[2009] UKFTT 227 (TC)

		
					               TC00177
Appeal number SC/3022/2008

Procedure – Income tax and contributions – Application to set aside decision after hearing in London in Appellant’s absence – Failure by HMRC to comply with management directions – Interests of justice – Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009, r.38 – Decision set aside

FIRST-TIER TRIBUNAL
TAX CHAMBER

	PHILIP JOHN WRIGHT	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS 	Respondents

			TRIBUNAL: 	THEODORE WALLACE (Judge)

Sitting in public in London on 11 August 2009

Martin Wright FCA, representative under Rule 11(5), for the Appellant

Akash Nawbatt, counsel, instructed by the Solicitor to HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2009

DECISION

1.	This is an application by the Appellant to set aside a decision of the Tribunal dated 20 April 2009 by Judge Howard Nowlan sitting in London as a Special Commissioner on 26 March 2009 in which he dismissed an appeal against a series of determinations dated 8 March 2004 in respect of his liability to income tax under regulation 49 of the Income Tax (Employment) Regulations 1993 and to primary and secondary Class I insurance contributions. The appeal concerned £158,104.78 income tax and £159,958.63 insurance contributions covering the period from 6 April 1999 to 5 April 2004. The decisions were on the footing that workers provided by the Appellant to main contractors in the construction industry were employed by him and were not self-employed.
2.	The hearing on 26 March 2009 was in the Appellant’s absence.  It followed an Order by Lewison J in the High Court on 6 February 2007 allowing an appeal by the Revenue against a decision of the General Commissioners for the Colchester division dated 6 September 2005 in which they allowed the Appellant’s appeal.  The judge ordered
“that the matter be returned to the General Commissioners for re-trial applying the correct legal test in determining whether the workers were engaged under a contract for or of service.”
The Special Commissioners accepted a transfer of jurisdiction from the General Commissioners on 16 October 2007.  
3.	The hearing before Mr Nowlan was held under regulation 16 of the Special Commissioners (Jurisdiction and Procedure) Regulations 1994 which gave the Tribunal power to determine proceedings in the absence of a party “unless it is satisfied that there is good and sufficient reason for such absence.”
4.	The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 took effect from 1 April 2009.  Rule 38 provides (so far as relevant) as follows,
“(1)	The Tribunal may set aside a decision which disposes of proceedings … and re-make the decision … if
(a)	the Tribunal considers that it is in the interests of justice to do so; and
(b)	one or more of the conditions in paragraph (2) is satisfied;

(2)	…

(c)	there has been [a] procedural irregularity in the proceedings; or
(d)	a party, or a party’s representative, was not present at a hearing relating to the proceedings.”

5.	I decided that it was appropriate to consider whether to set aside the decision and to defer the question of re-making it since if the decision is set aside it will be necessary to hold a further hearing requiring two days with probably five witnesses, none of whom apart from the Appellant was present.  An interpretation of Rule 38(1) which required the Tribunal to decide whether to set aside a decision and re-make it at the same time would be very difficult to operate in practice and potentially incompatible with the overriding objective under Rule 2 including the requirement for proportionality.

6.	The condition under Rule 38(2)(d) is clearly satisfied and there were procedural irregularities in the proceedings.  The issue which I have to decide is whether it is in the interests of justice to set aside the decision.

The history

7.	It is first necessary to outline the history of the matter.

8.	The underlying determinations given in March 2004 followed visits and correspondence going back to a visit on 4 October 2001.

9.	The original appeal was heard by the General Commissioners on 6 September 2005.  The Appellant his wife and three witnesses were called for the Appellant.  Mrs Glenda Matthews, a status inspector, gave evidence for the Revenue; the Revenue filed witness statements by Chris Elliot and Anton Matthews.  The General Commissioners decided that the workers in question were self-employed under contracts for services rather than employed under contracts of service.  The Revenue appealed by way of Case Stated.

