England and Wales High Court (Chancery Division) Decisions

IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		20 October 2009

1. MR JUSTICE NORRIS: In the years of assessment, 1999 and 2000, issues arose in relation to the corporation tax payable by Woodpecker Ltd. In each of those years a sum of £125,000 had been paid out of the profits of Woodpecker to the trustees of an employee share ownership plan ("ESOP") with the object that those trustees should purchase from the existing shareholders and directors of Woodpecker shares for distribution to employees. That description may not be wholly accurate but is sufficient to set the background for the questions I have to decide.
2. The dispute about the amount of tax payable centred upon two issues. First whether the payments of £125,000 were made wholly and exclusively for the benefit of the company's trade so as to be deductible under section 74 of ICTA 1988; and secondly if they were, whether those payments should nonetheless be disallowed as "relevant emoluments" for the purpose of the charge to tax under section 43 FA 1989. Those two issues were the subject of a hearing before the General Commissioners on 14 March 2007.
3. On 22 March 2007 the Commissioners gave their decision. They found that the expenditure of £250,000 in total was wholly and exclusively for the trade of Woodpecker but they went on to hold that for the purposes of section 43, Finance Act 1989, those sums were not deductible.
4. In their decision letter they enclosed details of a possible appeal against their decision. This took the form of a pre-printed sheet headed: "General Commissioners of Income Tax: Objecting to Their Decisions." It had a section headed: "Appeal to High Court." I should set out the substance of that section:

"Appeal to the High Court.

See sections 56(6) of the Taxes Management Act 1970; Regulations 22(4) of the General Commissioners' (Jurisdiction and Procedure) Regulations 1994; Part 52 of the Civil Procedure Rules, the Practice Direction supplementing that part and schedule 1, sc91."

5. That section was immediately followed in bold type with the rubric:

"Within 30 days of receiving the case stated from the tribunal you must:

1. write to the other party/parties saying that the case has been stated and enclosing a copy of it and

2. then take or send two copies of the case stated to the Chancery Division."

The wrong address is then given.

6. It is common ground that that guidance was received by Woodpecker. Woodpecker was dissatisfied with the decision of the General Commissioners and on 11 April 2007 wrote asking the Commissioners to state a case for the opinion of the High Court. The regulations provide for an exchange of observations as to the contents of the case to be stated by the General Commissioners and that procedure was followed. In the course of those exchanges HMRC wanted the issue whether the payments to the ESOP were wholly and exclusively for the purposes of Woodpecker's trade to be identified and treated in the case stated.
7. The General Commissioners declined to treat it in that way saying in a letter dated 19 March 2008:

"My Commissioners were not minded to address the wholly and exclusively issue at all as they agreed with you that this was not part of your points of law and was something that had been introduced into the Draft Case Stated by HMRC who had not expressed dissatisfaction."

8. HMRC did not "express dissatisfaction" because they were content with the outcome of the appeal but it is common ground that if an appeal proceeds HMRC will have the opportunity on the hearing of the appeal to take the section 74 point and to argue it. The case stated was eventually settled on 19 March 2008. Woodpecker's accountants sent it to the court under cover of a letter dated 4 April 2008 and copied it to HMRC. They did not, it is common ground, enclose any notice of appeal with the case stated, nor did they pay the correct fee.
9. There followed a period of silence brought to an end by the discovery by Woodpecker's accountants that the court had mislaid the case stated and that accordingly the matter had not been progressed. The discovery may be connected with a letter which HMRC wrote on 10 September 2008 to Woodpecker saying that the assessments for the accounting periods ending 1999 and 2000 were final "as no appeal against the Commissioners' decision has been received." They therefore required the amounts of the tax to be paid.
10. When Woodpecker's accountants expressed surprise HMRC wrote back on 18 September 2008 in these terms:

"An appeal to the High Court can only be by way of Appellant's Notice (see further part 52 of the Civil Procedure Rules and Practice Direction 52 with supplements part 52). You will note in particular paragraph 5.1 of the Practice Direction 52 states that:

'An Appellant's Notice must be filed and served in all cases.'

