[2009] UKFTT 385 (TC)

TC00320
Appeal Number: LON/2009/0824 	 

FIRST TIER TRIBUNAL TAX

 TRIBUNAL RULES & PROCEDURE – Refused strike out application by HMRC – lead Appeal directed – no direction for old costs regime

DECISION NOTICE 
Rule 35(2) The Tribunal Procedure (First Tier Tribunal) (Tax Chamber) Rules 2009 

	SUB ONE LIMITED (T/A SUBWAY) and 91 OTHERS	Appellant

	- and -

         THE COMMISSIONERS FOR
	HER MAJESTY’S REVENUE and CUSTOMS	Respondents

			Tribunal: MICHAEL TILDESLEY OBE	 (Chairman)

Sitting in public at Manchester on 4 December 2009

Andrew Young counsel instructed by Dass Solicitors for the Appellant

Raj Basi of the Solicitor’s office of HM Revenue & Customs, for HMRC

© CROWN COPYRIGHT 2009

DECISION
The Background

1.	The Appellants are Subway franchisees who sell sandwiches (known as “Subs”). Currently there are 208 Appellants, of which 127 are represented by Dass, solicitors. The Appellants are disputing a liability ruling in respect of the toasted sandwich range. HMRC has ruled that the toasted sandwich range is standard rated for VAT purposes. The VAT and Duties Tribunal upheld the ruling in European Independent Purchasing Company Limited and Sub Retail Unit v HMRC [2008] UKVAT V20697.
2.	This decision involves Sub One Limited (t/a Subway) and 91 other franchisees named in pages 3 to 5 of the Appellants’ trial bundle. The decision concerns three preliminary matters which require resolution prior to the hearing of substantive Appeals.
3.	The three preliminary matters are:
1.	HMRC application to strike out Appeals on the grounds of no appealable decision. (Ken Clarke letter).
2.	A direction for a lead Appeal.
3.	The “Old” Costs regime should apply to those Appeals started before 1 April 2009.
4.	A direction hearing was held on 20 July 2009 at which the three preliminary matters were identified. In order to progress the dispute the Tribunal issued the following directions (amongst others):
1.	A preliminary hearing be fixed on the first available and convenient date after 28 September 2009 to determine the status of the Ken Clark letter, the application of the old costs regime, and whether an order for a lead case can be made under rule 18.
2.	The hearing shall be held at Manchester with a time estimate of one day. 
3.	By 28 July 2009 the parties shall provide the Listing Officer at Manchester with dates to avoid from 28 September to 31 December 2009.  
4.	By 11 August 2009 HMRC to provide a preliminary view in writing to the Appellants and the Tribunal on the three preliminary matters identified in direction 3 above.
5.	By 25 August 2009 HMRC to provide detailed arguments in writing to the Appellants and the Tribunal on the three preliminary matters identified in direction 3 above if still in dispute supported with reference to the facts including the franchise agreement and if relevant cited authorities.
6.	By 8 September 2009 the Appellants to provide a detailed reply in writing to the HMRC and the Tribunal on the three preliminary matters identified in direction 3 above supported with reference to the facts including the franchise agreement and if relevant cited authorities.
7.	The parties shall be given liberty to apply for a variation of the foregoing directions.
5.	 The hearing of the preliminary matters was fixed for 4 December 2009 which was the earliest and convenient date for the parties.
6.	HMRC submitted its detailed arguments on 4 September 2009, whilst the Appellants provided their arguments on 9 October 2009. Both parties failed to meet the timelines set by the directions issued on 20 July 2009.
7.	The Tribunal saw fit to issue letters to the parties. The first on 7 October 2009 reminding HMRC of the need to support its submissions with evidence, and asking the Appellants for information on the nature of the dispute. The second on 20 October 2009 requesting the parties to identify a lead case if in the event the Tribunal made a direction to that effect on 4 December 2009.
8.	A hearing was held on 2 November 2009 which involved another group of Subway Appellants represented by SKS who instructed Dass, solicitors, to act for  their clients at the hearing. As all the parties were present I took the opportunity to discuss the arrangements for the hearing on 4 December 2009. I reminded them of the directions made on 20 July 2009 and the contents of the letters sent in October 2009. I also requested the parties to lodge with the Tribunal copies of any witness statements and or further arguments by no later than on 27 November 2009. 
Bias
