in paragraph 73 of this judgment". It follows that I would allow the appeal from, and set aside, paragraph 2 of the order of 28 September 2006.

Lady Justice Smith:

75. I agree.

Lord Justice Wilson:

76. I also agree.