DECISION NOTICE

containing full written findings of fact and reasons for the decision

1. The hearing in Earthshine’s appeal commenced on 18 January 2010, listed for ten days. On Thursday, 28 January, which was 9 days into what had by then become a 12 day hearing, Mr Collins for HMRC intimated that he wished to make an application to admit evidence. It was agreed between counsel for both sides that the actual application would be made in writing on Monday 1^st February and heard first thing on Tuesday 2^nd February. HMRC disclosed evidence to the Appellant, some of which they did not seek to admit. The evidence comprised information from a file and a witness statement about its discovery.

2. The information disclosed to the Appellant by HMRC was as follows:

· Witness statement of Mr R Stone (witness for HMRC) dated 29 January 2010 explaining the discovery of the evidence listed below:

· exchange of emails dated 2003/2004 between Mr Sharp (witness for the Appellant) and a Mr Young (not called);

· witness statement of a police officer dated 1 February 2005 to be used in Mr Young’s criminal trial which exhibited the email exchange (above);

· witness statement of Mr R Stone made in respect of the forthcoming criminal proceedings against Mr Young;

· some five hours of tape recording an interview between Mr Sharp and a police officer collecting evidence in the prosecution of Mr Young;

· curriculum vitae of Mr Young’s father-in-law.

3. The application was made to admit Mr Stone’s witness statement dated 29 January 2010, the exchange of emails and the “covering” 2005 witness statement of the police officer. These were the only documents which HMRC sought to admit and the only documents of which the Tribunal had sight. The remaining items – the last three in the above list - were disclosed by HMRC to the Appellant but HMRC does not intend to rely on them.

4. This Tribunal has a wide discretion over whether or not to admit evidence as set out in Rule 15(2) of the First Tier Tribunal (Tax Chamber) Rules 2009. In exercising that discretion the Tribunal agrees with the Appellant that the starting point is Mr Justice Lightman’s decision in Mobile Export 365 Limited [2007] EWHC 1737 (Ch) where he said “The presumption must be that all relevant evidence should be admitted unless there is a compelling reason to the contrary” (paragraph 20). We will therefore firstly determine whether the evidence sought to be admitted is relevant, and if it is, then we will consider whether there is a compelling reason not to admit it.

Relevance

5. Witness statement of Mr R Stone. This dealt with the circumstances under which the evidence was first given to Mr Stone and then recently discovered by him and was relevant also to today’s application. It was inevitably admitted insofar as necessary to deal with the application and to that extent Mr Stone was cross-examined on it. It follows that it will be allowed in as relevant if the email exchange itself is allowed in.

6. Witness statement of police officer. This was dated 1 February 2005 and was a brief explanation of how the email exchange was discovered by the police. HMRC sought to have this admitted as an explanation of the origin of the emails. They did not propose calling the police officer. Mr Green stated in today’s hearing quite categorically that the Appellant and Mr Sharp do not deny the authenticity of the emails and in particular that Mr Sharp was the author or recipient of them. The Tribunal therefore concludes that this witness statement has no relevance as the provenance of the emails is not in dispute. In any event we doubt that it would be appropriate to admit the witness statement unless HMRC intended to call the author of it as a witness.

7. email exchange. The relevance of the emails, the crux of today’s hearing, was very much in dispute. We do not propose setting out the contents of the emails in full. In summary, it is an exchange of correspondence between Mr Sharp, a director of Earthshine, and a Mr Young, who was paid by the Appellant to conduct investigations and due diligence on its behalf.

8. Our understanding is that both parties consider that the emails might tend to show (we put it no stronger than this having yet to hear any witness speak to the content of the emails) that Mr Sharp was aware of the sources of information used by Mr Young when carrying out those investigations. In particular there is a suggestion that Mr Sharp knew that Mr Young would search police databases and had a “contact” in HMRC.

9. Is this relevant? HMRC say it is relevant as it might show that Mr Sharp’s evidence on the matter given to the Tribunal in examination in chief and cross examination might not be entirely reliable because they say that on the face of it, it does not appear to be completely consistent with the content of the emails. In HMRC’s view the reliability of Mr Sharp’s evidence is of importance because the allegation is that Earthshine’s transactions were connected to an alleged fraudulent loss of tax and that Earthshine knew or ought to have known this. Mr Sharp was both a director and shareholder of the Appellant and one of its chief witnesses and has put a case, say HMRC, that the Appellant acted scrupulously and carefully.

