CO/6442/2005 
Neutral Citation Number: [2007] EWHC 167 (Admin)
IN THE HIGH COURT OF JUSTICE 
QUEEN'S BENCH DIVISION  
ADMINISTRATIVE COURT 
Royal Courts of Justice 
Strand
London WC2 

Monday, 29th January 2007
 
B E F O R E:

MR JUSTICE BURTON 

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THE QUEEN ON THE APPLICATION OF PHILLIP COOK
Claimant

‑v‑ 

(1) GENERAL COMMISSIONERS OF INCOME TAX
(2) COMMISSIONERS OF HER MAJESTY'S REVENUE AND CUSTOMS 
Defendants 
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MR MARC RIVALLAND (instructed by Messrs Tollers, Northampton NN1 1JX) appeared on behalf of the Claimant
MISS INGRID SIMLER QC (instructed by HMRC) appeared on behalf of the Second Defendant
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J U D G M E N T
1.	MR JUSTICE BURTON:  In 1999 Mr Cook, the claimant, set up a business and he fell swiftly and substantially behind with his PAYE and National Insurance contribution payments.  On 18th June 2003 he had a visit from the representatives of the Inland Revenue.  He explained that he had not complied with PAYE legislation because he was just establishing his business, and he was given until 16th July 2003 to deliver his records to the tax office.  He says that he complied with that deadline, delivering three boxes to the Inland Revenue office at Sharp Street in Northampton on 26th June 2003.  That is not accepted by the second respondent, the Revenue, and if he did deliver those boxes (of which there is no record by way of receipt or otherwise), then they have been lost.
2.	In July 2003 assessments were raised by the Revenue in the sum of £232,000 odd.  There are the assessment documents themselves, being notices of determination, stamped as dated 23rd July, pointing out there was a 30‑day period for appeal.  The claimant does not recollect receiving those notices, and in any event took no steps in relation to them within the 30‑day period.
3.	However, as appears from the statement of facts attached to the application to this court, the claimant accepts that in December 2003 he received a letter from the Revenue informing him that since the assessments had not been appealed, they were therefore final and the tax was due and payable.  The claimant took no steps to appeal at that stage either.  However, he wrote to the National Insurance office on 4th February 2004, to complain that the Inland Revenue had the documents from which proper assessments could have been made.  That letter was passed by the National Insurance office to the Revenue.  The Revenue responded to the National Insurance office stating that the Inland Revenue did not have the claimant's documents.  Ms Cawley, of the Revenue, copied her rely to the claimant on 9th March 2004, thus putting him on notice of the fact that (a) they did not have the documents, and (b) they stood by the original assessments.  Still no steps were taken by the claimant.
4.	A statutory demand was issued on 6th October 2004 in respect of the full sum the subject matter of the notices of July 2003, and that was served on 8th November 2004.  That prompted Mr Cook to instruct an accountant, Mr Oaten, who took detailed instructions from Mr Cook.  Mr Oaten wrote to the Revenue a letter dated 31st December 2004, recording that Mr Cook was adamant that all the records that were held by him were delivered to the Inland Revenue.  He sought discussions with the Revenue about the amount.
5.	That obviously was still not an appeal.  The Revenue issued a bankruptcy petition on 18th January 2005, based upon the statutory demand.  An appeal was then pursued by Mr Oaten on behalf of Mr Cook.
6.	An appeal in such circumstances is governed by s49 of the Taxes Management Act 1970, which reads as follows:
"(1)  An appeal may be brought out of time if on an application for the purpose an inspector or the Board is satisfied that there was a reasonable excuse for not bringing the appeal within the time limited, and that the application was made thereafter without unreasonable delay, and gives consent in writing; and the inspector or the Board, if not satisfied, shall refer the application for determination by the Commissioners."
7.	A notice of appeal was sent on 3rd February 2005, together, it seems, with details by Mr Oaten setting out the basis upon which Mr Cook now asserted that only £65,000 was due and not £232,378.55.  The appeal recited the fact that the amount demanded was grossly excessive and was based on incorrect information, and that the amount of £65,000 was indeed the sum said to be due.
8.	The inspector very promptly rejected the appeal, it must be without considering the enclosures to the notice of appeal because it was sent on 4th February, the very next day.  Ms Cawley said as follows:
"I cannot accept the submitted appeal as I am not satisfied that there was a reasonable excuse for the lateness of the appeal and that the application has been made without unreasonable delay after the expiry of the time limit." 
It is plain that she was immediately unimpressed by the delay and by the absence of any reasons (or at any rate adequate reasons) for that delay.
