England and Wales High Court (Administrative Court) Decisions

IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
THE ADMINISTRATIVE COURT

		Rolls Building
		14th November 2017

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MR JUSTICE NUGEE:

Introduction:

1. This is an application by the claimants for permission to proceed with their claim for judicial review which I heard last Thursday, 9^th November, together with an application by the claimants for interim relief, Lang J having directed on 8^th June that the application for permission and the application for interim relief be heard together.
2. There are a large number of claimants, some 340 in all. In this claim they seek to challenge the use by the respondents, Her Majesty's Commissioners for Revenue and Customs ("HMRC") of powers conferred by Part 4 of the Finance Act 2014 to give what are called Follower Notices ("FNs") and Accelerated Payment Notices ("APNs").
3. The facts are well known to the parties and I do not intend to set them out in detail, but in very brief summary the claimants participated in tax avoidance schemes promoted either by a company called Montpelier Tax Consultants (IOM) Limited or a similar scheme promoted by another company called De Graaf Resources Limited, which sought to exempt large parts of their income from UK income tax by using an Isle of Man partnership and an Isle of Man trust of which the participant was a beneficiary, and then claiming relief under double taxation arrangements between the UK and the Isle of Man.
4. For example, the lead claimant in this action, a Ms Broomfield, included in her self-assessment tax return for 2002 to 2003 a figure of just over £100,000 under the heading "Income from overseas trusts" as follows: "Profits of IOM trust. Claim for exemption under Article 3 of the UK-IOM DTA". The effect of that claim, if valid, would be to reduce her liability to UK income tax by some £40,000.
5. In 2008 Parliament took steps to counteract schemes like this by inserting a new provision in the tax legislation, namely s.858(4) of the Income Tax (Trading and Other Income) Act 2005 ("ITTOIA"). One of the participants in the Montpelier scheme, a Mr Huitson, challenged that both by way of a judicial review which failed before Kenneth Parker J and then the Court of Appeal (see R (Huitson) v HMRC [2010] EWHC 97 (Admin), [2011] EWCA Civ 893), and by way of an appeal to the First-tier Tribunal ("FTT") (see Huitson v HMRC [2016] SFTD 37). This also failed, the FTT holding that s.858(4) of ITTOIA was effective to treat Mr Huitson as a member of the Isle of Man firm and to tax the monies he received under the trust as partnership income.
6. The claimants have also appealed to the FTT. In those appeals they rely on two arguments. One is the same argument as run by Mr Huitson, namely that s.858(4) of ITTOIA does not in fact operate to catch the profits of the Isle of Man partnership. That is labelled Ground 2 and is now said to be the claimants' secondary or fall-back argument, but I do not think it matters for present purposes whether it is put first or second. It is undoubtedly relied on as one of the grounds of appeal. I will call it the "Huitson argument".
7. The other is a new point, labelled Ground 1 and put forward as the claimants' primary argument, which is that s.44 of the Income Tax (Earnings and Pensions) Act 2003 has the effect of treating the income in question as if it were employment income with the effect, it is said, that although it was indeed taxable the tax can only be claimed in the current circumstances from the deemed employer under the PAYE system and not from the claimants themselves, the deemed employees. I will call this "the s.44 argument".
8. Mr Keith Gordon, who appeared for the claimants, explained to me briefly how this argument works. I asked Mr James Eadie QC, who appeared for HMRC, if he wanted to explain why it did not work, an invitation which he declined. I will proceed on the basis that it is at any rate a reasonable argument with some prospect of success.
9. In 2014 Parliament further enacted the Finance Act 2014 with new provisions for HMRC to give FNs and APNs. HMRC have given both FNs and APNs to the claimants. In this claim for judicial review the claimants challenge the use of those powers on a number of grounds.
10. I will take first the so-called Rowe grounds. These are Grounds 5, 6 and 7, which replicate three of the grounds advanced by the claimants in a previous judicial review in relation to Partner Payment Notices (which are similar to APNs), namely R (on the application of Rowe and others) v HMRC [2015] EWHC 2293 (Admin). Each of those grounds was considered and rejected by Simler J. The claimants in Rowe have appealed to the Court of Appeal, and the Court of Appeal heard the appeal in July of this year. Judgment has not yet been handed down and is awaited.

Grounds 6 and 7:

