In relation to 'very late applications to amend', Mrs Justice Carr referred to a number of authorities at [37] of Quah Su-Ling and gave a helpful summary at [38].
'Drawing these authorities together, the relevant principles can be stated simply as follows:
(a) whether to allow an amendment is a matter for the discretion of the court. In exercising that discretion, the overriding objective is of the greatest importance. Applications always involve the court striking a balance between justice to the applicant f the amendment is refused, and injustice to the opposing party and other litigants in general, if the amendment is permitted;
(b) where a very late application to amend is made the correct approach is not that the amendments ought, in general, to be allowed so that the real dispute between the parties can be adjudicated upon. Rather, a heavy burden lies on a party seeking a very late amendment to show the strength of the new case and why justice to him, his opponent and other court users requires him to be able to pursue it. The risk to a trial date may mean that the lateness of the application to amend will of itself cause the balance to be loaded heavily against the grant of permission;
(c) a very late amendment is one made when the trial date has been fixed and where permitting the amendments would cause the trial date to be lost. Parties and the court have a legitimate expectation that trial fixtures will be kept;
(d) lateness is not an absolute, but a relative concept. It depends on a review of the nature of the proposed amendment, the quality of the explanation for its timing, and a fair appreciation of the consequences in terms of work wasted and consequential work to be done;
(e) gone are the days when it was sufficient for the amending party to argue that no prejudice had been suffered, save as to costs. In the modern era it is more readily recognised that he payment of costs may not be adequate compensation;
(f) it is incumbent on a party seeking the indulgence of the court to allowed to arise a late claim to provide a good explanation for the delay;
(g) a much stricter view is taken nowadays of non-compliance with the Civil Procedure Rules and directions of the Court. The achievement of justice means something different now. Parties can no longer expect indulgence if they fail to comply with their procedural obligations because those obligations not only serve the purpose of ensuring that they conduct the litigation proportionately in order to ensure their own costs are kept within proportionate bounds but also the wider public interest of ensuring that other litigants can obtain justice efficiently and proportionately, and the courts enable them to do so.'
Where there is a delay in application for a relief from sanction, the relevant principles are set out at [44] to [46] of Martland and summarised below:
(1) When considering applications for permission to appeal out of time, the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be, following the three-stage process: (a) establish the length of delay; (b) the reasons for the delay; and (c) evaluation of 'all the circumstances of the case'.
(2) The FTT's role is to exercise judicial discretion taking account of all relevant factors, not to follow a checklist.
(3) In doing so, the FTT can have regard to the obvious strength and weakness of the applicant's case; this goes to the question of prejudice. It is important not to descend into a detailed analysis of the underlying merits of the appeal. Citing Moore-Brick LJ in R(Hysaj) v Secretary of State for the Home Department [2015] 1 WLR 2472 at [46]:
'... In most cases the merits of the appeal will have little to do with whether it is appropriate to grant an extension of time. Only in those cases where the court can see without much investigation that the grounds of appeal are either very strong or very weak will the merits have a significant part to play when it comes to balancing the various factors that have to be considered at stage 3 of the process. In most cases the court should decline to embark on an investigation of the merits and firmly discourage argument directed to them.'
Case law on 'best judgment' test
In Rahman (trading as Khayam Restaurant) v Customs and Excise Commissioners [2002] EWCA Civ 1881 (' Rahman '), where the challenge was that the VAT assessment was not made to 'best judgment', Chadwick LJ, in giving the lead judgment, set out the 'two-stage approach' in considering the statutory basis of a 'best judgment' assessment as follows:
'[5] Section 83(p) of the 1994 Act provides both for an appeal "with respect to ... an assessment under 73(1)" and for an appeal "with respect to ... the amount of such an assessment". That distinction reflects the two distinct questions which may arise where an assessment purports to have been made under s 7391) of the Act. First, whether the assessment has been made under the power conferred under that section; and, second, whether the amount of the assessment is the correct amount of VAT for which the taxpayer is accountable.
[6] The first of those question itself contains two elements: (i) whether the pre-condition to the exercise of the power is satisfied - that is to say, has there been a failure to make returns, keep records or afford facilities for inspection, or has it appeared to the commissioners that returns which have been made are incomplete or incorrect - and (ii) whether the assessment made by the commissioners was made "to the best of their judgment".
