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Cite as: [2006] UKSPC SPC00603, [2006] UKSPC SPC603

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Carter Lauren Construction Ltd v Revenue & Customs [2006] UKSPC SPC00603 (10 October 2006)

SPC00603

Income Tax - Subcontractors Certificate - section 585 TA 88 - first appeal dismissed - taxpayer making second application and being refused- res judicata - whether issue estoppel can apply in a tax appeal under section 561(9) - whether issue estoppel prevents taxpayer asserting defaults were not minor and technical - whether second appeal should be stayed as an abuse of process - whether section 46 TMA prevents the second appeal being brought.

THE SPECIAL COMMISSIONERS

CARTER LAUREN CONSTRUCTION LIMITED Appellant

- and -

THE COMMISSIONERS FOR HER MAJESTY'S

REVENUE AND CUSTOMS Respondents

Special Commissioner: Charles Hellier

Sitting in public in London on 24 August 2006

Matt Boddington of Accountax Consulting Ltd for the Appellant

Colin Williams, Inspector of Taxes for the Respondents

© CROWN COPYRIGHT 2006

DECISION

Introduction

On 30 September 2005 the Appellant applied to HMRC for a "CIS5" certificate under section 561 TA 88. On 10 November 2005 HMRC refused the certificate. The Appellant appealed.

The appeal was heard by the General Commissioners on 2 February 2006. They refused the appeal. The Appellant made no appeal against that decision.

The Appellant made a fresh application for a certificate on 24 March 2006. That was refused by HMRC on 6 April 2006. On 5 May 2006 the Appellant appealed against that decision electing for the appeal to be heard before the Special Commissioners.

This preliminary hearing relates to the question of whether issues determined by the General Commissioners can be raised again by the Appellant in this second appeal. The Respondents assert that the Appellant is estopped from raising certain issues on the grounds that either (i) the doctrine of issue estoppel applies, or (ii) it would be an abuse of process to re-litigate those issues; or (iii) the matters determined by the General Commissioners are by virtue of section 46 TMA 1970 conclusively so determined and not open to re-examination in the second appeal.

These contentions require an examination of the requirements of the sub-contractors' legislation, an appreciation of the decision made by the general commissioners, an investigation of the applicability of the doctrines and statutes relied upon by the Respondents, and an examination of the applicability of those doctrines to the nature of the issues at large before each appeal tribunal. This decision is structured accordingly.

1. The Subcontractors' Legislation

Chapter IV Part XIII TA 88 provides that when a contractor in the construction industry pays a subcontractor he must deduct tax from the payment. It provides for an exemption when the subcontractor holds a certificate issued by HMRC under section 561.

Possession of such a certificate by a subcontractor is highly valuable. Without it the contractor will suffer significant cash flow disadvantages because, although the tax deducted may be recovered by him, it may take some time to be reclaimed.

The legislation provides conditions which must be satisfied before the certificate is issued. In the case of a company they are set out in section 565. There is a right of appeal against refusal to issue or renew a certificate given by section 561(9). The appeal may be to the General or to the Special Commissioners.

Included among the conditions in section 565 are the following:

"(3) The company must, subject to subsection (4) below, have complied with all obligations imposed on it by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an inspector accounts of, or other information about, the business of the company in respect of periods so ending."

The qualifying period is a period of 3 years ending with the date of application for the certificate. Thus the qualifying period in relation to the first appeal commenced on 1 October 2002, but that for the second appeal on 25 March 2003.

Section 565 continues:

"(4) A company which has failed to comply with such an obligation or request as is referred to in subsection (3) above, shall nevertheless be treated as satisfying this condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (8) below will be satisfied….

"(8) There must be reason to expect that the company will, in respect of periods ending after the end of the qualifying period, comply with all such obligations as are referred to in subsections (2) to (7) above and with such requests as are referred to in subsection (3) above.

"(8A) Subject to subsection (4) above, a company shall not be taken for the purposes of this section to have complied with any such obligation or request as is referred to in subsections (3) to (7) above if there has been a contravention of a requirement as to the time at which, or the period within which, the obligation or request was to be complied with."

That there have been 6 High Court appeals in relation to these matters over the last 2 years may show the importance of such a certification to a company (see Barnes v Hilton Main Construction 2005, STC 1532, Templeton v Transform Shop Office 2006 DTC 900, Arnold v G-Con Ltd 2006 STC 693, and on appeal 2006 STC 1516, John Cormack v CBL Cable Contractors 2005 EWHC 1294 (Ch), Hudson v JDC Services Ltd 2004 STC 834, and Revenue & Customs Commissioners v Facilities Maintenance Engineering Ltd 2006 EWHC 689 (Ch)).

The nature of the appeal Commissioner's jurisdiction

Section 561(9) provides for an appeal against the refusal of a certificate. It provides that "the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board, …".

Depending upon whether the appeal Commissioner's jurisdiction is to conduct a full appeal or to review the Board's decision on Wednesbury principles, the issues relevant to issue estoppel and abuse of process may be different. In Hudson (HMIT) v JDC Services Ltd 2005 EWHC 602 (Ch), however, Lightman J held that section 561(9) conferred a jurisdiction on the tribunal to determine afresh the decision of the Board and that the tribunal were free to substitute its own judgement for that of the Board. This affects the way in which any issue estoppel could apply.

On the basis of Hudson the determination of each of the following issues will therefore be necessary for the making of a decision on appeal as to whether a certificate should be issued:

(i) whether there were defaults;

(ii) if so, whether those defaults (or, possibly, one or more of them) were minor and technical;

(iii) again, if there were defaults, whether those defaults gave cause for concern over future compliance; and

(iv) in any case, whether there was reason to expect that the company would be compliant in future.