10. The Appellant does not consider that the email exchange is relevant. Mr Green says that there is no pleaded allegation of knowledge on Earthshine’s part of any wrongdoing by Mr Young. We agree with Mr Green that there is no such specific pleading. What is pleaded is (in the alternative) that “the Appellant knew that its transactions were connected to fraud” or “it ought to have known that” its transactions were connected to fraud.

11. It is plain to the Tribunal that the tribunal’s assessment of the evidence given by a key director of the Appellant is relevant to the question of actual knowledge of the Appellant. Whether the Appellant ought to have known is based on objective factors but even so Mr Sharp’s evidence is relevant even to that question: the question is what a reasonable person would have understood were he in the same position as the Appellant. So Mr Sharp’s evidence is relevant, for example, to the actual position in which the Appellant found itself, if not to the inferences (if any) which the Appellant (by its Directors) ought to have drawn from that position.

12. Our conclusion is therefore that the evidence is relevant. Unless this evidence is admitted, and then depending on what the witnesses say in respect of it at the reconvened hearing, we can have no view as to whether it will in fact affect the Tribunal’s view of Mr Sharp’s evidence. But Mr Sharp’s evidence is very relevant and these emails now sought to be admitted might go our assessment of the weight to be put on his evidence. These emails are therefore relevant.

Compelling reason to exclude?

13. To consider whether there are compelling reasons for its exclusion means we must first consider what led to the evidence being produced so late in the hearing. We find the facts to be as follows.

Facts

14. Mr Stone’s evidence, which we accept, was that he received the copy emails from the police in around July 2006. He subsequently used them to prepare a witness statement in the prosecution of Mr Young. At some point he lost the file with the copy emails and other contents as set out above: he states that this was during an office move in late 2006. Under cross examination he admitted that he did not know this for certain: the file was lost and he thought that this was the most likely time for it to have been misplaced.

15. He agreed that he had been careless when misplacing the file. The Tribunal also finds that he did not make a great effort to locate the lost file: he admitted that once aware it was lost, he kept an eye out for it, but we find he did not undertake a systematic search.

16. Mr Stone was not the visiting officer for the Appellant (although he had once visited the Appellant with the visiting officer), and it seems that although he was aware in 2006 that some of the Appellant’s returns had been selected for extended verification, he did not take this decision nor was he involved in the process of verification.

17. When preparing his second witness statement for use in this appeal (dated September 2009) Mr Stone referred to his witness statement produced in Mr Young’s prosecution but did not give any details of what he said nor did he refer to the emails the subject of today’s application. At today’s hearing he explained that this was because he did not consider it appropriate to do so because at the time of making the 2009 witness statement the file with the emails and his witness statement for Mr Young’s prosecution was lost. We understood him to mean that he chose not to make allegations that he could not substantiate with evidence.

18. Mr Stone said that had either side sought further information in relation to this section of his September 2009 witness statement he would have made more of an effort to find the missing file. His evidence is that the file was eventually found by chance on 26 January 2010 within another file relating to a completely different matter which Mr Stone was consulting in order to prepare for an unrelated hearing.

19. Mr Green said that he did not allege bad faith on the part of HMRC in relation to the late discovery of this evidence, nor did he actually suggest in cross-examination of Mr Stone that he was being untruthful. Nevertheless, Mr Green did put to Mr Stone “Can you hear how that sounds?” So even if Mr Green did not consider he was alleging bad faith the Tribunal has nevertheless considered whether it accepts the veracity of Mr Stone’s account.

20. It seems to the Tribunal improbable that HMRC would have deliberately held back this evidence because, as mentioned earlier, it might tend to show that the Appellant’s director knew of Mr Young’s (alleged) underhand dealings and since to some extent (this being a case where the Appellant’s knowledge or means of knowledge of an alleged fraud is at issue) the Appellant’s business practices are an issue it seems unlikely HMRC would have withheld evidence which they consider helpful to their case and taken a real risk that the Tribunal might not admit it late.