The first of those elements is, I suspect, rarely in dispute; but the second element - the need for "best judgment" - has led tribunals to adopt what has been described as a "two-stage approach" to appeals under s 83(p) of the Act. It has become the practice for tribunals to consider, first, whether - on the material available to the commissioners at the time when the assessment was made - the assessment satisfies the "best judgment" test.
It is only if that test is satisfied that the tribunal goes on to consider, as a second stage in the appeal, whether the assessment should be varied - or, as the taxpayer is likely to contend, reduced - by reference to additional material not available to the commissioners or in the light of explanation or argument advanced on the appeal. ....' (Sub-paragraphing added)
At stage-one of the 'best judgment' test, the tribunal's jurisdiction is supervisory, as established by principles enunciated in Van Boeckel v C&E Comrs [1981] STC 290, and Rahman v C&E Comrs [1998] STC 826 (' Rahman 1 '), and summarised by the Upper Tribunal in Mithras (Wine Bars) Limited v C&E Comrs [2010] UKUT 115 (TCC) (' Mithras ') as follows:
'[11] The principles established in Van Boeckel and Rahman 1 indicate that the FTT's jurisdiction when considering whether an assessment was raised to the best of the commissioners' judgment is akin to a supervisory, judicial review type jurisdiction. The FTT does not have a true appellate function in that it cannot set aside the assessment on the basis that it disagrees with the Commissioners' decision to make the assessment. The circumstances in which the FTT can decide that the assessment was not raised to the best of the Commissioners' judgment, and therefore should not have been made at all, are very limited, essentially being restricted to cases where the Commissioners have acted perversely or in bad faith. Cairnwath J in Rahman 1 indicated that the "kind of case is likely to be extremely rare" and that in the normal case "it should be assumed that the Commissioners have made an honest and genuine attempt to reach a fair assessment": see page 835 of [ Rahman 1 ] judgment.'
At stage-two of the 'best judgment' test, the tribunal's jurisdiction is fully appellate in relation to the quantum of the assessment, as described in Koca v C&E Comrs [1996] STC 58, where Latham J (as he then was) after referring to the Van Boeckel criteria, went on to say:
'But the tribunal has a further function. In determining the appeal the tribunal may have evidence before it which makes it clear that although the assessment was perfectly proper on the information available to the Commissioners nonetheless it should be reduced to give effect to that further evidence, or even further argument based on the material originally before the Commissioners. This function has been clearly recognised in a number of cases, including Van Boeckel : see page 64 of the judgment.'
In Mithras the Upper Tribunal observed the distinction of the tribunal's jurisdiction at the two stages of the 'best judgment' test after a review of the relevant authorities as follows:
'[16] The observations extracted from the decisions in Koca and Rahman 1 emphasise the point that in an appeal against the amount of an assessment, the Tribunal is not restricted to any kind of quasi-supervisory function which involved referring to the Commissioners' judgment on quantum at the time the Commissioners made their assessment. The Tribunal's function is truly appellate, in that it can consider further information or argument at the hearing of the appeal and reduce the amount of the assessment, thereby substituting its own view on quantum for that of the Commissioners.'
In Rahman 1 Carnwath J indicated that in a normal case, the principal concern of the tribunal should be to ensure that the amount of the assessment, with a note of caution:
'In principle there is nothing wrong in the tribunal considering the validity of the assessment as a separate and preliminary issue, when that is raised expressly or implicitly by the appeal, and, as part of that exercise, applying the Van Boeckel test. There is a risk, however, that the emphasis of the debate before the tribunal will be distorted. If I am right in my interpretation of Van Boeckel , it is only in a very exceptional case that an assessment will be upset because of a failure by the commissioners to exercise best judgment. The danger of the two-stage approach is that it reverses the emphasis.' (p836)
Prospect of success of the new ground
The factual basis
The supposed factual basis for the new ground of appeal is stated at paragraph 24 of the Application in terms as follows:
(a) 'the officer looked at the Appellant's tax returns and made a fundamental error in believing that a taxpayer had to "apply for an exemption"; and
(b) 'on the basis the Appellant had not done that, meant VAT was chargeable'.
From the background leading to the notice of assessment, it is clear that at no point in time was the basis of the assessment founded on whether or not the Appellant was required to apply for an exemption. The obtainable facts from the correspondence are the following.
