Kotecha v Revenue and Customs (IHT - PROCEDURE - appeal against a determination) [2025] UKFTT 330 (TC) (14 March 2025)

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You are here: BAILII >> Databases >> First-tier Tribunal (Tax) >> Kotecha v Revenue and Customs (IHT - PROCEDURE - appeal against a determination) [2025] UKFTT 330 (TC) (14 March 2025) URL: http://www.bailii.org/uk/cases/UKFTT/TC/2025/TC09458.html Cite as: [2025] UKFTT 330 (TC)

DECISION

INTRODUCTION

1. The underlying issue in this appeal concerns the Inheritance Tax ("IHT") status of loan notes comprised in the estate of Mrs Nirmala Kotecha ("Mrs Kotecha"). The issue is whether they attract business property relief. HMRC consider that they do not as they do not themselves carry voting control of the company which issued them. The appellant says otherwise.

2. HMRC issued a notice of determination denying business property relief to the estate against which the appellant appealed on 25 June 2023. That notice assesses the estate to an additional £502,819.

3. The conduct of this appeal was delegated to Mr Ved of Sterling Associates. Mr Ved was responsible for submitting the notice of appeal on behalf of the appellant.

4. The appellant then failed to comply with an unless order issued by Judge Dean on 11 March 2024 with the result that the appeal was automatically struck out on 25 March 2024.

5. The tribunal, and HMRC, have treated an email from Mr Ved to the tribunal dated 2 July 2024 as both an application for reinstatement ("the reinstatement application") as well as an application to bring that application for reinstatement, out of time ("the out of time application") (together "the applications").

6. This decision deals with both applications. For the reasons given later in this decision, I have allowed them.

THE LAW

The legislation

7. The relevant rules of procedure are set out in the Tribunal Procedure (First tier Tribunal) (Tax Chamber) Rules 2009 (the "Rules", each a "Rule"). Rule 2 provides:

"2. Overriding objective and parties' obligation to co-operate with the Tribunal

(1) The overriding objective of these Rules is to enable the Tribunal to deal with cases fairly and justly.

(2) Dealing with a case fairly and justly includes—

(a) dealing with the case in ways which are proportionate to the importance of the case, the complexity of the issues, the anticipated costs and the resources of the parties;

(b) avoiding unnecessary formality and seeking flexibility in the proceedings;

(d) using any special expertise of the Tribunal effectively; and

(e) avoiding delay, so far as compatible with proper consideration of the issues.

(3) The Tribunal must seek to give effect to the overriding objective when it—

(a) exercises any power under these Rules; or

(b) interprets any rule or practice direction.

(4) Parties must—

(a) help the Tribunal to further the overriding objective; and

(b) co-operate with the Tribunal generally".

8. Rule 8 provides:

"8. Striking out a party's case

(1) The proceedings, or the appropriate part of them, will automatically be struck out if the appellant has failed to comply with a direction that stated that failure by a party to comply with the direction would lead to the striking out of the proceedings or that part of them.

(2) The Tribunal must strike out the whole or a part of the proceedings if the Tribunal-

(a) does not have jurisdiction in relation to the proceedings or that part of them; and

(b) does not exercise its power under rule 5(3)(k)(i) (transfer to another court or Tribunal) in relation to the proceedings or that part of them.

(3) The Tribunal may strike out the whole or a part of the proceedings if—

(a) the appellant has failed to comply with a direction which stated that failure by the appellant to comply with the direction could lead to the striking out of the proceedings or part of them;

(b) the appellant has failed to co-operate with the Tribunal to such an extent that the Tribunal cannot deal with the proceedings fairly and justly; or

(4) The Tribunal may not strike out the whole or a part of the proceedings under paragraphs (2) or (3)(b) or (c) without first giving the appellant an opportunity to make representations in relation to the proposed striking out.

(5) If the proceedings, or part of them, have been struck out under paragraphs (1) or (3)(a), the appellant may apply for the proceedings, or part of them, to be reinstated.

(6) An application under paragraph (5) must be made in writing and received by the Tribunal within 28 days after the date that the Tribunal sent notification of the striking out to the appellant.

(7) This rule applies to a respondent as it applies to an appellant except that—

(a) a reference to the striking out of the proceedings must be read as a reference to the barring of the respondent from taking further part in the proceedings; and

(b) a reference to an application for the reinstatement of proceedings which have been struck out must be read as a reference to an application for the lifting of the bar on the respondent taking further part in the proceedings.

(8) If a respondent has been barred from taking further part in proceedings under this rule and that bar has not been lifted, the Tribunal need not consider any response or other submissions made by that respondent, and may summarily determine any or all issues against that respondent".

9. Rule 5 provides (as far as is relevant):

"5. Case management powers

(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure.

(2) The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction".

Case law

10. In Martland v HMRC [2018] UKUT 178 (TCC) ('Martland'), the Upper Tribunal provided guidance on the correct approach to applications for permission to appeal out of time. However, it is clear from the judgment of the Supreme Court in BPP Holdings Ltd v HMRC [2017] UKSC 55 and the decision of the Upper Tribunal in HMRC v BMW Shipping Agents Ltd [2021] UKUT 91 (TCC) ("BMW Shipping Agents") that the same approach should be applied to applications for proceedings to be reinstated where they have been struck out for failure to comply with a direction.

11. The Upper Tribunal's guidance in Martland is summarised at [44] of the decision:

"When the FTT is considering applications for permission to appeal out of time, therefore, it must be remembered that the starting point is that permission should not be granted unless the FTT is satisfied on balance that it should be. In considering that question, we consider the FTT can usefully follow the three-stage process set out in [Denton v TH White Ltd [2014] EWCA Civ 906, [2014] 1 WLR 3926]:

(1) Establish the length of the delay. If it was very short (which would, in the absence of unusual circumstances, equate to the breach being "neither serious nor significant"), then the FTT 'is unlikely to need to spend much time on the second and third stages' - though this should not be taken to mean that applications can be granted for very short delays without even moving on to a consideration of those stages.

