England and Wales Court of Appeal (Civil Division) Decisions

IN THE SUPREME COURT OF JUDICATURE
COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM CHANCERY DIVISION
(MR JUSTICE JACOB)

		Royal Courts of Justice Strand London WC2 Wednesday, 3rd October 2001

Wednesday, 3rd October 2001

1. LORD JUSTICE JONATHAN PARKER: This is a renewed application for permission to appeal against an order made by Jacob J on 18 May of this year dismissing appeals by the applicant, Mr James Murray King, against decisions of the Special Commissioners dated 23 March 2000. Permission to appeal was refused by Mance LJ on the papers on 5 July of this year. Also before Mance LJ was an application seeking permission to rely on additional evidence on the proposed appeal. Mance LJ granted that application and stated expressly in the course of his written reasons that he had taken such further evidence into account when refusing permission. The applicant appears at this oral hearing by Mr Jeremy Woolf of counsel.
2. The factual and procedural history of the matter is long and complex, but for present purposes a short summary will suffice.
3. In January 1989 the Revenue raised assessments on the applicant and on his partner, Miss Johnson, in respect of a period of some 14 years from 1973/4 to 1985/6. So far as the applicant was concerned the assessments related to profits of the trade of guest house proprietor carried on (so the Revenue contended) by the applicant from a number of properties which had been acquired during the years in question. The applicant appealed the assessments, and his appeal was heard by the Special Commissioners over a period of some 18 days during 1991. The Special Commissioners' decision was delivered on 18 November 1991. By their decision, the Special Commissioners confirmed the assessments, finding as a fact that the applicant had indeed carried on the trade of guest house proprietor from the properties in question during the relevant period.
4. Since some of the earlier assessments before the Special Commissions in 1991 were out of time under the Taxes Management Act 1970, it was necessary for the Revenue, in seeking to uphold the assessments, to establish fraud, wilful default or neglect on the part of the applicant (see sections 36 and 37 of that Act). Fraud was not alleged against the applicant but the Revenue contended that the applicant had been guilty of wilful default and neglect in relation to those earlier assessments. The Special Commissioners upheld that contention and found the applicant to have been guilty of wilful default and neglect in relation to the assessments in question.
5. The Special Commissioners' decision in 1991 was subsequently affirmed by the High Court and by the Court of Appeal.
6. On 13 December 1991 the Revenue issued an interest determination under section 88 of the Act (as amended) for the years 1972/3 to 1985/6.
7. On 17 October 1994 the Revenue issued a penalty determination in respect of the assessments, the subject of the Special Commissioners' decision in 1991.
8. On 4 April 1996 the Revenue raised a further assessment on the applicant for the years 1977/8 to 1985/6 following its discovery of an additional property, Roundwood Lodge, which had been purchased in 1983. The applicant had not disclosed Roundwood Lodge as being an asset owned by him, but the Revenue took the view that Roundwood Lodge had been purchased with profits from the applicant's business; hence the increased liability to tax as set forth in the further assessments.
9. The applicant appealed the interest and penalty determinations, and the further assessments. His appeals were heard by the Special Commissioners, in a different constitution, over a period of some 16 hearing days between 18 May 1998 and 23 April 1999.
10. By their decision, which was dated 23 March 2000, the Special Commissioners substantially upheld all three classes of assessment, that is to say the determinations in relation to interest and penalties and the further assessments following the discovery of Roundwood Lodge.
11. So far as the interest determination is concerned, the relevant statutory provision was (and I take it still is) section 88 of the Act. That section provides, in effect, that an assignment made for the purpose of making good a loss of tax attributable to fraud, wilful default or neglect carries interest from the date on which the tax assessed ought to have been paid. It was accordingly necessary for the Revenue to establish fraud, wilful default or neglect if its interest determination was to be upheld. Once again fraud was not alleged by the Revenue, the Revenue's case being limited to wilful default or neglect.
12. On that issue the Special Commissioners hearing the matter in 2000 concluded that by virtue of section 46(2) of the Act they were bound by findings of the Special Commissioners in 1991. However, as I indicated earlier in this judgment, those findings did not relate to the later assessments with which the Special Commissioners had been concerned in 1991. It was accordingly necessary for the Special Commissioners hearing the matter in 2000 to consider whether in relation to those later assessments wilful default and/or neglect had been made out. Following a careful and thorough examination of the facts, and of the contentions put forward on behalf of the applicant, the Special Commissioners concluded that wilful default and neglect had been made out in relation to those later assessments. In making those findings, the Special Commissioners rejected a number of contentions put forward on behalf of the applicant, in particular a contention that the profits of the trade of a guest house carried on at the various premises in question were not owned by him but were owned by a partnership consisting of other members of his family, including his minor children.
13. The Special Commissioners expressed their conclusion as to wilful default and neglect in paragraph 118 of their decision, as follows:

