QUEEN'S BENCH DIVISION
Manchester Civil Justice Centre
1 Bridge Street West
B e f o r e :
|- and -
(TAX AND CHANCERY CHAMBER)
HM REVENUE & CUSTOMS
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No: 020 7404 1400 Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
The Defendant did not appear and was not represented.
Mr Donmall (instructed by HM Revenue & Customs) appeared on behalf of the Interested Party.
Crown Copyright ©
MR JUSTICE KING:
1. This is a challenge by way of judicial review of a decision of the Upper Tribunal not to grant permission to the claimant to appeal against a decision of the First-tier Tax Tribunal. The First-tier Tribunal were concerned with an appeal by the claimant against an assessment to VAT made by the HMRC in respect of the periods 24 September 2003 to 17 August 2005, and 18 August 2005 to 31 October 2007. These assessments followed on the HMRC on 15 June 2007 compulsorily registering the claimant for VAT. The claimant carried on business manufacturing clothesware for work. His case was that during the relevant periods, he himself had not been carrying out the business personally, but he had been carrying out the business through a company.
2. The background facts were that the claimant had acquired a limited company, Hygicare Limited, which operated from 1 May 1998 to 12 June 2001, when it was dissolved. After the dissolution the claimant formed a company, Sitegold Limited, otherwise known as Sitegold One, and between May 2001 and 23 September 2003 the claimant traded under the name of Sitegold Limited, albeit using the VAT number for Hygicare.
"On 18 April at a meeting at your accountant's office, a VAT application was completed by you in the name of Sitegold Limited, and was submitted by me on the understanding that this company was fully operational and would trade in the future, in accordance with Companies House obligations and the PAYE scheme which would be set up properly by this company. We have since been advised that Sitegold Limited (5540168) has been struck off by Companies House, as you have once again failed to fulfil your obligations as Director of the company to have your accounts submitted."
The Statutory Appeal
Challenge to the refusal of permission by way of judicial review: the second appeals criteria
"... the adoption of the second-tier appeals criteria would be a rational and proportionate restriction upon the availability of judicial review of the refusal by the Upper Tribunal of permission to appeal to itself. It would recognize that the new and in many ways enhanced tribunal structure deserves a more restrained approach to judicial review than has previously been the case, while ensuring that important errors can still be corrected. It is a test which the courts are now very used to applying. It is capable of encompassing both the important point of principle affecting large numbers of similar claims and the compelling reasons presented by the extremity of the consequences for the individual."
"It seems to me the second appeal criteria approach offers a number of advantages ... Secondly, and positively, it ensures that errors on important points of principle or practice do not become fossilised within the UT system. An individual who has been unsuccessful before the FTT will be able to raise an important point of law in the courts if the UT refuses to grant permission to appeal to itself. As explained by the Court of Appeal in Uphill v BRB (Residuary) Ltd  1 WLR 2070, it is not enough to point to a litigant's private interest in the correction of error in order to obtain permission for a second appeal. Permission will only be given where there is an element of general interest, which justifies the use of the court's scarce resources ... It follows that, if the law is clear and well established but arguably has not been properly applied in the particular case, it will be difficult to show that an important point of principle or practice would be raised by an appeal. The position might be different where it is arguable that, although the law is clear, the UT is systematically misapplying it...
131. Thirdly, the second limb of the test ('some other compelling reason') would enable the court to examine an arguable error of law in a decision of the FTT which may not raise an important point of principle or practice, but which cries out for consideration by the court if the UT refuses to do so. Care should be exercised in giving examples of what might be 'some other compelling reason', because it will depend on the particular circumstances of the case. But they might include (i) a case where it is strongly arguable that the individual has suffered what Laws LJ referred to at para 99 as "a wholly exceptional collapse of fair procedure" or (ii) a case where it is strongly arguable that there has been an error of law which has caused truly drastic consequences."