(1) The Officer issued the assessment on the basis that the Appellant was making sales prior to 15 February 2014 (the date on which it had registered for VAT), without providing any explanation at all for this to HMRC, and without engaging with HMRC in order for its records to be inspected. (See correspondence leading up to the assessment and reiterated by the Officer in her letter of 19 August 2016.)
(2) In particular, the assessment was notified to the Appellant in July 2016, months before the letter of 4 November 2016 on which the Appellant relies for its new 'best judgment' ground.
(3) The Appellant's accountant had himself stated on 8 August 2016 that the Appellant had 'claimed exemption in a separate letter'. The Officer then asked on 19 August 2016 for the provision of further information including when the Appellant had applied for exemption and what HMRC's response had been.
(4) The Appellant's accountant stated in his letter of 3 October 2016 that it was relying on the NAC, which did not require an application for any exemption, in terms as follows:
'... we confirmed and explained that, in accordance with the above legislation [the NAC], our client is not required to apply for any exemption documentation and is also not required to receive any response from HMRC, with regard to exercising and applying the VAT concession to its circumstances.'
(5) It was in response to the accountant's statement that reliance on the NAC did not require any application for exemption that the Officer stated in the 4 November 2016 letter that she had wrongly thought an exemption had to be applied for.
The issue as to whether an application for exemption was relevant to the Appellant would appear to have been introduced by the Appellant's accountant, first on 8 August 2016 by stating that the Appellant had 'claimed exemption', and then on 3 October 2016, to state that the Appellant could rely on the NAC, and an application for exemption was asserted to be not in point. The Officer's response of 4 November 2016 was to acknowledge the explanation offered by the Appellant's accountant on 3 October 2016 on the alleged premise that the Appellant could rely on the NAC without having to apply for VAT exemption.
Whereas contrary positions had been put forward by its accountant for the Appellant as regards the exemption application, the Appellant now seeks to stake the new 'Best Judgment' argument on a response by the Officer which was in essence an acknowledgement of the explanation provided for the contrary positions by the Appellant's accountant.
From the substance and chronology of the correspondence outlined above, I conclude that the critical fact (namely the Officer's reply of 4 November 2016) upon which the allegation of it being 'such a serious failure to understand a basic VAT concept' is plainly unsupported by a proper reading of the Officer's reply in the context of the correspondence.
In any event, the VAT assessments had not been raised by reference to whether the Appellant had or had not applied for exemption. The claim that it was 'irrational' for the Officer 'to leap in and raise assessments based on such a serious failure to understand a basic VAT concept' (paragraph 25 of the Application) would appear to have ignored or misunderstood the Officer's reason for raising the VAT assessments.
It is surprising that the Appellant, being legally represented, should have put forward the new ground on such tenuous basis. As a matter of fact, the new 'best judgment' ground is devoid of the necessary factual basis for it to be meaningfully argued, and therefore has no real prospect of success.
Tribunal's jurisdiction as regards 'best judgment' assessments
In view of the fact that the Appellant is no longer represented, for the basis upon which the new 'best judgment' ground is staked to be put forward to the Tribunal beyond the express wording in the Application, I would go on to consider the potential relevance of the stated ground from the case law perspective.
The relevant case law refers to the two-stage approach for considering the potential issues in a 'best judgment' challenge. Whilst not suggesting that HMRC acted in bad faith (paragraph 23 of the Application), the Appellant's challenge on 'best judgment' ground is that the Officer had 'acted perversely', and 'it was irrational' for the Officer 'to leap in' to raise the assessment. The Appellant's 'best judgment' ground is therefore a judicial review type of challenge relevant to stage-one considerations. The Appellant's 'best judgment' ground is not formulated in a way seeking to engage stage-two considerations as regards quantum of the assessment.
Given that the new 'best judgment' ground is a judicial review type of challenge seeking to engage the quasi-supervisory jurisdiction of the tribunal, (rather than the full appellate jurisdiction the tribunal has for quantum-related issues), I am of the view that there is no reasonable prospect of this ground succeeding for the following reasons.
(1) The tribunal does not have a true appellate function for judicial review considerations, and cannot set aside the assessment under appeal even if the tribunal hearing the appeal were to disagree with the Officer's decision to make the assessment.
(2) A successful 'best judgment' challenge of the judicial review type is 'extremely rare' as in the normal case 'it should be assumed that the Commissioners have made an honest and genuine attempt to reach a fair assessment': the presumption of regularity.