9.	On 19 November 2009 Dass, solicitors, on behalf of their clients, requested that the proceedings be re-assigned to a different Judge on the grounds of perceived bias. On 24 November 2009 a response was provided to the parties, extracts of which are set out below in third person:
“Judge Tildesley does not understand the Appellants’ argument of bias. Judge Tildesley comments as follows:
a)	The allegation of bias appears to be based on his participation in European Independent Purchasing Company in which evidence was heard from an Officer Clarke. Judge Tildesley does not consider the mere fact of his involvement in a similar case involving a common witness disqualifies him from managing the Subway Appeals. If it was, it would bring the Tribunal system to a halt, particularly in a respect of the Tax Tribunal where the same HMRC Officers regularly give evidence before it. Judge Tildesley is trained to deal with cases on the evidence before him.
b)	The allegation appears to relate to his functions as a Procedural Judge dealing with the case management of the Subway Appeals. He would point out that he is not determining the Appeals but managing them so that they are brought to hearing without undue delay. 
c)	He could understand the Appellants’ concerns if the name of Officer Clarke had no visible connection with these Appeals. Officer Clarke, however, is central to the dispute on the preliminary matters. The Appellants’ representative has referred to one of the disputes as the Ken Clarke letter. 
d)	Judge Tildesley in his letter of 9 October 2009 sought to remind HMRC of the Tribunal’s expectations that evidence should be called to support its contentions. HMRC made no reference in its written submissions to witness statements. Judge Tildesley has the power under rule 15 of the 2009 Tribunal Rules to give directions as to issues on which it requires evidence and the nature of that evidence. Judge Tildesley has preferred to remind parties rather than issue formal directions.  No such reminder has been necessary in the case of the Appellants as they have clearly indicated their intention to call evidence.   
e)	Judge Tildesley considers his case management decisions at all times have been transparent and based on the information supplied by the parties to the Appeals.
Conclusion
Judge Tildesley considers that he has discharged his case management responsibilities in accordance with the overriding objective of dealing with cases fairly and justly. The number of preliminary hearings has been reduced by joining issues and Appellants. The timetable has been fixed with full regard to the availability of the parties.  Delay has been kept to the minimum by active case management. He has exercised his powers in compliance with rules 5 and 15 of the Tribunal Rule 2009. 
In short the directions have been issued with a view to ensure that the hearing on 4 December 2009 proceeds as directed, and that Appeals are brought to hearing without undue delay. 
Judge Tildesley intends to continue with the case management hearing on 4 December 2009, and make the appropriate directions to bring the Appeal(s) to hearing.  Judge Tildesley, however, is mindful of the Appellants’ concerns and at the appropriate juncture he will invite representations from the parties on his participation in a substantive Appeal and give them his full consideration.
Judge Tildesley requests Dass solcitors to bring the contents of this letter to their clients and seek their instructions as to whether they wish to continue with their objections to Judge Tildesley sitting on 4 December 2009”.
10.	At the outset of the hearing on 4 December 2009 I invited the Appellants to indicate whether they wished to continue with their Application for a different Judge, after having received my response sent 24 November 2009. I was unclear whether the Appellants were pursuing their Application. In those circumstances I explained in open Tribunal my reasons for continuing with the hearing of the preliminary matter. I emphasised that I would re-consider my position once the case management proceedings had been concluded.
11.	 I incorporate the full correspondence between the Tribunal and the parties on the issue of bias as part of this decision. 
The Hearing on 4 November 2009
12.	I received an agreed bundle of documents. I heard evidence from Kenneth Clarke and Kevin O’Connell for HMRC. Officers Clarke and O’Connell were involved in the Subway National Project to oversee and ensure VAT compliance by all Subway Franchisees following the Tribunal decision in European Independent Purchasing Company.  Kay Mulligan gave evidence for the Appellant. Mrs Mulligan was a director of the Appellant, Sub One Limited.
