United Kingdom VAT & Duties Tribunals Decisions

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Cite as: [2004] UKVAT V18735

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Brady v Customs and Excise [2004] UKVAT V18735 (17 August 2004)

VAT — application by appellant for appeal to be allowed on ground of Customs failure to comply with agreed tribunal direction — appeal allowed

MANCHESTER TRIBUNAL CENTRE

SEAN BRADLEY Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE Respondents

Tribunal: Mr J D Demack (Chairman)

Sitting in public in Manchester on 29 June 2004

Miss L Rippon of counsel instructed by Messrs McEwan Wallace chartered accountants for the Appellant

Mr B Haley of the Solicitors office of HM Customs and Excise for the Respondents

DECISION

This is an application by the appellant, Mr Sean Bradley, to have his appeal allowed because the Commissioners of Customs and Excise have failed to comply with a direction of the tribunal of 26 February 2004.

The direction in question was in terms agreed between the parties, and inter alia provided for the Commissioners by 8 March 2004 to furnish the appellant with:

(1) all the observation records referred to in witness statements served by the Commissioners on 21 July 2003;

(2) notes of a meeting between the Commissioners' assessing officer, Mrs Riccio-Jones, and the appellant on 15 May 2001;

(3) Mrs Riccio-Jones' workings; and

(4) the workings of Mrs E Foster, the Commissioners' review officer.

Notwithstanding that the Commissioners have made no application to extend the time for complying with paragraph (1) of the above direction, the appellant has not been furnished with:

a) the observation record of Chris Turton, referred to in his statement of 28 January 2000;

b) the observation record of Victoria Hallows, referred to in her statement of 24 February 2000;

c) the observation record of Richard Saxon, referred to in his statement of 17 November 2000;

d) the observation record of David Salter, referred to in his statement of 25 February 2000;

e) the observation record of Allyn Cunningham, referred to in his statement of 25 February 2000;

f) the observation record of David Ogden referred to in his statement of 25 February 2000;

g) the observation record of Richard Saxon, referred to in his statement of 1 November 2000; and

h) the observation record of Catherine Hall, referred to in her statement of 1 November 2000.

The Commissioners now concede that they are unable to produce any of the missing observation records, they probably having been destroyed.

On 5 March 2004 the Commissioners applied for an extension of time in which to furnish the appellant with copies of the notes of the meeting of 15 May 2001. The appellant consented to their application on the basis that he would object to any further extension of time requested. The Commissioners have since informed the appellant that the notes in question have probably been destroyed.

Mrs Riccio-Jones' workings have not been produced and, as I understand it, if they ever existed, have also probably been destroyed. The Commissioners further admit that they are unable to produce Mrs Foster's workings, they too having probably been destroyed.

History of the appeal

On a date in April 2001, Mrs Riccio-Jones paid a routine VAT visit to the appellant, who trades as a restaurateur. Following it, he was invited to a meeting at her office on 15 May 2001. He attended the meeting alone, and claims that he was told there was no need for his professional adviser to accompany him as the meeting was to be an "informal chat". (I am satisfied that Mr Bradley attended the meeting alone, but need not make any finding as to his other claims. However, in the events which have since occurred, I might say that they appear to have a ring of truth about them).

Mrs Riccio-Jones put to Mr Bradley that he had underdeclared the takings in his VAT returns, and that could be proved from observation records of various Customs officers. Mr Bradley admitted that his records were "not wholly complete". There is then a conflict of evidence between the parties: Mr Bradley claims that he agreed no figures with Mrs Riccio-Jones; the Commissioners say that some, indeed most, figures were agreed. Before the meeting ended, Mr Bradley was told that he would be invited to a further meeting to discuss disagreed figures.

