Case No: CH/2007/APP/803

Neutral Citation Number: [2008] EWHC 1759 (Ch) 
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Royal Courts of Justice
Strand
London WC2A 2LL

Date: Wednesday, 18 June 2008

BEFORE:

HIS HONOUR JUDGE PELLING QC sitting as a Judge of the High Court
- - - - - - - - - - - - - - - - - - - - -
BETWEEN:

ELLIOT REFSON
Appellant
- and -

COMMISSIONERS FOR HER MAJESTY’S REVENUE AND CUSTOMS

Respondent

- - - - - - - - - - - - - - - - - - - - -
Digital Transcript of Wordwave International, a Merrill Communications Company
PO Box 1336 Kingston-Upon-Thames Surrey KT1 1QT
Tel No: 020 8974 7300 Fax No: 020 8974 7301
(Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -
Mr E Refson appeared in person

Mr T Buley appeared on behalf of the Respondent

- - - - - - - - - - - - - - - - - - - - -
Judgment

JUDGE PELLING QC:  

1.	This is the hearing of an appeal by way of case stated from a decision of the General Commissioners for Customs & Excise, in relation to an issue concerning the ability of Mr Refson, the appellant, to claim as legitimate expenses the cost of travelling from his home in Cheshire to a rented flat in London.  There is no dispute (at any rate before me) that, as a matter of tax law, he is not entitled to that relief.  However, what the appellant has contended before me, and indeed, contended before the General Commissioners, as is recorded in paragraph 6 of the case stated, is that:

“6.1  The appellant contacted the respondents to enquire about the tax treatment of his renting a property in London, travel expenses between Cheshire and London and expenses incurred in New York.  The appellant was informed that, provided the expenses were reasonable, he would be able to claim them in relation to both sets of travel.  The appellant accordingly claimed relief for this expenditure.
6.2  Had the appellant known that he would have had a more favourable tax treatment in the US, he would have elected to be resident there.
6.3  Although the appellant accepted that he had not produced documentary evidence in support of his travel expenses of £7,500, for each of 2002/2003 and 2003/2004 tax years, this was in any event a conservative estimate.
6.4  In the event, the appellant was informed that the expenses would not be allowed for tax purposes, and the appellant’s case is that it is unreasonable for the respondents to, effectively, renege on what had previously been agreed between the parties.”

2.	The Revenue’s response in relation to that issue is recorded at paragraph 7 of the case stated, where it is recorded that:

“The respondents contended that:
7.1  They had no record of the alleged telephone conversation during which the appellant was told that his travelling expenses would be allowed as long as they were reasonable.  The appellant has not produced any evidence to corroborate that testimony.
7.2  The appellant’s claim that his returns for the earlier years were not challenged may well be correct.  His return for 1998/1999 contains a deduction of £6,960, which was not taken up for enquiry.  This is simply a consequence of the self‑assessment regime of, ‘process now, check later’.  The fact that the respondents failed to enquire into one or more returns containing a possible ineligible expense does not affect their right to enquire into subsequent returns.”

3.	This issue was not determined by the General Commissioners, who, having set out the relevant statutory provisions and relevant case law relating to the liability to deduct expenses of the sort which the appellant seeks to deduct, dismissed the appeal against the respondent’s amendments of the self‑assessment on the basis that the appellant’s expenses were not wholly, exclusively, necessarily incurred in the course of his duties. 

4.	The question of law, which was stated for the opinion of the High Court, is set out in paragraph 11 of the case stated and is to the following effect:

“The question of law for the opinion of the High Court is whether or not the appellant is entitled to deduct his expenses of travelling to and staying in London for the year ended 5 April 2002 and for the year ended 5 April 2003 on the grounds that the respondent had not queried similar expenses deducted by the appellant in previous self‑assessment returns and that he had purportedly been informed by the respondent that these expenses were deductible.”