11. Ground 6 is that the FN and APN provisions are contrary to the provisions of the European Convention on Human Rights. Ground 7 is that the provisions are contrary to natural justice. They correspond to two of the grounds advanced in Rowe and argued on appeal to the Court of Appeal.
12. Mr Eadie recognises that in the light of the fact that the Court of Appeal is due to hand down its judgment shortly it would be inappropriate to refuse permission on these grounds now. The only dispute between the parties is whether I should, as Mr Gordon asked me to do, grant permission now or, as Mr Eadie asked me to do, stay the question of permission until the Court of Appeal hands down judgment.
13. I have not found it easy to discern what practical difference it makes to the parties which course is adopted. In their skeleton argument HMRC say that it would be a waste of time and costs to require HMRC to address the points in detailed grounds of defence, but that could be catered for by granting permission now and then staying the proceedings, with no requirement to serve detailed grounds of defence unless and until it was apparent from the Court of Appeal judgment that there was anything in the points.
14. Orally, Mr Eadie said that it was the principled approach not to decide permission at this stage but to adjourn consideration of the question. Mr Gordon said that to adjourn it would simply lead to what may turn out to be an unnecessary further hearing, but that latter point seems to me to carry little weight. If, as a result of the Court of Appeal judgment in Rowe, the position is clear one way or the other then I would not expect it to take up much time because one would expect either that the claimants would drop the claim or that HMRC would drop their opposition. If, however, there is real doubt as to how what the Court of Appeal says in Rowe applies to the present case, it is only appropriate for that to be looked at again by the court.
15. In these circumstances, I propose to accept Mr Eadie's proposal that permission on Grounds 6 and 7 be stayed until after the Court of Appeal releases its judgment in Rowe. That has the additional merit of consistency with what Picken J did in R (on the application of Sword Services Ltd) v HMRC [2015] EWHC 3544 (Admin) (see paras.5 and 6 of his judgment). In para.6 he says this:

"I do not consider it sensible simply to grant permission, as Mr Ewart was possibly minded to favour. Just as it made sense to defer the question of permission until after Simler J gave judgment in the Rowe case, so it makes sense now to defer consideration of permission until after the Court of Appeal has decided the appeal in that case. This is because, after the Court of Appeal decision is known, it will be possible to say whether the Rowe-type points raised in these proceedings are at that stage arguable or not. To make a determination on arguability based purely on the fact that the Court of Appeal has granted permission seems to me to make little sense."

I propose to take the same view.

Ground 5:

16. Ground 5 is that the FNs and APNs were in breach of the claimants' legitimate expectation or are otherwise conspicuously unfair. It corresponds to another ground in Rowe. It was rejected by Simler J (see her judgment at paras.88 to 96).
17. Permission was granted for this ground in the Court of Appeal but in the event the appellants, I am told, did not pursue it. Looking at it on its merits I agree with Simler J. However widespread the practice and however strong the claimants' expectation at the time that they entered into the arrangements that before they could be asked to pay any additional tax they would have an opportunity to appeal and that payment of the disputed tax would be postponed until after the appeal was determined, they cannot have had a legitimate expectation that matters would remain the same if Parliament changed the law. As Simler J says at para.95:

"... since the new powers are contained in primary legislation, even if the claimants could have identified an expectation, based upon previous legislation or the practice adopted by HMRC, this cannot give rise to a common law right, enforceable in the Courts, constraining Parliament's constitutional power to enact primary legislation which changes the previous position:"

and once Parliament had changed the law through primary legislation the claimants could not legitimately expect HMRC to do anything else than act in accordance with the new legislation; see Simler J at para.96: "The difficulty with that argument is that a statutory discretion must be exercised consistently with, and not running counter to, the primary legislation."

18. Although one High Court judge is not strictly bound by the decision of another, the practice is to follow the decision of another High Court Judge unless convinced that he or she is wrong. I am not only not convinced that Simler J was wrong, but it seems to me that she was entirely right.
19. Mr Gordon did not really put forward arguments why her decision was wrong. His main point was that the grant of permission to appeal in Rowe demonstrated that the point was arguable. But I do not know the reasons why the Court of Appeal granted permission. It may have been that in the light of permission that was being granted on other points they thought it added little to the appeal. And the force of the point is undercut by the fact that in the event the appellants chose not to run the argument. That certainly suggests that on consideration they thought better of it. Mr Gordon said he understood the appellants had streamlined their arguments, but that seems to me another way of saying that they had concentrated their efforts on the arguments they thought were likely to succeed.
20. In any event the fact that this ground has been dropped means that unlike Grounds 6 and 7 there is no prospect of the Court of Appeal reversing Simler J and the arguability test has to be applied, in my judgment, now. In the absence of any real argument being put before me why Simler J was wrong, I am not persuaded that this point meets the arguability test and I refuse permission.

Grounds 1 and 3, Conditions B and C:

21. I now come to what I regard as the point of most difficulty, which is whether and how the FN procedure can be operated where the taxpayer is relying on a different point on appeal from that dealt with in the previously decided case. This affects the validity of the FN under Ground 1, and because in this case an APN can only validly be given if it is given at the same time as or after an FN, it also affects the validity of the APN, which is Ground 3. I propose to grant permission on this point, and I will try to explain why as concisely as possible.
22. A key concept in the legislation is that of "the denied advantage". That is defined for present purposes in s.208(3) as follows:

"In this Chapter 'the denied advantage' means so much of the asserted advantage (see section 204(3)) as is denied by the application of the principles laid down, or reasoning given, in the judicial ruling identified in the follower notice under section 206(a)."

That, as it makes clear, takes one back to "the asserted advantage" in s.204(3), which reads as follows:

"Condition B is that the return or claim or, as the case may be, appeal is made on the basis that a particular tax advantage ('the asserted advantage') results from particular tax arrangements ('the chosen arrangements')."

That therefore takes one to the "particular tax advantage".