21. The improbability in Mr Stone’s account, on the other hand, is that evidence which was lost and for which no great effort was made to locate it, should eventually be found by accident actually during the hearing of the case to which it now has some heightened potential relevance. Coincidences do happen. In all the circumstances, the Tribunal accepts Mr Stone’s evidence that the emails were not deliberately held back by HMRC but discovered when and as Mr Stone says that they was discovered.

22. The file was, therefore, we find, discovered by Mr Stone late afternoon on Tuesday 26 January. He informed HMRC solicitors’ office the same day and forwarded the emails to a solicitor there. The same day he spoke to the police who confirmed that they would have no objection to the information being disclosed in this appeal. The following day (Wednesday) the emails were disclosed to Mr Green. The full file (including for instance the taped interviews) were provided to HMRC’s solicitors in a conference the same day – it seems that until that point HMRC’s solicitors were not aware that there was more information on the file than just the emails.

23. On the Thursday Mr Collins intimated to us that he wished to make an application to admit new evidence. The Tribunal’s understanding is that he did not make the application at that moment in order to give the Appellant time to consider it. The application was then put off by agreement between the parties to Tuesday 2 February in order that the Tribunal might get through as much witness evidence as possible in the allotted time before being diverted by the application.

24. The Application hearing took all day and we adjourned part heard at 5pm, with a new date to find for hearing Mr Stone’s evidence (whether or not the emails are admitted).

25. There are a number of matters which might amount to a compelling reason not to admit this evidence. In particular, evidence will not be admitted where it is unfairly prejudicial to the other side or for reasons of effective case management.

Unfair prejudice

26. That the evidence might be prejudicial to the Appellant’s case is of course not the point. The question is whether it is unfairly prejudicial: whether the help to the Tribunal in reaching the right answer by having all relevant evidence is outweighed by the risk the proceedings would become unfair to the Appellant.

27. There are three reasons why admitting evidence so late is (potentially) unfairly prejudicial to the Appellant. Firstly, it may ambush and surprise the Appellant putting them at a disadvantage. Secondly, the Appellant may not have time to obtain evidence in rebuttal. Thirdly, the Appellant has already presented its case without consideration of this evidence and might be strategically disadvantaged.

Surprise and ambush

28. Mr Green says that the Appellants are ambushed. As Mr Justice Lightman said in Mobile Export 365 (above) at paragraph 21: “I should conclude by saying a word about springing surprises on opponents, as were sprung on the Commissioners and the tribunal in this case. Such tactics are not acceptable conduct today in any civil proceedings. They are clearly repugnant to the Overriding Objective…” That comment was not in fact made in relation to late evidence being sprung on the other party (it was made in relation to an unexpected application for the appeal to be allowed) but would seem to be at least as applicable to such a case.

29. We have already found that the re-discovery of the evidence was not deliberate. If we had been satisfied that HMRC had possession of the new evidence sought to be admitted by them and had chosen to withhold it in order to ambush the Appellant, then we would not admit it. However, the evidence does not show this.

30. That does not in our view prevent it being in effect an ambush in that the Appellant could be as much at a disadvantage with new evidence whether or not the ambush was deliberately engineered. This is not new evidence which has just come to light and which HMRC were unable to produce before. Far from it: they have possessed the evidence since July 2006. They failed to produce it earlier because they had lost it. For the loss of the evidence and the failure to locate it earlier they are to blame. Effective case management must mean that the Tribunal should have sanctions for failure by one side or the other to progress its case efficiently: we can see force in the view that HMRC (by its officer Mr Stone) should live by their decision that the evidence was not of such importance to them that they would make a thorough search for it in order to produce it in a timely fashion. (We do not intend to imply criticism hear of the HMRC legal team and counsel: we accept that they were unaware of the evidence until Mr Stone located it on 26 January 2010.)

31. Is this a compelling reason to exclude? We think in most cases it might well be so, but we are not convinced that it is so in this case. Critically to the Tribunal is the point that the Appellant cannot be surprised by this new evidence. The Appellant’s director at the time and a major shareholder is the author of most of the emails and the recipient of the rest. It is not new evidence as far as the Appellant is concerned.

32. A further ground put by Mr Green was that the evidence, when it did come to light was not disclosed in a timely fashion.