5.	As will be apparent from what I have said so far, the issue which the appellant wishes to have resolved is an issue concerning “legitimate expectation” (to use the phrase familiar to those lawyers who practice in the judicial review field).  The circumstances in which a claim of legitimate expectation can succeed against the Inland Revenue are very limited.  They were dealt with, authoritatively, by Bingham LJ (as he then was) in the well-known case of Crown v Inland Revenue Commissioners ex parte MFK Underwriting Agencies Ltd [1991] WLR at 1545, where, at page 1569, Bingham LJ set out the circumstances in which a plea of legitimate expectation can succeed as follows:

“I am, however, of opinion that in assessing the meaning, weight and effect reasonably to be given to statements of the Revenue the factual context, including the position of the Revenue itself, is all important.  Every ordinarily sophisticated taxpayer knows that the Revenue is a tax-collecting agency, not a tax-imposing authority.  The taxpayers’ only legitimate expectation is, prima facie, that he will be taxed according to statute, not concession or a wrong view of the law (see R v A-G, ex p Imperial Chemical Industries plc (1986) 60 TC 1 at 64 per Lord Oliver). Such taxpayers would appreciate, if they could not so pithily express, the truth of Walton J’s aphorism: ‘One should be taxed by law, and not be untaxed by concession’ (see Vestey v IRC (No 1) [1977] 3 All ER 1073 at 1098, [1979] Ch 177 at 197). No doubt a statement formally published by the Revenue to the world might safely be regarded as binding, subject to its terms, in any case falling clearly within them.  But where the approach to the Revenue is of a less formal nature a more detailed inquiry is, in my view, necessary.  If it is to be successfully said that as a result of such an approach the Revenue has agreed to forgo, or has represented that it will forgo, tax which might arguably be payable on a proper construction of the relevant legislation it would, in my judgment, be ordinarily necessary for the taxpayer to show that certain conditions had been fulfilled.  I say ‘ordinarily’ to allow for the exceptional case where different rules might be appropriate, but the necessity in my view exists here.  First, it is necessary that the taxpayer should have put all his cards face upwards on the table.  This means that he must give full details of the specific transaction on which he seeks the Revenue’s ruling, unless it is the same as an earlier transaction on which a ruling has already been given.  It means that he must indicate to the Revenue the ruling sought.  It is one thing to ask an official of the Revenue whether he shares the taxpayer’s view of a legislative provision, quite another to ask whether the Revenue will forgo any claim to tax on any other basis.  It means that the taxpayer must make plain that a fully considered ruling is sought.  It means, I think, that the taxpayer should indicate the use he intends to make of any ruling given.  This is not because the Revenue would wish to favour one class of taxpayers at the expense of another but because knowledge that a ruling is to be publicised in a large and important market could affect the person by whom and the level at which a problem is considered and, indeed, whether it is appropriate to give a ruling at all.  Second, it is necessary that the ruling or statement relied on should be clear, unambiguous and devoid of relevant qualification.
In so stating these requirements I do not, I hope, diminish or emasculate the valuable developing doctrine of legitimate expectation.  If a public authority so conducts itself as to create a legitimate expectation that a certain course will be followed it would often be unfair if the authority were permitted to follow a different course to the detriment of one who entertained the expectation, particularly if he acted on it.  If in private law a body would be in breach of contract in so acting or estopped from so acting a public authority should generally be in no better position.  The doctrine of legitimate expectation is rooted in fairness.  But fairness is not a one-way street.  It imports the notion of equitableness, of fair and open dealing, to which the authority is as much entitled as the citizen.  The Revenue’s discretion, while it exists, is limited.  Fairness requires that its exercise should be on a basis of full disclosure.  Counsel for the applicants accepted that it would not be reasonable for a representee to rely on an unclear or equivocal representation.  Nor, I think, on facts such as the present, would it be fair to hold the Revenue bound by anything less than a clear, unambiguous and unqualified representation.”

6.	The difficulty (which immediately occurred to me when I first read these papers prior to the start of the appeal) is that the issue which arises has not been the subject of any findings by the General Commissioners, which makes it virtually impossible for an appellate court to deal with the issue by way of case stated.  However, on the opening of the appeal, counsel for Her Majesty’s Revenue and Customs made the entirely fair point that the reason why this has not been investigated before the General Commissioners is that on an analysis of the relevant case law the General Commissioners had no jurisdiction to entertain an issue based upon legitimate expectation.  This is not a point which was made by the General Commissioners at the time the appeal was heard; nor was it a point made to the General Commissioners on behalf of Her Majesty’s Customs and Excise at the hearing of the appeal; nor was it a point which was ever explained to the appellant at any stage (as far as I am aware) prior to the commencement of the oral hearing of this appeal.  Nonetheless, the authorities make it abundantly clear that the point made by counsel for Her Majesty’s Revenue and Customs is well placed.

