The Ministry of Justice (MoJ) recently consulted on its proposal to limit the extent to which an unsuccessful litigant can ask that the Court of Appeal (CA) consider the decision made in the Upper Tribunal (UT). The consultation closed on 11 January 2021 (see bit.ly/3a0mEDL).
The rationale for the consultation was set out in the foreword:
‘In the case of a second appeal which are appeals challenging certain kinds of decisions from the Upper Tribunal to the Court of Appeal, where permission is granted, the available data indicates that very few cases actually succeed at hearing. This suggests that the current test threshold is not strict enough to prevent the misuse of the system by those who see an advantage in the delay caused by bringing hopeless challenges. In 2019, out of the 561 permission to appeal applications determined in the Upper Tribunal (Immigration and Asylum Chamber) at the second appeals stage, only 92 of these were granted (which represents 16%). However, the numbers of cases that were granted permission and succeed at the substantive appeal stage was only 27 cases.’
The implication is that the MoJ had determined that its conclusion applied to all chambers of the UT, even though its analysis pertained to one specific chamber only. That, combined with the use of pejorative expressions, such as ‘hopeless challenges’ and ‘misuse of the system’, raised a significant concern that a proper analysis had not been undertaken.
Our recent experience includes two cases – Higgins v HMRC [2019] STC 2312 and Invamed AO v HMRC [2020] EWCA Civ 243 – where the CA agreed with the FTT and overturned the UT’s decision. Also, our (perhaps partisan) view is that, given the costs consequences, there is little, if any benefit, to taxpayers in seeking to make ‘hopeless challenges’ to the CA; and that such challenges, accordingly, are rare.
Our analysis of the Tax and Chancery Chamber (TCC) of the UT does not support the MoJ’s conclusion.
For the period from 2017 to 2020 (inclusive), the CA decided 75 appeals from the TCC. 24 of those appeals succeeded, either in whole or in part. Working out exactly what the ‘right’ number of successful appeals should be is probably impossible. Like the Laffer curve, 0% and 100% are clearly ‘wrong’, but the number of the golden mean is not objectively fixed. That around one-third of appeals were successful cannot be said to be unreasonable per se. Still less can it be said to be demonstrative of putative appellants exploiting a flawed system. Indeed, the contrary conclusion – that the current appeal mechanism is needed and is working appropriately – would seem more apposite. In our view, the evidence does not support a conclusion that the current appeal process, by which tax cases can be appealed to the CA from the TCC, does not work properly.
The aim of the MoJ is to limit ‘second appeals’ to the CA, by introducing a significantly more restrictive test for permission. That aim is not new. The conclusion of the Bowman Report in 1997 was that there should only be one level of appeal in most cases; and it resulted in the addition of the ‘real prospect of success’ condition to the permission to appeal test for second appeals. Section 55(1) of the Access to Justice Act 1999, for example, was introduced with the aim of ensuring that ‘second appeals would … become a rarity’ (per Brooke LJ in Tanfern Ltd v Cameron-MacDonald [2000] 1 WLR 311 at 1320C); and in Clark (Insp of Taxes) v Perks [2001] 1 WLR 17, the CA noted (at para 17) that the whole thrust of these reforms was ‘to use the time and resources of the ... Court of Appeal ... on matters which really merit the attention of a court of this stature in the judicial hierarchy.’ These are principles that are regularly applied by the courts when considering applications for permission to appeal. As is the adjuration of Baroness Hale in AH (Sudan) v Secretary of State for the Home Department [2007] UKHL 49 where she said (at para 30) in relation to specialist fact-finding tribunals, that: ‘Their decisions should be respected unless it is quite clear that they have misdirected themselves in law. Appellate courts should not rush to find such misdirections simply because they might have reached a different conclusion on the facts or expressed themselves differently.’
As few tax appeals commence in the UT, all but the entirety of tax-related appeals to the CA will be ‘second appeals’.
In order to obtain permission to appeal to the CA, the putative appellant must make a written application to the UT (rule 44 of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (the ‘UT rules’)). Article 2 of the Appeals from the Upper Tribunal to the Court of Appeal Order, SI 2008/2834, provides that:
‘Permission to appeal to the Court of Appeal in England and Wales … shall not be granted unless the Upper Tribunal or, where the Upper Tribunal refuses permission, the relevant appellate court, considers that–
(a) the proposed appeal would raise some important point of principle or practice; or
(b) there is some other compelling reason for the relevant appellate court to hear the appeal.’