In the event, no further meeting was arranged. Mr Bradley was sent details of a proposed assessment to VAT, followed on 16 July 2001 by the assessment itself. It was in a total of £34,184, and was based on the average number of customers dining in the restaurant each day of the week. He disputed the assessment and it was reviewed, the assessed amount being reduced to £32,592. But he was so concerned about the whole matter, and particularly with the fact that interest was accruing on the tax assessed, that he obtained a mortgage and used the moneys borrowed to pay the reduced disputed amount. Only then did he seek professional advice from his accountant.

Following an exchange of correspondence between the accountant and the Commissioners, Mr Bradley lodged an appeal with the tribunal on 16 April 2003. (The Commissioners raised no objection to the notice of appeal being served out of time).

On 18 July 2003 the Commissioners served their witness statements.

The Commissioners served the statement of case and their list of documents on 21 July 2003. The list of documents included the observation records of the various Customs' officers referred to in para 3 above. On 23 September 2003 Mr Bradley's accountant requested copies of all the observation records mentioned in the witness statements. In the absence of a response, he repeated the request on 7 October 2003. By then the matter had assumed some urgency for the substantive hearing had been listed for 4 November 2003. As the observation records had not been supplied by 20 October 2003, the hearing was adjourned.

On 17 November 2003, the accountant sent a reminder to the Commissioners for the observation records, the appeal having been relisted for 16 February 2004. On 23 December 2003 he made yet a further request for the observation records, and was told on 8 January 2004 that they would be provided. The Commissioners' letter crossed with yet another letter from the accountant asking for records.

On 15 January 2004 the accountant asked for Mrs Foster's workings as he had been informed that she had made a comparison of sorts with the figures in the observation records. No progress having been made by 28 January 2004, Mr Bradley's counsel, Miss Rippon, herself wrote to the Commissioners' solicitor's office seeking the missing information and their agreement to a second adjournment of the substantive hearing. On 3 February 2004 the Commissioners supplied Mr Bradley's accountant with but 7 of the 34 observation records requested. The hearing was adjourned and, to take matters forward, the parties agreed the terms of the direction of 26 February 2004 to ensure that Mr Bradley and his advisers might have all the information necessary properly to prepare his case.

By notice of 14 April 2004 the Commissioners admitted that "the reviewing officer's calculations . . . were made in rough and were not retained," and that "the assessing officer believes some sort of a note [of the meeting on 15 May 2001] was probably made but it was not retained." The notice also claimed that "the observation records" were sent by post to Mr Bradley's representative on 3 February 2004, and concluded with the statement, "Therefore the Respondents consider they have fully complied with the directions issued."

Against that factual background, Miss Rippon observed that the Commissioners claimed that Mr Bradley had agreed figures put to him on 15 May 2001, but he maintained that they were not agreed, saying that he was told that assessments were being made against him on the basis of information derived from Customs observations. She added that although the Commissioners had asserted in writing that the observation records had been checked before they determined the tax assessed, the records had never been sent to Mr Bradley, thus depriving him of challenging the case against him. Moreover, she submitted, it appeared that the missing records did not support the Commissioners' case; at the very least they would substantiate that the Commissioners' assessments were excessive.

Miss Rippon substantially relied on the decision of the Court of Session in CEC v Young [1993] STC 394 and that of the High Court in CEC v Neways International (UK) Ltd [2003] STC 795 to support Mr Bradley's application. (In the former the test to be applied was said to be whether the tribunal exercised its discretion reasonably and in a judicial manner in relation to the facts and circumstances before it). She observed that four of the five reasons given by the tribunal in Young for exercising its discretion to allow the appeal, as subsequently approved by the Court of Session (and followed in Neways), were present in the instant case. Those reasons were:

(1) the appellant had a right to expect a direction of the tribunal to be complied with unless there were compelling reasons and circumstances to excuse non-compliance;

(2) the Commissioners had had ample time to provide all of the observation records requested. (In the instant case their list of documents was served on 17 July 2003, and the first request for information was made by Mr Bradley's accountant on 23 September 2003. Further, the agreed direction of 8 March 2004 gave them an extra month to comply);

(3) no explanation had been offered as to why it had taken so long to provide the information in fact supplied and where the missing information might be; and

(4) the Commissioners were represented by legal advisers, and it was reasonable to expect them to carry out their job properly: the parties were entitled to expect a direction to be complied with (particularly where it had been agreed between the parties themselves).