7.	The relevant authorities include the decision of Jonathan Parker J (as he then was) in Hatt v Newman, unreported, where he says, at page 7 of the judgment:

“In my judgment, if a case is to be made to the effect that an extra‑statutory concession ought to apply in the instant case, that challenge would have to be made by way of judicial review.”

8.	A similar point was made by a special commissioner, Mr John Clark, in Demibourne Limited v Her Majesty’s Revenue and Customs [2005] UKSPC 00486, where at paragraph 47 he said this (under the sub‑heading “Legitimate Expectation”):

“Mr Faulkner’s primary submission is that the tribunal did not have jurisdiction to consider legitimate expectation.In support of this, he cited my decision in Marks v McNally [2004] Simons Tax Cases SCD503, in which I said at paragraph 47:

“And if it were appropriate for the appellant to raise the question of legitimate expectation, this could only be done through the courts, rather than through this tribunal.”

Nothing put to me, in the course of the present case, gives me any reason to depart from that view.

9.	Finally, I need to refer to a decision of another Special Commissioner in the case of Venables v Trustees of the Fussell Pension Scheme UKSC SPC00265, where under the heading “Mr Hayward’s Evidence”, at paragraph 27, the Special Commissioner said this:

“Mr Hayward’s evidence might show a legitimate expectation that a certain practice would be followed, but if it did show that, the issue would be one for judicial review alone.”

In support of that he cited the observations of Sir Richard Scott, Vice Chancellor, in Steibelt v Paling [1999] Simon Tax Cases 594, at 602 to 603; Jonathan Parker J (as he then was) in Hatt v Newman (see above) and Leggett LJ, in Koenigsberger v Mellor [1995] Simon Tax Cases 547, at 553 to 554.  These principles are too well known for it to be useful for me to enter into any discussion of them here and, indeed, they were not contested by the appellant.  Thus it seems to me that this appeal cannot succeed by reference to the one issue which the appellant wishes to have decided.

10.	The submission made on behalf of Her Majesty’s Revenue and Customs, at least initially, was that I should, therefore, proceed to dismiss the appeal, leaving Mr Refson to apply for judicial review if he chose.  I made the point to counsel for Her Majesty’s Customs and Excise that the consequence of that was, or might be, that the appellant would find himself in difficulty in seeking judicial review because of the amount of time that has passed since the relevant decision was arrived at.  I was particularly concerned about that issue because Mr Refson has acted throughout in person and (as I have already said) at no stage, prior to today’s hearing, was the point made to him that the issue he wanted decided was an issue that could not be decided by the General Commissioners and could not be decided by this court on appeal by way of case stated.

11.	In the end (fairly, in my judgment) Her Majesty’s Revenue and Customs have been prepared to offer a limited undertaking to negate this effect.  HMRC say that at no stage has Mr Refson fully set out, in a way which satisfies the requirements set out by Bingham LJ in MFK Underwriting (see above), his case in relation to legitimate expectation.  Therefore, it was submitted on behalf of HMRC that it would be wrong for me to transfer this appeal to the Administrative Court because it is an appeal from a decision of the General Commissioners; it is not an appeal from a decision of HMRC’s refusal to exercise discretion; what I should do therefore is to dismiss the appeal upon an undertaking by HMRC not to enforce the tax which is due (if Mr Refson’s point concerning legitimate expectation does not succeed) for a period of six weeks from today’s date. If within that time he writes to HMRC setting out in full and in a way which deals with the points identified by Bingham LJ in MFK Underwriting, his case concerning legitimate expectation, then they undertake not to enforce pending a decision being taken by Her Majesty’s Revenue and Customs as to whether or not Mr Refson should be relieved of the obligation to pay the tax in question on the basis of what he has said concerning legitimate expectation.

12.	If Mr Refson is dissatisfied with the outcome of that decision, then he will be able to commence judicial review proceedings by reference to that decision, that is, one based upon his new correspondence, which he ought to be able to commence well within the 3 month time limit contained in the Civil Procedure Rules applicable to the commencement of judicial review proceedings.  In order to give Mr Refson an opportunity to consider the decision of HMRC once it has been sent to him, the Revenue undertake not to enforce for a period of ten days from the date of service of the decision letter.