33. Firstly, only the emails were disclosed on the Wednesday. The further documents (which HMRC do not seek to adduce) were disclosed after the hearing on Friday. Further, it had been agreed between the parties that the application would be in writing and made at lunchtime on Monday and heard by the Tribunal first thing on Tuesday. In the event, email containing the application left HMRC on time on Monday but did not reach the Appellant’s solicitors until 3.30pm.

34. The explanation for this slow disclosure (Friday rather than Wednesday) given by HMRC was simply an error – HMRC’s solicitors did not know until Thursday that there were more than just the emails. And of course it is only the emails which they seek to adduce.

35. The Tribunal finds that HMRC were (in the circumstances of a live case) slow to disclose all the documents. However, it is difficult to see how the Appellant was prejudiced by the two day delay. The Application was not made until Tuesday morning, by which time the Appellant had been in possession of all the documents since the previous Friday evening. And they were of course documents (with the exception of Mr Stone’s various witness statements) which the Appellant had itself generated or received.

Time for rebuttal

36. Similarly, there are few problems on giving the Appellant time to consider the evidence and in particular the documents disclosed by HMRC which they are not seeking to admit in evidence. The Court of Appeal is due shortly to hear the first appeals in MTIC cases, and as I said at the outset of the hearing, even though we hoped to finish in the allotted ten days, I would have expected further submissions from the parties once the Court of Appeal’s decision was released. But in any event this case has been under time pressure from the start. The timetable slipped. We arranged to have two days’ extra hearing time (1^st and 2^nd February). In the event it became clear that this would be insufficient. Had it not been for HMRC’s application today (2^nd February) we would have expected to have heard all the witness evidence (Mr Stone is the only outstanding witness and his cross examination was estimated to be half a day). It was therefore already canvassed and expected that closing submissions would be made at a later date and probably after the Court of Appeal has issued its judgment. It is now inevitable that Mr Stone’s evidence must wait until we reconvene – although not necessarily wait until closing submission are made. This will take time to organise as a day must be found on which the parties, the bench and a hearing room are all available. It follows that the Appellant will have time to consider the new evidence and in particular make any applications it wishes for any of the disclosed material to be admitted.

37. And – to repeat what has been said – this is not new evidence to the Appellant and therefore the time needed to consider it must be much less than in any other case.

Strategic disadvantage

38. Mr Green suggested that allowing new evidence in on Day 12 of a 10-day hearing allows it to assume an unwarranted importance. It also, he says, has a psychological impact on the parties that is unfair.

39. As to his first point, we would say that we are a Tribunal and not a jury. We cannot admit evidence unless we are satisfied that it is relevant. However, we cannot prejudge how relevant the evidence is: much relevant evidence is not determinative of an appeal. We cannot judge what weight if any should be placed on these emails unless they are admitted and then only when evidence about them is given at the reconvened hearing. And we do not consider that the Tribunal is in danger of giving this evidence greater weight than it merits because of its dramatic appearance.

40. We can see that late admission of evidence could impact on how the parties perceive the appeal to be progressing and this must be a factor in why the courts and Tribunals try to ensure that ambushes do not take place. We do not see it as sufficiently a compelling reason to exclude relevant evidence in a case where the existence of the material is no surprise to the Appellant.

41. Mr Green drew our attention to the Chairman’s comment in Our Communications Ltd that introducing new evidence half way through a hearing would be unfair as – had the evidence been available earlier - previous cross-examination might have been conducted differently. However, we do not see how that can apply in this case. It is true that had the evidence been available earlier it might have affected how HMRC cross-examined Mr Sharp, but it is HMRC who seek to admit the evidence. And the evidence might well affect how Mr Green chooses to cross-examine Mr Stone who is the only other witness who has had any connection with these emails (neither party is calling Mr Young). But Mr Stone is yet to give evidence.

42. The unfairness to the Appellant of admitting evidence after it has closed its case can be largely mitigated by permitting it to recall Mr Sharp for examination and cross examination on the emails.