In a subsequent decision of the Court of Appeal, namely PR (Sri Lanka) and Ors v SSHD  EWCA Civ 988, at paragraph 35 Carnworth LJ giving the judgment of the court emphasised the narrowness of the "other compelling reason" exception:
"Judicial guidance in the leading case of Uphill emphasised the narrowness of the exception. The prospects of success should normally be 'very high', or (as it was put in Cart para 131) the case should be one which 'cries out' for consideration by the court. The exception might apply where the first decision was "perverse or otherwise plainly wrong", for example because inconsistent with authority of a higher court. Alternatively a procedural failure in the Upper Tribunal might make it 'plainly unjust' to refuse a party a further appeal, since that might, in effect, 'deny him a right of appeal altogether'. In Cart Lord Dyson, following Laws LJ, characterised such a case as involving 'a wholly exceptional collapse of fair procedure' (para 131). Similarly, Lord Hope in Eba referred to cases where it was 'clear that the decision was perverse or plainly wrong' or where, 'due to some procedural irregularity, the petitioner had not had a fair hearing at all'."
Then at paragraph 36 the Court said as follows:
"It is true that Lady Hale and Lord Dyson in Cart acknowledged the possible relevance of the extreme consequences for the individual. However, as we read the judgments as a whole, such matters were not seen as constituting a free-standing test. In other words 'compelling' means legally compelling, rather than compelling, perhaps, from a political or emotional point of view, although such considerations may exceptionally add weight to the legal arguments."
"I attended the oral permission hearing before Foskett J on 23 April 2012. The honourable judge gave only brief reasons for granting permission. He did so because he considered it arguable that the claimant might satisfy the 'some other compelling reason' limb of the second appeal test i.e. not that he found as a fact that the claimant actually did so. My contemporaneous notes include as follows: 'intend to grant permission but no indication of ultimate outcome. Confused thinking on behalf of FTT may be some compelling reason for grant of permission, but not totally enthusiastically. Just about crossed threshold to have JR'."
"Permission to appeal may be given only where –
(a) the court considers that the appeal would have a real prospect of success; or
(b) there is some other compelling reason why the appeal should be heard."
In paragraph 5 of his decision, of HHJ Bishopp, approached the question in this way:
"I make the point I am required to decide not whether the First-tier Tribunal is right, but whether it is reasonably arguable that it was not. I was at first considerably troubled on this point, finding as I do that its reasoning, particularly at paragraph 15, of the decision is difficult to follow. However, having reflected on the parties' submissions, I am satisfied the First-tier Tribunal conclusion is a finding of fact which was supported by evidence, and was not irrational."
"The HMRC cannot change its mind, having first assessed the second Sitegold Limited company, for the 18 August 2005 to 30 April 2007 decision."
The merits of the proposed appeal
Overview: lack of evidence identified by the First -Tier tribunal
"During the period 24 September 2003 to 30 April 2007, the turnover of the business undertaken by the claimant was £1.5 million. No VAT or corporation tax or PAYE was accounted for. The First-tier Tribunal observed that six other companies were involved, all of which were eventually struck off by Companies House for his failure to lodge accounts and to complete annual returns. One, Weaverange Limited, incorporated on 4 December 2002, dissolved 14 June 2005 not having filed any accounts. (2) Wildagent Limited, incorporated 11 December 2002 and dissolved 30 August 2005, no accounts filed. (3) Stockfresh Limited, incorporated 11 December 2002 and struck off 13 October 2009, not having filed any accounts. Labeldesk Limited, incorporated 25 August 2005, dissolved on 14 January 2010, having submitted no VAT or accounts, save for dormant accounts to 27 August 2007. (5) Deskfirst Limited, formed on 18 August 2005, which changed its name to Sitegold Limited on 7 June 2006, and then dissolved on 15 May 2007. (6) Pencil Group Limited, incorporated on 13 March 2007."
"The Hygicare business had operated from Wrexham which manufactured clothing for local businesses. Mr Phillips advised that another company, Tricane Limited, was also acquired, which operated from the second unit in Wrexham, and operated the same type of business. It was unclear when Tricane Limited was formed, but we were told it was dissolved on 1 May 1993."