13.	Mr Refson submitted that  no question of enforcement should arise unless, and until, the whole issue he wants resolved has been resolved.  It seems to me, however, that the Revenue are correct in their submission that at that stage, if Mr Refson wishes to commence judicial review proceedings, he can apply in his judicial review claim form for a further stay and that can be determined by the Administrative Court judge on the merits as they stand at that stage.

14.	There was one point which was mentioned by counsel for HMRC in the course of his submissions, which I record at this stage.  He suggested that it might be open to HMRC to submit, if judicial review proceedings were commenced, that any discretion that might otherwise have arisen as a result of the legitimate expectation Mr Refson alleges he had would be lost as a result of the dismissal of this appeal.  That proposition seems to me to be an unlikely outcome, given that the point was not open for consideration before either the general commissioners of this court on the hearing of this appeal and given that there is nothing in the material that suggests in any sense that the point was being waived by Mr Refson by his commencement of the statutory appeal. However the point was not argued before me and it is not for me to decide it one way or the other. In light of this point being taken, I considered simply adjourning this appeal over until after any judicial review proceedings commenced by Mr Refson had been determined, and/or to simply transfer these proceedings to the Administrative Court. However, in my judgment neither of those approaches is the correct one since neither would be an answer to the point taken by counsel if it is otherwise right. It will be for the Revenue to decide whether it would be appropriate for a public authority to take such a point if they had otherwise concluded that there was substance in the legitimate expectation allegation made. If the point is taken by Revenue and Customs it will be for the Administrative Court judge to decide whether there is any substance in it.  
15.	In those circumstances (and for the reasons that I have set out) I intend that this appeal should be dismissed on an undertaking on behalf of HMRC in the terms I have referred to.   It may be of assistance to the Administrative Court if the Administrative Court were to have sight of a copy of this judgment if judicial review proceedings are commenced, in which case Her Majesty’s Revenue and Customs may wish to bespeak a transcript of my remarks.

COSTS

16.	I have before me an application for an order for costs sought by Her Majesty’s Revenue and Customs, following my earlier dismissal of the appeal by way of case stated by the appellant, Mr Refson.  I am asked to summarily assess those costs in the sum of £2,907.50.  The submission made on behalf of the Revenue is simply this: that they have succeeded in the appeal; the costs should follow the event in the ordinary course and, therefore, they should get their costs and I should summarily assess them in the sum as asked. The response to this by Mr Refson, in essence, is he went down this particular route because he understood that that was appropriate.  The only time he knew, specifically, that he should have adopted a different route was following the hearing of submissions made this morning.  

17.	In support of his submission, counsel for HMRC referred me to a letter, dated 2 April 2007, written by HMRC to the Clerk to the General Commissioners, at a time when consideration was being given as to whether or not the Commissioners should state a case which, as it is submitted, is discretionary.  In the course of that letter the author, Mrs Newham, one of Her Majesty’s Inspectors of Taxes said, amongst other things, this:

“In addition, the solicitor’s office would respectfully ask you to consider the following observations:
Question of law for the opinion of the High Court:
We will argue that the Commissioners for the General Purposes of Income Tax for the Division of Finsbury & Hornsey must reject Mr Refson’s request to state a case for the opinion of the High Court on the grounds that he has not raised any point of law, as required by regulation 20 of the General Commissioners (Jurisdiction and Procedure) Regulations 1994.”

18.	They then refer to some notes taken by the inspectors at the hearing before the Commissioners which refer, in turn, to the issue that he wished to have resolved, namely, his alleged prior discussion with Her Majesty’s Customs and Excise, which he says leads to the legitimate expectation.  The writer of the letter then continued:

“Mr Refson’s second contention before the Commissioners, which is apparent from some of the documents you have listed in paragraph 4 of the draft case, was that he was entitled to deduct these expenses simply because HMRC did not query deductions of earlier years.
The Commissioners were clearly not persuaded by these fact‑based arguments.  According to the inspectors’ note:
‘The Commissioners advised that they had considered what Mr Refson had said but had to abide by the law and the tax cases that had been put before them by Mrs Newham’.
You issued a notice of determination after the Commissioners’ final determination on 3 November 2006.  Mr Refson endorsed the following note on a copy of the notice which is returned to you: ‘Dear Mr Gordon Smith, it is my intention to appeal, on the basis of supporting my claim that in an earlier year my expenses claim had been allowed therefore validating the basis of my claim.  In support of this I enclose my 2002/2003 PAYE notice.  Regards’.  In your reply dated 30 November 2006, you specifically asked him to identify the point of law which he was relying on.  On 4 December 2006 he replied as follows:
‘The point of law on which I intend to rely is the precedent for expenses set in the previous tax year to those in question where allowances were given for my claimed expenses which substantiated that they were allowed and therefore my claim questioned by the Revenue.  You currently hold this document.  My original claim was erroneously based on the consistency of the Revenue.  This appeal relates to the legal underpinning of my appeal, which can now be substantiated’.”

19.	There were then some discussions of how it was appropriate to formulate the question of law and then the author of the letter said this:

“We will argue that Mr Refson’s request should be rejected because he has not identified any point of law.  His argument that previously unchallenged but erroneous self assessments set a precedent binding on HMRC is clearly in the realm of fact and degree.  He cannot reopen it in the High Court after the Commissioners have resolved it against him.  To paraphrase Wilberforce LJ in Cole Bros Limited v Phillips:
‘If one asks what is the principle of law which they can be said to have violated, it is impossible to state it, unless by an assertion that no reasonable body of commissioners could have come to the conclusion that they reached.”

The letter then proceeded to deal with a number of factual issues, which I need not burden this judgment with.

20.	The real point which arises from this material is that at no stage was it made clear, on behalf of HMRC at the hearing before the General Commissioners (or indeed, before it), that the issue that Mr Refson wished to have resolved (which is the legitimate expectation point) is one that the Commissioners had no jurisdiction to decide.  The point was not made on behalf of HMRC at the hearing before the Commissioners at any stage, and that point was not made either in the letter to which I have referred (at any rate, in express terms).  No order as to costs was made before the Commissioners and after the correspondence, to which I have referred, a case was stated and matters proceeded to this court.  At no stage did HMRC write what would have been a short and unambiguous letter stating, in terms, that this court had no jurisdiction to entertain an appeal based upon legitimate expectation, and that, therefore, the appeal was bound to fail without a consideration of the merits of the issues that arose.  Had they done so, there could be no complaint, whatsoever, about an order for costs being made in relation to this appeal.  It is much more difficult when dealing with a litigant in person to decide whether that should be the outcome where such a letter has not been written.

21.	It is perfectly true to say that the general rule is that costs should follow the event, but it is equally true that I am required by the CPR to take into account the parties’ conduct in deciding whether, in the exercise of discretion, an order for costs ought to be made.  In the balance, against the points I have made in relation to the failure of the Commissioners for HM Revenue and Customs to write a letter which unambiguously and shortly stated the jurisdictional point which lead to the resolution of the appeal, must be weighed the fact that the appellant could have taken legal advice (perhaps should have taken legal advice) and, had he done so, he may well have been told that this appeal was not the way forward and that judicial review was the only appropriate way forward.

22.	In my judgment, on balance, the failure of the Commissioners to write a letter dealing with this jurisdictional point is something which is not outweighed by the failure of the appellant to seek legal advice, for the Commissioners were well aware, from the outset, that Mr Refson was acting on his own.  It was submitted on behalf of HMRC that the jurisdictional point now taken was not one which a tax inspector conducting a hearing before the General Commissioners could be expected to know. In my view that is a difficult submission for HMRC to make. Given that the jurisdictional point is well established on the case law. However, even if the point is right, it is certainly not right in relation to the solicitors for HMRC who became involved once the appeal was started.  
23.	On balance, it seems to me that HMRC ought to have written to this appellant at the latest once the case had been stated informing him of the jurisdictional point and making clear that HMRC would seek the dismissal of the appeal on that basis and without regard being had to the merits.  Had that occurred, then most (if not all) of the costs could or should have been avoided. Whilst in my view it is arguable that this point should have been made clear by HMRC prior to the hearing before the general commissioners, I am just about persuaded that HMRC ought to have a small amount by way of costs up to the point at which such a letter should have been written. Doing the best I can, on the limited amount of information available, it seems to me that order should be an order for costs in favour of the Commissioners in the sum of £300.