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||Neutral Citation Number:  EWHC 652 (Admin)
||Case No: CO/8686/2009
IN THE HIGH COURT OF JUSTICE
QUEEN'S BENCH DIVISION
||Royal Courts of Justice
Strand, London, WC2A 2LL
Judgment given at Birmingham Crown Court
||24 March 2011
B e f o r e :
: Mr Justice Simon
|| The Queen
(on the application of ToTel Limited)
||The First Tier Tribunal (Tax Chamber)
The Commissioners for Her Majesty's Revenue and Customs
Her Majesty's Treasury
Mr Jonathan Swift QC and Mr Jonathan Cannon (instructed by the Solicitor's Office, HMRC) for the Second Defendant
Hearing dates: 15-16 February 2011
HTML VERSION OF JUDGMENT GIVEN AT BIRMINGHAM CROWN COURT
DATE: 24 MARCH 2011
BEFORE: MR JUSTICE SIMON
HTML VERSION OF JUDGMENT
Crown Copyright ©
The Hon. Mr Justice Simon:
- This case concerns two decisions of the First-tier Tribunal, Tax Chamber ('the Tribunal') in appeals against the assessment by the Second Defendants ('the Commissioners') of liability to pay Value Added Tax. The appeals were identified as MAN/06/0901 and MAN/08/1485; and the decisions under challenge were in respect of applications by the Claimant that it should be relieved, on the grounds of hardship, of the obligation to pay or deposit the sums assessed as payable before the hearing of appeals challenging those assessments.
- Section 84(3B) of the Value Added Tax Act 1994 ('VATA 1994') provides,
In a case where the amount determined to be payable as VAT or the amount notified by the recovery assessment has not been paid or deposited an appeal shall be entertained if –
(a) HMRC are satisfied (on the application of the appellant), or
(b) the tribunal decides (HMRC not being so satisfied and on the application of the appellant),
that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship.
- The applications for relief on the grounds of hardship were dismissed in two Decision Notices of the Tribunal (Tribunal Judge, Colin Bishopp) dated 11 May 2009.
- The Decisions noted that, contrary to indications given by the Tribunal during the course of the hearing, there was no right of appeal on a point of law, by reason of s.84(3C) of VATA 1994 as amended. This provision states,
Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.
- In Judicial Review proceedings, begun in August 2009, the Claimant sought relief against the Tribunal (as First Defendant) and the Commissioners, and joined HM Treasury as an Interested Party. Only the Commissioners took part in the proceedings.
Ground 1. The challenge to the abolition of the right of appeal from the Tribunal following a decision on a hardship application
- The first issue that arises on the claim for Judicial Review does not depend on a review of the facts. It is based on an argument that the statutory instrument which introduced s.84(3C) of VATA 1994 was ultra vires. In order to introduce the argument it is necessary to set out some of the relevant statutory provisions.
- The foundation of the Commissioners' power to make an assessment in respect of input tax claimed and paid is conferred by s.73(2) of VATA 1994.
In any case where, for any prescribed accounting period, there has been paid or credited to any person –
(a) as being a repayment or refund of VAT, or
(b) as being due to him as a VAT credit,
an amount which ought not to have been so paid or credited, or which would not have been so paid or credited had the facts been known or been as they later turn out to be, the Commissioners may assess that amount as being VAT due from him for that period and notify it to him accordingly.
- Section 83(1)(p) of VATA 1994 confers a right of appeal to the First-tier Tribunal (formerly the VAT Tribunal) against an assessment made under s.73(2), or the amount of that assessment. Section 84 imposes certain procedural requirements on the bringing of an appeal. Until 1 April 2009, the relevant parts of s.84 of VATA 1994 were:
(3) Where the appeal is against a decision with respect to any of the matters mentioned in section 83(1) ... (p) ... it shall not be entertained unless –
(a) the amount which the Commissioners have determined to be payable as VAT has been paid or deposited with them; or
(b) on being satisfied that the appellant would otherwise suffer hardship the Commissioners agree or the tribunal decides that it should be entertained notwithstanding that that amount has not been so paid or deposited.
- Thus an appeal would not be entertained by the VAT Tribunal unless either the taxpayer paid or secured the sum of VAT which was in dispute or there was an agreement or decision that the payment of such sum would cause hardship to the taxpayer. A decision made by the Tribunal on a hardship application was subject to an appeal on a point of law, as a consequence of s.11 of the Tribunals and Inquiries Act 1992 and §44 of Schedule 1 to that Act.
- With effect from 1 April 2009, the Tribunal system in England and Wales was substantially transformed with the coming into force of the Tribunals, Courts and Enforcement Act 2007 ('TCEA 2007'). Section 3 of TCEA 2007 introduced a two-tier Tribunal system consisting of the First-tier Tribunal and the Upper Tribunal.
- Section 11 of TCEA 2007 confers a right of appeal on points of law from decisions of the First-tier Tribunal to the Upper Tribunal.
(1) For the purposes of subsection (2), the reference to a right of appeal is to a right to appeal to the Upper Tribunal on any point of law arising from a decision made by the First-tier Tribunal other than an excluded decision.
(2) Any party to a case has a right of appeal, subject to subsection (8).
(3) That right may be exercised only with permission (or, in Northern Ireland, leave).
(4) Permission (or leave) may be given by—
(a) the First-tier Tribunal, or
(b) the Upper Tribunal,
on an application by the party.
(5) For the purposes of subsection (1), an 'excluded decision' is -
. . .
(d) a decision of the First-tier Tribunal under section 9 -
(i) to review, or not to review, an earlier decision of the tribunal,
(ii) to take no action, or not to take any particular action, in the light of a review of an earlier decision of the tribunal,
(iii) to set aside an earlier decision of the tribunal, or
(iv) to refer, or not to refer, a matter to the Upper Tribunal,
(e) a decision of the First-tier Tribunal that is set aside under section 9 (including a decision set aside after proceedings on an appeal under this section have been begun), or
(f) any decision of the First-tier Tribunal that is of a description specified in an order made by the Lord Chancellor.
(6) A description may be specified under subsection (5)(f) only if—
(a) in the case of a decision of that description, there is a right to appeal to a court, the Upper Tribunal or any other tribunal from the decision and that right is, or includes, something other than a right (however expressed) to appeal on any point of law arising from the decision, or
(b) decisions of that description are made in carrying out a function transferred under section 30 and prior to the transfer of the function under section 30(1) there was no right to appeal from decisions of that description.
- Ground 1 is concerned with an amendment to s.84 of VATA 1994 which was made pursuant to a Statutory Instrument made under a power contained in the Finance Act 2008. Section 124 of this Act provided:
(1) The Treasury may by order made by statutory instrument make provision—
(a) for and in connection with reviews by the Commissioners, or by an officer of Revenue and Customs, of HMRC decisions, and
(b) in connection with appeals against HMRC decisions.
(2) An order under subsection (1) may, in particular, contain provision about—
(a) the circumstances in which, or the time within which—
(i) a right to a review may be exercised, or
(ii) an appeal may be made, and
(b) the circumstances in which, or the time at which, an appeal or review is, or may be treated as, concluded.
(6) Provision under subsection (1) may be made by amending, repealing or revoking any provision of any Act or subordinate legislation (whenever passed or made, including this Act and any Act amended by it).
(8) A statutory instrument containing an order under subsection (1) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.
- The Statutory Instrument which made the relevant changes to s.84 of VATA 1994 was the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (SI 2009 No.56). This was dated 18 January 2009 and came into force on 1 April 2009, following approval by positive resolution by the House of Commons.
- Paragraph 221(3) of Schedule 1 to SI 2009 No.56 introduced a substituted s.84:
(3) Subject to subsections (3B) and (3C), where the appeal is against a decision with respect to any of the matters mentioned in section 83(1) ... (p) ... it shall not be entertained unless the amount which HMRC have determined to be payable as VAT has been paid or deposited with them.
- Paragraph 221(5) inserted two new subsections after section 84(3A)
(3B) In a case where the amount determined to be payable as VAT or the amount notified by the recovery assessment has not been paid or deposited an appeal shall be entertained if –
(a) HMRC are satisfied (on the application of the appellant), or
(b) the tribunal decides (HMRC not being so satisfied and on the application of the appellant),
that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship.
(3C) Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.
The Claimant's argument on Ground 1
- Mr Beal submitted that the effect of s.84(3C) of VATA 1994 is that the Claimant has been deprived of an appeal on a point of law from the refusal of the Tribunal to give a hardship direction; and that the means by which this was done were unlawful. A right of appeal to the Upper Tribunal was a fundamental right, confirmed in primary legislation in s.11 of TCEA 2007; and it was not open to the Commissioners to abrogate such a right by secondary legislation, save where there were express words of empowerment in an enabling provision of primary legislation. Accordingly the right of appeal which had been purportedly abrogated by the provisions of paragraph 221 of Schedule 1 to SI 2009 No.56, was ultra vires the enabling powers relied upon in the Order. The Lord Chancellor had powers, under section 11(5) of TCEA 2007, to exclude certain appeals on a point of law to the Upper Tribunal which were conferred by section 11(1) of that Act, and had invoked that power. The use of s.11(5) would have been a proper and transparent way of removing the right of appeal; but had not been used in relation to decisions made by the Tribunal on a hardship application.