23. In a case where the taxpayer is running the same argument as in a case which has already been decided adversely to the taxpayers, these provisions work without great difficulty. Suppose, for example, Ms Broomfield's appeal to the FTT in this case had been solely based on the Huitson argument, the same argument as was rejected by the FTT in Huitson. Then there would be no doubt that Condition B in s.204(3) would be satisfied. The appeal would be made on the basis that a particular tax advantage resulted from the Montpelier arrangements, the particular tax advantage being that asserted in her return, namely that she was entitled to exemption under the UK-Isle of Man DTA and hence the income was not subject to UK income tax.
24. Condition C would also clearly be satisfied. A judicial ruling would be relevant to the chosen arrangements: see s.205(3)(b), which says that a judicial ruling is relevant to the chosen arrangements if:

"(b) the principles laid down, or reasoning given, in the ruling would, if applied to the chosen arrangements, deny the asserted advantage or a part of that advantage,"

Then under s.208(3) the denied advantage would be the exemption under the DTA which was denied by the reasoning in Huitson, and under s.208(4), (5) and (6) the necessary corrective action is not difficult to identify.

25. By s.208(5)(b) in the case of an FN given by virtue of s.204(2)(b), which is where the taxpayer has made a tax appeal, the taxpayer has as a first step to take all necessary action to enter into an agreement with HMRC in writing for the purpose of relinquishing the denied advantage. That would mean in effect giving up the appeal. Then under s.208(6)(b) she would have to notify HMRC of the denied advantage and, where different, the additional amount which has or will become due and payable in respect of tax by reason of the first step being taken. That would be the tax which would become due as a result of the denial of the exemption under the DTA, which in the assumed case would be £40,000, and if she did not comply with the FN the penalty under s.209 would be 50 per cent of the value of the denied advantage and would be £20,000.
26. Then under Chapter 3, under s.221(2) the APN would have to specify the disputed tax. The disputed tax is defined in s.221(3) as follows:

"'The disputed tax' means so much of the amount of the charge to tax arising in consequence of--

[...]

(b) where the appeal is against a conclusion stated by a closure notice, that conclusion,

as a designated HMRC officer determines, to the best of the officer's information and belief, as the amount required to ensure the counteraction of what that officer so determines as the denied advantage."

and under (4):

"'The denied advantage' has the same meaning as in section 220(5)."

which, when one follows it through via 220(5)(a), takes one back to the definition of denied advantage in s.208(3). In the assumed case, it would be the £40,000.

