BPP Holdings Ltd & Ors v Revenue and Customs [2017] UKSC 55

BPP challenged HMRC's VAT assessments on book supplies. After HMRC failed to provide proper further information following a Tribunal order, the First-tier Tribunal debarred HMRC from defending the appeal. The Supreme Court upheld the debarring order, confirming tribunals must enforce procedural compliance robustly.

Facts

Between 1999 and 2006, BPP Holdings Ltd supplied education and books to students. Following a 2006 corporate restructuring, BPP Learning Media Ltd supplied books (zero-rated for VAT) and BPP University College of Professional Studies Ltd supplied education (standard rated). BPP did not account for VAT on book supplies. HMRC disagreed, arguing the analysis was flawed or that the restructuring constituted abuse.

In November 2012, HMRC issued two VAT assessments, followed by a decision in December 2012. BPP appealed to the First-tier Tribunal (Ft-T) in May 2013. HMRC’s statement of case was served 14 days late in October 2013. BPP considered the statement deficient and requested further information on 11 November 2013. On 9 January 2014, Judge Hellier made an order recording HMRC’s agreement to provide replies by 31 January 2014, directing that failure to do so ‘may’ result in HMRC being barred from further participation (a rule 8(3) order rather than the rule 8(1) ‘unless’ order BPP had sought).

HMRC served a response on 31 January 2014 which BPP contended did not properly reply to the questions. BPP applied for a debarring order on 14 March 2014. HMRC subsequently withdrew the two assessments but maintained the decision, so one appeal survived. HMRC also served a defective disclosure statement late. Judge Mosedale granted the debarring order on 1 July 2014. The Upper Tribunal allowed HMRC’s appeal, but the Court of Appeal restored the debarring order. HMRC appealed to the Supreme Court.

Issues

The ultimate issue was whether Judge Mosedale’s decision in the Ft-T to make a debarring order against HMRC under rule 8(3) and rule 8(7) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 could be justified. This raised wider questions concerning the approach tribunals should take to procedural compliance and sanctions, including the relevance of CPR jurisprudence (notably Mitchell and Denton) to tribunal proceedings, and whether public bodies such as HMRC should be subject to a more relaxed standard.

Arguments

HMRC (Appellant)

Ms Simor QC argued, among other things, that: (i) Judge Mosedale wrongly treated the order as a rule 8(1) order rather than rule 8(3); (ii) her reliance on Mitchell was unsound given the modifications in Denton v T H White Ltd [2014] 1 WLR 3926; (iii) the Judge failed to consider disadvantage to HMRC and disproportionate benefit to BPP; (iv) the debarring order prevented HMRC from discharging its public duty to collect VAT, harming the public interest; (v) BPP’s pursuit of a debarring order was disproportionate; (vi) the order conferred an unjustified windfall on BPP; and (vii) the decision was outside the bounds of reasonable decision-making.

BPP (Respondent)

Mr Grodzinski QC supported Judge Mosedale’s careful balancing exercise, emphasised the importance of consistency of approach by the Upper Tribunal in guiding the Ft-T (citing R (Jones) v First-tier Tribunal [2013] 2 AC 48), and contended that the decision fell within the proper ambit of the Judge’s discretion.

Judgment

Lord Neuberger (with whom Lord Clarke, Lord Sumption, Lord Reed and Lord Hodge agreed) dismissed HMRC’s appeal.

Approach to procedural compliance in tribunals

The Court held that, while CPR cases such as Mitchell and Denton do not apply directly to tribunals, tribunals should generally adopt a similar approach. The Court endorsed the guidance of Judge Sinfield in Revenue and Customs Comrs v McCarthy & Stone (Developments) Ltd [2014] UKUT 196 (TCC) and the Court of Appeal’s reasoning, including Ryder LJ’s statement that there was no justification for a more relaxed approach to compliance with rules and directions in tribunals, and that tribunal orders, rules and practice directions are to be complied with in like manner to a court’s.