Minor and Technical

Two issues arise in relation to the minor and technical defence in section 565(4) which are relevant to the question of issue estoppel because they relate to the nature of the decision by the General Commissioners. The first relates to the facts and evidence that are relevant to the question of whether a default is minor and technical - and thus to whether or not the second tribunal will have regard to the same facts as the first in relation to any part of its decision.

The second issue relates to whether the minor and technical defence is to be applied to each separate act of non-compliance or to the acts of non-compliance as a whole. That issue is of relevance because it relates to the question of exactly what issue was, or had to be, determined by the first tribunal.

(i) the facts relevant to minor and technical

I have already noted the difference between the two limbs of section 565(4): the first requiring a finding of whether acts of non compliance were minor and technical, and the second separately requiring a decision as to whether those acts gave cause for concern as to future compliance. That distinction, and the decision of Lightman J in Hudson in relation to it was referred to by Laddie J in John Cormack (see paragraphs 15 and 16 of his judgment). Having done so Laddie J then turned to the meaning of "minor and technical". He said, rejecting an argument that a large or repeated default could not be minor and technical no matter what the circumstances, at paragraph 27:-

"I do not accept this argument. It seems to me that the words "minor and technical" have to be construed in their context. As Lightman J pointed out in Hudson, there are two discrete matters to be considered in applying section 565(4) …. One looks to the past. The other looks to the future. As far as the former is concerned, the underlying question is whether or not the past defaults of the taxpayer have been, to use Lightman 1's words, "of any significance". Significance in this context includes consideration of whether the defaults demonstrate a cavalier attitude of the taxpayer to his obligations under the tax legislation. Even if defaults are large or numerous in money terms, the circumstances may make them not significant for these purposes. The words "minor and technical" can have different meanings. There is nothing in the legislation to suggest that they are primarily or exclusively concerned with size and frequency. Some of the liabilities covered by the legislation are not concerned directly with the payment of money. In context "minor and technical" should be construed in a way which allows them to be used to gauge whether there is a risk that the sub-contractor will default on his tax obligations. If, for example, a company is late in paying a very large tax bill because, wrongly and in breach of its customer's instructions, the bank on which the company's cheque is drawn fails to honour it, the breach should be treated as minor and technical even though, from an accountant's point of view, the sum involved was large and not minor." [my italics]

On the same day as this application was heard, Simons Tax Cases reported the decision of the Court of Appeal in Arnold v G-Con (now reported at 2006 STC 1516).

The Court rejected that part of Laddie J's judgment in CBL in which he said that the words "minor and technical" should be construed in a way which allows them to be used to gauge whether there is a risk that the sub-contractor will default in his tax obligations. Sir Peter Gibson gave a judgment with which the other members of the Court agreed and said that the first condition looks to the past whereas the second condition looks to the future.

In the High Court hearing of Arnold (HMIT) v G-Con Ltd [2005] EWKC 2456 Ch, Mann J said that whether defaults were minor and technical was ultimately a matter of impression, and that the bald figures in that case could not be described as minor and technical by themselves. He then said:

"It is of course relevant to consider whether there is anything in surrounding facts which will be capable of rendering those figures minor and technical if they otherwise do not seem to be so. I am not sure whether there is anything in surrounding facts, short of an estoppel, which would be capable of rendering breaches which are not, on their face, minor and technical, nevertheless minor and technical."

Thus, like Laddie J, 3 months later, Mann J acknowledged that surrounding facts could have the effect of rendering minor and technical that which would not otherwise be so. I conclude that the facts surrounding a default will be relevant to the issue.

Mann J went on to consider those facts which the General Commissioners had taken into account in reaching the conclusion that the defaults were minor and technical. One of those was compliance in respect of other tax matters. He held that this was irrelevant consideration:

"I do not think it is arguable that compliance in respect of other tax matters, such as the prompt payment of corporation tax, is capable of turning the defaults in relation to accounting for PAYE and NIC into minor and technical lapses if they were not otherwise capable of bearing that characterisation."

In the Court of Appeal in Arnold v G-Con, in relation to the evidence which was relevant to the minor and technical issue Sir Peter Gibson said that it was right to reject the notion that the whole of the taxpayer's compliance record should be taken into account.

Likewise Mann J concluded (at paragraph 35) that the fact that no warning had been given to the company was an irrelevant consideration.

To my mind all this suggests that the range of facts which could be relevant to the question of whether a default was minor and technical (or whether a series of defaults was minor and technical) is limited to those which bear directly on, or which have a direct connection with, the default.

For this reason I reject the idea that the fact of later compliance in the particular area in which the earlier default(s) occurred can be a relevant consideration. But this is subject to the point relating to whether a number of faults are considered singly or together referred to below. Accordingly, but subject to that point, it seems to me that the facts relevant to the General Commissioners' decision must be the same as those relevant to the decision in the second appeal at least so far as concerns the defaults which are common to both appeals.

(ii) The defaults singly or together

The second issue is this: the language of section 585(4) relates to "a" default: in the singular rather than the plural. It applies where the company has failed to comply with "such an obligation", and provides for relief "as regards the obligation" if "the" failure is minor and technical.

In the court of Appeal in Arnold v G.Con, at paragraph 28, Sir Peter Gibson deals with the question of multiple defaults. He says:

"Although the 'failure' is in the singular, no one suggests, nor can anyone sensibly suggest, that one looks only at each failure in isolation from other failures. All breaches in compliance with tax obligations can be taken into account in deciding whether the failure to comply with such tax obligations can be deemed to be minor and technical".

It seems to me that Sir Peter Gibson may be making two points here. First (and I think clearly) that other breaches and therefore their number and substance can be relevant to a decision, and secondly (probably) that it is permissible to make a decision that a series of breaches were as a whole not minor and technical. The first point is the exception to the proposition I set out at paragraph 27 above. But I note it is an exception only in relation to breaches - not their absence: he is not suggesting that subsequent good behaviour is relevant.