27. In such a case, therefore, it can be seen how the legislation works and it is not difficult to understand that it works in the way intended by Parliament. The purpose and effect of the FN provisions in Chapter 2 is to act as a powerful disincentive to a taxpayer to continue with an appeal where the taxpayer had participated in a marketed tax avoidance scheme and a similar scheme had already been held to have failed. The taxpayer either has to abandon the appeal and pay up, or run the risk of a penalty of 50 per cent of the amount in dispute, and if the taxpayer does continue with the appeal the APN provisions in Chapter 3 require the taxpayer to pay the disputed tax upfront.
28. But when one tries to fit this legislation to the facts of the present case, where the taxpayer is relying on two different grounds of appeal only one of which has been the subject of the previous decision, it seems to me that the application of the legislation is nothing like so straightforward. It became apparent in the course of oral argument (although it was not clear from the written arguments) that concealed within the legislation is a point of construction which I, at any rate, regard as one of some difficulty. The question is what the "particular tax advantage" in s.204(3) refers to. Is it the particular relief or exemption relied upon by the taxpayer, or is it the end result asserted by the taxpayer?
29. To put that into context for the present case, if the particular tax advantage is the particular relief or exemption claimed by the taxpayer then the claimants' appeals to the FTT assert two different advantages in the alternative. One is that they are entitled to a credit for PAYE that should have been deducted but was not, under the s.44 argument. The other is that they were entitled to exemption or relief under the Isle of Man DTA. These are plainly different from each other---- indeed, as the claimants recognise, mutually inconsistent. If, however, the particular tax advantage means the end result, both arguments do lead to the same result which is that no further tax is due from the claimants and the appeals against the closure notices should be allowed.
30. Mr Eadie told me that this question of construction is one of some controversy and has implications for other cases, and accepted that if that point needed to be resolved for the purposes of this application then permission should be given. In these circumstances, I certainly do not intend to resolve the point, and I accept that either construction is possible. I will confess that I was initially strongly attracted by the first construction, that is, that the particular tax advantage is the particular relief or exemption or credit relied on by the taxpayer. That gives rise in a case like the present to the question of whether Condition B is fulfilled.
31. Mr Eadie says it is. On this interpretation he says the particular tax advantage is the exemption under the Isle of Man DTA. The claimants' appeal, he says, is made on the basis that that flows from the particular tax arrangements, the Montpelier scheme. It does not matter that that is not the only basis on which the appeal is made or that it is put forward as a secondary or fall-back argument. The appeal is made inter alia on that basis.
32. Let me assume he is right and see what the consequences might be. Firstly, I think that in such a case Condition C would be fulfilled, because the Huitson case is a judicial ruling and the principles laid down in that case would deny the asserted advantage, that is, the claim under the DTA. That is therefore the denied advantage for s.208(3). So far, so good.
33. What then is the necessary corrective action? The first stage under s.208(5)(b) is that the taxpayer agrees to relinquish the denied advantage. On this interpretation it would, I think, require the taxpayer to give up the argument that he or she was entitled to relief under the Isle of Man DTA, that is to abandon Ground 2 of the appeal. I do not see that it would require the taxpayer to abandon the appeal as a whole because the denied advantage, on this view, is simply the relief under the DTA. That would mean that the taxpayer could continue the appeal based on the s.44 argument.
34. The second step of corrective action required is for the taxpayer to notify HMRC of the denied advantage, namely the relief under the DTA and, where different, the additional amount that will become payable by reason of the first step being taken. At this point however the scheme, to my mind, rather breaks down. The taxpayer would say, there is no additional tax payable as I still have the s.44 argument, so nothing is due from me. HMRC would no doubt disagree, but that point cannot be resolved until the FTT has ruled on the appeal.
35. Nor do the difficulties end there. HMRC serve an APN at the same time as the FN. That has to specify the disputed tax, as I have already referred to, and the denied advantage has the same meaning as in s.208(3). What is the HMRC officer to do in a case like the present? He cannot decide how much extra tax is needed to counteract the relief claimed under the DTA without forming a view, it seems to me, as to whether the s.44 argument is going to work or not, because if it does no extra tax will be payable.
36. Mr Eadie said that unless the s.44 argument was obviously going to succeed, the HMRC officer could properly form a view that extra tax would be due on the basis that the s.44 argument would fail. But that seems to me to be far from obvious. The officer has to determine the amount "to the best of the officer's information and belief". So what does the officer do if informed that the s.44 argument was likely, although not certain, to succeed? It seems improbable that Parliament intended this section to require him to form judgments of that type.
37. What happens if the taxpayer does, under the threat of a penalty arising under a FN, take the corrective action and drop the Huitson argument but continue with the appeal on the s.44 argument alone? That by itself does not, it seems to me, get rid of the APN. That would appear to mean that the taxpayer has to pay the tax upfront, assuming that the officer has determined that the amount required to counteract the denied advantage is the whole of the tax, even though the taxpayer is no longer relying on the Huitson ground. That seems quite a perverse result because if the taxpayer had appealed in the first place relying on the s.44 argument alone, then on this construction of what "particular tax advantage" means no FN could have been given and hence no APN. It would mean, therefore, that a taxpayer who appealed on both grounds and then dropped the Huitson ground would still have to pay the tax upfront, but one who only ever appealed on the s.44-ground did not, even though their position in the appeal to the FTT had become identical.
38. It seems to me, therefore, that adopting this construction of "particular tax advantage" leads to a number of unresolved questions, which casts doubt on whether that is right. Mr Gordon in fact submitted that the alternative construction was preferable, that is, that "the particular tax advantage" is the result contended for. That is, in the present case, that no further tax is payable.
39. On that construction I do not think there is in the end any difficulty over Condition B, as the claimants' appeal is on the basis that that result flows from the Montpelier scheme. But now one runs into a different problem, which is Condition C. That requires that there is a judicial ruling which is relevant and a judicial ruling is relevant only if the principles laid down would deny the asserted advantage. But if the asserted advantage is the result that no further tax is payable then I think that it is indeed arguable, as Mr Gordon submitted, that the principles laid down in the earlier case, in this case the FTT decision in Huitson, would not deny that result. The reasoning in Huitson would, if applied to the present case, lead to the Huitson ground being rejected. But that would not by itself mean that any more tax would be paid as that depends on the s.44 argument, which the Huitson decision says nothing about.
40. Let me suppose, however, that that is wrong and Condition C is satisfied. Then I think it must follow that the denied advantage in s.208(3) on this construction is the entirety of the extra tax, the £40,000. That means that to avoid a 50 per cent penalty the taxpayer has to abandon not only the Huitson argument but the entirety of the appeal, as that is the only way to relinquish the denied advantage. It would appear to follow that on this construction the taxpayer cannot avoid the consequence of the FN by dropping the Huitson ground, as he would not have relinquished the denied advantage. That would appear to be so, however strong the s.44 argument was and despite the fact that it had not been ruled on in any previous decision. Indeed it would, I think, follow, or might follow, that a taxpayer who started an appeal based solely on the s.44 argument and without trying to re-run the Huitson ground might still be at risk of an FN being served and being obliged to abandon the appeal or risk a penalty of 50 per cent, despite the fact that the previous judicial decision said nothing about the s.44 argument at all. It may perhaps be doubted if that was what Parliament had in mind when it passed s.205 in the form it did.
41. I have gone into these questions in more detail than would usually be appropriate for a permission hearing, because the application of this legislation (which of course must be read so as to make sense of it as a coherent whole) to cases such as the present one, to my mind (at any rate) raises real difficulties and casts real doubt on whether Parliament actually intended it to apply to a case like this, and indeed if it did, quite how Parliament intended it to work. These difficulties were not readily apparent from the papers and only emerged - and then only to some extent - in the course of oral argument, and even then I did not feel I had got to the bottom of them.
42. In those circumstances I take the view that a full hearing is appropriate to enable the whole question to be looked at in considerably greater detail than is possible on a hearing such as the present. It is for those reasons that I will grant permission on this ground, which means permission as follows: under Ground 1, the argument that Condition B is not satisfied and the argument that Condition C is not satisfied because the FTT decision does not deny the asserted advantage (there are alternative arguments under Ground 1 that Condition C is not satisfied which turn on when the FTT decision became final, which I will deal with separately); and under Ground 3, the similar arguments that Condition B and Condition C are not satisfied.