I should be grateful if you would advise me whether your client has filed an Appellant's Notice in the High Court. An Appellant's Notice should be filed when the case stated is transmitted to the High Court."

The letter asks for further details about the case transmitted and the Appellant's Notice.

11. There then arose the question whether the case stated itself had been properly transmitted to the High Court, which had no record of it, although Woodpecker's accountants had a copy of the letter which they sent enclosing the case stated and had ascertained that the cheque accompanying the letter had been encashed.
12. HMRC wrote on 25 September observing that there did not appear to be any evidence that the High Court had received the case stated and that if it had:

"…one would have expected the court office to write to you to remind you of the requirement of an Appellant's Notice and to inform you that you had enclosed the incorrect fee (see Gurney v Spence [2002] STC 758)."

The letter went on to provide some important observations:

"Your client did not comply with part 52 of the Civil Procedure Rules and Practice Direction 52 … as it did not file and serve an Appellant's Notice. Had the case stated been transmitted within the 30-day period your client would, in order to be able to pursue its appeal, need to obtain an extension of time for filing an Appellant's Notice. It would be for the High Court to decide whether or not to grant your client such an extension. However, if the case stated has not been transmitted within the required 30-day period any Appellant's Notice that is now filed with the High Court would be liable to be struck out as the High Court would not have jurisdiction to entertain the appeal."

From that time Woodpecker's accountants can have been in no doubt as to the courses that HMRC said had to be followed in order to get an appeal on its feet.

13. Eventually on 12 January 2009 Woodpecker's accountants wrote to the court enclosing an Appellant's Notice. They explained the background, namely (a) that on 4 April 2008 they had sent a letter enclosing the case stated: (b) that they had relied on the guidance (which I have quoted): (c) that they had sent a copy of the case stated to HMRC (d) that HMRC had said that they ought to have complied with part 52: and they concluded the letter:

"Accordingly we enclose a further copy of case stated and the Appellant's Notice of appeal and look forward to hearing from you shortly to confirm that our client's appeal will be heard by the High Court in due course."

14. The Appellant's Notice sent with that letter did not contain in section 8 any application for an extension of time for filing the appeal notice. It did not set out in section 9 what steps had been taken since the decision appealed against had been made. The court office evidently understood that letter to mean that the Court had also mislaid the Appellant's Notice and they accordingly issued the Appellant's Notice dated 7 April 2008.
15. HMRC then drew to the court's attention the fact that no Appellant's Notice had been issued in April 2008 and that the January 2009 notice was the first to come into existence. Notwithstanding that, when the Appellant's Notice issued by the court was served on HMRC on 19 February 2009 the notice served still contained no application for an extension of time. The letter simply said that:

"There was a delay in issuing the Appellant's Notice due to an administrative error by the court."

There is no suggestion that that statement was intentionally deceptive and it almost certainly arose from inadequate instructions from a firm newly instructed in the matter.

16. The reason why there is now an application for an extension of time to issue an Appellant's Notice is because on 16 February 2009 Morgan J ordered that the appeal should be listed for hearing as an application for extension of time to file an appellant's notice and that the appellant should comply with paragraph 5.2 of the Practice Direction to part 52. The application for that hearing was eventually issued on 24 March 2009 as the result of an agreed extension of time made between Woodpecker and HMRC.
17. The issues before me are accordingly first, whether it was necessary to issue an appellant's notice, which counsel for Woodpecker submits that it was not; and secondly (if it is necessary to issue an appellant's notice) whether the time for doing so should be extended until 12 January 2009, being the date of issue of the appellant's notice in this case.
18. Mr Sherry for Woodpecker submits that once it is accepted that a case has been transmitted to the High Court the court has jurisdiction to and is under an obligation to deal with the point of law which it raises irrespective of whether any appellant's notice has been issued or not.
19. The material relevant for a consideration of that submission is as follows. First one begins with section 56(3), Taxes Management Act 1970 which says that:

"Where a party to an appeal requires the Commissioners to state and sign a case then he shall pay the appropriate fee."