Of course the singular can encompass the plural where the context admits, but in a case where a company has defaulted on occasions A, B and C and there is a decision on appeal that the relief in section 585(4) is not available, the question arises as to whether the decision was that at least one of A, B and C was not minor and technical, or that A, B and C together were not minor and technical. The first possibility for example be the case if A was a particularly unmitigated, venial and egregious default, but B and C were each only a few days' delay in making a return or if the circumstances surrounding B and C made them minor and technical.

This is of particular relevance to this application because the effect of the passage of time is that a number of the defaults which were before the General Commissioners have now fallen out of account because they now pre-date the beginning of the 3 year qualifying period. Thus if the General Commissioners' decision was that each of A, B and C were not minor and technical, then even though A may now have fallen out of account, the decisions in relation to B and C remain relevant issues in relation to the current appeal. On the other hand, if their decision was that A, B and C together were not minor and technical, then because A is no longer relevant, this decision no longer relates to an issue relevant to the current appeal because the issue before the tribunal will instead be whether or not B and C (and possibly D) are minor and technical taken together.

The Decision of the General Commissioners

The first appeal was heard by the General Commissioners for Cardiff and the Vale. The clerk to the Commissioners wrote to the Appellant on 7 February 2006 and reported their decision thus:

"Having considered the evidence called and submissions made by both parties the General Commissioners were not satisfied that the admitted failures by the company to comply with all of its obligations under the Taxes Acts were minor and technical and, accordingly, upheld the refusal of the CIS 5 Certificate".

Pausing here, I note that there is here a finding that there were defaults (which I presume must have been in the 3 year period) and a finding that they were not minor and technical. The Commissioners did not indicate (and were not required to indicate) whether or not they regarded the continuing compliance condition as satisfied.

I was told that an argument (the Human Rights argument) had been advanced by the Appellant before the General Commissioners that, reading section 565 with Article 14 of the European Convention on Human Rights, the appeal should be allowed because an unconnected company in another part of the country with similar failures to those of the Appellant had been granted a certificate, and therefore that there was discrimination against the Appellant justifying the allowing of the appeal.

The clerk's letter made no reference to the consideration by the Commissioners of this argument. Mr Williams therefore wrote to the clerk on 27 June 2006. The clerk replied on 30 June:

"I would confirm that, when dismissing the company's appeal against refusal of their application for a CIS 5 Certificate the General Commissioners recorded, as a finding, that there was no discrimination in the treatment of the company by HM Revenue & Customs. In these circumstances they indicated that they were not required to take a view on the submission with regard to Article 14".

Thus the General Commissioners made decisions on three issues which were necessary to dismiss the appeal. First, that there were defaults; second, they found that the admitted defaults in the 3 year period before them were not minor and technical; and third they found that there had been no discrimination.

The defaults before the General Commissioners related to the delay in payment of PAYE and NIC, and the delay in the submission of end of year PAYE and NIC returns. The payment defaults were:

(1) six in period 1 October 2002 to 25 March 2003. These were relevant to the first appeal but do not fall within the 3 year period relevant to the second appeal; and

(2) 26 in the period 26 March 2003 to 30 September 2005 each of which was relevant to the first appeal and each of which would also be relevant to the second appeal.

In relation to the submission of end of year returns, there were three defaults which were relevant to the first appeal and which would also be relevant to the second appeal.

Thus of the 35 defaults before the General Commissioners, six of them will have dropped out of account in relation to the second appeal.

Issue Estoppel

Mr Williams took me to Diplock LJ's description of issue estoppel in Thoday Thoday v Thoday [1964] p 181 CA at p 198:

"…. 'issue estoppel' is an extension of the same rule of public policy [namely: nemo debet bis rexari pro una et eadem causa]. There are many causes of action which can only be established by proving that two or more different conditions are fulfilled. Such causes of action involve as many separate issues between the parties as there are conditions to be fulfilled by the plaintiff in order to establish his causes of action; and there may be cases where the fulfilment of an identical condition is a requirement common to two or more different causes of action. If in litigation upon one such cause of action any of such separate issues as to whether a particular condition has been fulfilled is determined by a court of competent jurisdiction, either on evidence or on admission by a party to the litigation, neither party can, in subsequent litigation between one another upon any cause of action which depends upon the fulfilment of the identical condition, assert that the condition was fulfilled if the court has in the first litigation determined that it was not, or deny that it was fulfilled if the court in the first litigation determined that it was".

There are a two preliminary points to make. First the doctrine does not apply only where the litigation is before the same tribunal: the judgment of a foreign court may create a res judicata (Carl Zeis (No.2) [1967] IAC 853 and Henderson v Henderson 1843 3 Hare 100). The question is not whether it is the same tribunal but whether the first tribunal was a court of competent jurisdiction: in other words a tribunal which has jurisdiction to decide the matter conclusively between the parties. It is clear to me that the General Commissioners are given jurisdiction to decide whether or not defaults are minor and technical by section 561(9). Their jurisdiction must also extend to the application of the Human Rights Act. Accordingly their decision on these issues are prima facie capable of giving rise to an issue estoppel which could affect an appeal before the Special Commissioners. This is however subject to the possible application of an exception from the doctrine in tax cases which I shall discuss later.

Second, the issue which gives rise to the alleged estoppel must be, in Diplock LJ's terms a "condition" i.e. something which must be proved in order for the tribunal to have reached its conclusion: it must be a matter which it was necessary to decide, and was decided on, for the earlier decision. In this case there were three issues determined by the General Commissioners in the first appeal which enabled them to dismiss it. They were:

(i) that there were failures;

(ii) that the failures were not minor and technical; and

(iii) that there was no discrimination relevant to Article 14.

It seem to me that each of these were in Diplock LJ's terminology "conditions" for the dismissal of the appeal. Although Diplock LJ describes the concept by reference to establishing a cause of action, the doctrine is clearly applicable to the defeating of an action, and prima facie for the dismissal of an appeal.