9.	Mr Cook consequently put in an appeal to the General Commissioners.  As trailed by the notice of appeal itself, in which further details were promised, a raft of documentation was supplied in support of the appeal under cover of a letter dated 5th May 2005.  What was enclosed was a bundle of copies of PAYE and National Insurance contribution returns for 5th April 2004, showing the amount due after deduction of the payments on account made by Mr Cook.
10.	On 11th May 2005 the hearing took place before the General Commissioners.  Quite unaccountably there was no attendance by or on behalf of the claimant, either by himself or by his solicitor or by his accountant.  In those circumstances, the hearing before the Commissioners went ahead on representations from the Revenue only.
11.	We have a very clear note of what occurred at the hearing.  In a letter dated 23rd June 2005, which was part of the protocol correspondence prior to the issue of these proceedings, Mr Kreling, writing on behalf of the Revenue, said as follows:
"I should also say that at the hearing of the late appeals on 11th May 2005 the Commissioners questioned the Revenue very even‑handedly on several points, including the apparent loss of the records and the provision of computations by the taxpayer's accountants as to what they considered to be the correct liability.  Finally they determined that the taxpayer's application for late appeals should be refused.  Copies of the notes of hearing are being sent herewith." 
12.	Those notes were taken, and very fully and properly taken and recorded by Mr Johnson, the relevant inspector of taxes.  It is quite clear what occurred at the hearing from those notes.  There was a record which says: 
"The law
Johnson set out the law governing late appeals" 
Then s49 is recorded by reference to the circumstances in which late appeals may be accepted.  There are two bullet points: (1) where there is a reasonable excuse for not appealing on time, and (2) if the appeal is made within a reasonable time once the excuse had ceased.  There is then a record under the heading "Commissioners' questions".  In that passage there is the following recorded:
"The clerk said that he understood that the accountants had now provided computations of what they felt to be the correct liability.  Johnson said that he understood this to be the case, but contended that it had no bearing on the matter being considered that day.  Johnson said that, in his view, the Commissioners should restrict themselves to considering whether or not there was a reasonable excuse for the appeal being late.  He contended that there was none.  Johnson said that if there had been a reasonable excuse (which he did not accept) the Commissioners should satisfy themselves that the appeal was made within a reasonable time once that excuse had ceased." 
13.	A letter was sent to Mr Cook dated 12th May on behalf of the General Commissioners, which, after reciting the fact that there had been a hearing on 11th May, reads as follows:
"[The Commissioners] did not consider that the whereabouts of the records were a reasonable excuse, particularly for the long delay between the date on which the appeal should have been [lodged] and the date on which they were in fact [lodged] and accordingly the late appeals are not accepted." 
14.	A further letter was sent by the General Commissioners as part of the protocol correspondence to the claimant's solicitors dated 20th June 2005, stating as follows:
"The merits of your client's appeal were the very issue before the Commissioners.  ...  All the available information was considered by them and their decision was not to allow the late appeal for the reasons given.  Having rejected the late appeal, they could not go on to consider the amount of the determinations, though they were aware of the claims made in the correspondence submitted with the letter of [5th] May 2005." 
The application for an appeal out of time was thus rejected.
15.	Since that time, there was the protocol correspondence which has now led to this judicial review application and, further, there were proceedings in the bankruptcy courts, based upon the bankruptcy petition, seeking to recover the unchallenged part of the debt, namely the £65,000, which sum has now been paid.
16.	There are two grounds before me put forward in this judicial review application.  The first is directed only as against the General Commissioners, who have not formally appeared before me today but have been, nevertheless, informally represented by Miss Simler QC, who has been instructed on behalf of the Revenue.  That ground relates to a judicial review of the refusal of the extension of time.
17.	The second ground has been directed as against the Revenue, and does not arise if the claimant is successful on his first ground.  It alleges that the pursuit by the Revenue of bankruptcy proceedings and enforcement of the full amount of £232,000 is in bad faith and/or in breach of the claimant's human rights, because the Revenue in fact now having received full information, albeit belatedly, from Mr Oaten, with full clarification, is not entitled to continue to pursue a debt which the claimant asserts they know or ought to know is not due.  That second point, as I have indicated, only arises on this application if the claimant is unsuccessful in his first point.
18.	It is common ground that the decision of the inspector as to whether or not to grant an appeal is clearly governed by s49(1) of the Taxes Management Act 1970 (which I have recited) and which section was properly applied by him.  There can be, and is, no challenge to the decision to refuse the appeal.