10.	Lewison J decided [2007] STC 1684 that the real question which the General Commissioners ought to have answered but did not was whether the taxpayer had sufficient day-to-day control over the workers to make them his employees, see at [11].  He did not accept the submission by the Revenue at [17] that the only possible conclusion on the findings of fact by the General Commissioners was that the workers were employees of the Appellant.  At [23] he said this,

“I have come, therefore, to the conclusion that the facts as found by the General Commissioners do not lead to the inevitable conclusion that those workers were the employees of Mr Wright during the relevant period.  Whether they were or not is essentially a question of fact for the General Commissioners to determine.  It is not for me to substitute my view of the facts for the view which they take.  But, for the reasons I have given, I am satisfied that the General Commissioners did apply the wrong legal test and in those circumstances I must allow the appeal and remit the question to the General Commissioners.”

11.	The material part of the Order is set out at paragraph 2 above.

12.	There was then a delay of some months.  In June 2007 the Solicitor’s Office of the Revenue wrote to the Clerk to the General Commissioners confirming that the Revenue had no objection to the matter being remitted to the Special Commissioners.  On 13 June the Clerk to the General Commissioners wrote to the Appellant and Larking Gowen, chartered accountants who were his representative, stating that the General Commissioners were considering remitting the matter to the Special Commissioners and stating that the Revenue had indicated that they had no objection.  The letters said,  

“They feel that in view of the complexity and legal issues involved, that the interests of justice may well be served by such a referral.”

The letters asked for their views.

13.	Mr Martin Wright, who was then a partner in Larking Gowen, told me that neither he nor the Appellant received the letter.

14.	On 16 October 2007 a member of the staff of the Special Commissioners wrote to the Clerk to the General Commissioners in respect of correspondence passed by Mr D Bazuaye of HMRC confirming that the Special Commissioners accepted the transfer of jurisdiction.

15.	At that stage it does not appear from the file that the Special Commissioners had received any communication from the General Commissioners and it would seem that the Special Commissioners had not been informed of the Order of the High Court returning the matter to the General Commissioners for a re-trial.

16.	Form 209B with documents including the Order were sent by the Revenue to the Special Commissioners on 23 January 2008.

17.	On 5 February 2008 a Special Commissioner issued Basic Directions.  Since further directions were not agreed the Management Directions took effect.  Direction (5) required the Appellant to provide to the Revenue a list of documents relied on, a draft statement of facts and the names of witnesses and an outline of their evidence.  Direction (6) required the Revenue to provide similar material within 21 days of the Appellant doing so.  Direction (7) to (12) contained further steps all following after compliance with Direction (5).  At this point I observe that, since the Appellant did not comply with Direction (5), Directions (6) to (12) never took effect.  Direction (13) was however not dependent on Direction (5).  It provided,

“(13)	No further documentary or witness evidence shall be admitted unless the parties agree or the Tribunal directs.”

There was no agreement and no direction by the Tribunal.  Direction (15) required core bundles to be served 14 days before the hearing.  Direction (16) required skeleton arguments to be served on the Tribunal and the other party 14 days before the hearing.

18.	On 20 February Larking Gowen wrote to the Special Commissioners challenging the transfer by the General Commissioners stating that the Appellant had not agreed to it.

19.	On 29 February the Tribunal replied stating that a Special Commissioner considered that it was in order for the General Commissioners to decide that a re-trial would be too long and complex for them to deal with.  The letter stated that the Special Commissioners were prepared to sit outside London if the parties wished.

20.	On 15 April 2008 Larking Gowen wrote again objecting to the transfer stating that they were not given an opportunity to object.  The Tribunal drew attention in a letter of 22 April to the letters from the Clerk to the General Commissioners dated 13 June 2007 (see paragraph 12 above) but Larking Gowen maintained in a letter to Lewison J that the Appellant had not been given a chance to object to the transfer and stated that the Appellant could not afford the cost of a barrister before the Special Commissioners.