The application of issue estoppel in relation to the second appeal

There are three issues I should now consider: (i) whether the exception from the doctrine of estoppel in tax and rating cases is applicable to a section 561(9) appeal; (ii) whether there are here any special circumstances which would deny the operation of estoppel, and (iii) whether, if issue estoppel can operate generally in these circumstances there are "conditions" to which it applies.

(i) Estoppel in tax cases

Decisions relating to tax and rates constitute an established exception to the general rules on res judicata. In CIR v Sneath [1932] 2 KG 862, Lord Hanworth MR noted that income tax was imposed annually by each Finance Act and said that it seemed "difficult to attribute to an assessment [made for a particular year] such a permanence as will provide an estoppel by res judicata in all future years by reason of a matter taken into account or not taken into account, in a previous assessment for a year." The assessment he said "seems inherently to be of a passing nature." Romer LJ said that an appeal was "merely another step taken by the Commissioners… in the course of… their duty of collecting… tax", and held accordingly that the Special Commissioners' jurisdiction was limited to the amount of the taxpayer's income for the year of assessment.

In the Society of Medical Officers of Health v Hope [1960] 1 All ER 317, the House of Lords considered whether a rating decision by a valuation court for one year gave rise to an estoppel in relation to the same issue in a subsequent year. Their Lordships held that no estoppel arose. They held that the question in the subsequent year was not eadem questio; it was a new question. Lord Radcliffe noted that there was high authority for the proposition that a decision on one tax should not settle anything more than the bare issue of that one liability and so could not create an estoppel in relation to a succeeding year. He thought it unwise to depart from authority because, on the whole:

"it is more in the public interest that tax and rate assessments should not be artificially encumbered with estoppels…"

The reason why it was a new question each year was twofold. First Lord Radcliffe said it lay in the passing nature of the jurisdiction of the tribunal: its function was limited to deciding upon an assessment for a defined and terminable period; although competent for that function the tribunal was not competent to deal with questions between the parties with the required finality to set up estoppel per rem judicatem.

The second reason was the special position of the assessor. He owed a duty to an ever changing body of rate payers. As such there was doubt that he could be regarded as the same party: there was no lis, (although Lord Keith fused this reason with the principle that an estoppel should not hinder the carrying out of a statutory duty).

The Privy Council in Mohamed Falil Abdul Caffoor v Commissioners of Income Tax Colombo 1961 AC 584 came to a similar conclusion in relation to income tax, referring to the fact that income tax appeals "remain in one sense a part of the powers of assessment", and that the "critical" thing was that the dispute was in proceedings limited to the subject of the amount of the assessable income for the year. The limited nature of the question in the tribunal's jurisdiction meant that there was no estoppel.

The question as to whether a decision of the General or Special Commissioners could create an issue estoppel was described thus by Lightman J in Barnett v Brabyn 1996 STC 716 at page 723:

"Prior to the enactment of the Income Tax Management Act 1964 (the 1964 Act), the function of the tax commissioners was to make assessments and to hear appeals. It was well established during the period of that regime that they were not deciding a "lis inter partes" and accordingly their decision in respect of one year's assessment could not create any form of res judicata or issue estoppel in respect of a later year's assessment (see IRC v Sneath [1932] 2 KB 362, 17 TC 149; Caffoor and others (Trustees of the Abdul Gaffoor Trust) v Comr of Income Tax, Colombo [1961] AC 584 at 598 - 589 and Spencer Bower and Turner Res Judicata (2^nd Edn, 1969) pp 260 - 266). The 1964 Act removed from the Commissioners the function of making assessments. I do not think that this changes the position that (for present purposes) their decision on an appeal is not a decision on a "lis inter partes". This view accords with that expressed in the text books (see eg Whiteman on Income Tax (3^rd edn, 1988) para 30.02 and Phipson on Evidence (14^th edn, 1990) para 33.48). Accordingly a determination of an appeal by the Commissioners or a s54 agreement cannot any more since 1964 than before 1964 afford scope for application of the doctrine of res judicata or issue estoppel in respect of assessments in succeeding years or additional assessments in the same year. It is, however, to be noted that Lord Hanworth MR in IRC v Sneath [1932] 2 KB 2362 at 384, 17 TC 149 at 163 underlined the fact that such a previous determination of a question may be a cogent factor on a subsequent determination of the same question."

Faced with these authorities Mr Williams says that close examination shows that they do not mean that no estoppel can arise from a decision of the General Commissioners under section 561(9). He says:

(i) that unlike the jurisdiction in relation to annual assessments, the jurisdiction given by section 561(9) is not of an annual nature;

(ii) that this jurisdiction is not of the passing nature which gives rise to the exception from the general rule;

(iii) that Lord Radcliffe bases his first reason on the function of "fixing the assessment" to be carried out by the Commissioners. Mr Williams says that that is not the function being performed by the General Commissioners under section 561(9), and anything outside that reasoning is not covered by the exception;

(iv) that, in Caffoor the Privy Counsel made it clear that the key issue was not "the status of the tribunal itself… that forms the determining element for estoppel… but the limited nature of the question that is within the tribunal's jurisdiction." The decision of the General Commissioners he says is in respect of the same lis between the same parties as that on the second appeal.

(v) that in Sun Chemical Ltd v Smith (HMIT) SpC 340, the Special Commissioners, relying in part on a statement of Lord Diplock in Vandevells Trusts 46 TC 341, held that in a case where the deductibility of interest in 1992 depended upon whether it was deductible (for another purpose) in 1991, the inspector was estopped from denying the result of an appeal in relation to 1991. Mr Williams says that this shows that issue estoppel is not completely barred by the principles in Hope and Caffoor, but that where the circumstances fall outside the reasoning in those cases it is available.