"Having considered the Appellant's arguments in detail we return to the question as to whether there was neglect or wilful default in the rendering of the returns for the years of the later original assessments. In the light of the evidence before us we are satisfied that the appellant did make inadequate returns for those years as he omitted guest house profits and bank interest. We therefore find that there was neglect. We also find that the appellant deliberately and intentionally failed to make correct returns for the years of the later original assessments knowing that such failure was wrong; undeclared profits were established in the 1991 Decision and failure to declare them was wilful default. We therefore find both neglect and wilful default proved for the years of the later original assessments."

14. In case it is not already plain, the Special Commissioners' reference to the "later original assessments" is a reference to the later assessments which were before the Special Commissioners in 1991 in respect of which it was unnecessary for them, in the context of the issues before them, to consider questions of wilful default or neglect.
15. So far as the penalty determination was concerned, the Revenue had allowed only a 20 per cent mitigation, and had assessed the penalty at 80 per cent of the tax lost.
16. The relevant statutory provision in relation to penalties is to be found in Part X of the Act. Section 95 provides, in effect, that where a person fraudulently or negligently makes a return he is liable to a penalty. As in the case of the interest determination, the Special Commissioners concluded that they were bound by the findings of the Special Commissioners in 1991 as to wilful default and neglect. In paragraph 143 of their determination they stated their conclusion thus:

"We conclude therefore that, in relation to the penalties, the 1991 decision is final and conclusive. That means that the appellant cannot re-open the findings of wilful default and neglect, and the amount of tax due, but can adduce material relevant to the extent of culpability and thus to the level of the penalty. In relation to the years of the later original assessments, where there were no findings of wilful default or neglect it is open to the appellant to argue that there was no wilful default or neglect."

17. As in the case of the interest determination, the Special Commissioners went on to conclude that in relation to those later years the applicant was indeed guilty of neglect. They stated conclusion thus, in paragraph 149 of their decision:

"Our conclusion on the fifth issue is that, in relation to years for which there were no binding findings of neglect, the Appellant did negligently submit incorrect returns within the meaning of section 95(1) and submitted an incorrect account to the Special Commissioners."

18. The Special Commissioners went on accordingly to hold that the penalties had been properly imposed, and they declined to increase the extent of the mitigation.
19. Finally, the Special Commissioners hearing the matter in 2000 went on to confirm the further assessments raised in 1996 following the Revenue's discovery of Roundwood Lodge.
20. The applicant appealed the Special Commissioners' decisions to the High Court, but by the order in respect of which permission to appeal is sought Jacob J dismissed his appeals.
21. So far as the interest determination is concerned, Jacob J concluded that the Special Commissioners had erred in law as to the effect of section 46(2). He concluded that the position in law so far as that subsection is concerned is as expressed by Viscount Radcliffe in Caffoor v Commissioner of Income Tax [1961] AC 584 at 598. In summary, Viscount Radcliffe concluded that a decision of the Special Commissioners is "final and binding" only in relation to the amount of the assessable income for the year in which the assessment is challenged. However, the judge, Jacob J, went on to conclude that the appeal in relation to the years in question should nevertheless be dismissed. In paragraph 31 of his long and detailed reserved judgment, the judge said this:

"At the very least the decision of the 1991 Commissioners was a 'cogent factor' for the 2000 Commissioners. Here it is well worth standing back for an overall view of the position as regards Mr King. The fact is that over the years he acquired a series of properties used for lodging houses. There is no reasonable explanation of how he came by the money to buy these properties, otherwise than from profits of the businesses. That was the position in 1991, when the Crown did not know of Roundwood Lodge. It remained the position thereafter - the discovery of Roundwood Lodge only making things worse."

22. As to the later years of assessment in respect of which the Special Commissioners made no findings of wilful default or neglect in 1991, the judge concluded that the findings of the Special Commissioners hearing the matter in 2000 as to wilful neglect and default were:

"Overwhelming on any reasonable view of the meaning of 'wilful default or neglect.'"

23. The judge continued:

"Fraud was not alleged... but what one has here are fanciful stories of partnership - partnership with infants, partnerships without partnership accounts, partnerships with no injection of capital or work by partners, partnerships with no profit distribution and clearly inadequate disclosure to the revenue. In my judgment there was no room whatever for any other finding than wilful default or neglect whatever these shades of meaning those words may have."