- He drew attention to the evidence filed on behalf of the Commissioners by Ms Eileen Rafferty, who is a policy advisor with responsibility for the Commissioners' policy on appeals and reviews within Her Majesty's Revenue and Customs Central Policy Directorate. In §35 of her statement she stated, with admirable frankness, that her team had understood (incorrectly, as she now acknowledges) that there was no right of appeal from a decision of a VAT tribunal or subsequently later from a First-tier Tribunal in respect of a hardship decision. She accepted that this understanding was wrong since hardship decisions plainly fell within s.11 of the Tribunals and Inquiries Act 1992. At the time paragraph 221(5) of the SI 2009 No.56 was being introduced it was thought that the new s.84(3C) did no more than clarify the existing state of the law. It was the launching of the present claim which led to the discovery that it did not. As a result of this discovery the Central Policy Directorate had carried out further work as to the practical implications of the abrogation of the right of appeal.
- Mr Beal also pointed out that none of the online guidance on hardship applications which had been available from the websites of HMRC, the First-tier Tribunal, and HM Treasury contained advance notice of the abolition of the right of appeal; and the legislative amendment had accordingly frustrated the Claimant's procedural legitimate expectation that it would be able to appeal on a point of law to the Upper Tribunal.
- The core of his submission was that the unintentional removal of a fundamental right contained in primary legislation (s.11 TCEA 2007) by means of subordinate legislation (SI 2009 No.56) made under the enabling powers of another statute (s.124 of the Finance Act 2008) was unlawful. In support of these submissions he relied on statements of principle in a number of cases: R v Secretary of State for Social Security, ex parte Joint Council for the Welfare of Immigrants  1WLR 275 (CA), R v. Secretary of State for the Home Department, ex parte Pierson  1 AC 539 (HL), R v. Lord Chancellor, ex parte Witham  QB 575 (DC), R v. Secretary of State for the Home Department, ex parte Simms  2 AC 115 (HL) and Mercury Personal Communications v. Secretary of State for the Department of Trade and Industry (2000) UK CLR 143 (CA).
- He pointed out that in R (Cart) v. Upper Tribunal  EWCA Civ 859 at , the Court of Appeal found that errors of law on the part of the First-tier Tribunal which went to its jurisdiction or which might otherwise be challenged by way of judicial review could and should properly be brought before the Upper Tribunal through the appellate route. At , the Court held that:
. . . the new tribunal structure, while not an analogue of the High Court, is something greater than the sum of its parts. It represents a newly coherent and comprehensive edifice designed, among other things, to complete the long process of divorcing administrative justice from departmental policy, to ensure the application across the board of proper standards of adjudication, and to provide for the correction of legal error within rather than outside the system, with recourse on second-appeal criteria to the higher appellate courts.
It followed that the unintentional change went against a broader principle of an appeal route to the Upper Tribunal.
The Commissioners' argument on Ground 1
- Mr Swift QC submitted that it would not have been appropriate to effect changes to the right of appeal by means of s.11(5)(f) of TCEA 2007 since that subsection was concerned with 'excluded decisions' which are different in nature to appeals on points of law. In any event the provisions of s.124 of the Finance Act 2008 expressly conferred a power on HM Treasury to make provisions in connection with appeals against the Commissioners' decisions by statutory instrument (s.124(1)(b)), including the circumstances in which an appeal could be made (s.124(2)(a)(ii)), and when an appeal was treated as being final or concluded (s.124(2)(b)). An Order made under the powers contained in s.124 could amend, repeal or revoke any provision of any Act or subordinate legislation, whenever passed or made (s.124(6)), subject to positive resolution of the House of Commons.
- It followed that paragraph 221(5) of Schedule 1 to SI 2009 No/56 was intra vires s.124 of the Finance Act 2008, and was lawfully made.
Discussion and Conclusion on Ground 1
- In her witness statement Ms Rafferty described the work which was carried out in the course of the Central Policy Directorate's review. This showed that there had been three hardship appeals from VAT Tribunals (reported in 1976, 1990 and 2008). Her witness statement set out the conclusion which had been drawn from the further work.
 There may have been other appeals to the High Court, but based on the research undertaken it became clear that in the period since VAT was introduced in the Finance Act 1972 there have been hardly any appeals against decision of the VAT Tribunal on the question of hardship.
 The Policy Directorate has also more generally considered the effect of the new s.84(3C). In particular it has considered whether it is appropriate to maintain that position. The conclusion that has been reached is that the removal of the ability to appeal a Tribunal's decision on a hardship application, while unintentional, was in fact, and remains, the correct course of action to take.
 We consider that hardship applications, while plainly important, are essentially an intermediate stage in the appeal process, and can be properly addressed by a process entailing consideration by the Commissioners, followed if necessary by consideration by the tribunal. Appellants initially have an opportunity to ask the Commissioners at this stage following provision of financial and accounting information. My enquiries reveal that approximately 80% of all hardship applications are accepted by the Commissioners ...
 If the Commissioners do not accept that there is evidence of hardship, appellants are then able to make application to the tribunal for the appeal to be heard without payment. Such applications generally involve the provision of further evidence as to the financial position of the appellant and give another opportunity for the Commissioners to agree the hardship application. If not, the application proceeds to an oral hearing before the tribunal. Hence there are already at least two layers of consideration within the process. Allowing for the possibility of a further appeal, even if limited to a point of law, has the potential to delay proceedings on the main issue.
 Whether or not a business will suffer hardship if required to make a payment of VAT is essentially a question of fact ...
 ... [i]n the event of an error of law, there remains the possibility of an application for judicial review (the course which [the Claimant] has followed in the present case ...). The law as it stands allows for a two-stage process to consider the facts of an application with a right for the taxpayer to ask an independent tribunal to consider their case if it is not accepted by [the Commissioners]. While the application is being considered the taxpayer's appeal is stayed. A full right of appeal against decisions on this preliminary aspect of the case has potential for extensive delays to proceedings, during which time the disputed tax is not paid and the substantive case is not progressed. I therefore consider that the current position strikes an appropriate balance, giving taxpayers who cannot pay the opportunity to demonstrate that this is the case while containing safeguards against excessive procedural delay.
- It is convenient to start a consideration of the arguments on Ground 1, by reference to the broad statement of principle expressed by Lord Hoffmann in Simms (above) at p.131E
Parliamentary sovereignty means that Parliament can, if it chooses, legislate contrary to fundamental principles of human rights. The Human Rights Act 1991 will not detract from this power. The constraints upon its exercise by Parliament is ultimately political, not legal. But the principle of legality means that Parliament must squarely confront what it is doing and accept the political cost. Fundamental rights cannot be overridden by general or ambiguous words. This is because there is too great a risk that the full implications of their unqualified meaning may have passed unnoticed in the democratic process. In the absence of express language or necessary implication to the contrary, the courts therefore presume that even the most general words were intended to be subject to the rights of the individual.
- The reference to 'fundamental rights' is significant. In Simms the House of Lords were concerned with an infringement of a right of freedom of expression and its impact on miscarriages of justice being identified by investigative journalism. In such circumstances the House of Lords found that the wide powers in a statute to make subordinate legislation should not be interpreted as conferring a right to impose an indiscriminate ban on contact with prisoners seeking to vindicate a right to seek access to justice.
- It is therefore important to identify the effect of s.84(3C). In circumstances where there are two stages at which the Commissioners have an opportunity to consider a hardship application before there is a hearing before an independent judicial determination as to whether the taxpayer would suffer hardship, s.84(3C) provides that there should be no further appeal by either party.
- The context is that hardship applications involve what is essentially (and subject to the arguments on the other grounds in the present case) a question of fact: would the taxpayer suffer hardship if required to pay VAT before the appeal is resolved? In addition it is relevant to note the common ground between the parties that, where an error of law is identified, a dissatisfied party may be able to bring proceedings in the Administrative Court by way of Judicial Review. The powers to correct an error of law will in most, if not in all cases, involve an excess of jurisdiction.
- Mr Beal pointed out that a party who wishes to appeal from a tribunal decision on a point of law will be disadvantaged in two respects if Judicial Review is the only available remedy. First, the Upper Tribunal may remit the decision to the Tribunal if it finds an error of law or it may remake the decision (see s.12(2)(b) of TCEA 2007), whereas the Administrative Court will usually remit a decision. Secondly, Judicial Review involves a sifting process of permission which will only be granted if the claim is arguable.
- In my view neither of these points detracts from the general point that s.84(3C) does not thwart access to justice. Access to justice is provided by an application to the First-tier Tribunal.
- Lord Hoffman's approach invites two conclusions in the present case. First, it is rare to find an entirely unconfined right of appeal in English Law; and the abrogation of the right to appeal from hardship decisions by s.84(3C) cannot properly be described as the denial of a 'fundamental right'. Secondly, in any event and even if the right to appeal to the Upper Tribunal on a point of law were to be regarded as a fundamental right, it is difficult to conceive of clearer or more emphatic words than those used in s.84(3C)
Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.
- I turn then to consider the issue of interpretation: was it unlawful to abrogate the right to appeal on a point of law as provided in s.11 of TCEA 2007 by the statutory route which was adopted.