There was before the First-tier Tribunal, and indeed in the documentation before this court, a copy of a decision by the Shrewsbury Employment Tribunal of March 2004, in which it declared amongst other things that:
"By consent Mr Phillips and Sitegold Limited are dismissed from the application. The correct respondent is Tricane Limited, and all employees are employed by Tricane Limited. All the employees' continuity of employment are preserved."
The respondent, Tricane Limited undertook to send draft contracts of employment conditions to all the employees for consideration.
"At this tribunal he had advised the business was by that time [that of course would be March 2004] purported to be run through Stockfresh Limited ... He stated that the intention had been to change the name of Stockfresh Limited to Tricane Limited, in order to continue that business, and in those circumstances the decision was correct."
31. These passages concerning Tricane Limited are all relied on by the claimant in support of the general "symptomatic submission" that there are so many errors of fact in this First-tier Tribunal judgment as to undermine it as a matter of law. Reference is made to the Tribunal having given a wrong date of dissolution for Tricane Limited.
32. More importantly, in my judgment, however, is that not only is there no attack by way of the purported grounds of appeal or the claim in this court on the particular statements within the First-tier Tribunal decision of what Mr Phillips was saying his case was as regards Tricane Limited; but the tribunal's consideration of his case in paragraph 6 is a good example of the First-tier Tribunal being fully aware of what the claimant's case was as to his trading through one or other of his companies, but making statements to the effect that there was no evidence on matters which undoubtedly, were critical to any decision whether the claimant had satisfied the tribunal that he was not trading during the relevant periods as a sole proprietor. Thus in paragraph 6 of the decision, it says this: (the emphasis is the emphasis of this court)
"We cannot accept the decision of the Employment Tribunal in any way assists Mr Phillips in his contention he traded through the various companies. The decision was by consent, and based on a mistaken understanding of the legal position. Mr Phillips never suggested that he had traded other than as Sitegold Limited, so that alleged employment contracts in the name of Tricane Limited, (formerly Stockfresh Limited,) would not assist. Although the first company trading as Sitegold Limited had been struck off on 23 September 2003, Mr Phillips continued to run the business in the name of Sitegold Limited. No evidence was produced as to the transfer of the Hygicare business assets from Sitegold Limited to Mr Phillips, or of any of the companies. He merely continued the business utilising the original Hygicare VAT number and the Sitegold bank accounts."
33. I might add in parentheses at this stage that whatever complaints are made by Mr Henderson on behalf of his client about this paragraph, (although this paragraph in itself does not appear in the written challenge to the findings of fact in this case, amounting allegedly to errors of law), it is crystal clear on the documentation before the tribunal that Mr Phillips, in particular as far as invoices were concerned, continued to run his business in the name of Sitegold Limited, albeit it had been struck off, and purported to use the VAT number of a company which was no longer in existence, namely Hygicare.
34. However let me continue with identifying statements within the First–tier Tribunal Decision of 'no evidence' of critical matters. At paragraph 12, headed "The Decision", the opening sentence begins:
"We have considered the facts and the law, and we have dismissed the appeal. Mr Phillips has produced no evidence of the transfers of various businesses to Sitegold Limited. We are surprised that the HMRC have conceded the business was run through the first Sitegold Limited up to 23 September 2003."
Then at paragraph 14:
"HMRC clearly accept that Mr Phillips traded through the first Sitegold company after Hygicare went into liquidation. Apart from the use of the Hygicare VAT number, the enterprise was run through the first Sitegold company until it was struck off in September 2003. Thereafter, there is no evidence that any of the other companies traded. There was no evidence that the assets of the first Sitegold company were transferred to any of the other companies. There is no evidence that Tricane transferred its business to Stockfresh Limited, or that Tricane's employees were employed by Stockfresh."