Mr Williams says that there is a distinction between appeals relating to assessments and other appeals: in assessment appeals it is inherent that the issue of finality of decision does not arise; there is no double vexation because each year is separate. In relation to CIS appeals he says res judicata is required: there is a need for finality, and to avoid multiple vexation. In this regard he says the application of res judicata is necessary both for the protection of the taxpayer and the Revenue in CIS 5 cases: neither party should be able to re-litigate an issue which has been determined in relation to one application in relation to a subsequent application.

Mr Boddington takes me to Willmer LJ's comment (echoed by Pearson LJ) in Thoday that "the somewhat drastic remedy of striking out a pleading… is one which is only to be resorted to in plain and obvious cases". He notes the comment of Lord Radcliffe in Hope that it is in the public interest that tax assessments should not be artificially encumbered with estoppels. He says that the Appellant is given a right of appeal by section 561, and that effectively to render that right nugatory by estopping the Appellant from arguing the central issue - whether its defaults were minor and technical - is contrary to the policy behind the granting of a right of appeal - particularly when the possession or otherwise of a CIS 5 certificate can be a life or death matter. In any event he says the continual rolling forward of the 3 year period means that a section 561(9) appeal, like an assessment, is inherently of a passing nature and well within the reasoning which barred estoppel in assessment cases.

It seems to me that Mr Williams is right. It cannot be in the public interest or in the interests of the finality of litigation that the exact same issue should be capable of being litigated afresh - with potentially different answers - in more than one appeal. If HMRC refuse a certificate on the grounds that default A is not minor and technical and the tribunal decides that it was minor and technical, it cannot be right that the next day HMRC should be able to revoke the certificate on the same ground, and in the subsequent litigation argue that that very default was not minor and technical. Neither can it be right that the taxpayer should be allowed almost countless bites at the same cherry.

Clearly there may be issues which are not the same in relation to each appeal: the question as to whether there is reason to doubt the future compliance of the company will depend upon the facts available at the time, and those facts may be startlingly different in relation to two different times. But that is not a "condition" in Diplock LJ's terminology: it is not the same question because the facts relevant to it will be different.

It seems to me that I am not barred from this conclusion by the authorities. Issue estoppel has been eschewed in tax and rating cases for a number of reasons. First, prior to 1964 the appeal Commissioners were part of the assessing process and in that capacity were not deciding a question between the parties but exercising "part of the powers of assessment". The appeal was "merely another step… in the course of… collecting tax". Lightman J does not regard the removal of that function in 1964 as affecting the question of whether or not their decision was on a "lis inter partes", but he limits that comment to the "present purposes" i.e. the purposes connected with the making of an assessment with which he was concerned. Neither Lightman J nor Romer LJ consider whether something removed from that purpose falls within the same proscription. The jurisdiction exercised by the appeal Commissioners in relation to section 565 is quite different from that of assessment: it relates, not to determining an amount, but to determining whether conditions are satisfied which permit the issue of a certificate. That is not part of the assessing process.

Second, Lord Hanworth and Lord Radcliffe both argue from the passing nature of the assessment: the annual nature of the assessment regime for a defined and terminable period. But CIS certification is not part of an annual assessment regime. The grounds for the grant or refusal of a certificate are not limited to years of assessment or to the annual imposition of a tax. An assessment is for a year; a certificate may last for many years. Even if the conditions for the grant or refusal of a certificate relate to events of or facts in a particular period, the passing nature of the decision is limited to the effect of the passage of time on those events or facts in relation to the relevant period. The regime contains within itself its own time limitation. There is absent the "critical" feature (Caffoor) that the dispute is in proceedings limited to the subject of the amount of the assessable income for the year.

Third, because the decision is not a "lis inter partes". Although in practice tax appeals are conducted as disputes as to whether the taxpayer on HMRC are right in relation to a particular point, and are thus conducted as if there was a lis inter partes, with an appeal against an assessment the technical question is still: "how much?" It is not simply: are these conditions satisfied? But where the statutory question is whether conditions are satisfied - and is whether HMRC or the taxpayer is correct - there is a matter in dispute between the parties which is settled: it is not simply the determination of a figure.

Fourth, that there was no lis inter partes because the assessor represented an ever changing body of rate payers and so might not be regarded as the same party. In relation to the Commissioners of Her Majesty's Customs & Excise whilst it is true that they may represent in a broad sense the people of this country who pay tax and benefit from public spending, it is to my mind difficult to view a body created by statute to administer the tax system as ever changing or different at different times.

Lord Radcliffe thought that it was not in the public interest that tax and rate assessments should not be artificially encumbered with estoppels. In relation to section 561(9) appeals it seems to me to be in the public interest that neither HMRC nor the taxpayer should be able to re-litigate the same issue again and again.

It seems to me therefore that the broad principle of and public interest in finality in litigation should not be subject to an exception for section 561(9) appeals.

(ii) Special Circumstances

There are limits to the bar to subsequent litigation of the same condition. In Arnold v NatWest Bank plc 1991 2 AC 93 Lord Keith said that there may be an exception to issue estoppel in the special circumstance that there has become available further material relevant to the determination of the condition which could not by reasonable diligence have been adduced in the earlier proceedings. In Special Effects Ltd v L'Oreal 2006 EWHC 481 Ch, the Chancellor of the High Court described the exception as special circumstances why an estoppel should not in the interests of justice preclude re-litigation of the same issues.

Mr Boddington did not argue that there were such special circumstances, but said that the facts before the tribunal and relevant to the issue were different: the first appeal related to a different 3 year period. The second appeal would have as its basis different facts on which a different conclusion could be reached in relation to a different period.

(iii) Are there issues to which estoppel may apply?

(a) the defaults

The General Commissioners that there were failures by the Appellant. They describe these as admitted failures. To the extent it is clear or can be established which failures the Appellant admitted before the General Commissioners, it is clear to me that the Appellant should be estopped from denying these failures in the second appeal.

(b) minor and technical

The General Commissioners also decided that the defaults of the Appellant were not minor and technical. They made that decision by reference to the 35 defaults before them. In the second appeal only 29 of those defaults would be before the tribunal.