- In R v. Secretary of State for Social Security, ex p. Joint Council of the Welfare of Immigrants (above), the Court of Appeal was divided on its approach. Waite LJ (at 293E) expressed a broad principle,
Subsidiary legislation must not only be within the vires of the enabling legislation but must also be so drawn as not to conflict with statutory rights already enacted by other primary legislation.
- The conclusion of Simon Brown LJ (at 293c) was more confined,
… I for my part regard the Regulations now in force as so uncompromisingly draconian in effect that they must indeed be held to be ultra vires.
Neill LJ, who was in the minority, also approached the question on the basis of proportionality, but concluded that the interference with the Regulations currently in force was not disproportionate.
- In that case there was a conflict between the existing statutory rights of asylum seekers and regulations brought in under later legislation. The majority of the Court of Appeal decided, for the reasons they gave, that specific statutory rights under the Asylum and Immigration and Appeals Act 1993 (Statute A) should not be cut down by subordinate legislation made under powers conferred by the Social Security Contributions and Benefits Act 1992 (Statute B), see Mummery LJ in the Mercury Personal Communications case (above).
- In the Mercury Personal Communications case the Court of Appeal held that the powers conferred by statute B were sufficiently wide to provide for regulations which affected rights under statute A.
- The question then arises as to the ambit of statute B in the present case: s.124 of the Finance Act 2008. It provided a power in the Treasury to make provision by statutory instrument in connection with appeals against HMRC decisions and (see s.124(2)(a)(ii)). Such orders might
... in particular contain provision about the circumstances in which ... an appeal may be made.
Furthermore the provision about the circumstances in which an appeal might be made (see s.124(6)) included,
... amending, repealing or revoking any provision of any Act or subordinate legislation ...
- These are clear words and, in my judgment, founded the power to make the Statutory Instrument which effected the changes to VATA in relation to circumstances in which an appeal might be made. The statute conferring the power made this clear, see Lord Browne-Wilkinson in ex. parte Pierson (above) at 575C; and embodied a specific legislative power to abrogate, see Laws J in ex. p. Witham (above) at 581E. As a general rule any statute can be amended by any other statute; and the power to effect changes to s.11 of TCEA were not confined to s.11(5)(f) and 11(6).
- In contrast to the cases relied on by Mr Beal, in the present case statute C (VATA 1994) was amended by adding s.84(3C) and the rights conferred by statute A (s.11 of TCEA 2007) were revoked by powers conferred by statute B (the Finance Act 2008).
- Ms Rafferty acknowledged in her witness statement that the statutory change was made inadvertently, since it had not been appreciated that a right to appeal was being removed. In my view this subjective view of the effect of a statutory change is not strictly relevant since, save in well-defined cases where the Courts have said that public statements as to the effect of new legislation may be taken into account, the views of those who are responsible for statutory changes as to their effect are not relevant. Here there was no public statement, and the statutory intent was clear: that there should be no appeal from hardship decisions from the Tribunal.
- Where a Government Department or Agency which promotes legislation discovers that there has been an inadvertent repeal, perhaps more common in times of heavy legislative programmes, it is right to carry out the exercise which was carried out in this case: to review what has occurred and come to a clear view as to whether the result accorded with the overall intent, with no presupposition that it did. It may be that there should be a practice that Parliament should be informed through the appropriate scrutiny committee, but that is a matter for Parliament.
- Although not at the forefront of Mr Beal's oral submissions, he advanced a further argument that the Claimant had a legitimate expectation that there would be a consultation before any change to the right of appeal was affected. I reject this point, essentially for the reasons given by Mr Swift by way of answer. The only expectation that the Claimant could justifiably have had was that his hardship application would be considered and determined in accordance with the provisions of VATA as in force from time to time. SI 2009 No.56 had been laid in draft before Parliament on 26 November 2008. It was made on 18 January 2009, and came into force on 1 April 2009. In the premises (and to the extent, if at all, that it was necessary to do so) the Claimant had been given adequate notice of the amendment that was to be made to section 84 VATA 1994. In R (BAPIO action Ltd) v. Secretary of State for the Home Department  EWCA Civ 1139, Maurice Kay LJ, with whom Rimer LJ agreed, said,
I consider that where Parliament has conferred a rule-making power on a Minister of the Crown, without including an express duty to consult, but subject to a Parliamentary control mechanism such as the negative resolution procedure, it is not generally for the courts to superimpose additional procedural safeguards.
- For these reasons I reject the Claimant's claim based on the first ground of challenge. In my judgment the abolition of a right of appeal to the Upper Tribunal against the Tribunal's refusal to give a hardship direction was lawful.
- Although it has no bearing on the issues arising from Ground 1, I should record that the Tribunal took into account the fact there was no right of appeal against its decision, and what followed from this.
 ... Naturally any judge making a decision from which there is no right of appeal must take even greater care than usual to ensure that his decision is right, and I have reconsidered the decisions I gave in the course of the hearing in case, on further reflection and approaching the matter with that additional factor in mind, I might conclude that I have fallen into error.
 I do not however detect any error. I remain of the view that Totel could without difficulty have paid the disputed tax in the first of its appeals, and I remain equally of the view that it has not discharged the burden imposed on it in the second of the appeals. This is not a case in which I entertain a doubt which, absent a right of appeal, it might be right to resolve in Totel's favour; the law imposes a burden on the applicant for a hardship direction, which it is quite clear to me, Totel has not come close to discharging.
Ground 4. The challenge to the decision of the First-tier Tribunal on the basis that it was vitiated by an error of law and/or was Wednesbury unreasonable, see Associated Provincial Picture Houses Ltd v. Wednesbury Corporation  1KB 223
- Before turning to the five arguments which form the basis of Ground 4 it is convenient to set out the background to the Claimant's application for a direction that the appeals be heard without a payment or deposit of the disputed tax on the grounds of hardship.
- The two appeals (MAN/06/0901 and MAN/08/1485) were against what is commonly referred to a 'claw-back' assessments by which the Commissioners sought to recover input tax for which they had given credit, but which they later contended was not deductible input tax.
- In appeal MAN/06/ 0901 the claw-back decision was contained in a letter of 3 October 2006 in an amount of £205,625 which had been credited in the period 01/06. The Claimant's notice of appeal was served on 16 December 2006 and the hardship application was made at the same time.
- In appeal MAN/08/1485 the claw-back decision was contained in a letter of 10 November 2008 in an amount of £1,268,726 which had been credited in the period 03/06. The Claimant's notice of appeal was served on 26 November 2008, together with a hardship application.
The progress of the MAN/06/0901 hardship application
- On 17 January 2007 the Tribunal listed the application for hearing on 28 March 2007. On 16 March 2007 the Claimant applied for the hearing to be adjourned for a period of two weeks (until 11 April 2007) on grounds that:
… the Appellant requires additional time in which to collate the relevant documents in support of their application for leave to appeal without payment or deposit of the tax to HMRC
- On 30 May 2007 a pre-hearing review took place before the Tribunal and by an Order of 1 June 2007 the Claimant was directed by 29 June 2007 to,
... provide [the Commissioners] with all information necessary to enable them to process its said hardship application.
- By 29 June 2007 no documents had been provided. Instead the Claimant applied for a second extension of time up to 18 July 2007. It was said that additional time was required to compile 'all necessary information'. The further application to extend time was allowed. However, no documents or information were provided.
- On 18 July 2007 the Claimant sought a third extension of time up to 20 August 2007. This application was opposed by the Commissioners, and was listed for hearing on 17 September 2007. No evidence or information of any kind had had been provided in support of the hardship application by 17 September 2007, when the Claimant's application to extend time came before the Tribunal. At the hearing the Tribunal directed that the Claimant either (a) serve its evidence by 14 December 2007, or (b) pay the tax by that date. In default of either (a) or (b) that the Tribunal directed that the appeal would be struck out.
- On 14 December 2007 the Claimant served its evidence. This consisted of abbreviated accounts for the year ended 31 January 2007, and a letter in connection with a proposed business acquisition. On 14 December the Claimant sought a fourth extension of time up until the end of January 2008, stating that by this time it would be able to provide management accounts and cash-flow forecasts. In the event neither was provided by the end of the January.
- On 15 January 2008 the Commissioners applied to strike out the appeal for failure to comply with the Tribunal's directions. The application was heard on 4 March 2008. The Chairman (Mr. Richard Barlow) declined to strike out the appeal, but ordered that (a) the Claimant serve any witness statement and document on which it intended to rely by 28 March 2008, and (b) if no such evidence was served, the Claimant could only rely on the evidence served in December 2007.
- On 28 March 2008 the Claimant served a witness statement of its Managing-Director and majority shareholder, Mr Granger. This exhibited: (a) a cash-flow statement for the period March 2008 - September 2008, (b) credit balances as at 28 March 2008 (c) a Barclays Bank deed of charge over the balances, and (d) a draft profit and loss account for the year ended 31 January 2008. The Claimant stated that a letter from its accountant would be provided in the following week. The promised letter was not provided.
- It follows from this summary that it had taken the Claimant from mid-December 2006 to the end of March 2008 (nearly 15 months) to provide the information on which it wished to rely in support of its hardship application.