The UT rules do not set out the criteria by which the granting of permission to appeal is to be judged. In N Grogan v HMRC [2010] UKUT B22 (TCC), the UT said (at para 4):
‘I do not consider that permission should be granted unless the appeal has a real prospect of success (or unless there is some other compelling reason for the appellate court to hear the appeal). This is so even if there is some important point of principle or practice which is involved. If the answer to the important point is clear, in the sense of an appeal having no reasonable prospect of success, permission to appeal should not be given.’
Accordingly, the ‘real prospect of success’ test is already applied at the UT stage, not just at the CA stage. To the extent that the MoJ is seeking to give the impression that it is not, in order to support its conclusion that a more restrictive test needs to be introduced, that is deprecated.
If the UT refuses permission, the putative appellant needs to obtain permission from the CA in order to progress the appeal. The requirement is set out in rule 52.7(2) of the civil procedure rules and it was restated in the consultation document (at para 40), as follows:
‘permission to appeal to the Court of Appeal will not be granted unless it considers that (a) the appeal would have a real prospect of success and raises an important point of principle or practice; or (b) there is some other compelling reason for the Court of Appeal to hear the case.’
The proposed test for second appeals is that, if the UT has refused permission to appeal, permission to appeal will be granted only ‘for reasons of exceptional public interest.’ The consultation document does not explain how that test should be interpreted. In our view, it has the potential, particularly by reason of the inclusion of the word ‘exceptional’, to be interpreted as a more stringent test than the one for an appeal from the CA to the Supreme Court (an arguable point of law of general public importance which ought to be considered by the Supreme Court). That cannot be appropriate.
The MoJ asserts that its reforms are necessary to stem the ‘high volume of hopeless second appeals’ before the CA (para 37), and that: ‘In the case of a second appeal where permission is granted, the available data indicates that very few cases actually succeed at hearing’ (para 28). However, from a tax cases standpoint, those assertions are simply wrong. Of the 75 cases heard by the Court of Appeal from 2017 to 2020 (inclusive), 51 were upheld on appeal. 24 out of 75 cases is not ‘very few’. And it would be wholly wrong to assume that all the unsuccessful appeals were ‘hopeless’. Indeed, as either a UT or a CA judge will have concluded that the ‘real prospect of success’ test has been met with regard to these appeals, it should be the case that none is hopeless.
Moreover, the subject matter of these appeals – the revenue system – is a system that generates revenues of some £600bn per year. That this system results in an average of fewer than 20 CA decisions being released each year suggests a system that should be lauded. Even if it was the case that the CA had to hear, say, one hopeless appeal made either by HMRC or by a taxpayer each year, that would surely be a reasonable price to pay for a judicial system which is responsible for evaluating the entirety of the country’s fiscal system.
A further point to note is that, in tax cases, there is a cost risk attached to the approach of bringing hopeless challenges for delaying purposes only. Save penalty cases (where the quantum is such that the criminal limb of article 6 of the European Convention of Human Rights is engaged), there is no public funding. An appellant taxpayer that seeks permission to appeal can be at risk of an adverse costs award if that application is unsuccessful and will, almost certainly, be at risk if the appeal proceeds. That is a further important barrier against the attempted bringing of unmeritorious cases.
At para 43, it was said that: ‘It is (sic) Government’s opinion that an [UT] judge is better as the main decision maker in relation to application for permission decisions because the [UT] judge is an expert in the area and is therefore better placed to determine what needs to be clarified in the point of law’.
That assertion is fundamentally flawed. The application for permission to appeal that is made at the UT is made to the very UT judge that has just decided the case against the applicant. The applicant is required to persuade that judge that there is a real prospect that the CA will conclude that his decision was wrong as matter of law (not, as is suggested above, that there is an element of a point of law that needs clarifying). In our experience, UT judges are (understandably) often reluctant to conclude this.
Tax cases heard by the Court of Appeal
There were 13 tax cases heard before the Court of Appeal in 2017; 28 cases in 2018; 17 cases in 2019; and 17 cases in 2020. In total, there were:
There were five cases with ‘alternative’ results, i.e. where either HMRC or the taxpayer’s appeal was part allowed, there were cross appeals, or a preliminary reference was made to the CJEU.
For details of the relevant cases, see here.
It is to be hoped that the MoJ will recognise that its analysis of immigration appeals does not support its conclusions having general effect. Particularly with regard to tax appeals, it is to be hoped that a more restrictive test for permission to appeal will not be imposed. Unfortunately, we are concerned that the consultation is an example of policy-based evidence making, not evidence-based policy making.
If the MoJ implements the proposed changes, it is likely that the UT would become the final stage of appeal for the majority of tax appeals. Ensuring a more strategic approach to the litigation and potentially seeking to rehearse before the FTT that the case involves important points of principle, so as to maximise the potential for appeal rights, are steps that may be needed.