(3) Rahman 1 cautions against the 'danger' of reversing the emphasis of its jurisdiction in the two-stage process of consideration, whereby the tribunal were to become unduly drawn on stage-one issues (over which it has no full appellate function) at the expense of its full appellate function at stage-two in relation to the quantum aspect of an assessment.
In any event, the stated new 'best judgment' ground by reference to the Officer's response in the letter of 4 November 2016, when properly contextualised, would appear to be a round-about way of raising the judicial review challenge as to whether the Appellant could have relied on the NAC, since the discussion of whether an exemption application was required was ultimately traced back to the Appellant's accountant invoking the NAC as dispensing with the exemption application. To the extent that the JR Claim proceedings had comprehensively settled the claim whether the Appellant could have relied on the NAC, the new 'best judgment' ground, which is essentially framed as a judicial review challenge, has no prospect of success.
Inordinate delay
Even if I were to put aside the issue of merits of the new 'best judgment' ground, and consider the Application simply as a procedural matter, the Application would still be refused. The Appellant lodged its Notice of Appeal seven years ago in July 2017, and the long procedural history of the appeal has afforded the Appellant innumerable opportunities to apply to amend its grounds of appeal. I have special regard to the following:
(1) The assessment was confirmed on review (with a reduction to £221,325) by letter dated 14 June 2017. The review officer had sought a meeting for the provision of any further information, but an arranged meeting had been postponed by the Appellant.
(2) As set out in HMRC's review decision, the Appellant's accountant had supplied limited records; stated that the Appellant acted as agent (rather than principal); and its legal representatives had then put forward a series of arguments against the assessments, including the basis whereby the NAC should apply to the Appellant's supplies, and all of these arguments were rejected on review.
(3) Crucially, there was no complaint that the assessment had not been made to best judgment because it had been based on any view as regards the need to apply for an exemption, which is now the Appellant's new ground of appeal.
(4) Further, the Appellant had in April 2018 applied to 'refine' its grounds of appeal, and did not seek to include the 'best judgment' ground at that point.
(5) As HMRC submit, that the Appellant had been in litigation with HMRC for a protracted period of time including the course of the JR proceedings, and had not sought to argue the 'best judgment' ground until recently.
Mr Odong's explanation for the inordinate delay was to say: (a) that the 'best judgment' ground was 'always within the scope of instructions'; (b) that it would be in the interest of justice to allow the Application; (c) that HMRC are not prejudiced.
It might be that the 'best judgment' ground was 'always within the scope of instructions' to the Appellant's representatives, but that does not detract from the fact that the new 'best judgment' ground as formulated in the Application, and particularised by reference to HMRC Officer's letter of 4 November 2014, has not been hitherto mooted as a ground of appeal.
I am not persuaded by Mr Odong's pleading that it is in the interest of justice to allow the Appellant's Application. I have regard to the fact that up to 28 August 2023 when the Application was lodged, the Appellant had been legally represented throughout the course of this appeal, and through the JR proceedings. The Appellant's legal advisers must have weighed up the merits of the various possible grounds of appeal that would be in the best interest of the Appellant to advance at different stages of the long litigation history of the current appeal.
To allow this Application will invariably delay the hearing of the substantive appeal further and will be injurious to the interest of justice. The new 'best judgment' ground as formulated would seem, ultimately, to trace back to the issue whether the Appellant could rely on the NAC to dispense with the exemption application. In my view, it is prejudicial to HMRC to have to expend further resources to defend against the new 'best judgment' ground as a judicial review type of challenge, especially when the issue of the Appellant's reliance on the NAC had already been conclusively determined in the Appellant's JR Claim by the High Court and Court of Appeal, which have full judicial review function that this tribunal lacks.
Disposition
The Application by the Appellant to introduce the new 'best judgment' ground of appeal is refused. Directions are issued to accompany this Decision for the statutory appeal to progress to a substantive hearing.
Right to apply for permission to appeal
This document contains full findings of fact and reasons for the preliminary decision. Any party dissatisfied with this preliminary decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. However, either party may apply for the 56 days to run instead from the date of the decision that disposes of all issues in the proceedings, but such an application should be made as soon as possible. The parties are referred to "Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)" which accompanies and forms part of this decision notice.
HEIDI POON
TRIBUNAL JUDGE
Release date: 29 th AUGUST 2024