19.	There is however authority which both sides draw to my attention in the case of R (Browallia Cal Ltd) v General Commissioners of Income Tax [2004] STC 296, which governs the application of section 49 to the decision on appeal by the General Commissioners.  That case is directly on point, not by way of similarity of fact but by way of addressing what is the basis on which General Commissioners apply their jurisdiction.  The General Commissioners concluded in Browallia, as is recited in paragraph 9 of the judgment of Evans‑Lombe J, as follows:
"The Revenue's position is that our discretion is restricted by section 49(1) of the Act, that is that the only question before us is whether the Company had a reasonable excuse for failing to appeal within the prescribed time.  We are not satisfied that, under the Act, there is anything which does confer upon us a wider discretion; we find that the Company does not have a reasonable excuse for having failed to appeal in time and accordingly we refuse the application."
20.	Evans‑Lombe J then concisely recites the respective contentions and his decision:
"12.  It is submitted before me by the taxpayer that section 49, when properly construed, confers upon the General Commissioners, on reference to them of an application to an inspector for permission to lodge an appeal out of time, a wider discretion than that which the Inspector himself had.  That discretion is not confined, as the Inspector's discretion is confined, to determining whether there was a reasonable excuse for the failure to lodge the appeal within time, but would also embrace such considerations as the lack of any prejudice to the Commissioners as a result of failing to lodge an appeal in time, and demonstrable injustice to the taxpayer if such an appeal is not permitted to be lodged out of time.
13.  I accept that submission.  It seems to me that this is a proper construction of the Act.  It is apparent from sub‑s (1) of section 49 that it contemplates two stages, the first stage being an application to the Inspector who can, if he can discern a reasonable excuse, properly allow an appeal to be lodged out of time, thus saving the necessity of reference to General Commissioners for that permission to be granted; but that if he does not find that there was reasonable excuse, the second stage then arises, which is a reference of the application by the Inspector to the General Commissioners for them to determine.
14.  The section does not purport to guide the General Commissioners in any way as to how that discretion to permit appeals to be lodged out of time should be exercised.  It seems to me, therefore, to follow that the General Commissioner's discretion is at large and they can consider the sort of matters which I have referred to which an Inspector of Taxes had no power to take into account."
21.	It is apparent from my recital of the note of the hearing before the Commissioners that Browallia was not cited to the General Commissioners.  The only question is therefore whether, notwithstanding its not being cited to them, the Commissioners nevertheless, whether because they were advised by their clerk or because they had knowledge of the case anyway, applied that approach to their decision.  It is quite apparent that they did not.  The note of the hearing records the clerk asking a question as to whether the accountants had now provided computations of what they felt to be the correct liability.  The response to that was not that even now such presentation was inadequate nor any kind of addressing of the lack of merits, if such that showed, but an express statement of the position of the Revenue that such had no bearing on the matter being considered that day, that the Commissioners should restrict themselves to considering effectively the points in s49(1) of the Act.
22.	The claimant, as I have indicated, was not represented and therefore there was no counter to that proposition. However it is clear that the clerk did not respond in any way by directing the attention of the Revenue to Browallia, and it is obviously the case that, the Revenue having made that very strong submission, it would be thought likely, in the absence of anything to the contrary, that that was indeed accepted by the Commissioners as the correct approach.  But the fact that it was so accepted is clear from the decision letter of 12th May, to which I have referred.  It is quite clear that what is recited there is no reference to exercise of a discretion or a balancing act, to the presence or absence of merits, or the presence or absence of prejudice.  The only issue which is addressed is whether there was a reasonable excuse for the delay.  It is quite plain that the General Commissions concluded that the dispute about the whereabouts of the records was not a reasonable excuse, and certainly not one such as to justify the length of the delay.  Significantly, having recited those matters, the letter concludes, "Accordingly, the late appeals are not accepted," which happens to be the same adverb as was used by the General Commissioners in the passage that I have recited from their decision in Browallia, "the Company does not have a reasonable excuse for having failed to appeal in time and accordingly we refuse the application." 
23.	The matter having been specifically raised in the protocol letter by the claimant's solicitors, an attempt was made by the General Commissioners' advisers to address the point in the letter to which I have referred of 20th June, where it is said that the merits of the appeal were the very issue before the Commissioners.  But having said that, the second sentence then says (as I have recited already) that all available information was considered, but:
"... their decision was not to allow the late appeal for the reasons given." 
24.	It is apparent that the reasons given were those given in the decision letter of 12th May (which I have already dealt with).  Then, if there was any doubt, the letter goes on by saying that, having rejected the late appeal they could not go on to consider the amount of the determinations, even though they were aware of the claims in the correspondence.  It is totally plain that the General Commissioners did not consider the merits or the possible merits of any appeal.
