Article by Jonathan Cannan, LLB FCA ATII, a barrister specialising in tax and tax-related litigation at Exchange Chambers in Manchester and Liverpool.
Published in October 2001 issue of Tax Adviser.
KEY POINTS - There are a variety of procedural ways in which to challenge the decisions of taxing authorities; Judicial Review is one procedure which plays an important part in holding the taxing authorities to account;
- The Human Rights Act 1998 will strengthen the taxpayer’s hand in applications for judicial review as well as in the statutory appeals procedure;
- There should be scope in the reform of the tribunal system to place more matters within the jurisdiction of tribunals as opposed to that of the High Court by way of judicial review.
Challenging the decisions of the Inland Revenue and Customs and Excise and complaining about their actions involves considering an array of potential avenues for redress. First and foremost are the statutory appeals procedures to the General and Special Commissioners and the VAT and Duties Tribunal. Most differences are settled in this way. There is the possibility of seeking judicial review of the actions of taxing authorities and tribunals. There is also the possibility of seeking redress via non-legal remedies either through the Revenue or C&E internal complaints procedures – and where that fails through the Revenue Adjudicator or the Parliamentary Ombudsman.
In following these procedures taxpayers are seeking, and are entitled to expect, that revenue raising powers will be exercised, not only according to the law and established practice or concession, but also fairly and justly. This article aims to present an overview of the procedures through which principles of fairness and justice may be applied to tax law and the impact in this context of the Human Rights Act 1998.
Natural justice
The High Court has inherent jurisidiction to review the decisions of public bodies and officers to ensure that powers are exercised fairly and not exceeded or abused. A similar jurisdiction exists to supervise inferior tribunals such as those hearing tax appeals. Again the purpose is to ensure that those tribunals have acted fairly and in accordance with the rules of natural justice. Concepts such as fairness and justice may in some circumstances seem to be nebulous and difficult to apply in practice. However there is now a large body of case law defining the tests to be satisfied in obtaining redress, by way of judicial review, in the field of tax law which serves to demonstrate how judicial review works in practice.
Judicial review is not concerned with reviewing the merits of a particular decision. It is concerned with the decision making process itself. For example whether the Inspector has assumed powers which he does not have, has failed to exercise a discretion which he does have, or has exercised a power in a wholly unreasonable way. In reviewing how tribunals exercise their jurisdiction the court is concerned with procedural impropriety. In proceedings for judicial review the court can give a wide range of remedies, including injunctions, declarations and in certain circumstances damages. It is beyond the scope of this article to consider the matters which must be established to succeed in judicial review proceedings or the remedies available in any detail. The leading cases will in any event be well-known.
In addition to a challenge by way of judicial review on the grounds of illegality, irrationality or procedural impropriety, judicial review may also be used to challenge public acts on the grounds that the act is in breach of the European Convention on Human Rights (ECHR) – now incorporated into English Law by the Human Rights Act 1998 (HRA 1998). Indeed, as has been seen in R v IR Commrs ex parte Professional Contractors Group Ltd [2001] STC 629, a challenge by way of judicial review may be made to legislation and regulations enacted by Parliament which are alleged to be incompatible with European Community Law or the HRA 1998. So, for example, one of the arguments in that case was that the legislation enacted by reference to IR 35 offended against art. 1 of the Convention – Protection of Property. The remedy sought was a declaration of incompatibility under HRA 1998, s. 4.
Pressure leading to change
A declaration of incompatibility under the HRA 1998 does not lead to any further remedy for the benefit of a taxpayer. In practice however the possibility of courts granting such declarations may have two effects. Firstly, one might expect that courts will strive to construe statutory provisions to be compatible with the HRA 1998 as far as possible. Secondly, a declaration of incompatibility would inevitably put pressure on the government to amend incompatible legislation. The real purpose of such a challenge will usually be to apply such pressure and, if successful, no doubt the pressure would lead to change. Having said that, it appears to have been common ground between the parties in the IR 35 litigation that the basis upon which the application was made gave rise to a situation where the court would have power to actually disapply the provisions – even though they were primary UK legislative provisions. (See the decision of Gibbs J in the application for permission to apply for judicial review.)
As indicated above, judicial review may also be used as a way of controlling tribunals in the exercise of their jurisdiction. Judicial review will be available where the tribunal exceeds its jurisdiction or fails to act in accordance with the rules of natural justice. Natural justice comprises two basic rules: firstly a tribunal should be free from bias and secondly each party is entitled to an opportunity to put its case.