Section 56(6) then says:

"The High Court shall hear and determine any question or questions of law arising on a case stated and transmitted to the High Court under regulation 22 of the General Commissioners' Regulations and shall reverse, affirm or amend the determination in respect of which the case has been stated or shall remit the matter to the Commissioners with the opinion of the court thereon or may make such other order in relation to the matter as to the court may seem fit."

20. The reference to regulations is picked up in section 56B and in particular in section 56B(3) which says that:

"The regulations may include a provision authorising or requiring the Commissioners to state a case for the opinion of the court and for an appeal to lie to the court on a question of law arising from a decision of the Commissioners."

21. The relevant regulations are the General Commissioners' (Jurisdiction and Procedure) Regulations 1994. They have a chapter entitled: "Case stated procedure" running from regulation 20 to regulation 22. Four steps are involved. Step 1 is that by regulation 20(1):

"Within 30 days after the final determination of any proceedings any party to the proceedings, if dissatisfied with the determination, may by notice require the tribunal to state and sign a case for the opinion of the High Court."

22. Step 2 is set out in regulation 21. This provides for the settlement of the case, the preparation of a draft case and the receipt and incorporation (if thought fit) of the responses of the parties to it.
23. Step 3 is set out in regulation 22("regulation 22"). Once the case has been signed and stated then under regulation 22(4):

"The party requiring the case shall transmit the case to the High Court within 30 days of receiving it and at or before the time when he transmits the case to the court send notice of the fact that the case has been stated on his application together with a copy of the case to the other party or parties."

That transmission is step 4.

24. It is agreed before me that the requirement to transmit the case stated to the High Court within 30 days of receiving it is a jurisdictional requirement. That acceptance is based on the decision of Blackburne J in New World Medical v Cormack [2002] STC 1245. At paragraph 7 Blackburne J says:

"Transmission within 30 days is an absolute requirement. The court has no power to extend the time limit."

25. Mr Sherry further submitted that once the case stated had been transmitted to the High Court then the court had an obligation to hear and determine the question of law it raised without more. The foundation of that submission was the decision of Megarry J in Slaney v Keen 45 TC page 415, in particular a passage at page 421, F-H, where Megarry J construed the section as if it read:

"The High Court shall hear and determine any question or questions of law arising on the case and (a) shall reverse, affirm or amend or (b) shall remit the matters to the Commissioners or (c) make such other order"

observing

"On this reading the obligation to hear and determine any questions or question of law governs all three limbs."

26. It then fell to Mr Sherry to demonstrate why CPR 52 did not apply to an appeal by way of case stated which, according to his submission, imposed an obligation on the court to deal with it as soon as it was transmitted. Part 52.1 says that the rules in that part apply to "appeals to the High Court". CPR 52.2 says that all parties to an appeal must comply with the relevant Practice Direction. Paragraph 5.1 of the Practice Direction says that an appellant's notice must be filed and served in all cases. Paragraph 5.2 of the Practice Direction says that where the time for filing an appellant's notice has expired the appellant must file the appellant's notice and include in the appellant's notice an application for an extension of time and that the notice should state the reason for the delay and the steps taken prior to the application being made.
27. Paragraph 18.7 of the Practice Direction is Part 52 sets out the procedure relating to cases stated by ministers, government departments, tribunals or other persons. Paragraph 18.11 says that the party on whom the case stated was served must file the appellant's notice and the stated case at the Appeal Court and serve copies of the notice and of the stated case on every party to the proceedings to which the stated case relates within 14 days after the stated case was served on him.
28. There are two caveats in relation to this scheme of matters. First in CPR 52.1 (4) it is stated:

"This part is subject to any rule, enactment or Practice Direction which sets out special provisions with regard to any particular category of appeal."

29. Second paragraph 18.1 of the Practice Direction, which is the preamble to the part dealing with appeals by way of case stated, says that that section of the Practice Direction:

"Is subject to any provision about a specific category of appeal in any enactment."