- The hardship application had been listed for hearing on 15 April 2008; but the date was vacated by consent, so as to permit the Commissioners to consider (and if necessary respond to) the disclosure which had been provided on 28 March 2008.
- On 7 May 2008 the Commissioners requested further information, since the information which had been provided was, in their view, insufficient to enable the Commissioners to form a view as to whether the Claimant would suffer hardship if it were required to pay the amount in dispute. On 16 May 2008 the Claimant asked for time to respond (until 2 June 2008), and the Commissioners agreed to this request.
- On 3 June 2008 the Claimant provided further information and documents. The Commissioners regarded this material as wholly inadequate. In particular, (a) no management accounts were served, (b) the only balance sheets provided were abbreviated balance sheets dated 31 January 2006 and 31 January 2007, and (c) no details of a dividend of £850,000 paid after 31 January 2007 were provided.
- On 18 June 2008 the Commissioners again applied to strike out the appeal. The Commissioners contended that the Claimant had (a) caused inordinate and inexcusable delay in what ought to have been a straightforward application; (b) caused prejudice to the Commissioners and the administration of justice by reason of that delay; and (c) failed to respond in full to the reasonable requests for further information so as to permit them to decide whether or not to accept the hardship application.
- The Commissioner' application to strike out was refused by the Tribunal on 22 July 2008. However the Tribunal made directions that (a) if the hardship application were pursued, it was to be listed for half a day, and (b) the Claimant was only permitted to rely on the evidence and other material disclosed on or before 28 March 2008. The directions envisaged that the Claimant would either pay the tax in dispute by 19 August 2008 or notify the Tribunal before that date if it were unable or unwilling to do so.
The MAN/08/1485 Application
- By letter to the Commissioners dated 23 March 2009 the Claimant indicated that it wished both hardship applications to be determined on the basis of the evidence disclosed in the MAN/06/0901 appeal: the material supplied on 28 March and 3 June 2008.
- In a letter dated 2 April 2009, the Commissioners rejected the Claimant's suggestion that the MAN/06/0901 Application should be determined on the same evidence as the MAN/08/1485 Application.
- On 6 April 2009 the Claimant served audited accounts to 31 January 2008 in the MAN/08/0901 Application; and on 20 April 2009 it served a second witness statement of Mr Granger exhibiting the bank balances on 3 accounts as at 17 April 2009.
- The hearings of the two applications finally took place on 22 April 2009. The Claimant was represented by Mr Thornton; and the Commissioners were represented by Mr Cannan.
The Decisions under challenge
- In Decision Notices dated 11 May 2009, the Tribunal (a) refused each of the two hardship applications and (b) directed that, unless the sums in issue (£205,625 in respect of MAN/06/0901, and £1,268,726.38 in respect of MAN/08/1485) were paid by 5.00 pm on 30 June 2009, the appeals would be dismissed without further directions, (c) further directed that, if the tax were paid, the appeals were to be consolidated with various other appeals, (d) made an order for costs in favour of the Commissioners.
- The Reasons for the Decision were the same for each application and it is convenient to set these out and to identify passages where criticism is made of the approach and reasoning.
The Tribunal's Reasons
- At - the Tribunal set out the procedural history as described above.
- At  it recorded a submission that the Tribunal should consider the issue of hardship at the date of the Decision and that all of the material served by the Claimant should be considered, notwithstanding the express terms of the order of July 2008.
- At - the Tribunal set out the terms of s.83(1)(p) and s.84 of VATA 1994 which founded the jurisdiction of the Tribunal to deal with hardship applications, as well as the changes effected by SI 2009 No.56 with effect from 1 April 2009.
- The Reasons, which referred to the MAN/06/0901 application as the first application and the MAN/08/1485 as the second application, continued,
 The procedure has changed slightly as a result of the amendment, but the substance of the requirement is unchanged. The purpose of requiring the payment in advance of the disputed tax is the obvious one of preventing the abuse of the appeal mechanism as a means of putting off its payment. The effect in some cases might be to stifle a meritorious appeal when the intending appellant is unable to pay, and the hardship provisions are designed to counter that possible effect.
 I accept Mr Thornton's argument that hardship applications should ordinarily be decided by the tribunal on the basis of contemporaneous or near-contemporaneous information. However, that requirement must be balanced against the obligation of an appellant making such an application to pursue it diligently. I have recorded already that the appellant is not to blame for delays after July 2008, but even if its application had been heard in August or September, almost two years would have gone by since the letter demanding the repayment of the input tax credit had been made. It is necessary to make some allowance for the inevitable interval between the decision prompting the appeal and the hearing of a hardship application but, however generous the allowance, it is in my view an inescapable conclusion that the appellant was in this case guilty of more than a year's delay in pursuing its application. If the appellant was prejudiced by the exclusion of the more recent material on which it wished to rely, it had brought that prejudice on itself. I saw no good reason to vary the direction I had made in July 2008, and I declined to do so. I also came to the conclusion that although I was hearing the application in April 2009, it was in any event right that I should take into account the appellant's financial circumstances in early 2007 when the tax should have been paid, or the hardship application resolved.
 The information on which the appellant was permitted to rely in support of its first application consisted of a statement made by its managing director, Anthony Granger, its audited accounts for the year to 31 January 2007, a copy of a letter outlining a possible purchase by Totel of another business, a copy of a charge taken by its bankers, Barclays, details of the balances held by Totel in three Barclays accounts, an unsubstantiated cash flow forecast for the months of March to September 2008 and its draft profit and loss account for the year to 31 January 2008. I did not have a draft balance sheet, nor any notes to those accounts. Mr Granger gave oral evidence in support of both applications, and I have taken it into account in respect of both. Mr Granger explained that the company had no overdraft facilities but was required to deposit £175,000 with Barclays as a condition of its being able to bank there since Barclays, like other clearing banks, was cautious about providing facilities for wholesale dealers in telecommunications equipment, as Totel is, and the charge was likewise designed to protect Barclays' position by preventing withdrawal of the deposit. He had unsuccessfully asked Barclays to release the money.
 The critical evidence in relation to this application is that derived from the 2007 accounts. Its balance sheet shows that Totel then had cash at bank and in hand of £2.4 million, and net current assets of £2.7 million. During the year to 31 January 2008 - as the 2007 accounts record – it paid a dividend of £850,000. Against that background it seems to me impossible to conclude, whatever the company's current financial position, that it would have suffered hardship in paying the tax in early 2007. Mr Granger, as he gave evidence, sought to divorce the dividend payment from the company's resources, on the ground that dividends are shareholders' funds, but that argument in my judgment is quite wrong. Any company may pay dividends only out of resources for which there is no more compelling requirement and cannot avoid paying its creditors, whether HMRC or trade creditors, by the expedient of distributing money to its shareholders and rendering itself unable to pay. Taking account only of the material on which the appellant was permitted to rely I am satisfied not only that hardship is not made out, but that the appellant was well able to pay the disputed tax. Even when the excluded material is brought into consideration it seems to me that if the appellant is unable to pay this tax without suffering hardship it is because of its own action in paying the dividend. The first application must accordingly be dismissed.
 The additional information available to me in support of the second application consisted of a second statement by Mr Granger, recent statements of the balances of the three Barclays accounts, Totel's audited accounts for the years to 31 January 2006 and 2008, some information about payments and debtors but all dated May 2008 and Mr Granger's further oral evidence, in which he explained the nature of Totel's business and recent changes in its trading pattern, much of which seemed to me to be irrelevant to the question whether Total could pay the disputed tax without suffering hardship. The critical information is that, now, Totel has only about £169,000 in its three Barclays accounts, although it emerged that it has another account at Abbey National with a balance of about £50,000. I am aware too that the respondents have withheld a further large amount of claimed input tax – almost £3 million, the subject of further appeals – and I recognise that their doing so must inevitably have had an adverse effect on Totel's financial position. If all that information is taken at face value, and without further enquiry, it seems an obvious inference that Totel cannot pay tax of £1.26 million.
 Mr Cannan, however, pointed out that the available evidence, when properly considered, was insufficient to demonstrate that the appellant would suffer hardship. I agree with him. Despite the history of the first application, and the fact that Totel has been represented throughout by experienced solicitors and cannot have been unaware of what is required, and despite Mr Thornton's argument in relation to the first application that it should be determined on contemporaneous material, I was surprised to discover that almost everything made available to me was far from contemporaneous. The appellant's most recent accounting year ended almost three months ago, yet I did not have even draft accounts; and I had no management accounts, lists of debtors and creditors, cash flow forecasts or any other information demonstrating, for example, that Totel had avoided making any further dividend payments, and that it had no other available funds. Mr Granger told me that the company's accountants had been too busy to provide the information; I found that an extraordinary comment against the background as I have related it. It is difficult to believe that the appellant could not prevail upon the accountants to attach a high priority to this application. I am also unpersuaded that the respondents' failure to reply to the solicitors' request that they explain why they were unwilling to agree to a hardship direction helps the appellant. It is not for one party to explain to another, at least when that party is represented by experienced solicitors, what it needs to do to make out its case; moreover, by this stage the application was in the course of being made to the tribunal, and not to the respondents.