43. Mr Green later amplified on this by saying he thought that the vice of the ambush included the fact that evidence is taken “out of context”. And further, that not having the evidence in advance of the hearing meant that witness statements and examination-in-chief (as well as cross examination) would proceed differently. This may well be a good point where the new evidence is unknown to the Appellant, but we do not agree that it applies in this case as the evidence is not new to the Appellant – Mr Sharp was the author of it.

Case management

44. Case management can certainly be a compelling reason to refuse to admit new evidence. If the Tribunal has no effective sanction, then how could it prevent parties regularly seeking to admit late evidence and ambushing the other side? So we consider that we do have the power to refuse to admit late evidence for case management purposes. A guide to what case management issues might amount to a compelling reason to exclude new evidence can we think be found in the High Court decision in Brayfal Limited CH/2008/APP0082 to which we were referred by Mr Green.

45. At paragraph 38 the Judge said that:

“Modern case management attaches importance to a number of different factors. First, it attaches importance to compliance with orders and directions. …. Failure to comply with orders and directions is prejudicial to the administration of justice itself.

Where a party in default of an order or direction wishes to be relieved from the consequences of his default, the burden is undoubtedly on him to persuade the Tribunal to grant relief…..

Secondly, modern case management attaches importance to a cards-on-the –table approach. It discourages surprises and ambushes.

(We have already covered this point above under “unfair prejudice”, the judge continued:)

Thirdly, it attaches importance to adhering to trial dates. Applications that have or may have the result of disrupting a trial date or the progress of a trial are viewed less sympathetically than those which will not have that effect.

Fourtly, it adopts a flexible approach to the imposition of sanctions on a party who is in default….Where the balance is to be struck in any particular case is a matter of judgment for the Tribunal in question.”

This last point is not really relevant in this case where neither party is in default.

Adhering to trial dates

46. The Appellant’s case is that it has made sacrifices to keep to the timetable and it did not want it derailed by this application. In particular it chose not to call one of its witnesses, Mr May, and it gave up its application to admit two new witness statements.

47. By itself we do not consider this relevant. Counsel makes choices on how to run its case: it cannot by this unilaterally then hold the Tribunal to any particular course of action.

48. In any event, we would point out that we understood from what Mr Green said that the decision not to call Mr May was at least in part related to cost, and that the failure to keep to the timetable has resulted from counsel, including Mr Green, underestimating how long they would be in cross-examination. The timetable has been derailed whether we admit this evidence or not.

Failure to comply with directions

49. The Appellant points out that the evidence the subject of this application is not the only evidence which HMRC has sought to introduce late into the proceedings, although (unlike the facts in Brayfal) HMRC is not actually in breach of directions in seeking to adduce new evidence.

50. That it is not actually in breach of an express prohibition against the production of further evidence is not to our mind of great help to HMRC’s case: the whole tenor of the rules and directions of the Tribunal is that evidence should be produced well in advance of the hearing.

51. The Appellant points out that during the hearing HMRC sought to adduce:

· Bundle D1 (documents disclosed but missed from the trial bundle);

· Handwritten notes of an officer (produced on day 6);

· Complete version of a spreadsheet of which it appears only an incomplete version was copied for the bundles (and possibly even for disclosure);

52. All the above evidence was admitted as the Appellant chose not to object to any of it. The Tribunal certainly considers it best that the parties should reach agreement between themselves where possible: but it is not open to the Appellant to suggest that because it chose not to object to some evidence coming in late that this amounts to a valid ground of objection to other evidence coming in late. The Tribunal judges each application on its merits.

53. Even if the number of late applications allowed by consent were relevant, and we don’t think it is, the Tribunal would point out that both sides indulged in this behaviour. The Appellant adduced its day diaries during the hearing: HMRC did not object to them coming in. The Appellant also made an application to admit two new witness statements with exhibits: HMRC acceded to one coming in and were disputing the second. The Appellant then withdrew both its applications.

54. In conclusion the Tribunal does not consider HMRC’s earlier applications a reason let alone a compelling one for refusing to admit the evidence the subject of this application in.

Other reasons

55. The Appellant suggested that it is not open to the Tribunal to view information obtained using police powers for the purpose of an unrelated criminal prosecution, as it seems that the emails were. It points to the case of Dragon Futures VTD 19186 in which the parties requested and obtained from the Crown Court Judge a release of evidence from the evidence produced at the criminal trial.