Miss Rippon observed that Mr Bradley's appeal had been listed for hearing on two occasions, and both dates had had to be vacated because of the Commissioners' failure to provide evidence relating to the case. That, she maintained, had held up the proceedings and prejudiced Mr Bradley's position. Further, despite agreeing the terms of a direction made by the tribunal, the Commissioners had still failed to disclose all the evidence properly required by Mr Bradley – a fact made more serious by the Commissioners' admission that some of the evidence sought had apparently now been discarded.

Although the Commissioners had not requested the tribunal to exercise its discretion to waive their failure to comply with the direction of 8 March 2004, Miss Rippon submitted that this was not an appropriate case for me to exercise that discretion; the gravity of the Commissioners' failure to produce the evidence required, and the considerable time that had passed since the original request for all the information militated against it. She contended that, against that background, the appeal should be allowed.

Mr Haley of the solicitor's office of HM Customs and Excise, for the Commissioners, acknowledged that they had not dealt with matters as they ought to have done, but submitted that the appeal should be listed for hearing so that such deficiencies as there might be in the Commissioners' case could be taken into account by the tribunal hearing the appeal. He maintained that as Mr Bradley himself had agreed the figures with Mrs Riccio-Jones at their meeting on 15 May 2001, the Commissioners had ample grounds for maintaining the assessments, and, in any event, it was for the appellant to upset the assessments.

Conclusion

Whist the facts of this matter largely speak for themselves, there are certain observations which must be made on them. I note that the tribunal direction, the alleged breach of which occasioned Mr Bradley's application for his appeal to be allowed, was made in agreed terms. By the time it was made, in February of this year, the substantive hearing of the appeal had been listed on two separate occasions, and had been adjourned on both as the result of the Commissioners' failure to provide documents and information to Mr Bradley's advisers. It would appear from those events that, even as late as last February, Customs solicitor's office were not in control of the appeal. Nor were the review team at Cheadle. That is plain from a letter of 8 January 2004 from a Mrs Hanrahan of the Appeals Unit who wrote to Mr Bradley's accountant saying that information he had requested on 27 October 2003 ( a request repeated in two subsequent reminders) had been required from the decisions' officer "some time ago". The letter continued:

"As you can appreciate the information is not kept at Cheadle. I have been relying on a prompt response following my request and was unaware you had not yet received the information."

Mrs Hanrahan had conduct of the matter. She was responsible for ensuring that information and documents properly requested in litigation before the tribunal were provided: it was not for someone else to ensure that that was done.

As if that were not bad enough, Customs then had the audacity to claim in their notice of 14 April 2004 that they had "fully complied with the direction issued". That was patently untrue.

But that is as nothing when one considers that no one within Customs seems to have been aware either that essential documents had been "discarded" or might never have existed. Whether that resulted from inefficiencies within the department or, as the result of information deliberately being withheld, I need not consider. I merely observe that without the missing evidence Customs case is an extremely flimsy one. And, whilst I acknowledge that the burden of proving that assessments are not to best judgment, or are excessive, falls on an appellant, in the instant case Mr Bradley has been prejudiced to such an extent that it would be manifestly unfair to require him to satisfy the burden that falls upon him.

I accept Miss Rippon's submission that four of the five reasons cited by the Court of Session in Young as warranting the tribunal allowing the appeal exist in the instant case, and agree with her, for all the reasons she advanced, that this is an appropriate case for me to exercise my discretion under rule 19(4) of the Value Added Tax Tribunals Rules 1986 to allow the appeal.

Although the application was heard in private, the parties have agreed my direction should be released publicly.

David Demack

Chairman

Release Date:

MAN/03/321