Irrationality:

43. I propose to take the question of irrationality next. I refuse permission on this ground. The simple point is that if the FN and APN powers do not apply to the present case that will be determined by the arguments under Grounds 1 and 3, which I have just considered. But if on a true construction of the legislation the FN and APN powers do apply, I do not see that it can be irrational for HMRC to use them. HMRC in such a case would be using the powers that Parliament intended them to have. That may work some hardship on the claimants, but Parliament has clearly decided that those who participate in marketed tax avoidance schemes should face strong disincentives from re-running points that have already been decided and should pay disputed tax upfront. I do not see that HMRC have acted unreasonably or unfairly or irrationally in doing what Parliament has intended they should do.

Final decision:

44. I propose to refuse permission on this ground. The critical question is when the FTT decision became final as defined in s.205(4)(b). By the end of the argument it was common ground that (i) the FTT handed down its decision on 3^rd September 2015; (ii) Mr Huitson had 56 days to appeal, which would have expired on 29^th October 2015; (iii) before the time expired he applied for an extension of time. That was by email on the afternoon of 29^th October so it was only just in time, but it was in time and Mr Gordon expressly accepted that the result of that was that the decision did not become final on 29^th October 2015; (iv) the FTT extended time on 11^th November 2015; (v) Mr Huitson duly applied for permission and the FTT granted him permission to appeal on 21^st December 2015; (vi) Mr Huitson then had until 23^rd January 2016 to send notice of appeal to the Upper Tribunal but he failed to do so; (vii) in July 2016 Mr Huitson applied out of time for an extension of time; and (viii) the UT finally disposed of that application on 22^nd February 2017.
45. It was also common ground that on 24^th January 2016 the case precisely fell within s.205(4)(b)(iii), which reads as follows:

"If such permission to appeal against the ruling has been granted or is not required, no appeal has been made within the time limit for appeals;"

Permission to appeal had by then been granted but no appeal had been made within the time limit for appeals. On this date, therefore, the FTT decision was a final decision, as Mr Gordon expressly accepted.

46. Mr Gordon argued that it ceased to be a final decision in July when an out-of-time application for an extension was made. He could not point to any words in s.205 which had that effect. He sought to draw some comfort from s.216, which deals with the case where an appeal is brought by reason of a court or tribunal granting leave to appeal out of time. That suspends an FN that has already been given (see s.216(2)) and prevents an FN being given until the appeal is disposed of (see s.216(8)).
47. I do not see, however, how it helps Mr Gordon. Indeed it seems to me to indicate that the draftsman thought that the late appeal did not itself stop the original ruling being a final ruling, as otherwise s.216(8) would be unnecessary, and in any event the fact that s.216 expressly deals with a late appeal out of time against a final judicial ruling but not with a mere late application for permission to appeal or extension of time suggests that there is no similar suspensory effect intended by the legislation.
48. The purpose of s.205(4) is, I think, to enable the time when a ruling becomes final to be identified with precision. This is important because an FN has to be given within 12 months of the ruling being made (see s.204(6)), and a ruling is treated as made when it first becomes final (see s.205(5)). In the present case that was on 24^th January (or possibly at 5.00 p.m. on 23^rd January) and nothing that happened thereafter could affect that. The contrary is to my mind not reasonably arguable and I refuse permission on this ground.

Other points on Grounds 1 and 3:

49. There is one other argument on Ground 1, which is that some claimants received FNs out of time. HMRC accept that permission should be granted for three named individuals: claimants numbers 44, 63 and 304 (Messrs Bennett, Cary and Van De Giessen). HMRC accept that another five individuals, numbers 66, 68, 163, 284 and 315, are said to have received notices out of time, but say the evidence in support is insufficient.
50. It seems to me that I should grant permission. This ground is plainly well founded if the date of receipt is proved, and the claimants should be given an opportunity to see if they can produce the necessary evidence. I will grant permission for all eight claimants identified in HMRC's skeleton.
51. Under Ground 3 there is one other point, which is where the APN was received before the FN. I did not understand HMRC to oppose permission being granted if those were the facts. One individual was identified in the claimants' skeleton argument, Mr Campbell Dean Stewart. It is not clear to me if there are any others, but I will grant permission on that ground in relation to those who can be so identified.