21.	On 29 May Larking Gowen re-iterated the request for a local hearing.

22.	A correspondence then followed regarding the Appellant’s failure to comply with Direction (5).  In a letter dated 9 July 2008 the Tribunal stated that the Special Commissioner had agreed to a local hearing but repeated the need for the Appellant to comply with Direction (5).

23.	On 1 August Larking Gowen wrote that the Appellant could not pay their fees or for representation at the hearing and that the Tribunal should contact the Appellant directly.

24.	On 17 September the Tribunal asked the Appellant for confirmation that he would like the hearing nearer to him than London.

25.	On 3 October the Appellant wrote to the Tribunal in reply complaining at a re-trial and saying that the facts had been fully supplied to the General Commissioners at Colchester and that the case had been remitted to them.  He concluded,

“I shall not be taking part in any ‘re-trial’ as this is a clear abuse of the regulations and the legal system relating to those regulations.”

26.	On 3 November 2008 the Tribunal notified a two-day hearing in London before the Special Commissioners on 26 and 27 March 2009.

27.	On 25 November the Appellant wrote that neither he or Larking Gowen were told of the intention to transfer, that Larking Gowen had not agreed the procedure, that the Tribunal had previously agreed that the hearing would be in Colchester not London and that he had not been consulted about hearing dates and his principal adviser was on holiday.

28.	On 7 January 2009 the Revenue wrote objecting to the hearing being vacated as the Appellant had said that he did not wish to participate in the re-hearing.

29.	On 9 January 2009 the Tribunal wrote to Larking Gowen in response to the Appellant’s letter of 25 November 2008.  It pointed out that from 1 April there would be no General or Special Commissioners and any previous directions by the Court would be treated as a direction for the new Tribunal to hear the case.  The letter said that there had been no response to the letter of 17 September 2008 as to the venue.  It stated,

“It is possible for this appeal to be heard in Colchester but only if Mr Wright is willing to attend.  As such, we would like confirmation from Mr Wright if he will attend the hearing if arrangements are made for the appeal to be heard in Colchester.”

The Tribunal wrote again to Larking Gowen on 27 January asking for a response.  Larking Gowen replied on 28 January that they were no longer acting for the Appellant but had forwarded the first letter and would forward the second.

30.	On 30 January the Appellant replied to the Revenue’s letter earlier in the month sending a copy to the Tribunal.  He wrote that he did not accept that the Tribunal’s service had followed the correct procedures.  He continued,

“It was agreed in the summer of 2008 that any hearing would be in Colchester and not in London.  I am not willing to make a commitment to attend such a hearing.”

He repeated that the High Court had remitted the case to the General Commissioners.

31.	On 18 February the Tribunal asked for the Revenue’s comments on that letter.  The Revenue replied on 11 March expressing the view that the Appellant did not have a good reason for not attending and that the hearing should proceed on 26 and 27 March; the fact that his “friend” could not attend was irrelevant as this was the Appellant’s appeal.  The Revenue wrote that the Appellant had been made aware of the hearing well in advance and continued to take every opportunity to delay matters because of the transfer to the Special Commissioners; the Tribunal was asked to apply regulation 16 and direct that the hearing take place in the Appellant’s absence if he maintained his decision not to attend subject to any written representations he might make.  On 12 March the letter was forwarded to the Appellant.  The matter remained in the list on the basis that the Special Commissioner would make a decision at the hearing in the light of any representations by the Appellant.

32.	On 17 March, nine days before the hearing, the Revenue sent to the Tribunal amended witness statements by Mr Elliot and Mr Morris who had given statements for the hearing before the General Commissioners.  They also sent a copy of the original Revenue bundle for the General Commissioners.  Those were sent to the Appellant on that day.

33.	On 20 March the Appellant replied to the letter of 11 March (see paragraph 31 above).  He wrote that the matter had not been progressed as directed by the High Court and that Lewison J did not direct a re-trial.  Neither he nor his advisers had been advised of the proposed transfer to the Special Commissioners.  The Tribunal had agreed that the hearing would be in Colchester not London.  Larking Gowen no longer acted for him; he was not able to spend thousands of pounds in defending a re-trial which should not be taking place.  He ended,

“To conclude: for the reasons once again re-inforced in this letter, I do not intend to attend the hearing.”