Mr Boddington says that the second tribunal will be adjudicating on different facts: the question will be whether the 29 defaults (and any after September 2005 - although he says there are none) were minor and technical. That he says is a different question: the issue before the two tribunals will not be the same.

The problem is that we do not have details of the General Commissioners' reasoning and it is not possible to deduce from their decision the precise nature of their conclusion in relation to all the issues. Had there been one default only and had the General Commissioners dismissed the appeal on the basis it was not minor and technical, the position would in my view be clear. That default would have to be considered as not being minor and technical in relation to the second appeal (assuming it fell into the 3 year period for this appeal). The evidence to that question would be limited to that which was directly connected with the fault, and evidence relating to what had happened in the 6 months after the date of application would not part of the facts surrounding the default which could be relevant to the question of whether or not it was minor and technical. Thus the condition before the General Commissioners would have been "the identical condition" before the second tribunal because it would be determined by reference to the same facts. The conditions for an issue estoppel would clearly be met.

But in this case there were 35 defaults before the General Commissioners, and they say that they were "not satisfied that the … failures … were minor and technical". It is not clear whether they regard each default as tarred with that brush or all the faults as taken together as such (and the approach alluded to by Sir Peter Gibson of looking at the failures as a whole would suggest that a decision in relation to the failures as a whole by the General Commissioners may have been appropriate) , and in particular it is not clear that they found that the 29 later defaults were not minor and technical. Even if they had so held such a conclusion would found an estoppel only if it was a necessary condition for this decision - and if they had also held that the first six defaults were not minor and technical, then this conclusion on the next 29 would not be a necessary condition for their dismissal of the appeal.

Of course it may well be the case that the 29 failures were found to be not minor and technical - and on the bald list before me of those failures I would probably come to that conclusion. But I did not have before me all the evidence which was before the General Commissioners, and evidence as to the circumstances surrounding a failure which is directly related to that failure may be relevant to whether that failure is minor and technical. It might be the case that there were respectable reasons for these failures.

Mr Williams says that substantially the issues are the same. He says that res judicata is not a technical doctrine and the need for finality in litigation can override differences in the issues. For the first proposition he takes me to Green v Weatherill [1929] 2 CH 213 where, at page 221, Maughan J said:

"In my opinion it must be admitted that the cause of action in the two cases is strictly speaking not the same. On the other hand the plea of res judicata is not a technical doctrine, but a fundamental doctrine based upon the view that there must be an end to litigation."

Maughan J said that the plaintiff could not "by establishing practically the same facts obtain judgment in a different form". There is in this judgment an element of robustness. Mr Williams also referred me to the words of Tucker LJ set out at paragraph [76] below.

Mr Williams says that the mere existence of a difference in facts is not sufficient to defeat the estoppel: instead it becomes a question of whether in substance it is the same question. He says that the key is the overlapping period with its 29 defaults. The inclusion of the later period must of a limited effect: the tribunal is still considering failures.

I can find nothing in the cases cited to me which would enable me to use a brush as broad as that for which Mr Williams contends in painting an answer. Although it is true that the relevant judgments speak of "substantially" the same issues, in each case the issue of relevance is one which relates to substantially the same facts: as Cohen LJ said in Wright v Bennet "the facts relied on… in the first action are in substance the same as those on which the plaintiff seeks to rely in the [second] action". In the instant case the facts are a subset of the facts in the first action. The comments to which Mr Williams draws attention related principally to the requirement that the nature of the action be substantially the same - that the conditions to be determined should be substantially the same; that the condition is identified: "were those defaults minor and technical", but the defaults are not the same and there is no indication that in the first appeal it was determined that each default was not minor and technical.

I also bear in mind the statements that issue estoppel should be applied only in a clear and obvious case. I cannot find in the cases anything which would permit me to find that a decision that 35 failures were not minor and technical meant that the last 29 of those failures shared that characterisation. Even if only one of those failures had fallen out of account, the position would not be clear: I could not direct that this was substantially the same old question because I would not know whether in relation to other 34 there were extenuating surrounding circumstances. Were it only one that had dropped out of account I could direct that evidence be brought before the second tribunal as to whether there were special facts surrounding that first failure which made it and the other 34 materially different: if there was no such evidence then substantially it would be the "same old question" before the second tribunal; if there were such evidence then an evaluation of the difference could be conducted.

With 6 failures (17% of the total) dropping out of account, it is harder to isolate the question: much greater insight into the deliberation of the first tribunal is required. The need for that insight means that it is no longer clearly "the same old question". It may be, but even taking a robust view, there is a real possibility of a difference. And to require the second tribunal to speculate on the reasoning of the first where it cannot be said that the facts really are substantially the same is neither sensible nor practical even if it were possible.

As a result I cannot direct that an issue estoppel arises in relation to the minor and technical issue. Had the basis of the General Commissioners' decision been spelt out more fully, the position could have been different.

I must make it plain that I do not accept Mr Boddington's submission that later events can cast a backward (and rosy) light on earlier failures. Later compliance may reduce the number of relevant defaults and in that way affect the question of whether such faults, taken together, are minor and technical, but I cannot see how such evidence of compliance could otherwise relate to the default which had happened. The test is backward looking: only evidence relating to the facts surrounding the failure would be relevant. Leaving aside the issue of evaluating a number of failures as a whole, evidence as to the events in the 6 months after the first application would therefore not be relevant. Assuming that the Appellant provided to the General Commissioners all its evidence as to the circumstances surrounding the failures, only that evidence would be relevant to the decision in the second appeal in relation to the 29 failures.

(c) The Human Rights Argument

The General Commissioners found that there was no discrimination in the treatment of the company by the Respondents. I was shown copies of the correspondence which was shown to the General Commissioners between HMRC and another unnamed taxpayer. That taxpayer had defaulted on 34 occasions over three years, but an inspector in the Sussex Area Office of HMRC had allowed an appeal against the refusal to grant a certificate and the Respondents had granted the certificate.