Grounds 2 and 4:

52. I can deal with these grounds relatively shortly. HMRC is obliged in the FN to explain the effects of s.207 to s.210, and in the APN to explain the effect of s.222. It is not disputed that HMRC may not have done so accurately because instead, for example, of referring, as s.207 does, to the taxpayer having 90 days beginning with the day that the notice is given, HMRC put a date in the FNs which may have been either slightly more than 90 days from the date that the notice was given (which Mr Eadie accepted meant the date of receipt) or slightly less than 90 days. The only question is whether Parliament intended the consequence of non-compliance with these provisions to be that the FN or APN, as the case may be, is wholly invalid; see R v Soneji [2005] UKHL 49 at para.23 in the speech of Lord Steyn where he says this:

"Having reviewed the issue in some detail I am in respectful agreement with the Australian High Court that the rigid mandatory and directory distinction, and its many artificial refinements, have outlived their usefulness. Instead, as held in Attorney General's Reference (No 3 of 1999), the emphasis ought to be on the consequences of non-compliance, and posing the question whether Parliament can fairly be taken to have intended total invalidity. That is how I would approach what is ultimately a question of statutory construction."

53. Although I agree with Mr Eadie that many of the breaches which have been identified are very minor and unlikely to have caused any prejudice to the claimants at all (which it appears is a relevant consideration; see Soneji at para.24), the question is ultimately a question of statutory construction and it does not seem to me to be one that can be resolved with complete confidence at this stage. One of the difficulties is that although giving the recipient one or two days too few or too many may have had no practical consequence at all it is not obvious that the same would be true if the dates stated were many days out, as it may have been if the receipt was significantly delayed. But I would have thought it distinctly arguable that there must be a single answer to the question whether Parliament intended non-compliance with this particular statutory requirement to lead to total invalidity. It is difficult to think that it can turn on how nearly accurate the explanation was.
54. I therefore propose to grant permission on these grounds so that the court which will be considering the legislation in depth in any event can consider this question of statutory construction at the same time. I believe that deals with all the permission questions.

Interim relief:

55. I come now to the question of interim relief. In relation to the APNs a consent order was agreed and I made it last Thursday. The remaining part of the application concerns the effect of the FNs. In essence the claimants seek to restrain HMRC from enforcing the FNs pending the hearing of the judicial review.
56. There are four substantive paragraphs in the draft order which Mr Gordon put before me. I propose to take para.4 first, as it seemed to me from the argument that this was really what Mr Gordon primarily wanted. That seeks an order in the following terms:

"For the purposes of section 208 of the Finance Act 2014, no liability to any penalty shall accrue for any period prior to the specified time. "The specified time" in section 208(8) is to be treated as commencing 30 days from the latest of:"

and then a number of dates are set out which effectively mean the final disposal of the judicial review claim.

57. Under s.208(2) the legislation provides that the taxpayer:

"... is liable to pay a penalty if the necessary corrective action is not taken in respect of the denied advantage (if any) before the specified time."

There is then a definition of specified time in s.208(8), and it is either 90 days after the FN is given or, if representations are made and the notice is confirmed, 30 days after the taxpayer is notified of HMRC's determination of the representations.

58. I agree with Mr Eadie that what I am effectively being asked to do by para.4 is to suspend the effect of primary legislation. Save in the case of alleged incompatibility with EU law (see R v Secretary of State for Transport ex parte Factortame Limited (No. 2) [1991] 1 AC 603), I am not aware of any power for the court to do that. If Parliament says that a taxpayer becomes liable to a penalty 30 days after HMRC rejects representations I do not see how the court can declare that he does not, or that the 30 days runs from other some other later time. It seems to me I am obliged to refuse this relief as sought in this paragraph.
59. Paragraph 2 seeks to restrain HMRC from taking steps to issue penalty assessments. It is true this is directed not at suspending the effect of primary legislation but of restraining HMRC from exercising a power, and it is true that the power to assess a penalty which is found in s.211 is expressed as something that HMRC "may" do in the following terms:

"211(1) Where a person is liable for a penalty under s.208, HMRC may assess the penalty."

Mr Gordon said that was discretionary and contrasted it, for example, with para.11 of Schedule 56 to the Finance Act 2009, which provides that where P is liable for a penalty under any paragraph of the schedule, HMRC "must" assess the penalty. But the difficulty I have with this submission is that once I have refused relief under para.4 I am not sure what this achieves in practical terms.

60. The evidence is that in most cases the claimants received rejection letters in April or May 2013, so the 30-day post-representations period has already long expired. If the FNs are valid, penalties in such cases have already been incurred. If the FNs are not valid, they have not. I do not see that restraining HMRC from assessing the penalties in the meantime affects that. If HMRC proceed to assess these penalties the taxpayers can appeal to the FTT under s.214 and the penalty, as I read the legislation, is not actually payable until the appeal is determined.
61. In some cases, it is true, representation letters may not yet have been received, but I do not see that it is appropriate to restrain HMRC from considering representations and determining them, as this is an obligation on HMRC (see s.207(2) and (3)). In those circumstances I propose to refuse the relief under para.2.
62. Paragraph 3 seeks to restrain HMRC from taking any other steps to enforce FNs, but it is not clear to me what other steps could be taken. The effect of not taking corrective action is that the taxpayer is exposed to a penalty.
63. Paragraph 1 seeks to restrain HMRC from issuing or reissuing FNs to the claimants. I do not understand the basis for this. No new FN can now be issued based on the Huitson decision as more than 12 months have elapsed after the judicial review became final (see s.204(6)). In the light of my decision earlier that the Huitson ruling became final on 24^th or 23^rd January 2016, it is not now possible for any further FN to be given based on that decision.
64. I am not aware of any suggestion that HMRC might base an FN on any other ruling. There does not therefore seem to me to be any relevant threat to issue or re-issue FNs at all and para.1 is entirely unnecessary. In those circumstances I refuse the application for interim relief.