34.	The matter came before Mr Nowlan as a Special Commissioner on 26 March.  The Appellant did not appear.  The Revenue were represented by Mr Nawbatt who had appeared before Lewison J but not before the General Commissioners.  Mr Nawbatt told me that the bundle before the General Commissioners was produced together with the amended witness statements by Mr Elliot and Mr Morris which they confirmed.  The Case Stated was produced with the judgment of the High Court.

35.	No application was made by the Revenue under Direction (13) of the Management Directions to admit further documentary or witness evidence in addition to that served under the earlier directions.  No material had been served either by the Appellant or the Revenue under Directions (5) to (12).

36.	No core bundle was served as required by Direction (15) and no skeleton arguments were  served under Direction (16).  These were required not less than 14 days before the hearing.

37.	It does not appear that those failures to comply with the Management Directions were drawn to the attention of the Tribunal.  Mr Nowlan recorded that he was strongly pressed by the Revenue to hear the case.

Discussion

38.	In my judgment when considering whether to set aside the decision in question it is necessary to consider afresh the decision to proceed in the Appellant’s absence on 26 March in the light of the material and representations before me.  This is not an appeal against the decision of Mr Nowlan to proceed in the Appellant’s absence.

39.	An important fact which was not known to Mr Nowlan was that the adviser who was on holiday on 26 and 27 March was Mr Martin Wright, a retired partner in Larking Gowen, who was assisting on a pro bono basis, and who appeared before me.  It is unfortunate that this was not made clear on the correspondence.  The fact that he could not attend was clearly relevant.  If that had been made clear to the Tribunal in the letter of 25 November an adjournment would almost certainly have been granted.

40.	It is quite clear that the Appellant’s decision not to attend on 26 March was a conscious decision.  That, however, although a relevant factor, is not decisive.  It is necessary to consider the reasons.

41.	It is clear the Appellant considered that the hearing should have been before the General Commissioners in Colchester and should not have been transferred to the Special Commissioners.

42.	Reading paragraph [23] of the judgment of Lewison J it is understandable that the Appellant believed that the matter would go back to the General Commissioners to apply the correct legal test.  The decision did not itself refer to a re-trial.

43.	The Order of 6 February 2007, however, did provide expressly for “the matter to be returned to the General Commissioners for a re-trial”.  A re-trial involves fresh hearing of the evidence.  The Order was silent as to whether the re-trial should be before the same panel.  Usually when a fresh hearing is directed, it will not be heard by the same panel; indeed the Order frequently directs that the matter be heard by a different panel.  The Appellant was mistaken in asserting in his letter of 20 March that Lewison J did not direct a re-trial.

44.	Section 44(3A) of the Taxes Management Act 1970 provided, so far as relevant,

“(3A)	Where in any case …

(a)	an appeal has been brought before the General Commissioners; and
(b)	those Commissioners consider that, because of the complexity of the appeal or the length of time likely to be required for hearing it, the appeal should be brought before the Special Commissioners:

the General Commissioners may, with the agreement of the Special Commissioners, and having considered any representations made to them by the parties, arrange for the transfer of the proceedings to the Special Commissioners.”

That provision ceased to apply on 1 April 2009.

45.	Mr Nawbatt submitted that just as the General Commissioners could have transferred the original proceedings in 2005 to the Special Commissioners so also they could do so when the matter was returned by the High Court.  Section 44(3A) contained no limitation on the power to transfer.  The Order did not prevent a transfer.  The fact there is no precedent for such transfer was not a reason why the matter should not be transferred if they formed the view that it was in the interests of justice.