24. The judge accordingly rejected the applicant's appeal in relation to interest.
25. So far as the appeal against the penalty determination is concerned, it was common ground before the judge that, in contrast to the other appeals, an appeal against the penalty determination lay on both fact and law.
26. Consistently with his decision on the appeal in respect of the interest determination, the judge concluded that the Special Commissioners hearing the matter in 2000 were wrong to hold that the applicant was estopped from challenging the findings of the Special Commissioners in 1991 as to negligence.
27. The judge accordingly turned to the question whether the penalty appeals had any factual merit. He rightly defined the issue in relation to the penalty appeal as being whether the applicant had negligently made incorrect returns or statements. In paragraph 54 of his judgment the judge said this:

"As to whether Mr King was 'negligent', I have no doubt that he was. Mr Woolf argued that the benefit of any doubt as to negligence should be given to the taxpayer. With that I agree. But when one finds a taxpayer offering a variety of improbable stories as to the nature of the business conducted and the accumulation of substantial property in the taxpayer's name, one is compelled to the view that his conduct in making tax returns and supplying information has, at the very least, been negligent."

28. The judge then went on to consider arguments addressed by Mr Woolf based upon the Human Rights Act 1998. He dealt first with an argument addressed by Mr Woolf to the effect that there had been a violation of Article 6(2) of the European Convention on Human Rights (the presumption of innocence in relation to criminal offences). However, I need not rehearse that part of the judgment since following the decision of the House of Lords in R v Lambert [2001] 3 WLR 206, to the effect that the Human Rights Act has no retrospective application that argument is not pursued.
29. The judge then went on to consider further argument addressed by Woolf based upon allegedly unreasonable delay on the part of the Revenue, contrary to Article 6(1).
30. Having reviewed the procedural history in great detail, the judge concluded that in all the circumstances the delay had not been unreasonable. He did however comment that "it was very close to it."
31. As to the further assessments in 1996 the judge concluded that there had been no error of law, and accordingly dismissed the appeal in relation to those further assessments.
32. In support of the application for permission to appeal Mr Woolf has submitted a written skeleton argument extending to some 16 pages, on which he has elaborated in his oral submissions. The written skeleton was the subject of consideration by Mance LJ when refusing permission on the papers.
33. So far as the appeals in relation to interest are concerned, Mr Woolf contends that the Special Commissioners in 2000 effectively reversed the burden of proof when they concluded that inadequate returns had been made by the applicant, and accordingly neglect had been established. He submits that the commissioners made a similar error in relation to their finding of wilful default. He relies in this connection on the statement by the commissioners (in paragraph 103 of their decision) that:

"In the normal case the person who has made an undisclosed profit is the person responsible for making a return. The establishment that undeclared profits have been made will almost automatically mean that failure to declare them in the tax returns must be wilful default."

34. Mr Woolf submits that such an automatic inference is not justified in the instant case, where the applicant (as he contends) genuinely believes that the income belongs to someone else.
35. Mr Woolf has also suggested that the Special Commissioners wrongly treated various passages in the decision of the Special Commissions in 1991 as amounting to findings of fact when, on a closer examination, they did not amount to that. As to these contentions Mance LJ stated that the extracts from the decision upon which the applicant relies do no more than reflect case law and common sense, and he also pointed out that they must be read in context. I respectfully agree. It seems to me quite plain that the commissioners were simply identifying a situation in which there was evidence before them which prima facie indicated wilful default or neglect, and that in that sense the evidential burden had shifted to the applicant to counter that evidence. I do not see that the Special Commissioners were saying anything more than that.
36. Mr Woolf goes on to contend that the commissioners' error in their conclusion as to the effect of section 46(2) coloured their approach to the entire hearing. I can, however, see no substance in that submission. In any event, the judge, on appeal, was able to, as he put it, stand back and form an overall view on the evidence. In forming that view, the findings of the Special Commissioners in 1991 were on any view "a cogent factor". In refusing permission to appeal Mance LJ said:

"I see no real prospect of any different conclusion to that reached by the judge."

37. I respectfully agree. In particular, the commissioners seem to me to have completely demolished the notion of a family partnership in which the applicant's children were partners. I further agree with Mance LJ that:

"The idea that the applicant did not know he owned Roundwood Lodge is, on the findings made, untenable."