The consideration of the potential discrimination in the first appeal required a comparison of, and of the relevant circumstances surrounding, the Appellants' 35 defaults, with the 34 defaults of the other taxpayer and the circumstances surrounding them. In the second appeal the Appellants relevant defaults will be 29 in number. A different comparison is therefore needed in this second appeal unless it is clear that the General Commissioners had regard only to those 29 defaults in making their decision. Since it is not so clear I cannot hold that the General Commissioners determined the issue which will be in dispute in the second appeal. As a result I cannot direct that the Appellant should be estopped from raising that issue.

Abuse of Process

Mr Williams submits that even if res judicata does not prevent the re-litigation of the minor and technical argument or the Human Rights argument, the bringing of either argument in the second appeal represents an abuse of process. In such circumstances he says the tribunal has a duty to exercise a power to prevent an abuse of process. He says that the Appellant's second application and second appeal is a collateral attack on the decision in the first appeal and is thus an abuse of process.

He relied for his first proposition upon Lord Diplock's opinion in Hunter v Chief Constable of West Midlands [1981] 1 All ER l727 at 7289:

"My Lords, this is a case about abuse of the process of the High Court. It concerns the inherent power which any court of justice must possess to prevent misuse of its procedure in a way which, although not inconsistent with the literal application of its procedural rules, would nevertheless be manifestly unfair to a party to litigation before it, or would otherwise bring the administration of justice into disrepute among right-thinking people. The circumstances in which abuse of process can arise are very varied; those which give rise to the instant appeal must surely be unique. It would, in my view be most unwise if this House were to use this occasion to say anything that might be taken as limiting to fixed categories the kinds of circumstances in which the court has a duty (I disavow the word discretion) to exercise this salutary power" [Mr Williams' emphasis],

and, for his second proposition upon Stuart Smith LJ's judgment in House of Spring Gardens Ltd v Waite [1990] 2 All ER 990 at page 1000, where he said that abuse of process was a route "untrammelled by the technicalities of estoppel" and, citing the extract set out above from Lord Diplock's opinion in Hunter, said (with added emphasis):

"That was a case where the court would not permit a collateral attack on the decision of a court of competent jurisdiction. The principle has recently been applied in this court to analogous cases, where issues of fact have been litigated exhaustively in sample cases; it is an abuse of the process for a litigant, who was not one of the sample cases, to re-litigate again all the issues of fact on the same, or substantially the same evidence: see Ashmore v British Coal Corp [1990] 2 All ER 981, [1990] 2 WLR 1437.

The question is whether it would be in the interests of justice and public policy to allow the issue of fraud to be litigated again in this court, it having been tried and determined by Egan J in Ireland. In my judgment it would not; indeed, I think it would be a travesty of justice. Not only would the plaintiffs be required to re-litigate matters which have twice been extensively investigated and decided in their favour in the natural forum, but it would run the risk of inconsistent verdicts being reached, not only as between the English and Irish courts, but as between the defendants themselves. … What could be a greater source of injustice, if in years to come, when the issue is finally decided, a different decision is reached in Mr Macleod's case? Public policy requires that there should be an end of litigation and that a litigant should not be vexed more than once in the same cause."

Mr Williams says the Special Commissioners have the same inherent jurisdiction, that the doctrine of abuse of process imposes a duty rather than a discretion on the tribunal, that this is a case where the duty to apply the doctrine arises because there is a collateral attack on the General Commissioners' decision, because the second appeal opens up the possibility of an inconsistent verdict, and because there should be an end to litigation. Therefore he says the second appeal should be stayed.

He takes me to Wright v Bennett [1948] I AK ER 227. In that case the plaintiff was alleging a conspiracy involving the production of a fraudulent document. Previously the plaintiff had brought and lost an action for fraudulent misrepresentation. Tucker LJ said::

"That, in substance, was the case which the plaintiff had endeavoured to make before Hilbery J and the Court of Appeal, but he had not in terms called it a conspiracy. That is the only difference. There may be some minor details showing a few variations from the matters set out in the first action, but in substance, it is the same story. That being so, the court was asked to strike out this statement of claim as being frivolous and vexatious. That means that, in effect, it is an abuse of the process of the court that the defendants are, in substance, being called on to meet the same allegations covering the same ground, and that they find themselves once more charged with fraud, but fraud which is the basis of a somewhat different cause of action. … In many of [the] cases the matter was considered under two heads, namely, whether the action should be stayed or dismissed because a plea of res judicata would inevitably succeed, or whether the court would stay the action under its inherent jurisdiction to prevent a frivolous and vexatious action which would be oppressive to the defendants. Those two points are inclined to overlap each other in these cases. ... I agree, if I may say so, with what was recently said by Somervell LJ in Greenhalgh v Mallard ([1947] 2 All ER 257):

"I think that on the authorities to which I will refer it would be accurate to say that res judicata for this purpose is not confined to the issues which the court is actually asked to decide, but that it covers issues or facts which are so clearly part of the subject-matter of the litigation and so clearly could have been raised that it would be an abuse of the process of the court to allow a new proceeding to be started in respect of them."

I agree that that is the result of the cases and that the plea of res judicata is not necessarily confined to the identical nature of the issues in each action. What has to be considered are the issues and facts which are part of the subject-matter of the litigation. I do not think it is necessary, as I have already indicated, to express a view with regard to res judicata because I think that this case is one in which the court clearly should exercise the inherent jurisdiction which it has to prevent its own process being used in any way which would be an abuse by calling on the defendants in substance and in reality to meet the same old charge."

Mr Boddington says that to say that the second appeal is a collateral attack on the first decision misses the point: he says the second appeal is a direct attack, but a direct attack on the second decision only. In that respect he says that whether or not the company appealed against the first decision is irrelevant.