46.	The initial question, which was not addressed by Mr Nawbatt was whether when the matter was returned to the General Commissioners by the High Court it was “brought before” them within section 44(3A)(a).  Normally an appeal was brought before the General Commissioners by one of the parties serving a notice that he wished a date to be fixed, see regulation 3 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994.  “Brought before” is not a defined term.  Clearly when the matter was originally before the General Commissioners it had been “brought” before them.  It is less clear that when the matter was returned by the High Court that it was “brought” before them.  There is however no temporal limitation in Section 44(3A) which starts “Where in any case” rather than “When”.  It would appear that it would have been possible to transfer a case even after it had started if it became apparent that it would take much longer than expected or a General Commissioner was ill.

47.	Although the Order returned the matter to the General Commissioners, it is doubtful whether the High Court could have remitted it to the Special Commissioners.  Once a re-hearing was directed there was no importance in the identity of the Commissioners for the re-trial.

48.	I consider, not without some hesitation, that the transfer was possible under section 44(3A).

49.	I now turn to the procedure.  On the balance of probabilities I find that Larking Gowen never received the letter of 13 June 2007 from the Clerk to the General Commissioners.  They wrote relatively quickly after receiving the Management Directions objecting to the transfer.  There is nothing on the file to suggest that they knew of the transfer earlier.  Similarly I accept that the Appellant did not receive the letter of 13 June.  There is no reason to believe that the Clerk did not believe the letters had been sent.  It is surprising that he did not follow up the matter when there was no reply.

50.	The whole handling of the transfer was unusual.  The Clerk had written to the Revenue for their approval two weeks before writing to the Appellant.  Instead of writing to the Special Commissioners it appears that the Clerk left it to the Revenue since the Special Commissioners received the correspondence from the Revenue rather than from the General Commissioners.  When accepting the transfer it does not appear that the Special Commissioners had been told that the matter had been returned to the General Commissioners by the High Court.

51.	On the footing that the transfer was nevertheless legally effective, I find the Appellant’s objections to have been entirely understandable.  Although he was not told this, it would seem that his only method of challenge would have been by judicial review, a difficult procedure for anyone, let alone an unrepresented Appellant.

52.	The Appellant also objected to the London venue.  It is not clear to me why the matter was listed in London when the Tribunal had written in July 2006 agreeing to a local hearing.  It is true that he wrote on 3 October 2008 and 20 March 2009 that he was not attending, however his position was not consistent since on 25 November 2008 he wrote that the Tribunal had previously agreed to a hearing in Colchester and repeated this on 30 January and 20 March 2009.

53.	The delays in this matter were by no means confined to the Appellant.  The Revenue only responded to his letter of 25 November 2008 on 7 January 2009.  The Revenue did not respond to the Appellant’s letter of 30 January 2009 until 11 March.  

54.	The appeal involved a very substantial sum for a sole trader.  Before the General Commissioners the only oral witnesses were for the Appellant; before the Special Commissioner the only witnesses were for the Revenue.  It is the type of case where the inequality of arms is particularly unfortunate.

55.	Once the Tribunal decided on 26 March 2009 to proceed in the absence of the Appellant and his witnesses the decision adverse to the Appellant was almost inevitable.

Conclusion

56.	I have concluded that it is in the interests of justice that the decision should be set aside and that the appeal be listed for re-hearing by the First-tier Tribunal in Colchester.

57.	While the transfer was not unlawful, the Appellant understandably felt aggrieved.  The Appellant had been told that he could have a local hearing. The hearing in London on 26 March 2009 meant that he could not have the assistance of Mr Martin Wright.  Finally, the Revenue did not themselves comply with the Management Directions, in producing material without a direction of the Tribunal and in failing to serve a skeleton argument on the Appellant.  This was particularly serious since the Appellant had no professional representation.  The material which was sent was sent late.  If the Revenue had complied with the Management Directions and done so in proper time this may well have caused the Appellant to think again about not attending. 

58.	I am also giving directions for the re-hearing which take account of the fact that the Appellant does not have a paid representative.

59.	The application to set aside the decision released on 20 April 2009 is allowed, 

THEODORE WALLACE
TRIBUNAL JUDGE
RELEASE DATE: 20August 2009