38. In my judgment, therefore, the appeal in relation to interest has no real prospect of success.
39. I turn next to the appeal in relation to the penalty determination. I deal first with the substantive merits: I will deal with the question of delay later. Like Mance LJ I can see no real prospect of the applicant succeeding in challenging on appeal to the Court of Appeal the factual conclusions of the commissioners. Mr Woolf seeks to rely on the fact that the commissioners refused to give the applicant access to the notes made by the commissioners in the 1991 hearing (a course which was also taken by the judge). However, I wholly fail to see how disclosure of those notes could possibly lead to any different outcome so far as findings of fact are concerned, and in particular on the issue of partnership.
40. Mr Woolf goes on to challenge the view of both sets of commissioners that the applicant was an unreliable (and in the case of the 1991 hearing) an untruthful witness. Once again, I can see no prospect of a successful challenge to those conclusions in the Court of Appeal. The same applies to the judge's treatment of the "loan book" produced by the applicant, as being self-serving.
41. I turn to the question of delay. The judge went into this question with great care and in great detail, and concluded that in all the circumstance the delay which had occurred was not unreasonable, although it came close to being unreasonable. I cannot see any reasonable prospect of the Court of Appeal interfering with that conclusion. But in any event, as Mance LJ pointed out, there is a further point as to whether, even if the delay were unreasonable, the penalty determination should be set aside. As Mance LJ points out in his reasons for refusing permission on the papers there is little (if any) evidence of prejudice to the applicant by reason of the delay, given that the Revenue had notified him at an early stage that a penalty determination was under consideration, and given that the maximum amount of the penalty, that is to say the amount of the tax lost, was known. The delays which occurred in relation to the penalty determination must be seen in the context of what has plainly been an extended campaign by the applicant in disputing his liabilities to the Revenue and in deferring the date on which those liabilities have to be satisfied. Moreover, I find, for my part, the greatest difficulty in seeing how the applicant could be prejudiced simply by the fact that the penalty might have been imposed earlier. Accordingly, despite Mr Woolf's submission, I remain wholly unpersuaded that an appeal based upon delay would stand any real prospect of success in the Court of Appeal.
42. I note at this point that, following a reference by Mance LJ when refusing permission to appeal on the papers to there being no evidence of any significant deterioration in the applicant's long-term memory, the court has now been supplied with a report dated 24th September of this year by a clinical psychologist to the effect that the applicant's general memory is significantly impaired following a stroke which he suffered in March 1996. The report, however, makes it clear that the author of it had not had access to the applicant's medical notes, and it states in terms that, without access to those notes, it is difficult to know the date of onset of the impairments in his long-term memory or the duration of those impairments. I quote from paragraph 8 of the report under "Conclusions and Recommendations", where the author of the report, Mr Peter Thomson, a chartered clinical psychologist says:

"1. Mr King's general memory (delayed) is significantly impaired.

2. Without access to his medical notes it is difficult to know the date of onset/duration of the impairments. He reported that a psychologist had assessed him previously, but he had never been given a copy of the report.

3. The pattern of Mr King's scores suggests that his impairments are the result of an organic, medical condition, rather than a function of any psychological distress.

4. Mr King's test profile is consistent with what I would expect from a patient who has suffered from a stroke. However, it is beyond my level of expertise to make a medical diagnosis. The opinion of a Consultant Neurologist should be sought for the latter."

43. In the circumstances it does not seem to me that the contents of this report take the applicant's case any further in relation to prejudice. There is certainly no suggestion from the letters which he wrote and the statements which he prepared following his stroke, that the applicant was in any difficulty in writing those letters or making those statements, or that his memory was impaired in any way.
44. The applicant also seeks permission to appeal against the level of penalties. Once again, however, I can see no real prospect of an appeal on that issue standing any chance of success in the Court of Appeal.
45. I turn, finally, to the further assessments raised in 1996. It is common ground that such an appeal can only be made in relation to an error of law. Mr Woolf submits that the commissioners have misunderstood the evidence about the funding of the purchase of Roundwood Lodge and ignored evidence to the effect that Miss Johnson made a payment to the applicant which Mr Woolf submits was very likely used to purchase Roundwood Lodge. In the circumstances, Mr Woolf submits that the decision in relation to the further assessments was erroneous in law in that it was a perverse decision on the evidence. In my judgment that is a bold submission which fails completely. I cannot see any prospect of an appeal on that basis succeeding.
46. Accordingly, I refuse permission to appeal in relation to (a) the interest determination, (b) the penalty determination, and (c) the further assessments. I would accordingly dismiss the application.
47. MR JUSTICE BODEY: I agree.
(Application refused; no order for costs).