 The burden is on an appellant making a hardship application to satisfy the Commissioners and, failing that, the tribunal that payment of the disputed tax would cause it hardship. So much is obvious from the replacement subsections of s 83, which reflect what was in fact the earlier practice. I have asked myself whether I can simply take what I have about the appellant's current bank balance at face value, and infer from that that it would suffer hardship if required to pay. I have concluded, however, taking into account the age of most of the material I have, the history of the case, particularly the payment of the dividend and the inexplicable failure to obtain recent accounting information, that I can be satisfied of no more that that it might not be able to pay, and that is not enough. The appellant has not discharged the burden and its application must consequently be dismissed.
The Claimant's five identified errors of law under Ground 4
- In the Grounds set out in the Judicial Review claim and in the skeleton argument the Claimant's criticism of the two decisions concentrated on a number of factual matters which the Tribunal was said to have misunderstood. At the oral hearing Mr Beal's submissions were refined and confined, and were more closely focussed on matters which could be properly categorised as errors of law. I set out below what the Claimant characterised as the five errors of law and my conclusion in relation to each.
- Mr Beal submitted that the two hardship applications should have been dealt with together and in the context of the total tax to be paid. In support of this submission he referred to a decision of the Court of Appeal, Don Pasquale (a firm) v. Customs and Excise Commissioners  STC 556.
- In the present case the Tribunal was dealing with two hardship applications made two years apart in relation to two assessments; and was right to do so, not least because there was material which was admissible and relevant on MAN/08/1475 and which was not, by reason of the Tribunal's case management directions, admissible in MAN/06/0901. I am not persuaded that the Don Pasquale case establishes any proposition which assists the Claimant. In that case the Court of Appeal was considering whether there were 25 separate assessments contained in a single document and covering various return periods. The Court of Appeal held on the facts that there was one overall assessment.
- It was also submitted that the Tribunal erred in assessing hardship other than on the basis of up-to-date information at the date of the hearing. Mr Beal relied on a decision of the VAT Tribunal Buyco and Sellco v. The Commissioners for HMRC  UKVAT 19752.
- In my judgment the Tribunal was entitled to adopt the approach that it did. In most cases hardship will be assessed at the date of the hearing. Thus in the present case the Tribunal assessed the hardship application in relation to MAN/08/1485 at the date of the hearing, see [16-17] of the Reasons, where the Judge set out the evidence which had been adduced by the Claimant up to and the date of the hearing.
- The complaint therefore only arises in relation to the MAN/06/0901 application, where there had been very considerable delays, which the Tribunal was plainly entitled to find were the Claimant's fault.
- VATA 1994 does not prescribe a date when the hardship is to be assessed. According to the evidence of Ms Rafferty, the Commissioners have established a practice of dealing with such applications within 10 days. If the Commissioners do not accept the applications there may be some short delay while the matter is brought before the Tribunal; but the delay should not be long, since the issue is one of fact and ought to be capable of being decided without a lengthy hearing. These applications should not be used as an excuse to delay substantive decisions. It is to the usual situation that the observations of the Tribunal Judge at  in the Buyco Ltd and Sellco case,
... It is common ground that I am considering the position as it is today or within a reasonable time from today ...
- In  of the Reasons in the present case the Tribunal decided that it ought to take into account the Claimant's circumstances in early 2007, when the tax should have been paid or the hardship application resolved. This was a legitimate approach and was consistent with the beneficial purpose of avoiding delay and allowing relief against payment in case of hardship, but not otherwise. However, the Tribunal also tested its provisional view about hardship by reference to all the material that was before it ; and concluded that the difficulties in paying the assessed sum of £205,625 were due to the payment of the dividend of £850,000 after the hardship application had been issued. In my view this discloses no error of law.
- I would further endorse what was said by the Tribunal in the Buyco Ltd and Sellco Ltd case by way of general observation at [15(1)]:
In future, in contested hardship cases what is required is up-to-date information on all aspects of the business and I suggest that Customs should apply for a direction for disclosure if they are not satisfied with what the appellant has provided.
- This practice was followed in the present case, but without the intended result: which should have been the speeding up of the determination and the focussing on the matters in issue.
- Mr Beal submitted that the Tribunal's decision concentrated on the capacity to pay rather than what it was properly concerned with: hardship to the Claimant if it had to pay, see for example, Seymour Limousines Ltd v. Commissioners for HMRC  UKVAT V20966. He submitted that the Tribunal could not have addressed the issue of the hardship which the Claimant would face if it had to pay the disputed VAT from readily available sources, since the evidence was that there were no readily available sources.
- The principles to be applied in hardship cases are clear and emerge from various passages in previous decisions of the First-tier Tribunal or its predecessors.
i) The subsection which provides relief in case of hardship should not operate as a fetter on the right of appeal, see Tricell UK Ltd v. Commissioners for Revenue and Customs  UKVAT 18127 at .
ii) The test is one of capacity to pay without financial hardship, and must be applied in a way which complies with the principle of proportionality in order to comply with Community law, see Seymour Limousines Ltd (above) at .
iii) The hardship enquiry should be directed to the ability of an appellant to pay from resources which are immediately or readily available. It should not involve a lengthy investigation of assets and liabilities, and an ability to pay in the future, see Seymour Limousines Ltd (above) at . This is a reflection of the broader principle that the issue of hardship ought to be capable of prompt resolution on readily available material.
- I do not accept that the Tribunal adopted the wrong approach to the issue it had to decide in the present case. There are repeated reference to the hardship tests (in ,  and ); and if one looks at the Tribunal's Reasons as a whole, it is clear that the Tribunal was deciding the issue on the basis of capacity to pay without hardship.
- I note the evidence of Ms Rafferty to the effect that the hardship provision does not act as a fetter on challenges to assessments since, 80% of hardship applications are allowed by the Commissioners, before they come before the Tribunal.
- The Claimant submitted that, in addition to the preceding points, there was a procedural unfairness in the Tribunal's approach to the treatment of dividends. This submission was founded on the evidence from Mr Thornton (the Paralegal employee of Aegis Tax LLP) who had represented the Claimant before the Tribunal. His evidence was that he explained to the Tribunal that the dividend of £850,000 had been arranged and voted on before the assessment, and had been allocated to the Shareholders' Funds in the Company Accounts. Implicitly it was not available for payment of the £205,625.
- I am extremely doubtful whether this can be properly described as an error of law or that it necessarily followed from Mr Thornton's submission that the Claimant did not have the capacity to pay the £205,625 without hardship in January 2007. However the main difficulty with this submission is that it was not evidence or material made available before the 28 March 2008 deadline for the admission of evidence on the hardship application in relation to the MAN/06/0901 assessment. Once it is accepted, as it must be, that it was open to the Tribunal to fix a cut-off point for the admission of material to be relied on, there can be no error of law or procedural unfairness in ignoring evidence which was produced later.
- So far as the MAN/08/1485 application was concerned, the Tribunal took into account all the material which was available and came to the conclusion that there was a failure to discharge the burden of showing hardship. It is clear from [17 ] and  of the Reasons that the Tribunal was surprised at how little material had been put before it and, whether or not the Court might have reached the same view, the assessment of the evidence does not give rise to an error of law.
- In Megtian Ltd v Commissioners for HMRC  EWHC 18 (Ch) Briggs J described the very limited scope of appeals from the former VAT and Duties Tribunal at [8-9] and .
8. A common theme in grounds 1, 3, 4 and 5 of the Grounds of Appeal is the allegation that the Tribunal made errors of law in its conduct of its fact-finding task. Thus, each of grounds 1, 4 and 5 asserts that relevant findings of the tribunal were 'contrary to the evidence'. Ground 3 is put in different terms but, as will appear, is also closely related to the fact-finding process.
9. Grounds of appeal of this type call for cautious treatment by the appeal court, because of their tendency, if not strictly controlled, to degenerate into free-ranging attacks on the correctness of the lower court's evidential conclusions, disconnected from the identification of any specific error of law. In Georgiou v. Customs and Excise Commissioners  STC 463, at 476, Evans LJ said this:
… it is all too easy for a so-called question of law to become no more than a disguised attack on findings of fact which must be accepted by the courts. As this case demonstrates, it is all too easy for the appeals procedure to the High Court to be abused in this way. Secondly, the nature of the factual inquiry which an appellate court can and does undertake in a proper case is essentially different from the decision-making process which is undertaken by the tribunal of fact. The question is not, has the party upon whom rests the burden of proof established on the balance of probabilities the facts upon which he relies, but was there evidence before the tribunal which was sufficient to support the finding which it made?
11. There are numerous authoritative statements of the precise meaning of the concept that a finding of fact involves an error of law when it is based upon non-existent or inadequate evidence. They were very recently summarised by Christopher Clarke J in Red 12 Trading Ltd v HMRC  EWHC 2563 (Ch) at paragraphs 113-120. The question is not whether the finding was right or wrong, whether it was against the weight of the evidence, or whether the appeal court would itself have come to a different view. An error of law may be disclosed by a finding based upon no evidence at all, a finding which, on the evidence, is not capable of being rationally or reasonably justified, a finding which is contradicted by all the evidence, or an inference which is not capable of being reasonably drawn from the findings of primary fact. As Lord Radcliffe put it in Edwards v Bairstow  AC 14, at p. 39:
Their duty is no more than to examine those facts with a decent respect for the tribunal appealed from and if they think that the only reasonable conclusion on the facts found is inconsistent with the determination come to, to say so without more ado…
- In the present case, the evidence (or more particularly the lack of material evidence) before the Tribunal was sufficient to support the reasons; and cannot be characterised as inconsistent with the only reasonable conclusion on the facts (such as they were).