56. HMRC does not agree. It points out that although a release was sought from the Crown Court in Dragon Futures the material related to on-going criminal proceedings whereas there are none in relation to this material.

57. It seems there are two points here. Firstly, is it a contempt of court to use this material? Secondly, can the Tribunal use evidence obtained under police powers for use in unrelated criminal proceedings?

58. On the first point, the evidence before us is that Mr Young was prosecuted and pleaded guilty some years ago. There are no current criminal proceedings to which this material relates. The use of the material cannot jeopardise proceedings that are long since completed.

59. On the second point, it seems misplaced to challenge admissibility of evidence on the grounds that it was obtained using police powers when in fact the Appellant’s director was the author of it and must in that sense “own” it. Mr Sharp must own the intellectual property rights in the emails which he sent: if he was still in possession of a record of the emails on a computer of his, the Tribunal would have the power to order disclosure of them.

60. Further we accept HMRC’s point that it is for the Appellant to satisfy us that there is a bar to the Tribunal using the material. It is HMRC’s application but the Appellant’s objection to it: they must satisfy the Tribunal that there is at least an issue here. Yet other than the Dragon Futures case which related to live criminal proceedings, no legislation or case authority was cited to us suggesting that there is a bar to using this material.

61. The Appellant indicated that they might wish to question Mr Stone on the content of his 2005 witness statement. This is speculative. The Appellant has not in fact made an application to admit this witness statement. The Appellant says if it made such an application, it would need time to apply to the Crown Court for a release to use the witness statement. Again bearing in mind that the statement was made by Mr Stone (HMRC’s witness) and has been disclosed by HMRC, the Tribunal is not convinced this is necessary. But there clearly would be time to do it as the Tribunal has most regrettably been forced to adjourn part heard.

62. Mr Green also said that he might argue that in so far as the emails showed that Mr Young was passing information from an insider at HMRC to Mr Sharp, the contact was not breaking any duty of confidentiality because of the Employment Rights Act and the protection it affords for whistleblowers.

63. Mr Collins’ view, which we share, is that there is time for Mr Green to investigate whether this legislation does have any bearing on the case, and to formulate his arguments in respect of it.

Other authorities

64. We considered the various tribunal authorities to which Mr Green referred us as they are persuasive if not binding on us. The circumstances of each case vary so much that we did not in practice find them of great assistance on the facts but would note that we found in particular the general comments of the Judge in Honeyfone of assistance.

65. In Europeans Ltd (VTD 20796) the Chairman refused to admit two out of three witness statements sought to be adduced by HMRC two months before the appeal hearing. The grounds were that the material was too voluminous for the Appellant to deal with before the hearing making an adjournment inevitable and HMRC had not given a sufficiently good explanation for why it was produced so late. This is quite different to this case where the material sought to be adduced is not an expert witness report but an exchange of emails by the Appellant’s director and shareholder. The element of surprise was present in Europeans Ltd but not in this case.

66. Our Communications Ltd (VTD 20903): as with our case this involved an application to admit evidence once the hearing was under way. It was rejected. The application was to admit a new witness statement which would almost double the amount of evidence in front of the Tribunal. The Tribunal’s grounds for rejecting the application included: (a) it was too much information for the Appellant to deal with; (b) out of time under the Directions; (c) documents exhibited were not on HMRC’s list of documents (d) evidence was of only peripheral relevance (in that it sought to prove fraud in chains that were not in issue); (e) evidence involved new allegations of fraud yet the relevant “defaulting” officers were not being called.

67. This was a very different case to the one before us. The evidence sought to be produced by HMRC here is small in quantity and of no surprise to the Appellant as its Director was the author. It is not merely of peripheral relevance.

68. Honeyfone (VTD 20667): in this case the Tribunal refused to admit evidence during the hearing. The chairman said (paragraph 6):

“(i) whilst generally the tribunal would lean towards admitting relevant evidence because the better the evidence available to it, the fairer and more just its decision can be, then comes a time when, in the interests of the fair and orderly management of the hearing, enough is enough. When that time may come will depend on the nature of the new evidence and the circumstances of its production;

(ii) the evidence related to matters which the Respondents knew from the start they would have to prove; it was not something which arose out of a need to counter a statement made by a witness, or a sudden turn in the proceedings. It was more in the nature of evidence which the Respondents could have provided earlier and forgot until the cross-examination of the witnesses started. There is a general interest in this sort of evidence being disclosed at an early stage…..”