30. Mr Sherry's submission is that while Part 52 applies to the extent of directing appeals by way of case stated under regulation 22 to the Chancery Division of the High Court (see paragraph 22.2(13) of the Practice Direction) it otherwise has no effective application because such an appeal by way of case stated is governed by regulation 22 which is a "special provision" which takes appeals by way of case stated under that regulation entirely out of the scope of CPR Part 52.
31. This submission faces the difficulty of the decision of Jacob J in Gurney v Spence the case referred to by HMRC in their letter of 25 September 2008. This was an appeal from the Commissioners by way of case stated by a taxpayer in person relying on advice received from the clerk to the Commissioners to the effect that he had to submit the case stated to the court within 30 days. But that taxpayer, like Woodpecker's accountants, did not at the same time submit a notice of appeal. Jacob J took it as read that a notice of appeal was required. Indeed so had the court office which had returned the case stated to the taxpayer requiring him to comply with CPR part 52. The taxpayer accordingly applied for an extension of time but Jacob J refused to grant it.
32. Mr Sherry deals with that case by saying that the inter-relationship between regulation 22 and Part 52 was not the subject of any argument and the point simply was not taken by the taxpayer in person.
33. He goes on to point to the terms of the Chancery Guide. Chapter 25 of the Chancery Guide deals with revenue proceedings. Paragraph 25.1 says that almost all proceedings between HMRC and taxpayers are appeals against decisions made by lower level tribunals at first instance. It continues:

"The appeals are governed by Part 52. Reference should be made to chapter 10 for the general procedure relating to such appeals."

34. The Guide then goes on to deal in paragraphs 25.2 and 25.3 with appeals from the General Commissioners, but does not make express reference to the need to serve a notice of appeal. It then deals with the procedure on appeals from the Special Commissioners in paragraphs 25.4 to 25.6 and in the course of that it does refer to the need for an appellant's notice. (It should be said that the procedure for an appeal from the General Commissioners by way of case stated differs from the procedure on appeal from the Special Commissioners where a notice of appeal is expressly required by the relevant rules).
35. I do not accept Mr Sherry's submissions. In my judgment a clear distinction is to be drawn between provisions which found the jurisdiction of the High Court to entertain the appeal at all and provisions which govern the procedure to be adopted in the High Court once the appeal is to be entertained. Regulation 22 is concerned to establish the jurisdiction of the High Court to entertain the appeal. It deals with the procedure for the creation of a case stated and it is the transmission of the case stated to the High Court within the prescribed time limit which founds the jurisdiction of the High Court to entertain the appeal.
36. Once the High Court is seized of the appeal then in my judgment the provisions relating to the conduct of that appeal set out in CPR 52 and the Practice Direction apply. In other words CPR 52 (as varied by paragraph 18 following in the Practice Direction) apply to appeals by way of case stated as much as they apply to appeals generated in any other way.
37. I do not consider that Megarry J was intending to say anything else. He was in my judgment certainly not saying that the High Court had an obligation to decide the question of law raised by a case stated without reference to any procedural framework. It seems to me impossible to conduct an appeal by way of case stated without having the scaffolding of procedural rules to clarify exactly what the issues between the parties are, to set out what their respective cases on the identified question of law may be, and to identify the order which they say the tribunal ought to have made in consequence of a correct appreciation by the law.
38. Not only is that necessary in order to understand what the appellant says about the appeal. It is also necessary in order to afford the respondent an opportunity to present a respondent's notice and either to uphold the decision below on other grounds or to say that the decision ought to have been otherwise on one issue or another.
39. It is difficult to elaborate any further on the point. In brief the language of regulation 22 does not compel the conclusion that it is dealing both with jurisdiction and with all procedural requirements. The structure of CPR 52 does not require that appeals by way of case stated should be taken out of the scope of the rule and of the Practice Direction simply because special provision is made for procedural requirements as to the creation and transmission of the case stated in some particular enactments.
40. The one point of detail that has been raised before me is the interrelationship between the 30-day period required for the transmission to the High Court of the case stated and the procedural requirement for the service of a notice of appeal accompanied by the case stated within 14 days of its receipt by the appellant. In truth I see no difficulty. It seems to me that CPR 52 procedurally requires an appellant to file his notice of appeal and to lodge the case stated within 14 days of its receipt. Regulation 22 simply says that if he does not do so and that if he then does not in fact lodge the case stated within 30 days from its receipt (accompanied by an Appellant's Notice seeking an extension of the procedural time limit) then the Appeal Court will have no jurisdiction to entertain the appeal.
41. Both rules proceed from the date upon which the appellant received the case stated. There is no difficulty in reconciling their effect.
42. It therefore falls to decide whether the time should be extended for the service of the notice of appeal (which I hold to be required) until 12 January 2009, when it ought to have been lodged on 4 April 2008. Here the provisions of CPR Part 52.6 and the Practice Direction at paragraph 5.2 are engaged. So also is the decision of the Court of Appeal in Sayers v Clarke Walker [2002] EWCA Civ 645 at paragraph 21.
43. It is salutary to remind oneself of the role of the power to extend time for the filing of a notice of appeal. Brooke LJ summarised the position thus in Smith v Brough [2004] EWCA Civ 261 at paragraph 54:

"There are three matters which need to be borne in mind.

1. that it is a fundamental principle of the common law that the outcome of litigation should be final.

2. that the law exceptionally allows appeals out of time.

3. that this is an exception to the general rule of high public importance and it is reserved for rare and limited cases where the facts justifying the exception can be strictly proved."

44. He went on to observe:

"In interpreting CPR 3.9 in any case where an extension of time for appealing in excess of, say, two months has been sought the court will bear in mind the matters to which I have referred in determining where the interests of the administration of justice truly lie."

45. I therefore turn, guided by Sayers v Clarke Walker, to a consideration of CPR 3.9 and the factors to be borne in mind. The first is the interests of justice. The delay in issuing the notice of appeal in this case is very serious. It is true that if I do not permit an extension of time then Woodpecker will be denied the statutory right of appeal which it has without permission from the court.
46. Mr Sherry says that the service of the case stated on HMRC in April 2008 achieved substantially what timeous service of a notice of appeal would have secured and that it was the ambiguous advice from the tribunal itself which caused the delay in the issue of the notice of appeal so that in this case the interests of the administration of justice come down in favour of Woodpecker. I do not agree. I consider that Woodpecker has been dilatory in the prosecution of its appeal and that the period of delay is so serious that the consideration which Brooke LJ outlined in Smith v Brough comes into play, namely that the interests of justice in achieving finality and in securing observance of the time limits laid down in the rules are weighty factors which come down in favour of refusing permission to extend time.
47. That however is only one factor. The second question for my consideration is whether the application has been made promptly. I have been taken through the evidence filed on behalf of Woodpecker by way of explanation for the delay. In brief Mr Sherry submits that when it became clear that an appellant's notice was required Woodpecker acted promptly in submitting one to the court. I do not accept this submission. No application for an extension of time was actually made until the court directed that it be made in February 2009. I can see that there might have been some scope for saying that notwithstanding the reference to CPR part 52 in the guidance given by the tribunal those advising Woodpecker were misled as to the need for an appellant's notice. But in September 2008 HMRC set out its contentions quite clearly including a reference to the only case which anybody has been able to identify as germane to the issue.
48. What is more in September 2008 the clear advice given in paragraph A5-203 and 206 of Simon's Taxes was that a notice of appeal was necessary. Any competent practitioner should have been aware of that work and of the view which it expressed. The failure to issue an appellant's notice at all until January 2009 and the failure to include within it an application to extend time are to my mind a failure to act promptly. This consideration therefore again comes down against granting permission to extend time.
49. The third consideration is whether the failure to comply with the rules was intentional. I do not think that this consideration really illuminates matters one way or the other. From April until September 2008 I can see that it might be said that the failure was unintentional and was based upon a misreading of the rules. From September onwards I can see that it might be said that the decision not to issue a notice of appeal and seek an extension of time was a deliberate one in that the position had been outlined by HMRC and a deliberate choice made not to accept that point of view.
50. But Mr Sherry submitted, and I accept that this has some force, that in the beginning from September through to November there was not only the question of whether a notice of appeal should be issued. There was also the question whether the case stated had ever been transmitted. In the result I do not think that a consideration of whether the delay was intentional or accidental really points in one direction or another.
51. The next consideration to be borne in mind is whether there has been general compliance. Mr Sherry submitted that there had indeed been general compliance but I regret I do not agree. There was undoubtedly careful compliance with regulation 22 in order to produce a case stated and careful compliance with regulation 22 in the transmission of the case stated, but there has not been compliance with CPR part 52. Ignoring for present purposes the failure to issue the notice of appeal and serve it at the same time as lodging the case stated, when the matter was brought to the attention of Woodpecker's advisors they did not address the matter and only made an application for an extension of time when directed to do so by the court. They wholly failed to comply with CPR 52.6 relating to the application for an extension. This therefore is a consideration which counts against the appellants.
52. The next consideration is whether the failure to comply arose out of the decisions of the appellant or his legal advisors. In the present circumstances although CPR 3.9 refers to "legal representatives" I think Woodpecker's accountants may be taken as its professional advisors holding themselves out as competent to conduct an appeal on its behalf. I do not know enough about the reason why the advice of HMRC was not accepted in September to make any well-founded finding on this factor. Indeed it is the scanty evidence which has been filed as to the circumstances in which the error arose that causes the difficulty. I do not think that whether the failure was of the accountants or of Woodpecker's directors really throws much weight in the scale and accordingly I give no weight to this consideration.
53. The last considerations may be taken together. They are the effect of the failure to comply and the effect on the parties of granting relief. Mr Sherry of course urges that if I fail to grant relief then there would be a denial of the statutory right of appeal - a right exercisable without the permission of the court. But in my view this is always the case whenever an extension of time is refused. The party is denied the right of appeal or the right to seek permission to appeal.
54. Whilst serious, the denial of the right of appeal has to be weighed against the position in which HMRC find themselves by reason of the delay. It is necessary for HMRC to manage their litigation and to undertake their tax collections in an organised way. A late appeal prejudices them in both respects, as is demonstrated by the fact that it was at about the time when HMRC sought to collect the tax that the deficiencies in the case stated and the appeal process came to light.
55. Furthermore in the instant case HMRC has an application that I should remit the case to the General Commissioners for them to state a further question of law and to set out their findings of fact in much greater detail than the present case stated: that is in relation to the "wholly and exclusively incurred" issue. HMRC says that there plainly was evidence before the General Commissioners that one of the reasons for the establishment of the ESOP was a non-trading reason. Shortly put, that reason was the ability of the shareholders to dispose of their shares in a tax-efficient way. They say that there were documents before the General Commissioners which gave support to the submissions that the decision to create the ESOP and make the payments was not "wholly and exclusively" a trade decision. They say that the Commissioners have not engaged with this part of the case and have not stated the evidence on which they relied, a choice deliberately made because HMRC did not "express dissatisfaction" with the decision.
56. Mr Sherry says that, it is not too late to remedy that; that even if everything had been done in time there would still have been a lapse from March 2007 to April or May 2008 when a properly constructed appeal was brought in the High Court; and that the further period that has passed since will not significantly have damaged the recollection of the General Commissioners as to why they decided what they did. But I consider that there is significant prejudice to HMRC in the prosecution of its request for a remission of the case to the General Commissioners. That prejudice is sufficient to mean that on this part of the balancing exercise the weight of factors comes down in favour of HMRC and against the appellants.
57. Taking all the factors together I am of the opinion that I should not exercise my discretion to extend the time because the facts disclosed do not bring this case within the test adumbrated by Brooke LJ in Sayers v Clarke Walker and in Smith v Brough.
58. Accordingly I refuse to extend time and dismiss the notice of appeal. This renders it unnecessary to consider the Revenue's application to have the case remitted for further consideration by the General Commissioners.