13.	The parties served their evidence on each other on 27 November 2009. On 1 December 2009 HMRC objected to the witness statement of Mrs Mulligan on the ground that it focussed on substantive points which were prejudicial to HMRC. In response the Appellants objected to the witness statements of officers Clarke and O’ Connell, arguing that their evidence was irrelevant to the preliminary issues before the Tribunal.
14.	At the hearing in July 2009 the parties indicated to the Tribunal that they were co-operating in order to progress the Appeals. This spirit of co-operation was not evident at the hearing on 4 December 2009 with the tone of the proceedings unnecessarily adversarial. Counsel for the Appellant made serious allegations of criminal misconduct on the part of one of the Officers. I consider that if HMRC had made similar allegations of the Appellants without giving adequate notice Counsel would have objected. The courtesy of giving reasonable notice should have been extended to HMRC. Similarly Counsel raised issues about the procurement of certain documents by the Officers, which were exhibited in the agreed bundle. I was unable to test fully the validity of Counsel’s objections because the solicitor for HMRC was unaware of them until raised at the hearing.  
15.	Counsel for the Appellants explained that it was necessary to challenge robustly the evidence of the Officers in case it prejudiced the Appellants’ case in the substantive Appeal. I question the need for a robust approach in what was a case management hearing with the purpose of progressing the Appeals.  At Counsel’s behest, I record that the Appellants did not accept the evidence of Officers Clarke and O’Connell, and that Mrs Mulligan had provided a witness statement rebutting the Officers’ testimony.
16.	I consider that there was a danger of the hearing being sidetracked into issues which would not take the dispute forward and contrary to the interests of the parties involved. I decided to concentrate on the three preliminary matters for which the parties provided helpful skeleton arguments and evidence. This decision deals with the three preliminary matters. With this in mind I have not addressed the Appellants’ alternative objections in their Notice of Objection, and the status of the amended Notice of Appeal of Sub One Limited, both notices dated 1 December 2009. If the Appellants wish these matters to be determined they should submit their arguments in writing to the Tribunal within 28 days of release of these directions, with a copy on HMRC which will be given an opportunity to respond. HMRC did not wish to pursue its objection of the same date.
Dispute One: Strike Out Application
17.	On 24 June 2009 HMRC applied for a direction to strike out specific Appeals including the one submitted by Sub One Limited on the ground that the letter sent by Officer Clarke in January 2009 did not constitute an appealable matter under section 83 of the VAT Act 1994.
18.	According to HMRC, the application for strike out related to 26 Appeals lodged at Manchester Tribunal Centre, and 16 at the Edinburgh Tribunal Centre. Counsel for the Appellants questioned the relevance of the strike out application, pointing out that assessments had been subsequently issued in 14 of the strike out Appeals, with assessments expected shortly in the outstanding strike out Appeals.
19.	The dispute concerned the status of a letter sent by Officer Clarke in January 2009 to all Subway franchisees. HMRC was of the view that the letter was nothing more than a generic advisory consultative letter. It did not constitute a decision letter. 
20.	The Appellants challenged HMRC’s assertion that all franchisees had received the letter. In the Appellants’ view, the letter was a ruling addressed to a specific taxable person in respect of identifiable supplies, directing that VAT should be charged and accounted for. Such a ruling was within the appellate jurisdiction of the Tribunal. Section 83(b) of the VAT Act 1994 provided an appeal against a decision that VAT was chargeable on the supply of any goods.
21.	 Case law indicates that three conditions must be met before an Appeal lies to a Tribunal:
1.	HMRC must have made a decision with which the Appellant disagrees.
2.	The decision must fall within one or other of the matters listed in section 83 of the VAT Act 1994.
3.	The Appellant must have sufficient legal interest in the disputed decision.
22.	 A decision has been described as “the expression of a concluded view”; “an issue between the parties which has been sufficiently crystallised to constitute a decision falling within one of the paragraphs of section 83”.

23.	The Tribunal in Colaingrove Limited [2008] 16981 expressed its concerns about the increasing use of strike out applications by HMRC on the ground of no appealable decision: 
“The Tribunal regards this type of strike out with increasing caution …. There is obviously a dispute to be resolved between the parties if the Appeal was struck out, there is little doubt that another would follow which was not open to challenge. Both parties told me that no capping or time limit issue arose and that there would be no other tactical aspect. It is important to get on with it rather than have time consumed with manoeuvring which adds to costs, delays the appeal and diverts the Tribunal from considering other appeals”. 
24.	The dispute in this Appeal concerned whether the letter of Officer Clarke was a decision which fell within section 83 of the VAT Act 1994. The disputed letter started with: 
“It has come to our attention that a large number of Subway stores are failing to declare the correct rate of VAT on some of their sales”.
25.	Under a  heading Toasted Sub, Officer Clarke stated that
“To eliminate any misunderstanding, I would like to clarify the situation regarding toasted subs. These products have always been standard rated supplies …. and this liability was upheld upon Appeal by the VAT and Duties Tribunal earlier this year. You should ensure that adequate systems are in place to capture and declare VAT on these and all other sales”.
26.	Under a heading Next Steps, Officer Clarke stated that
“I would ask you to objectively review your last 3 years VAT returns and where you feel errors may have occurred you should take steps to quantify the amount and notify this department of your findings, preferably in writing. Although I cannot promise amnesty from any tax or interest becoming due, we will review each case as sympathetically and equitably as possible”.
27.	HMRC submitted that Officer Clarke under the heading Toasted Sub was simply commenting upon the Tribunal decision, and reminding franchisees of it. Under Next Steps Officer Clarke was doing nothing more than asking franchisees to consider their VAT Returns.
28.	Officer O’Connell in evidence stated that he believed that the Tribunal decision in European Independent Purchasing Company applied to all Subway franchisees, and that Officer Clarke’s letter was in effect a ruling on liability.
29.	I disagree with HMRC interpretation of Officer Clarke’s letter. I find that Officer Clarke’s statement under the heading Toasted Sub fitted the description of a concluded view on the liability of toasted subs.  Officer Clarke was saying that they were standard rated and under Next Steps requiring franchisees to account for VAT on those supplies. The supply of toasted subs was an actual supply of goods not an hypothetical one. I am also mindful of the Tribunal decision in Colaingrove Limited of treating such strike out applications with caution, particularly if the Appeal was struck out, there would be little doubt that another Appeal would follow which was not open to challenge. The facts of this Appeal show that an assessment has inevitably been issued after Officer Clarke’s letter. I, therefore, hold that the letter constitutes a decision on the liability of toasted subs which gives rise to an appealable matter under section 83(b) of the VAT Act 1994. I dismiss the strike out Application in respect of the Appeals before me.
Dispute Two: Lead Appeal
30.	 Under rule 18(1) of the  Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009 the Tribunal may give a direction specifying  one or more cases as a lead Appeal providing the following conditions are met:
a.	Two or more cases have been started before the Tribunal;
b.	In each such case the Tribunal has not made a decision not disposing of the proceedings; and
c.	The cases give rise to common or related issues of fact or law.
31.	The dispute between the parties concerned condition c, namely, “the cases give rise to common or related issues of fact or law”.  The issue involved the lawfulness of a direction for a lead Appeal on the VAT liability of toasted subs. It was necessary to determine liability before consideration of any appeal against an assessment.  It was common ground between the parties that a lead Appeal could not cover the quantum of any assessment which would have to be considered on an individual basis if the liability issue went against the Appellants. 
32.	HMRC submitted that the circumstances of these Appeals did not meet the requirements for a lead Appeal. HMRC’s principal contention was that the Court of Appeal in John Pimblett and Sons v Customs and Excise [1988] STC 358 held that the legal test for determining the liability of hot food was a subjective one of the seller’s dominant purpose.  It, therefore, followed that it was for the individual franchisee in these Appeals to establish his dominant purpose for the consumption of toasted subs above ambient air temperature. HMRC concluded that given the subjective element of the Pimblett test it would be self referentially inconsistent, utterly illogical and in defiance of the Court of Appeal decision if there could be a lead case, or indeed a case representative of another franchisee.
33.	HMRC supported its principal contention with several ancillary arguments. First, the franchise agreement common to all Subway franchisees specified that each franchisee was an independent franchised operator. Second, the Subway appeals covered a range of matters from liability to mis-declaration penalties and assessments. Third, the legal test for directing a lead Appeal was not about convenience but whether it gave rise to common or related issues of fact or law. Finally, and in the alternative if each Appeal was not to be heard individually then the Tribunal decision in European Independent Purchasing Company should be treated as binding in respect of a particular hot sandwich product range.
34.	Counsel for the Appellants submitted that HMRC had misunderstood the legal test for directing a lead Appeal. According to counsel, HMRC was claiming that the Appeals involved no issue of law. In which case, each Appeal must turn on different facts which were neither in common nor related. If that was so, it was incumbent upon HMRC to produce individual statements of case to demonstrate the factual differences between the Appeals. HMRC have failed to do this which meant that its principal contention was not supported by evidence.
35.	Counsel contended that the correct approach was to determine whether there were common issues of fact or law in respect of the Subway Appellants. It was the Appellants’ case that they shared a common intention and that the evidence substantiating their common intention was the same.  Finally, counsel submitted that a lead Appeal was consistent with the overriding objective of dealing with cases fairly and justly which underpinned the exercise of the powers under rule 18.  The alternative scenario advocated by HMRC would result in the holding of a substantial number of time consuming and costly Appeals which would considerably add to the delay in hearing the Appeals, and increase the costs for the individual Appellants.
36.	I found HMRC evidence regarding the franchise agreement contradictory. On the one hand, HMRC was relying on the agreement to assert that each franchisee could operate individually. On the other hand, HMRC accepted that the agreement required a franchisee to produce a uniform product in a particular manner which included heating the product in accordance with a procedure specified in a standard Operations Manual.  Further the franchisee faced the potential sanction of loss of the franchise, if he did not follow the mandated procedure.  Finally the evidence of Officers Clarke and O’Connell derived from their experience of visiting Subway outlets confirmed that franchisees operated in effectively the same manner. Officer Clarke stated that franchisees do as they are told. Whilst, Officer O’ Connell explained that franchisees followed the Operations Manual which was closely prescribed by the structure of the Subway organisation. In short I found that the evidence relied upon by HMRC did not support its position that each Appeal was unique in its factual base. 
37.	The Appellants’ evidence regarding a lead Appeal consisted of a witness statement from Mrs Mulligan in which she explained the procedure for sandwich building and the preparation of marinated meat balls. Counsel explained that the overwhelming majority of the Appellants had confirmed that they operated the exact same procedure for sandwich building as applied by Mrs Mulligan. The Appellants’ solicitor undertook to provide a witness statement to that effect. Mrs Mulligan affirmed in cross examination that the procedures were common to all franchisees. Further she followed the same process as adopted by the Subway franchisee in European Independent Purchasing Company.
38.	 I consider that HMRC adopted a blinkered approach to the legal test underpinning rule 18 which deals with lead Appeals. HMRC appeared to get stuck with the perceived illogicality of having a lead Appeal for cases where the determinative issue was the subjective purpose of the individual tax payer. The legal test under rule 18 required an examination of what the Appeals had in common in respect of issues of fact and law.  The law involved in the Appeals was the same and uncontroversial. The Appeals shared the same disputed issue which essentially was one of fact, namely, what was the dominant purpose of the Appellant in heating the sandwiches (subs). The next stage in the enquiry was to examine the evidence necessary and relied upon by the parties to prove or otherwise the disputed issue and decide whether the evidence was substantially the same in the Appeals. In my view HMRC overlooked the vital stage of actually considering the evidence. Had HMRC done so, it might have come to a different conclusion. 
39.	I tackled the evidential stage of the enquiry into a lead Appeal by considering three questions.
Given that the disputed issue is one of subjective intention, what is the nature of the evidence relied upon by the parties to prove or otherwise the intention?
The fact the Appellants assert that their dominant purpose was to supply toasted sandwiches rather than hot food has little evidential weight. Their intention in respect of the toasted sandwiches would be established by testing   their assertion against all the evidence. 
In Ian Flockton Developments Commissioners of Customs and Excise [1987] STC 394 Stuart Smith J held that the evidential requirements for determining the taxpayer’s subjective intention were:
“…….. the tribunal should approach any assertion that it is for the taxpayer company’s business with circumspection and care, and must bear in mind that it is for the taxpayer company to establish its case and the tribunal should not accept the word of the witness, however, respectable. It is both permissible and essential to test such evidence against the standards and thinking of the ordinary business man in the position of the applicant. If they consider that no ordinary business man would have incurred such an expenditure for business purposes that may be grounds for rejecting the taxpayer company’s evidence, but they must not substitute that as the test. It is only a guide or factor to take into account when considering the credibility of the witness, and no doubt there will be many other factors which bear on that question which the tribunal should well understand.
The Tribunal must look at all the circumstances of the case and draw such inferences as they think fit. In the end it is a question of fact for them whether they were satisfied on the balance of probability that the object in the taxpayer company’s mind at the time the expenditure was incurred was that the goods and services were to be used for the purposes of the business” ([1987] STC 394 at 399).
	        Similarly in John Pimblett, Parker LJ observed that
“It might well be that the facts were such that a tribunal in one case might come to the conclusion that the asserted purpose could not be accepted as, for example, whilst asserting that it was no part of their purpose in heating the pies to enabled them to be consumed hot, evidence was given that there were extensive heating cabinets in the shop which kept the pies hot. Given such facts, I can well see that a Tribunal might conclude that the assertion that it was no part of the seller’s purpose to enable them, or some of them, to be consumed hot was unacceptable. But that goes simply to the weight of the evidence and to nothing else”.
The above analysis shows that there is no fundamental distinction between the nature of the evidence called in a case involving a subjective intention and a case concerning an objective test. What is different is the reference point for the enquiry. A subjective intention requires testing the evidence against the taxpayer’s assertion as opposed to assessing the evidence against an objective standard. 
 What is the evidence likely to be called by the parties and is it substantially the same in all Appeals?
The Appellants produced a bundle of the evidence that they intend to rely on at the hearing of the disputed issue. The evidence comprised a witness statement of Mrs Mulligan setting out the procedures for making sandwiches, and two reports from experts on the Temperature Measurement of Sandwiches, and The Changes which occur in the Subway Toasting Process. Counsel confirmed that the evidence in the bundle was common to all Appellants cited in Mrs Mulligan’s witness statement. As Mrs Mulligan explained in cross-examination the franchisees sell a branded product applying the same operating procedures and the same toaster.  
HMRC gave no indication at the hearing of the evidence that it is likely to call at the substantive hearing. Given that the onus is upon the Appellants to prove on the balance of probabilities their dominant purpose for heating/toasting sandwiches, HMRC’s approach would be one of discrediting the Appellants’ assertion on purpose against their evidence. This was the approach adopted by HMRC in European Independent Purchasing Company. The reported decision shows that the evidence relied upon by HMRC were the inconsistencies of the Appellant’s assertion of dominant purpose with his operating procedures, and a bundle of documents appertaining to all Subway franchisees except some individual promotional material. The decisive evidence of the Officers involved in the Appeal concerned the temperature reading of the sandwiches which was adduced to rebut the Appellant’s evidence. In my view it is highly unlikely that HMRC would adopt a different approach in respect of this group of Appellants except that HMRC would probably call fresh evidence to counter the expert evidence relied upon by the Appellants. The critical question, therefore, is whether HMRC would adduce different evidence for each Appellant to discredit his/her testimony derived from a factual matrix which according to the Appellants would be common to them all. I suspect not, and that HMRC’s approach and evidence would be the same for this group of Appellants.
 Is it just and fair to make a direction for a lead Appeal?
I have so far found that the law involved in the Appeals was the same and uncontroversial. The Appeals shared the same disputed issue which essentially was one of fact. The evidence relied upon by the parties to prove or disprove the disputed issue would be the same in respect of the Appellants and in all probability the same for HMRC. I consider those findings meet the requirement of rule 18(1)(c), namely, the cases give rise to common or related issues of fact or law.
The question, therefore, is whether a direction for a lead Appeal is consistent with the overriding objective of dealing with cases fairly and justly. The prospect of holding nearly 200 Appeals involving the same area of law, same disputed issue and essentially the same evidence is not in line with the principles of dealing with cases proportionately and avoiding delay. Further it raises the spectre of Tribunals reaching different decisions on essentially the same facts, which would create uncertainty for the parties litigating, and bring the judicial process into disrepute. Finally the potential prejudice to HMRC in being denied the opportunity to test the subjective intention of each franchisee is mitigated by the provisions of rule 18(4). These provisions enable a party to apply for a direction that a decision in a lead Appeal does not apply to and is not binding on the parties in respect of another Appeal, providing the Application is made within 28 days of release of the lead Appeal decision. I hold that the making of a direction for a lead Appeal is consistent with the overriding principle of dealing with cases fairly and justly.
40.	HMRC raised two additional arguments against a direction for a lead Appeal. The first, was that the Appellants had appealed against a range of decisions made by HMRC including assessments and mis-declaration penalties.  I consider this argument is without merit. The determination of liability is a necessary precursor to the other decisions made by HMRC, and has to be decided first before the Appeals against those matters consequent upon the liability issue can be considered. The Tribunal agrees with the parties that there can be no lead Appeal in respect of the quantum of the assessments. 
41.	The second argument was that if a lead Appeal was appropriate it should be the Tribunal decision in the European Independent Purchasing Company.  This decision was not capable of being a lead Appeal because at the time it was made there was no power to direct a lead Appeal binding on the parties. Further European Independent Purchasing Company did not meet the requirements of rule 18(1)(b) in that the Tribunal has made a decision disposing of the proceedings in that case. Finally the issues and the evidence were not the same. In these Appeals, the Appellants were disputing the liability of the whole range of toasted subs, whereas in European Independent Purchasing Company the Appellant challenged HMRC ruling in respect of specific toasted sandwiches. The Appellants in this Appeal appear to be calling new evidence in the form of expert witnesses on toasting and temperature.
42.	 I decide in principle to make a direction for a lead Appeal in respect of this group of Appellants pursuant to a rule 18(2) of the Tribunal Rules 2009. I did consider whether to make a direction for a lead Appeal under rule 5(3)(b). I decided that a direction under rule 5(3)(b) would  be inconsistent with the overriding objective, because it had the potential of unnecessarily prolonging the dispute between the parties, particularly by the aggrieved party following a decision in the lead Appeal. The Appellants preferred a direction under rule 18, whilst HMRC drew no distinction between a direction under rule 5(3)(b) and one under rule 18(2). 
43.	I intend to give the parties the opportunity to identify a suitable case for a lead Appeal with a view to making the appropriate direction on the 8 January 2010. It is vital that both parties are comfortable with the lead Appeal in view of its binding nature in respect of other Appeals. I asked the parties to identify a lead Appeal in time for the hearing on 4 December 2009. It would appear that the Appellants’ solicitors did not respond to HMRC’s request of 29 November 2009 on this issue. The solicitors were under the impression that as they had already identified a lead Appeal it was unnecessary for them to engage in further discussion. I consider that the identity of a lead Appeal is a decision that is best reached between the parties, and request that the parties co-operate in this regard and assist the Tribunal in accordance with rule 2(4). 
44.	I have not dealt fully with the various objections raised by counsel to the evidence submitted by HMRC in connection with the direction for a lead Appeal. As explained earlier there was a real danger of the hearing being sidetracked into issues which would not take the dispute forward and contrary to the interests of the parties involved. Suffice it to say, I found HMRC evidence contradicted its principal submission that each franchisee operated individually. 
45.	With respect to the franchise agreement, on 20 July 2009 I directed both parties to support their submissions with reference to the facts including the franchise agreement and if relevant cited authorities. I considered that the franchise agreement was relevant because the Appeals concerned Subway franchisees. If a party held concerns about the direction, the proper course would have been to apply to the Tribunal for a variation or suspension of it.
46.	 If a party wishes full reasons on the various objections raised by counsel, please make an application in writing within 28 days of release.
Dispute Three: Costs
47.	The Appellants requested that the “Old” costs regime apply to those Appeals commenced prior to 1 April 2009.  Under the “Old” costs regime, each party is entitled to apply for its costs to be paid by the other party if successful in the substantive proceedings. The Appellants relied on the protection of the Hansard statement which circumscribes the circumstances under which HMRC would seek a costs order. HMRC in contrast submitted that the “New” costs regime apply to these Appeals. Under the new regime each party bears its own costs in relation to the Appeal regardless of the outcome of the dispute.
48.	 The legal position is that the Tribunal Rules 2009 and the “New” costs regime apply to these Appeals unless the Tribunal gives a direction for an order for costs to the extent that an order could have been made before 1 April 2009.  The Tribunal can only make this direction if the Notice of Appeal was lodged with the Tribunal before 1 April 2009 and such a direction would be in line with the overriding objective of dealing with the cases fairly and justly (paragraph 7(3)(7), schedule 3 of the Transfer of Tribunal Functions and Revenue and Customs Appeal Order 2009).
49.	The Appellants submitted that as a large number of the Subway Appeals were filed under the 1986 Tribunal rules, the “Old” costs regime should remain operative as a matter of public law.  In any event the Tribunal has a discretion to direct that the “Old” costs regime apply to these proceedings which it has done in the Appeals of  4 Distribution (LON/2007/1765), and in Senna Vista (TC/ 2009/09938). The Appellants placed emphasis upon the latter decision in that it involved a Subway franchisee. According to Counsel, the matter was res judicata and that it was wholly inappropriate to go behind the decision of the Tribunal particularly as HMRC had not appealed the direction.
50.	HMRC argued against a direction implementing the “Old” costs regime. HMRC pointed out that the majority of the Appeals had been lodged after 1 April 2009, whilst the remainder were received by the Tribunal just before the commencement date.  Further no progress would be made on these Appeals until a significant time after 1 April 2009.  Finally no weight should be attached to the direction in Senna Vista as it was made before the Appeals were grouped together, and without regard to the overall picture.
51.	I am not persuaded that there is a separate public law argument outside the exercise of judicial discretion under schedule 3 of the Tribunals Order 2009.  Counsel for the Appellants adduced no substantive argument for a separate remedy under public law principles. I, therefore, proceed to deal with the application as a proper exercise of judicial discretion under schedule 3. I start with the premise that the “New” costs regime should apply to these Appeals unless it is contrary to the overriding objective of dealing with  the Appeals justly and fairly.
52.	I find no assistance in the case of 4 Distribution on the exercise of my discretion. I was not referred to any specific aspect of the ruling. The Tribunal made an order for costs in favour of HMRC under schedule 3. There was no explanation that I could find for making the order.
53.	The decision in Senna Vista appeared to be made without a hearing. There was no indication on the document provided by the Appellants that the views of HMRC were sought before the order was made. No reasons were given for the decision. The direction was  handwritten endorsed on a letter from the Appellants’ solicitors stating that
“I consent and direct that Rule 29 of the Tribunal Rules 1986 shall apply in place of the 2009 costs rule”.
54.	  I accept that I have no power to reconsider afresh the decision in Senna Vista and that the direction of the Tribunal stands in the case of Senna Vista. I, however, disagree with counsel’s submission that the decision in Senna Vista is binding upon the exercise of my discretion under schedule 3 in respect of the other Appeals before me.  Counsel argues that the principles of res judicata apply without explaining how those principles extend to binding the Tribunal in Appeals other than one in which the decision was made. If counsel is correct with his proposition, it would follow that aspects of the decision in European Independent Purchasing Company would be binding upon the Appellants in respect of their substantive Appeal, which is clearly not his case.  I doubt that the direction in Senna Vista would meet the requirements for issue estoppel and res judicata in that it would appear that the Tribunal did not hear full argument with no representations from HMRC. I draw no guidance from Senna Vista because no reasons were given for the direction.
55.	 I find no persuasive reasons for exercising my discretion in favour of the “Old” costs regime. The direction if made would apply to a minority of the Appellants in this group of Subway franchisees. The steps taken by those Appellants to progress their Appeals prior to 1 April 2009 were limited to lodging the Notice of Appeal with the Tribunal generally in the last week of March 2009. The Appeals were normally accompanied with an application for leave to Appeal out of time. In some Appeals, the validity of the Notice was challenged by HMRC on the grounds of no appealable decision. I consider that my direction for a lead Appeal ensures that the costs involved in these Appeals are proportionate, and enables the costs of the litigation to be shared between the Appellants. I, therefore, make no direction applying the “Old” costs regime to those Appeals commenced before 1 April 2009.
Decision
56.	I make the following decisions in respect of the three disputed matters:
1.	HMRC application for strike out is dismissed. 
2.	A direction in principle for a lead Appeal.
3.	No direction made applying the “Old” costs regime to Appeals commenced before 1 April 2009.
57.	No order is made for costs in connection with the above applications.
58.	I direct that the case management hearing be adjourned until 8 January 2010 at 11.00 am at Edinburgh Tribunal Centre when the Tribunal will decide the identity of the lead Appeal, and deal with directions in respect of the lead Appeal and other Appeals. I seek the co-operation of the parties and request  they provide the Tribunal at the Manchester office with the name of the lead Appeal and agreed directions by  no later than 4pm on 6 January 2010.  It would be helpful if the parties consider appropriate directions for expert evidence.
59.	I request by no later than 4pm on 18 December 2009 that HMRC indicate to the Appellants and the Tribunal whether it consents or otherwise to the application extending the time limit for serving the Notice of Appeal. Further, HMRC to provide the Tribunal with an updated schedule of Appeals identifying those that are not ready to proceed because of pending applications, such as hardship.

                                    MICHAEL TILDESLEY OBE
TRIBUNAL JUDGE
RELEASE DATE: 12 December 2009

Notes

1.	A party wishing to Appeal this decision to the Upper Tribunal must seek permission by making   an application in writing to the Tribunal within 56 days of being provided with full written reasons for the decision. An application for permission must identify the alleged error(s) in the decision and state the result the party making the application is seeking.