69. We agree with the sentiments expressed by the Chairman in that case but find the facts to be quite different to the case before us. In particular in that case, and unlike the evidence in this case, the evidence had not acquired a new relevance and was found not to be of any great significance and (being evidence relating to the defaults by the defaulting traders) was new evidence to the Appellant.

70. Late Editions Ltd TC00128 The Judge refused to allow HMRC to admit a document during the hearing. It had only just come into HMRC’s possession and was also unknown to the Appellant. It was not produced in response to new evidence or material which had already arisen. It was therefore very different to the evidence in this case, which crucially was known to (indeed created by) the Appellant’s director.

71. In Brayfal - a high court decision which is binding on us - the Judge upheld the Tribunal’s decision to refuse to admit evidence produced during the hearing. Unlike this case, that was new evidence to the Appellant. HMRC were also in breach of directions. The facts were distinctly different.

Conclusion

72. We have found the arguments in this case very finely balanced. This is not “new” evidence: HMRC have had it since 2006 and with the exercise of more diligence could have found it once it was lost (or even asked the police for more copies) and disclosed it long before the hearing commenced. They are clearly at fault for both losing and not properly searching for the evidence. There is a lot of force in the view that HMRC should abide by its actions in not seeking to adduce this evidence at an earlier stage.

73. On the other hand, there must be an interest in admitting late evidence on an issue which has arisen in the course of the hearing. In this case, it is evidence which has gained in relevance. Originally potentially relevant to the peripheral issue of whether Mr Sharp knew that Mr Young (allegedly) used dubious methods, it is now potentially relevant to our assessment of Mr Sharp’s evidence. Further – and we think crucially - the Appellant’s director, shareholder and key witness is the author of nearly all of the emails sought to be admitted and the recipient of the rest: the Appellant cannot be taken by surprise by what it already knows. Lastly, the timetable for the hearing is already derailed and allowing the evidence in merely increases (not necessarily by much) the length of the hearing when the case is reconvened.

74. We consider that the Tribunal should have all relevant evidence unless there is a compelling reason to the contrary. On balance we conclude that HMRC’s application should be allowed: there are reasons why the evidence should not be allowed in, but in the circumstances we do not find the reasons sufficiently compelling. We admit the emails and Mr Stone’s 2010 witness statement (but not the witness statement of the police officer).

75. The Appellant has a right to apply for permission to appeal against this decision pursuant to Rule 39 of the Rules. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice.

76. Further this Tribunal directs as follows:

(1) In confirmation of the direction made on January 18^th 2010, that for all purposes in this appeal the costs rule in Regulation 10 of the Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 is disapplied and instead Rule 29 of the Value Added Tax Rules 1986 shall apply;

(2) The Appellant has leave to recall as a witness Mr Sharp but that if they intend to do so they must notify both the Tribunal and the Respondents one week before the reconvened hearing;

(3) The Appellant has leave to apply to adduce further evidence in rebuttal to the evidence hereby admitted, such application to be made in writing and filed with the Tribunal and served on the Respondents one week before the reconvened hearing;

(4) Both parties shall inform the Tribunal of their dates to avoid for a two day hearing covering the period from and including March-May 2010, the purpose of which will be to hear Mr Stone’s evidence, and the evidence of Mr Sharp if the Appellant chooses to recall him as a witness;

(5) The Respondents then have leave to serve on the Appellant and Tribunal written submissions in closing no later than one month after the all witness evidence has been heard, and shall at the same time give the Tribunal their dates to avoid for a one day hearing in the following two and half months;

(6) The Appellants then have leave to serve on the Respondents and the Tribunal written submissions in closing no later than two weeks after the Respondents have filed their closing submissions; and shall at the same time give the Tribunal their dates to avoid for a one day hearing in the following two months;

(7) Liberty to apply.

First-tier Tribunal (Tax)

TAX

Appellant

THE COMMISSIONERS FOR HER MAJESTY’S

REVENUE AND CUSTOMS (VAT)

Respondents