MR JUSTICE NUGEE: Ms Manzano?

MS MANZANO: I am very grateful, my Lord. I think in the circumstances I have a couple of applications----

MR JUSTICE NUGEE: Yes.

MS MANZANO: -- for your Lordship. The first one will be for an extension of time to appeal against the refusal for permission on grounds---- I believe they are grounds 3, rationality, and ground 5.

MR JUSTICE NUGEE: Do you want to make an application---- what are you asking me to do? Do you want to make an application for permission to me now?

MS MANZANO: I believe that the rules in the CPR----

MR JUSTICE NUGEE: Is it Part----

MS MANZANO: -- do not require a claimant to apply for permission to appeal against a refusal for permission for JR. The appropriate rule with regard to----

MR JUSTICE NUGEE: Is that right? Is it---- 54, isn't it?

MS MANZANO: My Lord, it's 52.15.

MR JUSTICE NUGEE: Rule 52?

MR YATES: My Lord, whilst you are looking at that, if Ms Manzano could indicate what period of time she's looking for an extension for, it may well be that the Revenue might agree.

MR JUSTICE NUGEE: Yes. How long do you want? What's the----

MS MANZANO: The usual time is seven days from the date of the judgment.

MR JUSTICE NUGEE: Right.

MS MANZANO: My application would be for 14 days - so an extension of seven days - in order for the claimants to consider their position, to give instructions and for the necessary documents to be submitted to the Court of Appeal.

MR YATES: My Lord, in light of the fact she has 340 clients the Revenue aren't going to oppose that.

MR JUSTICE NUGEE: Very well, I will extend time under 52.15 to 14 days from today, which is, I think, 28^th November.

MS MANZANO: I am very grateful, my Lord. That also raises the question of a transcript of the judgment. My application would be for an expedited copy of the judgment from the transcribers. I understand that the usual time for a transcript is 10 days for the judgment to come before my Lord for it to be approved, but I understand that if it is expedited it can be----

MR JUSTICE NUGEE: Do you have to ask me for expedition or is it just a question of paying an extra fee?

MS MANZANO: I believe that I do have to ask you for expedition of the transcript.

MR JUSTICE NUGEE: Very well. Is that objected to?

MR YATES: No, my Lord.

MR JUSTICE NUGEE: No. I will, if and insofar as necessary, direct that the transcript be provided on an expedited basis. Yes.

MS MANZANO: I am also grateful.

Then the final application will be for an application to appeal against the refusal to grant interim relief, and the claimants would say that there are real prospects of success on this application for the following reasons: the first is that the legislation in the Finance Act 2014 is new and untested; that the Follower Notices have not been subject to a full review by the High Court and are not considered in the lead case of Rowe. The second reason is that Part 4, Chapter 2 of FA 2014 is unclear as to the approach that is to be taken when a taxpayer has a live appeal which relies on a different ground than the ground that has been rejected by a final---- or what could be determined as a final judicial ruling, so that links to the permission that has been given by this court----

MR JUSTICE NUGEE: Yes.

MS MANZANO: -- to apply for judicial review.

The claimants also submit that the question as to whether the ruling for an FN provides a knockout blow to the entirety of the appeal---- the substantive appeal in the First-tier Tribunal, and HMRC's position is that anyone could partially be affected by a judicial ruling---- well, that could be partially affected would have to give up their entirety of the live appeal, and if so the claimants submit that the legislation would usurp the court's supervisory law and constitute a real obstacle or impediment to the access to justice.

The third reason is that your Lordship was troubled by the Follower Notices inflicting an immediate pressure on the taxpayers to abandon what might otherwise be a legitimate challenge to an assessment, or an amendment to an assessment by HMRC, and in particular circumstances the Follower Notice itself is arguably invalid.

MR JUSTICE NUGEE: I accept all that, but I'm not sure that really answers the reasons that I sought to give, which were that para.4---- I wasn't satisfied I had any power to interrupt the timing set down in the statute. So if the Follower Notices are valid they're valid, and the penalty has been incurred in most cases or will be incurred in cases where representations have not yet been given, and in those circumstances it didn't seem to me that it made any sense to restrain HMRC from assessing the penalties because if the penalties are incurred, the penalties are incurred. So the disincentive effect is there. It's still there whether I restrain HMRC or not.

MS MANZANO: My Lord, I think the distinction is that the penalty---- a liability to the penalty will arise----

MR JUSTICE NUGEE: Yes.