The Ministry of Justice (MoJ) recently consulted on its proposal to limit the extent to which an unsuccessful litigant can ask that the Court of Appeal (CA) consider the decision made in the Upper Tribunal (UT). The consultation closed on 11 January 2021 (see bit.ly/3a0mEDL).
The rationale for the consultation was set out in the foreword:
‘In the case of a second appeal which are appeals challenging certain kinds of decisions from the Upper Tribunal to the Court of Appeal, where permission is granted, the available data indicates that very few cases actually succeed at hearing. This suggests that the current test threshold is not strict enough to prevent the misuse of the system by those who see an advantage in the delay caused by bringing hopeless challenges. In 2019, out of the 561 permission to appeal applications determined in the Upper Tribunal (Immigration and Asylum Chamber) at the second appeals stage, only 92 of these were granted (which represents 16%). However, the numbers of cases that were granted permission and succeed at the substantive appeal stage was only 27 cases.’
The implication is that the MoJ had determined that its conclusion applied to all chambers of the UT, even though its analysis pertained to one specific chamber only. That, combined with the use of pejorative expressions, such as ‘hopeless challenges’ and ‘misuse of the system’, raised a significant concern that a proper analysis had not been undertaken.
Our recent experience includes two cases – Higgins v HMRC [2019] STC 2312 and Invamed AO v HMRC [2020] EWCA Civ 243 – where the CA agreed with the FTT and overturned the UT’s decision. Also, our (perhaps partisan) view is that, given the costs consequences, there is little, if any benefit, to taxpayers in seeking to make ‘hopeless challenges’ to the CA; and that such challenges, accordingly, are rare.
Our analysis of the Tax and Chancery Chamber (TCC) of the UT does not support the MoJ’s conclusion.
For the period from 2017 to 2020 (inclusive), the CA decided 75 appeals from the TCC. 24 of those appeals succeeded, either in whole or in part. Working out exactly what the ‘right’ number of successful appeals should be is probably impossible. Like the Laffer curve, 0% and 100% are clearly ‘wrong’, but the number of the golden mean is not objectively fixed. That around one-third of appeals were successful cannot be said to be unreasonable per se. Still less can it be said to be demonstrative of putative appellants exploiting a flawed system. Indeed, the contrary conclusion – that the current appeal mechanism is needed and is working appropriately – would seem more apposite. In our view, the evidence does not support a conclusion that the current appeal process, by which tax cases can be appealed to the CA from the TCC, does not work properly.
The aim of the MoJ is to limit ‘second appeals’ to the CA, by introducing a significantly more restrictive test for permission. That aim is not new. The conclusion of the Bowman Report in 1997 was that there should only be one level of appeal in most cases; and it resulted in the addition of the ‘real prospect of success’ condition to the permission to appeal test for second appeals. Section 55(1) of the Access to Justice Act 1999, for example, was introduced with the aim of ensuring that ‘second appeals would … become a rarity’ (per Brooke LJ in Tanfern Ltd v Cameron-MacDonald [2000] 1 WLR 311 at 1320C); and in Clark (Insp of Taxes) v Perks [2001] 1 WLR 17, the CA noted (at para 17) that the whole thrust of these reforms was ‘to use the time and resources of the ... Court of Appeal ... on matters which really merit the attention of a court of this stature in the judicial hierarchy.’ These are principles that are regularly applied by the courts when considering applications for permission to appeal. As is the adjuration of Baroness Hale in AH (Sudan) v Secretary of State for the Home Department [2007] UKHL 49 where she said (at para 30) in relation to specialist fact-finding tribunals, that: ‘Their decisions should be respected unless it is quite clear that they have misdirected themselves in law. Appellate courts should not rush to find such misdirections simply because they might have reached a different conclusion on the facts or expressed themselves differently.’
As few tax appeals commence in the UT, all but the entirety of tax-related appeals to the CA will be ‘second appeals’.
In order to obtain permission to appeal to the CA, the putative appellant must make a written application to the UT (rule 44 of the Tribunal Procedure (Upper Tribunal) Rules, SI 2008/2698 (the ‘UT rules’)). Article 2 of the Appeals from the Upper Tribunal to the Court of Appeal Order, SI 2008/2834, provides that:
‘Permission to appeal to the Court of Appeal in England and Wales … shall not be granted unless the Upper Tribunal or, where the Upper Tribunal refuses permission, the relevant appellate court, considers that–
(a) the proposed appeal would raise some important point of principle or practice; or
(b) there is some other compelling reason for the relevant appellate court to hear the appeal.’