An example of a procedural irregularity occurred in the case of R v Sevenoaks Commrs, ex parte Thorne [1989] STC 560 where the taxpayer’s solicitor produced a medical certificate to the General Commissioners indicating that he was suffering from depression and was unfit to answer questions. The Commissioners adjourned the hearing, but on the new date a further certificate was produced indicating that the taxpayer’s condition remained unchanged. The Commissioners refused an application for a further adjournment. In proceedings for judicial review the decision of the commissioners was quashed and the matter remitted to the Special Commissioners for rehearing.
The rules of natural justice are to some extent reflected in art 6 of the ECHR which gives the right to a fair trial:
- In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time by an independent and impartial tribunal established by law.
- Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law.
- Everyone charged with a criminal offence has the following minimum rights:
- To be informed promptly, in a language which he understands and in detail, of the nature and cause of the accusation against him;
- To have adequate time and facilities for the preparation of his defence;
- To defend himself in person or through legal assistance of his own choosing or, if he has not sufficient means to pay for legal assistance, to be given it free when the interests of justice so require
- To examine or have examined witnesses against him and to obtain the attendance and examination of witnesses on his behalf under the same conditions as witnesses against him
- To have the free assistance of an interpreter if he cannot understand or speak the language used in court.’
Article 6 does not generally apply to ordinary tax proceedings concerning tax assessments (see the decision of the ECHR in
Ferrazzini v Italy [2001]STC 1314. In relation to most tax appeals it is therefore necessary to rely on the application of traditional principles of natural justice and to challenge a denial by way of judicial review. It can be seen however that art. 6 has special application to criminal proceedings. The Court of Appeal in
Han & Yau v C&E Commrs [2001] STC 1188 and the High Court in
King v Walden [2001] STC 822 have confirmed that civil evasion penalties and s. 95 penalties are criminal charges for the purposes of art. 6. Hence it is possible in statutory appeal proceedings to seek application of the guaranteed minimum rights referred to in art. 6(3). As a result, where the taxing authorities are seeking penalties so that the proceedings can be classified as ‘criminal’ for the purposes of art. 6, the taxpayer has rights that go wider than those available as part of the requirements of natural justice.
The Leggatt Report
Judicial review is a comparatively cumbersome and expensive procedure for taxpayers to contemplate. Sir Andrew Leggatt in his Report of the Review of Tribunals, August 2001, refers to an increase in both the volume and complexity of judicial review applications. There is a requirement for permission before proceedings can be commenced and there are significant costs implications in losing an application for judicial review. In Coleman No. 16,178 the VAT Tribunal held in the circumstances of that case that access to effective justice meant access to the tribunal rather than the opportunity to commence judicial review proceedings. In contrast certain complaints, such as those concerning the operation of an extra-statutory concession, must be made by way of judicial review (See R v IR Commrs ex parte Fulford-Dobson [1987] STC 344 and R v C&E Commrs ex parte Greenwich Property Ltd [2001] BTC 5,158).
A two-tier system
The Leggatt Report recommends a two-tier system of tax tribunals. The second-tier would hear the more complex direct and indirect tax appeals and it would also hear appeals from the first-tier. Appeals from the second-tier would be to the Court of Appeal. The proposed system would have implications for judicial review. The report recommends that judicial review of the decisions of the two tribunals should be replaced by a comprehensive right of appeal from first-tier to second-tier and from there to the Court of Appeal. However, it does not specifically address how judicial review of the decisions of taxing authorities would fit into the proposed new structure, for example challenging the operation of extra-statutory concessions. There seems no reason why such challenges should not be made to the tribunals rather than by way of judicial review.
Conclusion
It is undoubtedly the case that remedies available under the HRA 1998 will give taxpayers more scope to challenge decisions of the taxing authorities and the tribunals themselves through the statutory appeals procedure. Reform of the tax tribunal system also gives scope to place more matters, which must presently be the subject of judicial review, within the jurisdiction of the tribunals. Where the only matter of complaint is a breach of the HRA 1998 or European Community Law and the remedy sought is a declaration of incompatibility – as in the IR 35 litigation – it may be that judicial review would remain the best forum for seeking redress.
Technical Department
020 7235 9381
October 2001 by Jonathan Cannan