MS MANZANO: -- when the time limits have complied, but that HMRC has a discretion to assess----

MR JUSTICE NUGEE: Well, I understand that.

MS MANZANO: -- the particular penalty, and I think it's the same argument that was run during the permission application, that HMRC has a wide-ranging discretion to determine whether those penalties should be assessed in order for them to then bite on the claimants.

MR JUSTICE NUGEE: Well, that may or may not be right. Mr Eadie said that in circumstances where HMRC could reduce the penalty to 10 per cent but not to nil - although it's phrased as a discretion - in practice there would need to be some pretty good reason not to assess the penalty. But that's not the point. The point is, what is the disincentive to your clients is that they expose themselves to a 50 per cent penalty by continuing with the appeals, and whether I grant an injunction or not that's still the case. They're still exposed to that risk. So I don't see what---- I don't see how it assists them at all.

MS MANZANO: I think my final submission would be that it would not crystallise that particular penalty, and so for all intents and purposes there would be no need to appeal against any assessment of the penalty. There would be no need to go through the First-tier Tribunal procedure in order to appeal against those penalties, and the question would then have to be determined when the judicial review is finally determined by this court.

MR JUSTICE NUGEE: Yes.

Do you want to say anything, Mr Yates?

MR YATES: It's always tempting. I think just to deal with a couple of points my learned friend has raised, as I understand it she's trying to get round the difficulty of your jurisdiction by saying, well, the Revenue have discretion. They've decided to ignore the period of non-compliance and only look at, in her view, real non-compliance after, say, they lose in the FTT. There's no real mandate for the Revenue to do that. If Parliament says you are liable for a penalty the normal course for the Revenue to follow is - subject to mitigation - to assess the penalty. So for the reasons given in our skeleton and in particular by reference to the Factortame decision, we say that that will likely be rejected by the Court of Appeal.

The second point raised is the, I suppose, the administrative inconvenience of having to appeal to the FTT. That is the regime set down by Parliament. In contrast to many tribunals and courts there is no issue fee or anything like that to appeal to the FTT. So there is no court fee or something like that. There would be some costs involved - I'm not denying that - but I would suggest that it's not a sufficient prejudice in order to invoke any form of interim relief. That's all I have to say about that. I also have something to say about costs.

MR JUSTICE NUGEE: I think I will refuse permission to appeal on interim relief. I think you will have to ask the Court of Appeal for permission. I am not persuaded that the contrary argument to the ones set out in my judgment have any real prospect of success such as to justify the grant of permission. Yes.

Mr Yates?

MR YATES: I would apply for costs in respect of interim relief and Follower Notices. I appreciate I've lost on some points---- permission. The general rule for permission is, it's costs in the case.

MR JUSTICE NUGEE: Yes.

MR YATES: For interim relief----

MR JUSTICE NUGEE: It seems particularly appropriate in circumstances in which I have granted permission on some matters and not on others.

MR YATES: Indeed. In relation to interim relief, you will be aware that in both Rowe and in Dunne & Gray the Revenue obtained an order for costs in any event. So we wouldn't be asking you to assess costs now. But come the end of the hearing, even if we were to lose on one or more points we would ask for the costs to be----

MR JUSTICE NUGEE: Yes. It's not apparent to me that the interim relief added significantly to the costs.

MR YATES: Well, there were distinct arguments on it----

MR JUSTICE NUGEE: Well, there were distinct arguments, but----

MR YATES: -- and the whole reason why this hearing was listed was because of interim relief. In the normal course of events----

MR JUSTICE NUGEE: Well, I understand it would normally be dealt with on---- well, it might normally be dealt with on the papers. Sometimes it can be adjourned into court in any event.

Yes, Mrs Manzano, what do you say about costs on limited interim relief, and I'm asked not to assess them now but just to make an order that they be HMRC's costs in any event at the end of the day?

MS MANZANO: My Lord, in terms of interim relief itself we would say that, as your Lordship suggested, it hasn't added to the----

MR JUSTICE NUGEE: Well, it's added to it to some extent, and it's not for me now assess to what extent it has.

MS MANZANO: But then, so the costs should be assessed in the---- well, they should be determined in question to how much they were in terms of---- so we can't really oppose against the principle of obtaining costs.

MR JUSTICE NUGEE: That's rather what I thought. Yes.

MS MANZANO: But an assessment should be made as to how much, if anything----

MR JUSTICE NUGEE: Yes, yes.

MS MANZANO: -- they added to the final determination of the permission.

MR JUSTICE NUGEE: Thank you. Very well, I will order the claimants to pay HMRC's costs of the interim relief application only, to be assessed on the standard basis but not to be assessed now, if not agreed.

MR YATES: I am grateful, my Lord, and just by way of clarification I should say the costs of the interim relief application insofar as they relate to the Follower Notices, because obviously there is a consent order.

MR JUSTICE NUGEE: Yes, insofar as they relate---- thank you for that, yes. Insofar as they relate to the Follower Notices. Yes, is there anything else?

MS MANZANO: I do not believe so, my Lord.

MR JUSTICE NUGEE: No? Thank you very much indeed, both of you.

MR YATES: I am grateful.