The UT rules do not set out the criteria by which the granting of permission to appeal is to be judged. In N Grogan v HMRC [2010] UKUT B22 (TCC), the UT said (at para 4):
‘I do not consider that permission should be granted unless the appeal has a real prospect of success (or unless there is some other compelling reason for the appellate court to hear the appeal). This is so even if there is some important point of principle or practice which is involved. If the answer to the important point is clear, in the sense of an appeal having no reasonable prospect of success, permission to appeal should not be given.’
Accordingly, the ‘real prospect of success’ test is already applied at the UT stage, not just at the CA stage. To the extent that the MoJ is seeking to give the impression that it is not, in order to support its conclusion that a more restrictive test needs to be introduced, that is deprecated.
If the UT refuses permission, the putative appellant needs to obtain permission from the CA in order to progress the appeal. The requirement is set out in rule 52.7(2) of the civil procedure rules and it was restated in the consultation document (at para 40), as follows:
‘permission to appeal to the Court of Appeal will not be granted unless it considers that (a) the appeal would have a real prospect of success and raises an important point of principle or practice; or (b) there is some other compelling reason for the Court of Appeal to hear the case.’
The proposed test for second appeals is that, if the UT has refused permission to appeal, permission to appeal will be granted only ‘for reasons of exceptional public interest.’ The consultation document does not explain how that test should be interpreted. In our view, it has the potential, particularly by reason of the inclusion of the word ‘exceptional’, to be interpreted as a more stringent test than the one for an appeal from the CA to the Supreme Court (an arguable point of law of general public importance which ought to be considered by the Supreme Court). That cannot be appropriate.
The MoJ asserts that its reforms are necessary to stem the ‘high volume of hopeless second appeals’ before the CA (para 37), and that: ‘In the case of a second appeal where permission is granted, the available data indicates that very few cases actually succeed at hearing’ (para 28). However, from a tax cases standpoint, those assertions are simply wrong. Of the 75 cases heard by the Court of Appeal from 2017 to 2020 (inclusive), 51 were upheld on appeal. 24 out of 75 cases is not ‘very few’. And it would be wholly wrong to assume that all the unsuccessful appeals were ‘hopeless’. Indeed, as either a UT or a CA judge will have concluded that the ‘real prospect of success’ test has been met with regard to these appeals, it should be the case that none is hopeless.
Moreover, the subject matter of these appeals – the revenue system – is a system that generates revenues of some £600bn per year. That this system results in an average of fewer than 20 CA decisions being released each year suggests a system that should be lauded. Even if it was the case that the CA had to hear, say, one hopeless appeal made either by HMRC or by a taxpayer each year, that would surely be a reasonable price to pay for a judicial system which is responsible for evaluating the entirety of the country’s fiscal system.
A further point to note is that, in tax cases, there is a cost risk attached to the approach of bringing hopeless challenges for delaying purposes only. Save penalty cases (where the quantum is such that the criminal limb of article 6 of the European Convention of Human Rights is engaged), there is no public funding. An appellant taxpayer that seeks permission to appeal can be at risk of an adverse costs award if that application is unsuccessful and will, almost certainly, be at risk if the appeal proceeds. That is a further important barrier against the attempted bringing of unmeritorious cases.
At para 43, it was said that: ‘It is (sic) Government’s opinion that an [UT] judge is better as the main decision maker in relation to application for permission decisions because the [UT] judge is an expert in the area and is therefore better placed to determine what needs to be clarified in the point of law’.
That assertion is fundamentally flawed. The application for permission to appeal that is made at the UT is made to the very UT judge that has just decided the case against the applicant. The applicant is required to persuade that judge that there is a real prospect that the CA will conclude that his decision was wrong as matter of law (not, as is suggested above, that there is an element of a point of law that needs clarifying). In our experience, UT judges are (understandably) often reluctant to conclude this.
Tax cases heard by the Court of Appeal
There were 13 tax cases heard before the Court of Appeal in 2017; 28 cases in 2018; 17 cases in 2019; and 17 cases in 2020. In total, there were:
There were five cases with ‘alternative’ results, i.e. where either HMRC or the taxpayer’s appeal was part allowed, there were cross appeals, or a preliminary reference was made to the CJEU.
For details of the relevant cases, see here.
It is to be hoped that the MoJ will recognise that its analysis of immigration appeals does not support its conclusions having general effect. Particularly with regard to tax appeals, it is to be hoped that a more restrictive test for permission to appeal will not be imposed. Unfortunately, we are concerned that the consultation is an example of policy-based evidence making, not evidence-based policy making.
If the MoJ implements the proposed changes, it is likely that the UT would become the final stage of appeal for the majority of tax appeals. Ensuring a more strategic approach to the litigation and potentially seeking to rehearse before the FTT that the case involves important points of principle, so as to maximise the potential for appeal rights, are steps that may be needed.