Lord Neuberger cautioned that tribunals with UK-wide jurisdiction should be wary of relying solely on English procedural jurisprudence, citing Lord Rodger in Mucelli v Government of Albania [2009] 1 WLR 276:

In Scotland, the people still walk in darkness and upon them hath the light of the CPR not shined. So there can be no question of interpreting the terms of the statute in the light of the CPR – or of the Scottish or Northern Irish rules, for that matter.

Assessment of Judge Mosedale’s decision

The Supreme Court rejected each of HMRC’s specific criticisms:

(1) Judge Mosedale clearly understood that she was applying a rule 8(3) conditional order, not a rule 8(1) unless order, and did not confuse the two.

(2) Her reliance on Mitchell did not vitiate the decision; Denton described Mitchell as ‘remain[ing] substantially sound’, and refinements were largely clarifications. The Judge had carried out an ‘unexceptionable balancing exercise’.

(3) Although the formal ‘Conclusions’ section did not exhaustively recite every factor, it would be unrealistic to suppose the Judge had not taken into account the matters carefully considered in the preceding 28 paragraphs.

(4) The argument that HMRC’s public duty justified more lenient treatment was rejected. Lord Neuberger noted that it could equally be argued courts should expect higher standards from public bodies, citing Moore-Bick V-P in R (Hysaj) v Secretary of State for the Home Department [2015] 1 WLR 2472.

(5) BPP’s pursuit of a debarring order was not disproportionate, particularly given that the 9 January 2014 order specifically envisaged that sanction.

(6) The ‘windfall’ argument could be made by any party facing a debarring order and would undermine the utility of the sanction.

(7) Applying the test from Lawrence Collins LJ in Walbrook Trustee (Jersey) Ltd v Fattal [2008] EWCA Civ 427:

[A]n appellate court should not interfere with case management decisions by a judge who has applied the correct principles and who has taken into account matters which should be taken into account and left out of account matters which are irrelevant, unless the court is satisfied that the decision is so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the judge.

Although the case was ‘not far from that limit’, the combination of the nature and extent of HMRC’s failure, the length of the delay, the absence of any remedy to compensate BPP, the absence of any explanation, and the existence of other failures by HMRC to comply with directions, justified the debarring order.

Possible additional sanctions

Lord Neuberger observed, with some diffidence, that consideration might be given to providing tribunals with more nuanced sanctions (such as fines or procedural advantages) to avoid the binary choice between a draconian debarring order and effectively allowing a defaulting party to ‘get away with it’.

Implications

The decision is significant in confirming that tribunals must enforce compliance with their rules, directions and orders with the same rigour as the courts, and that there is no relaxed standard for public bodies such as HMRC. The Upper Tribunal and Court of Appeal have an important role in providing guidance to ensure consistency of approach across Ft-T judges, and the Supreme Court endorsed that role.

The judgment reinforces the principle that, while CPR jurisprudence does not apply directly, tribunals should follow a similar approach to time limits and sanctions, with appropriate sensitivity to the fact that tribunal rules differ from court rules and may require somewhat different application. Appellate courts dealing with UK-wide tribunal jurisdictions should also be cautious about relying exclusively on English procedural authorities.

For practitioners, the decision underlines that debarring orders, while draconian, are within the proper armoury of tribunals and will not be lightly overturned on appeal. The decision matters particularly to HMRC and other public bodies engaged in tribunal litigation, who cannot expect indulgence on the basis of their public function. The Court acknowledged that the case was close to the limit of permissible harshness, indicating that the discretion to make such orders remains case-specific and bounded by reasonableness, but appellate interference requires the decision to be unjustifiable, not merely different from what the appellate judge would have decided.

Verdict: HMRC’s appeal was dismissed. The First-tier Tribunal’s debarring order, as restored by the Court of Appeal, was upheld.

Source: BPP Holdings Ltd & Ors v Revenue and Customs [2017] UKSC 55