35. The reason I emphasise at the outset these clear statements of the First-tier Tribunal of the lack of evidence on critical points - and as to which no challenge is made in the grounds of appeal - is that the whole thrust of Mr Henderson's submissions to me, to the effect that Judge Bishopp made a perverse decision and was wrong in law in refusing permission, is that he did not take on board the critical relevance to this case of the Edwards v Bairstow principle by which an error of law, can be demonstrated by reference to findings of fact.
"I think that the true position of the Court in all these cases can be shortly stated. If a party to a hearing before Commissioners expresses dissatisfaction with their determination as being erroneous in point of law, it is for them to state a Case and in the body of it to set out the facts that they have found as well as their determination. I do not think that inferences drawn from other facts are incapable of being themselves findings of fact, although there is value in the distinction between primary facts and inferences drawn from them. When the Case comes before the Court, it is its duty to examine the determination having regard
to its knowledge of the relevant law. If the Case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the Court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination. So there, too, there has been error in point of law. I do not think that it much matters whether this state of affairs is described as one in which there is no evidence to support the determination or as one in which the evidence is inconsistent with and contradictory of the determination
or as one in which the true and only reasonable conclusion contradicts the determination. Rightly understood, each phrase propounds the same test. For my part, I prefer the last of the three, since I think that it is rather misleading to speak of there being no evidence to support a conclusion when in cases such as these many of the facts are likely to be neutral in themselves and only to take their colour from the combination of circumstances in which they are found to occur."
In particular, I emphasise the following passage:
"If the Case contains anything ex facie which is bad law and which bears upon the determination, it is, obviously, erroneous in point of law. But, without any such misconception appearing ex facie, it may be that the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal. In those circumstances, too, the Court must intervene. It has no option but to assume that there has been some misconception of the law and that this has been responsible for the determination."
37. The principle is one by which a claimant is entitled to submit, as an error of law, first that the findings of fact made by the first tribunal do not justify, and could not justify, the ultimate determination. Quoting again from Lord Radcliffe:
"...the facts found are such that no person acting judicially and properly instructed as to the relevant law could have come to the determination under appeal."
Alternatively, it is a basis for submitting that although the findings of fact concerned would justify the determination, those findings of fact were wrongly reached, in the sense that there was no evidence which could properly entitle any reasonable fact-finding tribunal, to reach those facts.
38. But important throughout the principle of Edwards v Bairstow is that the findings of fact under attack must be material to the determination. If in fact the evidence, or indeed lack of evidence, (when the burden of proof is applied), before the tribunal was such that the determination under challenge was fully justified, the fact that the appellant can identify erroneous findings of fact must be to nothing.
"It follows, in my judgment, that for a question of law to arise in the circumstances, the appellant must first identify the finding which is challenged; secondly, show that it is significant in relation to the conclusion; thirdly, identify the evidence, if any, which was relevant to that finding; and, fourthly, show that that finding, on the basis of that evidence, was one which the tribunal was not entitled to make. What is not permitted, in my view, is a roving selection of evidence coupled with a general assertion that the tribunal's conclusion was against the weight of the evidence and was therefore wrong."
What was key in the Gaines-Cooper case, and which resulted in the appeal failing, was in effect that whatever those errors of fact may have, and it was conceded they were errors of fact, those I have identified, they did not undermine as a matter of law the determination that a domicile had not been acquired. This was because the appellant in that case had failed to show that he had formed the necessary intention to acquire that domicile and because of what was said to be an unimpeachable finding by the decision maker that the appellant did not have the necessary intention to reside permanently in the Seychelles.
The Findings of Fact Under Challenge
"HMRC clearly accept that Mr Phillips traded through the first Sitegold company when Hygicare went into liquidation. Apart from the use of the Hygicare VAT number, the entire enterprise was run with the first Sitegold company, until it was struck off in September 2003. Thereafter, there was no evidence that any of the other companies traded. There was no evidence that the assets of the first Sitegold company were transferred to any other companies. There was no evidence that Tricane transferred its business to Stockfresh Limited, or that Tricane's employees were employed by Stockfresh. It would appear from the evidence of the P14 summary for the year 2003 to 2004 that their employment status might have been with Wallace Workwear Limited, as the PAYE returns are in that company's name. None of the companies were compliant with the requirements of company law, nor did they prepare accounts or deal with their tax affairs. For Mr Gibbon to submit that the HMRC cannot pierce the corporate veil it is necessary for there to be a veil. Mr Phillips undoubtedly ran the business in his own capacity from September 2003 to August 2005, as there was no company in existence which he could have used."
"There was no appeal against the assessment addressed as Sitegold 1. Mr Phillips challenged the assessment directed to himself for period September 2003 to August 2005, on the grounds that the business had been carried by one or other of the companies he formed following the demise of Sitegold 1. The tribunal dismissed that argument, observing that it was surprising that the HMRC had been willing to accept that Sitegold 1 had carried on the business in the period before its dissolution. Before me, Mr Gibbon took issue with the tribunal's comment that during this period there was no company in existence which he could have used. Taken by itself, the comment is incorrect, as the tribunal's own decision shows, though it is necessary to take it in context, and if it is rewritten with the addition of the word 'lawfully', seems to me to be right. Perhaps more importantly, as Mr Gibbon conceded, it is perfectly plain that Mr Phillips made no attempt to transfer the business to any of those companies, or to resume Sitegold's business (if indeed it was Sitegold 1's business) using one of those companies. There is nothing to connect them with the business beyond Mr Phillips have control of them. HMRC's case that during that period he was trading on his own account is irresistible, and the application for permission to appeal against that finding must be dismissed."
"More importantly, as Mr Gibbon conceded, it is perfectly plain that Mr Phillips made no attempt to transfer the business to any of his companies, or to resume Sitegold 1 business if indeed it was Sitegold 1's business, using one of those companies."
"There is no materiality in the error, because there was no evidence that any of the companies controlled the business at issue, and the burden was upon him to show that he did not undertake that business as a sole trader. [Judge Bishopp] took the view, again consistent with the approach in Gaines-Cooper, that any factual error in the recitation of the evidence did not amount to a mistake of law in particular, given that the conclusion, was one to which the Tribunal was entitled to come, given the absence of any evidence to connect the companies to the business."
Mr Henderson describes that that conclusion of the First–tier Tribunal that Mr Phillips ran the business in his own capacity from September 2003 to August 2005 as being on the evidence before it, irresistible. I would prefer to express the position as being one in which it has not been demonstrated – even arguably - that there was no evidence before the tribunal which entitled it to come that conclusion.
No company was properly constituted between September 2003 and August 2005
"We have considered the facts and the law and we dismissed the appeal. Mr Phillips has produced no evidence of the transfer of the various businesses to Sitegold Limited. We are surprised that HMRC have conceded the business was run as the first Sitegold Limited after 23 September 2003. As they have done so, we have not been asked to consider that assessment. For the period of 35 months, from the dissolution of the first Sitegold Limited company in 2003 to the formation of Deskfirst Limited in August 2005, none of the other companies through which he allegedly had traded had been properly constituted."
Sitegold (2) Limited did not trade between August 2005 and April 2007
"Mr Gibbon submits that HMRC cannot change its mind, having first assessed the second Sitegold Limited for the period 18 August 2005 to 30 April 2007. We cannot accept that submission. There is no doubt that the negotiations in April 2007 were designed to reach a settlement acceptable to all the parties. It was part of that settlement that Mr Phillips should be compliant in the way that he dealt with the second Sitegold Limited. He was aware at the time of the negotiations that the second Sitegold Limited would be struck off, and he chose not to tell HMRC. In the circumstances, HMRC were entitled to take the view that Mr Phillips was continuing to trade in his own capacity as assessed for the periods 24/9/2003 and 17/8/2005. We therefore dismiss the appeal."
"7. Mr Gibbon argued that it was not open to HMRC to assess Mr Phillip himself for the tax which HMRC had accepted, (as the assessment originally issued to it showed) was due for Sitegold 2. Once they accepted that Sitegold 2 made the supplies in which the tax due, they could not change their minds as here, in the light of later events. Mr Shields' response was that HMRC were entitled to conclude from Sitegold 2's failure to do as Mr Phillips had agreed during the negotiations, that it was just another company to which Mr Phillips had not transferred the business, and the reality was that he had continued to trade on his own account. The First-tier Tribunal endorsed that view.
8. I make the point that I am required to decide not whether the First-tier Tribunal was right, but whether it is reasonably arguable that it was not. I was at first considerably troubled on this point, finding as I do that its reasoning particularly at paragraph 15 of the decision, is difficult to follow. However, having reflected on the parties' submission, I am satisfied that the first tribunal's conclusion is a finding of fact which was supported by evidence, and is not irrational."
Mr Henderson emphasises to me the "particular trouble" expressed by Judge Bishopp in this passage, and complains that without offering any explanation he had gone on to determine that the overall conclusion of the First-tier Tribunal that Mr Phillips had made the supplies in his own capacity through the period in dispute, was supported by evidence and was not irrational.
Systemic errors of fact
"On 7 June 2006 the company controlled by Mr Phillips which was previously known as Deskfirst Limited, changed its name to Sitegold Limited. Deskfirst Limited had been formed on 8 August 2005, some 35 months after the original Sitegold Limited had been dissolved in September 2003, although Mr Phillips is purported to have continued to trade as Sitegold Limited. There had been a delay in changing the name to Sitegold Limited because another company had acquired the name at the time of the dissolution of the first Sitegold Limited and the name had only become available in 2006. Subsequently, when Deskfirst Limited, having changed its name over to Sitegold Limited, was dissolved on 15 May 2007, Pencil Group Limited, which had been incorporated on 13 March 2007, ostensibly took over the undertaking of Deskfirst Limited, and changed its name to Sitegold Limited on 7 July 2007. Again, no evidence was given as to the transfer of the second Sitegold Limited's business assets to Pencil Group Limited, or any evidence of notification to Companies House of the purported change of name."
63. For all these reasons, on the merits I do not find that the claimant has made out a case that the Decision of Judge Bishopp was irrational in refusing permission, or discloses an error of law. I stress however that even if I had considered materiality arguable here in relation to any of the alleged errors of fact, I would still not have concluded that the second appeals test had been made out, under either limb.
64. So for all these reasons, this claim fails.
(following submissions on costs)
65. In the exercise of my discretion, I will make no order as to costs. I emphasis it is in the exercise of my discretion, and should not be used as a precedent. In one sense, the interested party can lay claim to the normal principle of costs that costs follow the event, and that the unsuccessful party should pay that the costs of the successful party, and that this has been a substantive hearing for judicial review of a decision. It has not been simply an oral hearing of whether there should be permission to proceed with judicial review. But I cannot hide from my considerations that the subject matter of the judicial review is in fact a refusal of permission to appeal a decision of the First-tier Tribunal to the Upper Tribunal, and that to my mind is an important matter. The actual respondent to this appeal, the Upper Tribunal, understandably has chosen not to attend, and has simply put in an acknowledgment of service, which as I indicated in my judgment went simply to reminding the court of the application of the Cart decision, and the application of the second appeal criteria to claims of this sort.
68. I also bear in mind that while this is not necessarily a determinative point, that had this been simply a renewal of the application for permission to appeal the First-tier to the upper tier, and I was sitting in my capacity as a High Court judge sitting in the upper tier, which I could do, the normal practice would be that on a failure of that oral application, there would be no order as to costs save possibly the costs of the acknowledgment of service of respondent. I also take on board that the interested party is an interested party; it did not have to attend, and could simply have sent in written submissions, since ultimately its position would be protected even if this was successful and permission to appeal were granted as between the First-tier and upper tier, they would be protected because they could attend on that occasion and fight the substantive appeal, and costs no doubt then would follow the event.
69. So in all the circumstances, I simply make no order for costs.