25.	Miss Simler has sought vigorously to argue the matter in the absence of much ammunition in the light of the notes and the letters to which I have referred.  She has submitted that the Browallia case refers to prejudice, and that in this case there is prejudice on her submission going both ways; the prejudice of the inability to pursue a possibly meritorious appeal on the part of the claimant needing to be set against the prejudice to the Revenue in being in a position to challenge Mr Oaten's figures, by virtue of the passage of time and the absence of the documentation said to have been delivered to Sharp Street.  She differentiates the facts of Browallia from the facts of this case, and urges the fact that in this case there has been a substantial delay, which may throw doubt upon the validity of the merits being sought to be put forward.  She submits that although it is right that the discretion of the General Commissioners is not limited to delay, nevertheless, if they are not satisfied about any reasons for delay, that could justify a different approach to the arguability of the merits.
26.	However the more that Miss Simler argues that, the more apparent it is that the jurisdiction of the General Commissioners was improperly exercised, and that they were led into that improper approach by the submissions made by Mr Johnson on behalf of the Revenue.  I am in no position to judge what the result of the balancing act would be.  There is now before me what appears to be a very detailed documentation, seeking to replace the lacuna caused by the allegedly missing three boxes, not only showing what the calculations were, but also tying up the calculations with the bank accounts both of the business and the employee recipients.  There would appear to be an arguable appeal that only £65,000 is due.
27.	On the other hand, of course, there must be balanced against that the lack of explanation for the delay and the prejudice, such as it may be established to be, on the part of the Revenue.  This balancing act is not one that was carried out by the Commissioners, because they were told that it was not appropriate for them to do so.  Browallia refers of course to the existence of prejudice.  But the depriving of a party of the opportunity of putting forward an arguably meritorious appeal is itself an obvious prejudice, and so the reference to lack of prejudice in paragraph 12 of the judgment of Evans‑Lombe J must carry with it the question of whether the basic appeal was arguable.  In any event, Evans‑Lombe J clearly did not mean the examples that he gave of the matters which would fall within the discretion of the Commissioners but not within the original discretion of the inspector was exclusive, and the merits are obviously an important part of that consideration.  Although the Commissioners' letter in the protocol correspondence asserted consideration of the merits, it is quite plain that they did not in the end so consider them. 
28.	In those circumstances, I am entirely satisfied that the General Commissioners' approach erred in law, that there has not been a lawful consideration of the appeal, and that the decision to refuse the application for an extension of time for the appeal out of time on 11th May was unlawful and must be quashed.
(Further submissions) 
29.	MR JUSTICE BURTON:  I now deal with the further submissions made by Mr Rivalland arising out of my decision to quash the conclusion of the General Commissioners of Income Tax that there should be no extension of time for Mr Cook's appeal, as to which I refer to my judgment given earlier this morning.
30.	Mr Rivalland submits that the consequential direction I should give is that I should substitute for the finding by the General Commissioners that there should be no extension a decision that there should be an extension.  In order for me to arrive at that conclusion it would be on the basis that that is the only conclusion to which the General Commissioners can now come if the matter be referred to them, and thus that it would be effectively a waste of time and costs to send it back to them, because I would be ordering a pointless exercise given the inevitable outcome.
31.	Mr Rivalland supports this and explains this proposition on the basis that it is not for him today, or indeed before the General Commissioners, to persuade them or me of what the liability in fact should be, or whether his client is clearly right that it is only £65,000, which he has now paid, so that nothing is due.  His only task would be to satisfy the Commissioners, subject to de minimis considerations, that the present assessment of £232,000 is on any basis incorrect and that on appeal a lower sum should be substituted.
32.	Mr Rivalland has put before me in the evidence, and shown me again now in the argument on this point the documents upon which he relies to show that on any basis the assessment must be wrong.  He has used as his exemplar the notice of assessment in respect of the year 2002/2003, where the gross sum said to be paid/payable by the business in respect of employees was £350,000, which is of course unexplained as to its calculation but which he speculates may have been on the basis of seven employees at £50,000 or, alternatively, a lesser number of employees at a higher figure.  He submits that must on any basis be wrong.
33.	Mr Rivalland refers to a list of employees as produced at the meeting of 18 June 2003 (to which I earlier referred), and shows there seven names, one of which, Mr Townsend, did not even start until May 2003 and thus could not have been included in the calculation, and thus indicates that on any basis there must be a question mark over the determination.