- On 7 May 2008 the Commissioners had requested information, which had been provided in the letter and enclosures of 3 June 2008.
- The fifth complaint is that it was unfair not to permit the Claimant to adduce up to date information. Again, I am doubtful whether this can be properly characterised as an error of law; but even if it can, the argument is without merit. The documents produced on 3 June were incomplete; and the Tribunal made a decision on 22 July 2008 that the Claimant be confined to evidence disclosed by 28 March. That was a case management decision of a type which Courts exercising appellate and review functions regard as particularly for the decision of the lower Court. In my view this point discloses no error of law.
The Claimant's irrationality argument under Ground 4
- In addition to the five errors of law, Mr Beal argued that the decisions were vitiated by irrationality. He relied on the decision of the House of Lords in Edwards v. Bairstow (see above) and the observations of Lord Radcliffe at p.36. He submitted that the effect of the decisions was that unless the Claimant paid £1,473,991 it could not appeal against the assessments MAN/06/0901 and MAN/08/1485, nor the subsequent assessments and withholding of tax. It would follow that the Claimant would be forced into insolvent liquidation. In short, the decisions had the effect of stifling all challenges to the Commissioners' assessment of tax, both in relation to the assessments under consideration and the subsequent assessments referred to in the Decisions.
- The Claimant relied on the witness statement of Philip Sarocka (an Operational Accountant, with the Large Business Service of HMRC) which was adduced in the present proceedings. The Claimant drew attention to §8(d) of his statement.
In my opinion, it would appear that Totel would have suffered hardship if it had paid the outstanding assessments for £205,625 and £1,268,726 at 31 January 2009 because it would have had to obtain substantial overdraft facilities to make the payment.
- Mr Beal submitted that this evidence demonstrated that, as at November 2008 (the relevant date for the payment of assessment MAN/08/1485), the hardship criterion was met. He pointed out that there was no issue of delay in relation to this application; and it therefore followed that the conclusion that there would be no hardship in paying the second assessment was perverse. He relied on the reference in  of the Reasons to it being an obvious inference that the Claimant could not pay tax of £1.26 million. He submitted that there was nothing to weigh against this 'obvious inference'. On the contrary the only relevant oral evidence at the hearing had come from Mr Granger who had said that the Claimant could not afford to pay the assessments.
- In my judgment the irrationality argument fails. Mr Sarocka's evidence at §8(d) needs to be seen in the context of other parts of this paragraph of his witness statement.
(b) In my opinion, there would not have been any grounds for believing Totel would have suffered hardship if it had paid the outstanding assessment of £205,625 at 31 January 2007;
(c) In my opinion, it would appear that, although ToTel had the cash to pay the outstanding assessment for £205,625 at 31 January 2008, it may have suffered hardship if it had done so because of the impact on its ability to pay its other creditors.
- These passages are of course relevant to the rationality of the decision in relation to assessment MAN/06/0901; but there was also a crucial qualification to the statement that it was an obvious inference that the Claimant could not pay tax of £1.26 million, namely:
If all that information is taken at face value and without further enquiry ...
- In  and  the Tribunal engaged in the further enquiry and came to the conclusion that it could not be satisfied on the available information that the Claimant would suffer hardship if it had to pay the assessment. In reaching this conclusion it was open to the Tribunal to form a view based on the absence of information which it would have expected to see, including the assertion that the Claimant's accountants had been 'too busy' to prepare relevant and up-to-date material, which the Tribunal unsurprisingly described as 'inexplicable.'
- In my view this was not a conclusion that can be characterised as irrational. Nor, to apply Lord Radcliffe's test in Edwards v. Bairstow (see above), was it a finding of fact such that no person acting judicially and properly instructed as to the relevant law could have made. Neither was it irrational to ignore the effect of the decisions on other applications for relief which were not before the Tribunal.
Ground 2. The contested decisions are incompatible with general principles of the law of the European Union
The Claimant's argument
- The Sixth VAT Council Directive of 17 May 1977 (now replaced by Principal VAT Directive (EC) 2006/112/EC of 28 November 2006) had as one of its objectives the abolition of the imposition of tax on importation and the abolition of the remission of tax on exporting in Intra-Community trade. However the preamble to the Directive also recognised that Member States should be able, subject to recognised limitations, to adopt special measures derogating from the Directive with the purpose of avoiding fraud or tax avoidance. VATA 1994, and the amendments to it, were drafted so as to give effect to the terms of the Directives.
- Mr Beal submitted that the Claimant had established a prima facie entitlement to deduct the input tax which it had paid on its suppliers' invoices; and that this entitlement arose immediately upon payment and should not, in principle, be circumscribed except for specific and justifiable reasons. Any other construction of the provisions would not be compatible with the principle of fiscal neutrality. In the present case, the Claimant had been paid a refund for the VAT it claimed in periods 01/06 and 03/06. Much later, the Commissioners sought to re-visit the refund and claim it back, by the two Notices of Assessment.
- The effect of the Tribunal's decision was that the input tax previously paid to the Claimant could be recouped by the Commissioners, even though there had been no formal adjudication on the merits of the substantive case, in circumstances where the Commissioners were not required to prove an alleged fraud or the Claimant's part in it. The result of the Tribunal's decision was that the Claimant's challenge to the legality of the Commissioners' assessments to tax was stifled before the Commissioners have even had to establish a prima facie case.
- This, Mr Beal submitted, constituted a wholly disproportionate attempt to circumscribe the Claimant's entitlement to deduct input tax and to deprive it of an effective remedy, and was contrary to EU Law. He relied on Case C-286/94 Garage Molenheide BVBA and others v. Belgium  ECR I-7281 ECJ. The inability of the Claimant to contradict an implicit allegation of abuse or tax evasion was entirely disproportionate in its consequences. In any event, the combination of the Commissioners' and the Tribunal's decision was such as to leave the Claimant with no effective remedy and no effective judicial protection of EU law rights; and the inhibition on the vindication of the Claimant's EU law rights was itself contrary to general principles of EU law, in particular the principle of effectiveness, see Case C-62/00 Marks & Spencer plc v. Commissioners for Customs and Excise  ECR I-6325, ECJ at .
- Furthermore if the Commissioners (as they did in the remainder of the Claimant's appeals before the Tribunal) had refused the Claimant's initial repayment claim, then the position would have been that the Claimant would have been deprived of its entitlement to deduct, but would have been in a position to vindicate its rights in a substantive hearing before a competent court or Tribunal. The Claimant has been deprived of that right through the procedural device employed by the Commissioners of allowing the credit for input tax and then seeking to reclaim it by virtue of a power of assessment.
- Mr Beal submitted that the decision of the Tribunal on questions of fact was not dispositive of the issue since the domestic Courts of the EU were bound to apply a strict approach which goes beyond a Wednesbury test of irrationality, and which involves a rigorous scrutiny so as to ensure compliance with EU law, see R v. Chief Constable of Sussex. Ex p. International Traders Ferry Ltd  2 AC 418 (HL). He submitted that it is now clear that the Claimant cannot pay the sum of £1.2 million and that consequently its appeal on the merits will not be heard and his rights under EU law will not be vindicated.
The Commissioners' argument
- Mr Swift pointed out that the Claimant had acknowledged that the general scheme of VATA 1994 did not unfairly prevent a person in the position of the Claimant pursuing an appeal, since the rule (that the taxpayer was bound to pay the assessment before an appeal) was displaced where the person wishing to pursue an appeal would suffer hardship. The existence of the proviso, and its supervision by an independent tribunal on a consideration of the facts of each case ensured that the provisions of section 84 VATA (both before 1 April 2009, and thereafter) were entirely consistent with the requirements of EU law.
Discussion and Conclusion on Ground 2
- In the Garage Molenheide case (above) the ECJ was concerned with the legitimacy of the state withholding refundable amounts of VAT from the taxpayer as a protective measure, in a case where there were serious grounds for suspecting tax evasion. The Court found that such measures were legitimate provided they did not go further than was necessary for the purpose of preserving the rights of the Treasury, see . In assessing whether they were no more than necessary, the Court went on.
 ... the principle of proportionality is applicable to national measures ... since, if those measures go further than necessary in order to obtain their objective, they would undermine the principles of the common system of VAT and in particular the rules governing deductions which constitute an essential component of the system.
 As regards the specific application of that principle, it is for the national court to determine whether the national measures are compatible with Community law, the competence of the Court of Justice being limited to providing a national court with all the criteria for the interpretation of Community law which may enable it to make such a determination ...
- Among the observations made by the ECJ on the question of proportionality, was the necessity of an available and effective system of judicial review of the administrative decisions, see  of Garage Molenheide case (above) and Case C-1/99 Kofisa Italia Srl v. Ministero delle Finanze  ECR 1-207, ECJ at [46-49].