Mr Boddington accepted that theoretically a company whose first application was refused on appeal could make new applications on each succeeding day, receive refusals corresponding to those applications and then appeal each refusal. In extremis the company could have 365 appeals before the tribunal in respect of any year, large proportions of which would relate to identical facts and issues. But whether or not those particular appeals would be an abuse of process, and Mr Boddington declined to accept that they would be, he said that the present case was not abusive: this was an appeal on different facts. Six months had elapsed from the first application, six months' of new facts had come into account and six months' worth had dropped out of account.

I start by considering the source of the jurisdiction of this tribunal. The Special Commissioners unlike the High Court are a statutory body with no inherent powers. Section 56B TMA permits regulations to be made about practice and procedure. The Jurisdiction and Procedure Regulations are made under that power. Regulation 4 of those regulations permits a Special Commissioner to give such directions as he thinks fit for the purpose if (i) enabling the parties to prepare for the hearing or (ii) of assisting the Tribunal to determine any of the issues in those proceedings. This Regulation does not appear to me to give the tribunal jurisdiction to stay proceedings as an abuse of process: that is neither helping preparation nor assisting the determination. But Regulation 9(3) provides that on a preliminary hearing the Special Commissioner shall give all such directions as appear necessary or desirable so as to enable the proceedings to be disposed of expeditiously, effectively, and fairly.

Unlike the regulations governing the procedure of the VAT tribunals there is no specific regulation or provision which provides that an appeal may not be "entertained", or is to be struck out in any particular circumstances. The existence of such specific provisions in the VAT & Duties Tribunals' rules was one of the reasons that the Tribunal in Deborah Smith (Excise Duties Case E00896) held that the tribunal was not able to refuse to hear an appeal on the basis that to do so would be an abuse of process. Those considerations do not arise in this tribunal.

It seems to me that the wide power to make such directions are necessary or desirable to dispose of the proceedings effectively and fairly may extend to a direction to stay an appeal as an abuse of process. Fair and effective justice appears to me to be the root of the doctrine of abuse of process. A conclusion that an appeal was an abuse of process and accordingly a direction to stay the proceedings could be made at a preliminary hearing. But that power must be exercised sparingly and only in cases where there is a clear abuse. Mr Boddington says the right to appeal is given by statute; it is not for a tribunal to take it away. But regulating that right by dismissing or staying an appeal in a case of clear abuse is not taking away a right but adjudicating in its exercise.

However, although there is a substantial factual overlap between the facts relevant to the Appellant's first and second appeals, it does not seem to me that it is sufficient to say that either the second appeal is clearly frivolous or vexatious or that in substance and reality that the second appeal relates to the "same old charge". As a result I decline to exercise any jurisdiction that there may be to dismiss or stay or strike out the second appeal on those grounds.

Section 46 TMA

Section 46(2) Taxes Management Act 1970 provides that:

"Save as otherwise provided in the Taxes Acts or in regulations under section 56B of the Act, the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive."

Section 56B provides for regulations to be made in respect of appeals, and the Special Commissioners' and General Commissioners' procedure regulations have been made under it. There is nothing in those regulations relevant to this issue.

Mr Williams submits that the use of the words:

"the determination… in any proceedings… shall be final"

rather than:

"the determination… of any proceedings… shall be final",

indicates that the determination of an issue made by the Commissioners in the course of their proceedings is final and conclusive of that issue subject only to the right of appeal. Thus he says that the General Commissioners' determinations that the defaults were not minor and technical and that there was no discrimination for Human Rights purposes are final and conclusive in relation to proceedings in a later appeal.

Mr Williams accepts that section 561 permits an application for a certificate to be made at any time but submits that this provision should be read in the context of the statutory scheme which requires finality of proceedings. He draws support from a list of considerations relevant to the extension of time limits set out by Lord Drummond Young in Advocate General for Scotland v General Commissioners for Aberdeen [TCL 3769 other?], where the Court says that one such consideration is "the policy of finality of litigation and other proceedings; matters have to be brought to a conclusion within a reasonable time without the possibility of being re-opened."

I am not persuaded by this argument. First, section 46(2) refers to the determination of the Commissioners in the proceedings rather than 'a' determination: the use of the definite article suggests strongly to me that the subsection is referring to the final outcome of the proceedings - the allowing or dismissing of the appeal for example - rather than the reaching of any conclusion which was necessary for (was a condition for) the determination of that outcome. It is clear that the section proscribes any re-litigation of the actual appeal: there is no doubt that the decision of the General Commissioners in relation to the first application cannot be re-opened, but that is different from treating each "issue which they decided as finally determined in relation to other appeals.

Second the use of the word "in" rather than "of" to my mind merely recognises that the determination of the Commissioners is the last step in the conduct of the proceedings. At the very least this is a possible approach. The word cannot therefore bear the weight Mr Williams attaches to it.

Third it seems to me that the proper construction of the decision being "final and conclusive" is "final and conclusive in relation to those proceedings". The "proceedings" in my view are the appeal, and thus the section provides finality desired by Lord Drummond Young.

I conclude that section 46(2) neither treats the appeal against the first refusal as conclusive of an appeal against the second refusal, nor provides that issues decided which were necessary for the determination of the first appeal are to be treated as decided in relation to different proceedings.

Conclusion

(i) It does not seem to me that this is an appropriate case in which to dismiss the appeal as an abuse of process.

(ii) The Appellant is in my judgment estopped from denying the defaults which were admitted before the General Commissioners.

(iii) The Appellant is not estopped from raising the discrimination issue by reference to the facts relevant to the second appeal.

(iv) The Appellant is not estopped from arguing that the 29 defaults were minor and technical.

CHARLES HELLIER

SPECIAL COMMISSIONER

RELEASE DATE: 10 October 2006

SC/3085/2006

Authorities referred to in skeletons and not referred to in the decision: