QUEEN'S BENCH DIVISION
Strand, London, WC2A 2LL
B e f o r e :
| THE QUEEN (on the application of TIMOTHY REX BAMBER)
|- and -
|COMMISSIONERS OF H M REVENUE AND CUSTOMS
Mr Clive Lewis (instructed by H.M. Revenue and Customs) for the Defendants
Hearing dates: 23rd and 24th November 2005
Crown Copyright ©
Mr Justice Lindsay :
"The flat rate expense allowances in respect of the pilots and cabin crew are now agreed as detailed on the enclosed schedules."
The allowances, she said, were to be linked to the annual RPI. The schedules which she enclosed provided a FREA of £2265 per annum for pilots and £1580 per annum for cabin crew and computed the consequential coding adjustments for the 6 years from April 1997 by deducting, for pilots, £525 (the old allowance) from £2265 (their new one) and multiplying the resultant figure by 6 in order to arrive at a figure of £10,440. There was a corresponding computation for cabin crew. The total coding adjustment including 2004/05 was given as £14,559 and £11,704 for pilots and cabin crew respectively. A provisional allowance for 2005/06 was given as £2322 plus RPI.
"Critically this change, adjusted for RPI over the past 6 years, will be backdated resulting in a significant rebate for all current employees who will be affected through revised tax codes in the current year."
"In summary we believe this Agreement places MyTravel flying personnel in the most favourable tax position available in the industry and should be seen as beneficial to employees and Company alike."
"I was concerned to see that those figures included several items which did not qualify for relief and others which, if relief were due at all, would qualify under the Capital Allowances Code .... rather than under section 336 ITEPA. I was also concerned to see that in each case the allowance for the upkeep of uniforms seemed too high to be credible. Furthermore, not only had there been an agreement for 2003/4 Tax Year but the Agreement appeared to be retrospective and to apply to earlier tax years. That would not accord with HMRC policy and would be wrong in principle as I explain below."
"I am afraid I must therefore ask you to revisit the agreement that your office has reached with KPMG in relation to employees of MyTravel Airways. If the allowances of £2265 and £1580 are allowed to stand there is no doubt that knowledge of them will soon spread throughout the industry, with consequent pressure on other offices to increase the amounts that they have agreed."
"Fixed rate expenses agreement
Further to our meeting last week, I am writing to confirm that the Inland Revenue is resiling from the agreement set out in writing in Angela Slater's letter of the 9th June 2004 which was addressed to Mr Neil Murray at KPMG.
Unless and until a fresh agreement is reached, the existing fixed rate expenses of £525 for air crew and £145 for cabin crew will continue."
I will call the letter of the 30th November "the November Letter".
"In reliance upon the June Agreement, I and many of my colleagues took decisions that we would not otherwise have taken. For instance, in my particular case, my wife went ahead with the purchase of a new kitchen, and we took the children on a cruise. Many of my colleagues bought new cars. Financial resources were committed that otherwise would not have been. In addition to myself, I believe most of my colleagues cleared out expense receipts as these were no longer required. "
"As a result of the Inland Revenue's decision to resile from the June Agreement I have been left with financial liabilities that I would not have incurred had I not relied upon the fact that a written agreement had been reached. Furthermore, in reliance upon the June Agreement, myself and many of my colleagues disposed of expense receipts as they were no longer required. It is now impossible for me and my colleagues to submit a claim in respect of those expenses because we no longer have the supporting documentation. As a result, my family and the families of my colleagues are having to suffer the consequences."
"A number of pilots and cabin staff submitted returns and claims to the Revenue based on the revised, back-dated expense allowances set out in the Agreement of the 9th June 2004."
That last passage was made good by Mr Bamber's exhibiting correspondence between pilots and the Revenue concerning a number of claims for expenses at the new level minus the old, namely at £2322 minus £525. The Revenue is requiring evidence when expenses are being claimed at above the old 1997 levels.
"(i) The June Agreement was a mistaken exercise of discretion by the officer concerned;
(ii) Retrospectivity is contrary to the policy of the Revenue;
(iii) The June Agreement would lead to allowances being made for items that did not qualify for relief;
(iv) The Revenue had not processed any repayments on the basis of the June Agreement nor had it circularised any employees in connection with it; rather it was BALPA that had circularised on the subject;
(v) No individual had been disadvantaged: any employee who had incurred legitimate expenses for 1997/8 onwards (impliedly above the £525 and £140 levels) still had several years in which he or she was able to claim those expenses;
(vi) No individual taxpayer could reasonably have relied upon the [June] Agreement to his or her detriment. There is no basis upon which an employee could reasonably have destroyed receipts for expenses incurred for years prior to or after the date of the Agreement or reasonably have enter[ed] into financial or other commitments before receipt of any notification by the Inland Revenue of any changes to tax coding and or entitlement to payment of any rebate;
(vii) There was no basis upon which individual taxpayers could reasonably rely upon the prospect of receiving rebates or alterations in the amount of tax payable by them until the Inland Revenue notified them of that fact;
(viii) The June Agreement was "excessively over-generous";
(ix) The "error" was quickly corrected;
(x) All told, the Revenue's resiling from the June Agreement was not so unfair as to represent abuse of power."
"The Court can only intervene by Judicial Review to direct the commissioners to abstain from performing their statutory duties or from exercising their statutory powers if the Court is satisfied that "the unfairness" of which the applicant complains renders the insistence by the commissioners on performing their duties or exercising their powers an abuse of power by the commissioners."
At p. 866h-867 he added that the Revenue would be guilty of unfairness amounting to abuse of power if their conduct:-
"….. would, in the case of an authority other than Crown authority, entitle the Appellant to an injunction or damages based upon breach of contract or estoppel by representation. In principle I see no reason why the Appellant should not be entitled to Judicial Review of a decision taken by the commissioners if that decision is unfair to the Appellant because the conduct of the commissioners is equivalent to a breach of contract or a breach of representation. Such a decision falls within the ambit of an abuse of power for which in the present case Judicial Review is the sole remedy and an appropriate remedy."
He accepted, though, in the very same passage, that there may be circumstances in which the Court in its discretion does not grant Judicial Review:-
"…. notwithstanding conduct which savours of breach of contract or breach of representation."
"So if, in a case involving no breach of statutory duty, the Revenue makes an agreement or representation from which it cannot withdraw without substantial unfairness to the taxpayer who has relied on it, that may found a successful application for Judicial Review."
"No doubt a statement formally published by the Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them. But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary. If it is to be successfully said as a result of such an approach the Revenue has agreed to forego, or has represented that it will forego, tax which might arguably be payable on a proper construction of the relevant legislation it would, in my judgment, be ordinarily necessary for the taxpayer to show that certain conditions had been fulfilled. I say "ordinarily" to allow for the exceptional case where different rules might be appropriate, but the necessity in my view exists here. First, it is necessary that the taxpayer should put all his cards upwards on the table. This means he must give full details of the specific transaction on which he seeks the Revenue's ruling ……"
I do not need to complete Bingham LJ's reference to cards being on the table as, in the case before me, it's not suggested that they were not. At p.892h Bingham LJ continued:
"Secondly, it is necessary that the ruling or statement relied on should be clear, unambiguous and devoid of relevant qualification."
The June Agreement, as it seems to me, is clear, unambiguous and devoid of relevant qualification. At p. 894j Bingham LJ continued, for the reasons that he had given:-
"I do not accordingly find any abuse of power. I would therefore refuse relief. Had I found that there was unfairness, significant enough to be an abuse of power, I would not exercise my discretion to refuse relief."
The use of the words "significant enough" shows that there can be unfairness without necessarily there being Judicial Review. At p.896 Judge J said:-
"The Revenue is not bound to give any guidance at all. If however the taxpayer approaches the Revenue with clear and precise proposals about the future conduct of his fiscal affairs and receives an unequivocal statement about how they would be treated for tax purposes if implemented, the Revenue should in my judgment be subject to Judicial Review on grounds of unfair abuse of power if it peremptorily decides that it will not be bound by such statements when the taxpayer has relied on them. The same principle should apply to Revenue statements of policy. "
Judge J agreed with Bingham LJ that the case before them did not establish abuse of power by the Revenue but he added that:-
"….. I have recognised that it is only in an exceptional case of this kind that the process of Judicial Review is permitted and the Court should be extremely wary of deciding to be unfair actions which the commissioners themselves have determined are fair."
That, of course, does not mean that the Revenue is itself the only arbiter of what is fair and what is unfair but it emphasises, where the Revenue has responsibly considered whether its actions are, in all the circumstances, fair, that due weight is to be given to that evaluation.
"The authorities clearly showed that the respondents have a managerial discretion, and that there are circumstances in which they have power enter into an agreement with the taxpayer for the payment of a sum of money in respect of the taxpayer's tax liability, even where it may be said that they have foregone the collection of some part of the total amount of tax which was due."
Where the Revenue wishes to escape what has been argued to be an obligation upon it, the argument that, if escape is permitted, not all will be got in by the Revenue that, on a strict view of the taxing legislation, could be got in is thus not an argument that should necessarily succeed. There will often have been, as Mr Parker put it, some "horse-trading" that has led, for good and practical reasons, to some departure from the strict requirements of the taxing statutes. But nor is it to be assumed that the Revenue's escape will prejudice the taxpayer. On the subject as to whether the taxpayer in Al Fayed had been prejudiced the Lord President at p. 1734, paragraph 105 said:-
"It was argued that prejudice was inevitable, but in our opinion in a case of this nature prejudice cannot be assumed, particularly in view of the undertaking given by the respondents that they will take steps to prevent unfair prejudice. "
"'Unfairness amounting to an abuse of power' as envisaged in Preston and the other Revenue cases is unlawful not because it involves conduct such as would offend some equivalent private law principle, not principally indeed because it breaches a legitimate expectation that some substantive decision will be taken, but rather because either it is illogical or immoral or both for a public authority to act with conspicuous unfairness and in that sense abuse its power. As Lord Donaldson MR said in R -v- ITC, ex p. TSW: 'the test in public law is fairness, not an adaptation of the law of contract or estoppel'."
On the same page at e-f he said:-
"Public authorities in general and taxing authorities in particular are required to act in a high-principled way, on occasions being subject to a stricter duty of fairness than would apply as between private citizens."
"I can think, however, of no surer guide than MacPherson of Cluny J when it comes to determining the border between on the one hand mere unfairness – conduct which may be characterised as "a bit rich" but nevertheless understandable – and on the other hand a decision so outrageously unfair that it should not be allowed to stand."
"Where the Court considers that a lawful promise or practice has induced a legitimate expectation of a benefit which is substantive, not simply procedural, authority now establishes that here too the Court will in a proper case decide whether to frustrate the expectation is so unfair that to take a new and different course will amount to an abuse of power. Here, once the legitimacy of the expectation is established, the Court will have the task of weighing the requirements of fairness against any overriding interest relied upon for the change of policy."
A little later on the same page the judgment continued:-
"….. the Court has when necessary to determine whether there is a sufficient overriding interest to justify a departure from what has been previously promised."
"…… but there has not. Bitter disappointment, certainly; but I cannot see that this, though it excites one's strongest sympathy, is enough to elevate the Secretary of State's correction of his error in to an abuse of power. We do not sit here to publish public authorities for incompetence, though incompetence may most certainly sometimes have effects in public law."
Notably, the successful appellant, the Secretary of State, was left with no order as to costs in his favour.
"The search for principle surely starts with the theme that is current through the legitimate expectation cases. It may be expressed thus. Where a public authority has issued a promise or adopted a practice which represents how it proposes to act in a given area, the law will require the promise or practice to be honoured unless there is good reason not to do so. What is the principle behind this proposition? It is not far to seek. It is said to be grounded in fairness, and no doubt in general terms that is so. I would prefer to express it rather more broadly as a requirement of good administration, by which public bodies ought to deal straightforwardly and consistently with the public."
"Accordingly a public body's promise or practice as to future conduct may only be denied, and thus the standard I have expressed may only be departed from, in circumstances where to do so is the public body's legal duty, or is otherwise, to use a now familiar vocabulary, a proportionate response (of which the Court is the judge, or the last judge) having regard to a legitimate aim pursued by the public body in the public interest. The principle that good administration requires public authorities to be held to their promises would be undermined if the law did not insist that any failure or refusal to comply is objectively justified as a proportionate measure in the circumstances."
Proportionality, he added, had to be judged by the respective force of the competing interests in the case; the cases had to be judged in the round. Thomas LJ and Nelson J agreed.
Applying the law to the facts