- The ECJ has also made clear in Case C-62/00 Marks & Spencer Plc v. Commissioners of Customs and Excise (see above) at , that it is for the domestic legal system to lay down the detailed procedural rules for safeguarding Community rights in cases where it is said that VAT has been levied wrongly. This principle is subject to two qualifications.
... first, that such rules are not less favourable than those governing similar domestic actions (the principle of equivalence) and, second, that they do not render virtually impossible or excessively difficult the exercise of rights conferred by Community law (the principle of effectiveness) (see, inter alia, Case C-228/96 Aprile  ECR 1-7174, paragraph 18, and the judgments cited above in Dilexport, paragraph 25 and Metallgesellschaft, paragraph 85).
- This case raises no issue about equivalence. The issue is whether the domestic rules render it excessively difficult to exercise rights conferred by EU law (Community law). Section 84 of VATA provides that an assessment which is appealed must be paid or secured unless that would cause hardship to the appellant. Mr Beal rightly accepted that s.84 was capable of being applied consistently with EU law. In my judgment the provisions of s.84 (and particularly s.84(3C)) do not make it excessively difficult to exercise rights under EU law. What it requires is a decision as to hardship, initially by the Commissioners and then by an appropriately constituted and independent tribunal.
- Once it is accepted, as it must at this stage of the argument, that there has been a proper determination by such a tribunal that the payment of the assessed sums would not cause hardship, EU law does not require further consideration of the same issue by this Court. It is implicit from the decisions of the Tribunal that the Claimant has not demonstrated that making the payment will cause hardship, and it follows that the exercise of rights conferred by EU are not rendered impossible or excessively difficult. The tests of irrationality under English domestic law and proportionality under EU law are unlikely to lead to different results, see R v. Chief Constable of Sussex (see above), Lord Slynn at p.439c-f.
- The case of R v. Minister of Agriculture, Fisheries and Food  1 CMLR 555, also relied on by Mr Beal, was concerned with whether the Defendant had correctly applied EEC law. There the Judge concluded that the Minister had not and that it could not be a matter of administrative discretion for the Minister to decide what the law was. It was ultimately a matter for the Courts. However, that principle does not assist the Claimant here. The procedure for safeguarding EU rights is for the domestic legal system, subject to issues of equivalence and effectiveness and, for the reasons already given, the Tribunal's decision cannot be properly impugned on the basis of errors of law or irrationality.
Ground 3. The contested decisions are incompatible with the Human Rights Act 1998.
The Claimant's argument
- The Claimant argued that the conduct of the Commissioners constituted infringements of its rights under Article 6 (the right to a fair trial) and Article 1 of Protocol No.1 (the right to protection of property) of the European Convention on Human Rights (ECHR), as set out in Schedule 1 of the Human Rights Act 1998.
- The Claimant made a claim for a refund of input tax. Although that refund had been paid by the Commissioners, in subsequent Notices of Assessment, the Commissioners had sought to recoup the refund that had been paid. Mr Beal's argument was that the refund was a possession for the purposes of Article 1 of Protocol No.1 (A1/P1), see Bulves AD v. Bulgaria (2009) ECHR at . Alternatively, the claim for the refund gave rise to a legitimate expectation (since the Claimant had established a prima facie case for a refund), which should be recognised as an enforceable right under A1/P1. The conduct of the Commissioners in raising an assessment to recoup the input tax refunded amounted to an interference with the right to peaceable enjoyment of a possession. While such interference might, in principle, be justified on public interest grounds, any such justification would have to be proportionate. The Claimant reiterated that the Commissioners' conduct, although sanctioned by the decision of the Tribunal, had been wholly disproportionate.
- Further or alternatively, Mr Beal submitted that the deprivation of the Claimant's peaceable enjoyment of a possession should be subject to effective judicial oversight. The conduct of the Commissioners and the decision of the Tribunal amounted to an effective deprivation of those rights, contrary to the terms of Article 6 of the ECHR, since the substantive merits of the competing claims for the possession will never be determined.
The Commissioners' argument
- In relation to the challenge based on an infringement of A1/P1, Mr Swift argued that the only expectation that the Claimant had was that it would be permitted to claim input tax in accordance with the provisions of VATA 1994. The 'possession' relied on by the Claimant was not a possession at all (whether for the purposes of A1/P1 or for any other purpose). In any event, even if there was a 'possession' within the meaning of A1/P1, the rule which required the payment or deposit of sums determined to be payable as VAT, represented a form of interference with that possession which was justified since there was a proviso that the rule was not applied if its application would cause hardship, and the question of hardship was determined from case to case by reference to the facts of the case in hand and by an independent tribunal. On this basis the rule was a legitimate means of preventing appeals whose only purpose was to delay payments of tax which were otherwise lawfully payable.
- So far as the argument based on Article 6 was concerned, Mr Swift relied on the decision of the European Court of Human Rights in Ferrazini v. Italy  STC 1314 for the general proposition that the assessment of tax and the imposition of surcharges fell outside the scope of the civil head of Article 6.
Discussion and Conclusion on Ground 3
- A1/P1 (the right to protection of property) provides,
Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law.
The preceding provisions shall not, however in any way impair the right of the state to enforce such laws as it deems necessary to control the use of property in accordance with the general interest or to secure the payment of taxes.
- The Bulves case (see above) on which the Claimant relied was a stark case. The applicant company had done everything within its power to obtain the right to deduct input tax which it had paid on goods it had received. The tax authorities had refused to allow the deduction because the supplier had been late in complying with its VAT reporting obligations. The European Court of Human Rights held at ,
In the light of the foregoing, the Court considers that, in so far as the applicant company had complied fully and in time with the VAT rules set by the State, had no means of enforcing compliance by its supplier and had no knowledge of the latter's failure to do so, it could justifiably expect to be allowed to benefit from one of the principal rules of the VAT system of taxation by being allowed to deduct the input VAT it had paid to its supplier. Moreover only once a claim for such a deduction had been made and a cross-check of the supplier had been conducted by the tax authorities could it be ascertained whether the latter had fully complied with its own VAT reporting obligations. Thus the Court considers that the applicant company's right to claim a deduction of the input VAT amounted to at least a 'legitimate expectation of obtaining effective enjoyment of a property right amounting to a 'possession' within the meaning of the first sentence of Article 1 of Protocol No.1.
- The Court then went on to consider two further questions: first, whether there was interference with that possession and, secondly whether the interference was justified? The latter question involved striking a fair balance between the general community interests and the protection of the rights of individuals, and involved an issue of proportionality between the means and the ends, which was reflected in the structure of A1/P1, including the second paragraph, see the Bulves case at .
- The rights of the state expressed so broadly in the second paragraph weigh very heavily in this balance; and the Court addressed the issue of proportionality further. At  the Court recognised,
... that a Contracting State, not least when framing and implementing policies in the area of taxation enjoys a wide margin of appreciation, and the Court will respect the legislature's assessment in such matters unless it is devoid of reasonable foundation ...
- At  the Court concluded that in the particular case a fair balance had not been struck,
... as regards efforts to curb fraudulent abuse of the VAT system of taxation, the Court accepts that when Contracting States possess information of such abuse by a specific individual or entity, they may take appropriate measures to prevent, stop or punish it. However, it considers that if the national authorities, in the absence of any indication of direct involvement by an individual or entity in fraudulent abuse of a VAT chain of supply, or knowledge thereof, nevertheless penalise the fully compliant recipient of a VAT-taxable supply for the actions or inactions of a supplier over which it has no control and in relation to which it has no means of monitoring or securing compliance, they are going beyond what is reasonable and are upsetting the fair balance that must be maintained between the demands of the general interest of the community and the requirements of the protection of the right of property (see ... Intersplav, cited above ...)
- In my judgment the Claimant gets very little assistance from the Bulves case. First, in the Bulves case the European Court of Human Rights was able to identify the applicant company's right to claim a deduction of input VAT as a legitimate expectation of obtaining the effective enjoyment of a property right which amounted to a possession. In the present case the Court cannot identify such a right. Whether or not the Claimant has complied with all the conditions for claiming input tax is the substantive issue between the Claimant and the Commissioners. Until that issue is resolved it is difficult to see how the Claimant can have a legitimate interest which could amount to a property right. Secondly, the Claimant faces formidable difficulties when it comes to the further and necessary question: whether (assuming the establishment of a property right) the interference with the property right was justified. This will depend on the balancing of interests and issues of proportionality. In Jokela v Finland (2003) 37 EHRR 26, the European Court of Human Rights set out its overall approach to the question of justification for the interference in property rights at -. At  the Court said,
Although [A1/P1] contains no explicit procedural requirements, the proceedings at issue must also afford the individual a reasonable opportunity of putting his or her case to the responsible authorities for the purpose of effectively challenging the measures interfering with the rights guaranteed by this provision. In ascertaining whether this condition has been satisfied a comprehensive view must be taken of the applicable procedures.
- There is no difficulty in challenging the substantive assessment to tax. It is done by way of challenge before the Tribunal, and there is then a right to appeal where there is an error of law; and to the extent that this right is inhibited by the requirement to pay tax as a condition of advancing an appeal, there is the right to argue hardship before an independent and impartial tribunal.
