The Court of Appeal confirms that the principles of issue estoppel and res judicata are of limited application in tax cases.
The case of HMRC v D Kishore [2021] EWCA Civ 1565 (reported in Tax Journal, 5 November 2021) involves the Kittel principle, the denial of £22m of input VAT, and £2.5m of penalties.
HMRC sought to run an abuse of process argument to strike out the taxpayer’s penalty appeals. HMRC should take, and the First-tier Tribunal (FTT) should entertain, procedural points of this nature far less often.
What happened in Kishore?
In 2006, Mr Kishore bought and exported quite a lot of goods. He claimed £22m of input VAT, which HMRC denied under the Kittel principle (Kittel v Belgium (Case C-440/04)). Mr Kishore appealed. However, he ran out of money and stopped engaging with the proceedings. The FTT struck out his appeals in September 2015. In May 2016, Mr Kishore applied for reinstatement. The FTT refused.
HMRC then imposed penalties of £2.5m. Mr Kishore appealed (‘the penalty appeals’) on the basis that:
the input VAT claims were not overstated;
there was no tribunal finding that he knew or ought to have known of the alleged fraudulent activity; and
the penalty decisions were raised too late and breached his rights under article 6 of the European Convention on Human Rights.
HMRC applied to strike out the penalty appeals, arguing they had merely re-litigated the Kittel appeal and were an abuse of process.
The Court of Appeal took the view that:
the principles of issue estoppel and res judicata are of limited application in tax cases;
Mr Kishore’s appeals had, in any event, not been determined by a court;
there was no evidence to contradict his claims that HMRC had rendered him unable to afford to fund his defence; and
he was in substance a defendant in the penalty appeals rather than a claimant (as he had been in the Kittel appeal).
Taking these factors into account, there was no basis for saying that his arguments in the penalty appeals amounted to an abuse of process.
The decision contains a useful analysis of the test to be applied when considering subsequent appeals on similar facts and, in particular, how the common law rules apply in the tax tribunal (spoiler: with far less vigour). That analysis, although useful, is fairly pedestrian. What elevates this case is what is missing.
Did the FTT have jurisdiction?
There was no debate as to the FTT’s jurisdiction to hear the abuse of process arguments.
It is well established that the FTT is not a ‘free for all’ jurisdiction in which the taxpayer can raise whatever arguments it wishes (see, for example, Noor v HMRC [2013] UKUT 71 (TC) and KSM Henryk Zeman SP Z.o.o. v HMRC [2021] UKUT 182 (TCC)).
The case law cited by the Court of Appeal in its decision almost exclusively arises from civil disputes governed by the civil procedure and subject to the inherent jurisdiction of the High Court. The High Court and the tax tribunal are different beasts. A kettle of fish and a can of worms may have similarities, but they are not the same.
The FTT’s power to strike out all or part of a party’s case comes from rule 8 of the Tribunal Procedure (FTT) (Tax Chamber) Rules. It is limited to circumstances in which the FTT lacks jurisdiction to hear the appeal, the party has not cooperated, or there is no reasonable prospect of success for the appellant’s case. Abuse of process does not arise.
It is open to the FTT to throw out cases that are hopeless because the relevant facts or law have already been decided or because it has no jurisdiction to hear the arguments raised. It is not otherwise open to the FTT to limit the scope of the arguments that the taxpayer wishes to run.
Ultimately, the public policy behind abuse of process arguments is a balance of convenience point. Parties and courts should not have their time taken up with the same issue repeatedly.
On the other hand, statutory rights should not be curtailed because they are inconvenient. That way, madness lies.
Home >Articles > Indirect effects: abuse of process versus exercise of a statutory right
Indirect effects: abuse of process versus exercise of a statutory right
The Court of Appeal confirms that the principles of issue estoppel and res judicata are of limited application in tax cases.
The case of HMRC v D Kishore [2021] EWCA Civ 1565 (reported in Tax Journal, 5 November 2021) involves the Kittel principle, the denial of £22m of input VAT, and £2.5m of penalties.
HMRC sought to run an abuse of process argument to strike out the taxpayer’s penalty appeals. HMRC should take, and the First-tier Tribunal (FTT) should entertain, procedural points of this nature far less often.
What happened in Kishore?
In 2006, Mr Kishore bought and exported quite a lot of goods. He claimed £22m of input VAT, which HMRC denied under the Kittel principle (Kittel v Belgium (Case C-440/04)). Mr Kishore appealed. However, he ran out of money and stopped engaging with the proceedings. The FTT struck out his appeals in September 2015. In May 2016, Mr Kishore applied for reinstatement. The FTT refused.
HMRC then imposed penalties of £2.5m. Mr Kishore appealed (‘the penalty appeals’) on the basis that:
the input VAT claims were not overstated;
there was no tribunal finding that he knew or ought to have known of the alleged fraudulent activity; and
the penalty decisions were raised too late and breached his rights under article 6 of the European Convention on Human Rights.
HMRC applied to strike out the penalty appeals, arguing they had merely re-litigated the Kittel appeal and were an abuse of process.
The Court of Appeal took the view that:
the principles of issue estoppel and res judicata are of limited application in tax cases;
Mr Kishore’s appeals had, in any event, not been determined by a court;
there was no evidence to contradict his claims that HMRC had rendered him unable to afford to fund his defence; and
he was in substance a defendant in the penalty appeals rather than a claimant (as he had been in the Kittel appeal).
Taking these factors into account, there was no basis for saying that his arguments in the penalty appeals amounted to an abuse of process.
The decision contains a useful analysis of the test to be applied when considering subsequent appeals on similar facts and, in particular, how the common law rules apply in the tax tribunal (spoiler: with far less vigour). That analysis, although useful, is fairly pedestrian. What elevates this case is what is missing.
Did the FTT have jurisdiction?
There was no debate as to the FTT’s jurisdiction to hear the abuse of process arguments.
It is well established that the FTT is not a ‘free for all’ jurisdiction in which the taxpayer can raise whatever arguments it wishes (see, for example, Noor v HMRC [2013] UKUT 71 (TC) and KSM Henryk Zeman SP Z.o.o. v HMRC [2021] UKUT 182 (TCC)).
The case law cited by the Court of Appeal in its decision almost exclusively arises from civil disputes governed by the civil procedure and subject to the inherent jurisdiction of the High Court. The High Court and the tax tribunal are different beasts. A kettle of fish and a can of worms may have similarities, but they are not the same.
The FTT’s power to strike out all or part of a party’s case comes from rule 8 of the Tribunal Procedure (FTT) (Tax Chamber) Rules. It is limited to circumstances in which the FTT lacks jurisdiction to hear the appeal, the party has not cooperated, or there is no reasonable prospect of success for the appellant’s case. Abuse of process does not arise.
It is open to the FTT to throw out cases that are hopeless because the relevant facts or law have already been decided or because it has no jurisdiction to hear the arguments raised. It is not otherwise open to the FTT to limit the scope of the arguments that the taxpayer wishes to run.
Ultimately, the public policy behind abuse of process arguments is a balance of convenience point. Parties and courts should not have their time taken up with the same issue repeatedly.
On the other hand, statutory rights should not be curtailed because they are inconvenient. That way, madness lies.