34.	However, Mr Rivalland then refers to the work that has been done by Mr Oaten, based upon what he asserts to be the original and genuine computer records of the business.  This shows how Mr Oaten has now calculated what was due, which is said to be only a total of £65,000 in respect of the entire period.  With regard to this relevant year, 2002/2003, a list of nine employees is produced, showing a sum due in respect of PAYE of something over £7,000, as compared with the £77,000 the subject of the assessment based upon the suggested £350,000 gross salary.
35.	Mr Rivalland then shows how the payments with regard to those employees, which incidentally show a slightly different list of employees compared with that which was handed over in June 2003, but which he says is now accurate by reference to the underlying records, as compared with the bank statements of the business showing cash payments each week, which more or less equivilate to the amount which was paid on the basis of the computer to the relevant employees.  He has also been lucky enough to find that the one of the employees, Mr Clacton, has kept pay slips, at any rate in respect of three periods, although at this stage he has not been able to find the bank statements for the company which tie up with these payments.  However he submits that there is no reason to doubt that the same applies in relation to the business's bank statements as to the employee's bank statements.
36.	There is no doubt that a forceful case is made on that basis, both as to the unreality of the £350,000 and as to the clear tie up between the computer records produced by the business and the payments in fact made and received by the employees.  Miss Simler is clearly unable to take issue with the accuracy of those documents, and she puts forward no positive case that those records have been in some way fabricated.  What she does is point to the record of the meeting of 18th June 2003, to which I referred in my earlier judgment.  That is a record which is now not accepted to be accurate, but it has stood unchallenged, at any rate prior to the bankruptcy proceedings, since provided by the respondent.  It records the following, so far as Mr Cook's statements are concerned:
"Cook claimed that with the moving of premises records had been lost.  In addition the computer had wiped the pay records.  There had been a problem with the computer's tower and he had had to buy a new one.  He said he had given out pay slips but did not have copies.  ... Cawley asked what records were there for her to examine.  Cook said he had none with him.  He said that he has a friend, Juliet, who was willing to work for nothing and help construct records and bring them up to date.  Cawley said that she remembered her from the visit on Cook's previous company."
Then towards the end of the note, the following is stated:
"Cawley referred to the past records and said that it was important to reconstruct at least the end of year returns going back to 99/00.  Cook said that he would need some time." 
37.	Miss Simler submits that this at any rate raises a question mark over the accuracy of the records.  There has been no explanation put forward by the claimant as to whether in the event Juliet did do any work of construction or reconstruction, or as to whether in fact the computer records were available all the time.  If indeed the statement that he has there said to have made was not made by him, and that he did have computer records all the time and never suggested they had been wiped, then the question arises as to why they were not supplied earlier, and if indeed underlying documents were produced and lost at Sharp Street, why the existence of records remaining, independent of the problem at Sharp Street, on his computer was not pointed out at a very early stage, and the computer records provided even before they were sent to Mr Oaten.
38.	It may well be that a full explanation can be given, so that the General Commissioners can feel not only satisfied that there is a substantial question mark over the accuracy of the assessments, but possibly that the Commissioners (or maybe even the Revenue prior to any rehearing before the Commissioners) may be persuaded to accept £65,000 or something in that region as being the actual sum due, particularly as further explanation is given by Mr Cook along the lines to which I have referred in this judgment.  But I am unable to say as of now that the appeal before the General Commissioners is bound to succeed.  If I am unable so to say, then I am unable to conclude that the Commissioners are bound to grant an extension.
39.	I have to say, however, that I can (and I repeat what I said in the earlier judgment) see the considerable force of the arguability of the proposed appeal, which will obviously weigh with the General Commissioners when they come to consider, within their discretion, what course to take.
40.	MR RIVALLAND:  My Lord, would your Lordship then please make an order in terms of 1 and 2?
41.	MR JUSTICE BURTON:  Yes.
42.	MR RIVALLAND:  And I wonder whether your Lordship would mind rising for five minutes so that my learned friend and I could discuss the matter of costs.
43.	MR JUSTICE BURTON:  Yes.
 (Short adjournment)
44.	MR RIVALLAND:  May it please your Lordship, I am happy to say we have reached agreement we exchanged schedules of costs, our schedule came out £12,000, my learned friend has agreed that the second defendants should pay the claimant's costs in the agreed sum of £6,457, inclusive of VAT.
45.	MR JUSTICE BURTON:  Right.  What happens to the balance of your costs, you are swallowing those? 
46.	MR RIVALLAND:  Yes.
47.	MR JUSTICE BURTON:  Thank you very much.  As far as judgment is concerned, there will be two separate judgments I think typed up.  But clearly they ought both to be available to the parties so that you can show them to the General Commissioners.
48.	MR RIVALLAND:  Thank you very much.