- In the light of the wide margin of appreciation afforded to Contracting States in the area of taxation, this approach cannot be described as 'devoid of reasonable foundation' see the Bulves case at .
- I turn then to the argument based on the Right to a Fair Trial. Article 6.1 provides,
In the determination of his civil rights and obligations ... everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law ...
- In Ferrazini v. Italy (see above) the European Court of Human Rights was concerned with the broad issue which arises in the present case: the extent to which the civil law element of Article 6 applies to tax disputes between the taxpayer and the state. The Court dismissed the taxpayer's complaint about the length of the proceedings, in broad terms.
 Pecuniary interests are clearly at stake in tax proceedings, but merely showing that a dispute is 'pecuniary' in nature is not in itself sufficient to attract the applicability of Article 6(1) under its 'civil' head. In particular, according to the traditional case law of the Convention institutions,
There may exist 'pecuniary' obligations vis-à-vis the State or its subordinate authorities which, for the purpose of Article 6(1), are to be considered as belonging exclusively to the realm of public law and are accordingly not covered by the notion of 'civil rights and obligations'. Apart from fines imposed by way of 'criminal sanction', this will be the case, in particular, where an obligation which is pecuniary in nature derives from tax legislation or is otherwise part of normal civic duties in a democratic society. (see, among other authorities, Schouten and Meldrum v. Netherlands (1995) 19 EHHR 432 §50)
 The Convention is, however, a living instrument to be interpreted in the light of present-day conditions, and it is incumbent on the Court to review whether, in the light of changed attitudes in society as to the legal protection that falls to be accorded to individuals in their relations with the State, the scope of Article 6(1) should not be extended to cover disputes between citizens and public authorities as to the lawfulness under domestic law of the tax authorities' decisions.
 In the tax field, development which might have occurred in democratic societies do not, however, affect the fundamental nature of the obligation on individuals or companies to pay tax. In comparison with the position when the Convention was adopted, those developments have not entailed a further intervention by the State into the 'civil' sphere of the individual's life. The Court considers that tax matters still form part of the hard core of public-authority prerogatives, with the public nature of the relationship between the taxpayer and the tax authority remaining predominant. Bearing in mind that the Convention and its Protocols must be interpreted as a whole, the Court also observes that Article 1 of Protocol No. 1, which concerns the protection of property, reserves the right of States to enact such laws as they deem necessary for the purpose of securing the payment of taxes. Although the Court does not attach decisive importance to that factor, it does take it into account. It considers that tax disputes fall outside the scope of civil rights and obligations, despite the pecuniary effects which they necessarily produce for the taxpayer.
The Court held by 11 votes to 6 that Article 6.1 did not apply.
- The minority view was expressed at  in the dissenting opinion of Judge Lorentzen,
... It is not open to doubt that the obligation to pay taxes directly and substantially affects the pecuniary interests of citizens and that in a democratic society taxation ... is based on the application of legal rules and not on the authorities' discretion. Accordingly, in my view, Art. 6 should apply to such disputes unless there are special circumstances justifying a conclusion that the obligation to pay taxes should not be considered 'civil' under Art. 6(1) of the convention.
- At  Judge Lorentzen concluded,
... It is therefore difficult to see why it is still necessary to grant States a special prerogative under the Convention in this field and thus deny litigants in tax proceedings the elementary procedural guarantees of article 6.1.
- In a subsequent Tribunal decision, N. Ali & S Begum (t/a Shapla Tandoori Restaurant) and others v. The Commissioners of Customs and Excise,  V & DR 71, Stephen Oliver QC (Chairman) preferred the view of the minority; and, on the basis of four reasons which he set out at , decided at ,
For those reasons I conclude that the Ferrazini decision is not applicable in the UK, at least so far as rights and obligations relating to VAT are concerned.
- Mr Swift was critical of the reasons set out in , but it is unnecessary to deal with these criticisms. First, because the decision (although it has been followed in another Tribunal decision, Tricell UK Ltd v Commissioners for Customs & Excise  UKVAT V18127) is not binding on this Court. Secondly, and perhaps more compellingly, because Mr Beal's researches showed that there had been another and more recent decision of the European Court of Human Rights. In Jussila v Finland (2006) (A/73053/01) the Court at , and by 13 votes to 4, made clear its views about the impact of the civil aspect of Article 6 in relation to taxes.
The assessment of tax and the imposition of surcharges fall outside the scope of Article 6 under its civil head (see Ferrazzini v. Italy ... §29).
- In my view this provides the 'clear and common jurisprudence of the European Court of Human Rights' which should be followed in the absence of special circumstances, see Lord Slynn at  in R v. Alconbury Developments Ltd) v. Secretary of State for the Environment, Transport and the Regions  2 AC 295. The view of both the framers of the European Convention on Human Rights and the European Court of Human Rights is that tax disputes are excluded from the civil aspect of Article 6.1 save in egregious cases.
- Mr Beal raised a further argument by reference to the EU Charter of Fundamental Rights ('the Charter'). Article 6 of the Consolidated Version of the Treaty of the European Union provides.
1. The Union recognises the rights, freedoms and principles set out in the Charter of Fundamental Rights of the European Union of 7 December 2000, as adapted at Strasburg, on 12 December 2007, which shall have the same legal value as the Treaties.
3. Fundamental rights, as guaranteed by the European Convention for the Protection of Human Rights and Fundamental Freedoms and as the result from the constitutional traditions common to the Member States, shall constitute general principles of the Union's law.
- Article 47 is headed, 'Right to an effective remedy and a fair trial'.
Everyone whose rights and freedoms guaranteed by the law of the Union are violated has the right to an effective remedy before a tribunal in compliance with the conditions laid down in this Article.
Everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal previously established by law ...
- Title VII is headed 'General Provisions Governing the Interpretation and Application of the Charter'; and Article 52 is concerned with the 'Scope and interpretation of rights and principles'.
3. In so far as this Charter contains rights which correspond to rights guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms, the meaning and scope of those rights shall be the same as those laid down by the said Convention. This provision shall not prevent Union law providing more extensive protection.
- Mr Beal relied on the 'Explanations Relating to the Charter of Fundamental Rights' prepared under the authority of the Praesidium of the Convention which drafted the Charter of Fundamental Rights as set out in the Official Journal of the European Union. He drew attention to the commentary on Article 47.
In Union law, the right to a fair hearing is not confined to disputes relating to civil law rights and obligations. That is one of the consequences of the fact that the Union is a community based on the rule of law as stated by the Court in Case 294/83 'Les Verts' v European Parliament  ECR 1339. Nevertheless, in all respects other than their scope, the guarantees afforded by the ECHR apply in a similar way to the Union.
- It seems to me that this Explanation is a very insubstantial basis for arguing that as a matter of European Union law, Article 47 of the Charter (which matches Art 6.1 of the ECHR) is to be interpreted so as to provide that a tax payer is entitled to greater protection in tax-related matters than is afforded by Article 6.1 as interpreted by the European Court of Human Rights, not least because the long version of the Explanations of the Charter emphasises,
They have no legal value and are simply intended to clarify the provisions of the Charter.
- Furthermore, Article 52.3 of the Charter provides,
In so far as this Charter contains rights which correspond to rights guaranteed by the Convention for the Protection of Human Rights and Fundamental Freedoms, the meaning and scope of those rights shall be the same as those laid down by the said Convention ...
European Union Law may give more extensive protection (as is made clear by the remaining part of Article 52.3), but not by means of the Charter.
- Finally it is convenient to mention a passage from the judgment of Mann J in O'Brien v. Revenue and Customs Commissioners  STC 487 at  which Mr Swift relied on.
Section 84(3) [VATA 1994] is a provision which I would, if necessary, find to be compliant with the [Human Rights] 1998 Act. It does not unfairly and improperly exclude access to justice, because if there is no hardship in paying the tax up front it will be paid and access to justice can be had. If there is hardship in paying, then the money does not have to be paid so there is no impeding access to justice. For the reasons that I have given I do not consider it to be discriminatory either. There is no other provision of the 1998 Act which seems to me to be capable of bearing on this matter.
- Although I have heard fuller argument than was addressed to Mann J, I agree with this statement. At the conclusion of all the argument there is a factual answer to a factual question: is hardship suffered in paying? The answer to that question is to be decided, subject to any Public Law issue, by the First-tier Tribunal.
- In the light of the above I have reached the following conclusions:
i) The introduction of s.84(3C) of the Value Added Tax Act 1994 by means of §221 of the Transfer of Tribunal Functions and Revenue & Customs Appeal Order [SI 2009 No.56], made pursuant to the provisions of s.194 of the Finance Act 2008 was not ultra vires or otherwise unlawful.
ii) The decisions of the First-tier Tribunal (Tax Chamber) in the Decision Notices dated 11 May 2009 were not vitiated by error of law or irrationality.
iii) The Claimant's arguments based on breaches of the law of the European Union fail, and
iv) The Claimant's arguments based on Article 6.1 and Article 1 of the First Protocol of the European Convention on Human Rights also fail.
- It follows that the Claimant's claim must be dismissed.
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