(2) The reason (or reasons) why the default occurred should be established.

(3) The FTT can then move onto its evaluation of 'all the circumstances of the case'. This will involve a balancing exercise which will essentially assess the 8 merits of the reason(s) given for the delay and the prejudice which would be caused to both parties by granting or refusing permission".

12. In applying Martland in Dominic Chappell v the Pensions Regulator [2019] UKUT 209 (TCC) ('Chappell'), the Upper Tribunal held that the FTT should not take the merits of an appellant's case into account when considering an application for reinstatement following striking out for failure to comply with an unless order, unless a party has an unanswerable case (see [86] and [93]). The Upper Tribunal also held at [95] that, in assessing the seriousness of the breach of an unless order, the FTT should consider the underlying breach and the failure to carry out the obligation which was imposed by the original direction or rule and extended by the unless order when assessing the seriousness and significance of that breach.

13. In BMW Shipping Agents, the UT began its consideration of the application for reinstatement by assessing the seriousness and significance of the appellant company's breach of the FTT's case management directions. That breach consisted of failing to serve a list of documents by the required deadline and then failing to comply with the terms of the "unless" order giving a final chance for compliance. The breach of case management directions continued from 1 September 2017, when the list of documents was due, to 22 November 2017, when the appeal was struck out, a period of more than three months (see [45] of BMW Shipping Agents). The UT considered the breach to be serious and significant (see [45]). The UT then considered the reasons why the breach of directions took place. The final stage is to conduct a balancing exercise giving particular weight to the importance of litigation being conducted efficiently and at proportionate cost and of directions and time limits being respected. In BMW Shipping Agents, the UT held at [54] and [57] that it was appropriate to include that a consequence of the appeal not being reinstated would be that the appellant will lose the right to contest an appeal involving a large sum of money. It is necessary to consider whether, in all the circumstances, striking out the appeal is disproportionate to the seriousness of the breach.

14. In HMRC v Katib [2019] UKUT 189 ("Katib") the Upper Tribunal had to consider the extent to which reliance on an agent was a justifiable reason for failing to make a timely appeal. On the facts of that case, the Upper Tribunal concluded that failings by the appellant's agent could not be relied upon by the appellant at any stage in the Martland analysis. The Upper Tribunal said this:

"53. The first stage of the Martland examination can be addressed briefly. Mr Katib's delay in appealing against the PLNs was, at the very least, 13½ months. That was "serious and significant". The real question is how the second and third stages of the evaluation should be performed, having regard to the particular importance of statutory time limits being respected.

54. It is precisely because of the importance of complying with statutory time limits that, when considering applications for permission to make a late appeal, failures by a litigant's adviser should generally be treated as failures by the litigant. In Hytec Information Systems v Coventry City Council [1997] 1 WLR 666, when considering the analogous question of whether a litigant's case should be struck out for breach of an "unless" order that was said to be the fault of counsel rather than the litigant itself, Ward LJ said, at 1675:

Ordinarily this court should not distinguish between the litigant himself and his advisers. There are good reasons why the court should not: firstly, if anyone is to suffer for the failure of the solicitor it is better that it be the client than another party to the litigation; secondly, the disgruntled client may in appropriate cases have his remedies in damages or in respect of the wasted costs; thirdly, it seems to me that it would become a charter for the incompetent (as Mr MacGregor eloquently put it) were this court to allow almost impossible investigations in apportioning blame between solicitor and counsel on the one hand, or between themselves and their client on the other. The basis of the rule is that orders of the court must be observed and the court is entitled to expect that its officers and counsel who appear before it are more observant of that duty even than the litigant himself. [emphasis added]

55. We do not accept Mr Magee's general argument that this approach simply involves attributing the actions of legal representatives to their clients and has no bearing on the question whether incorrect advice provided to a client can be a good reason for the client's default. Given the importance of adhering to statutory time limits, we see no reason why a litigant who says that a representative failed to file an appeal on time should necessarily be in a different position from a litigant who says that a representative failed to advise adequately of the time limits within which an appeal should be brought. In any event, it seems from [7] of the Decision that the FTT found that Mr Bridger had been instructed to appeal against the PLNs on Mr Katib's behalf but failed to do so and, therefore, Mr Katib is not simply complaining that Mr Bridger provided defective advice.

56. Nor do we accept Mr Magee's submission that the decision of the High Court in Boreh v Republic of Djibouti and others [2015] EWHC 769 establishes an "exception" to the principle where a representative misleads the client. Rather, we consider that the correct approach in this case is to start with the general rule that the failure of Mr Bridger to advise Mr Katib of the deadlines for making appeals, or to submit timely appeals on Mr Katib's behalf, is unlikely to amount to a "good reason" for missing those deadlines when considering the second stage of the evaluation required by Martland. However, when considering the third stage of the evaluation required by Martland, we should recognise that exceptions to the general rule are possible and that, if Mr Katib was misled by his advisers, that is a relevant consideration.

57. The FTT concluded at [27(3)] of the Decision that the general rule set out in Coventry City Council should not apply because Mr Bridger was "on a frolic of his own acting outside the scope of any possible brief that [Mr Katib] could have given". That conclusion, however, was reached without having regard to the particular importance of statutory time limits being respected and is thus vitiated by the error of law that has led to us setting aside the Decision. More significantly, we do not consider that the FTT's departure from the general principle is justified by that fact in this case (which we think is probably an additional error of law, though not one relied on in the grounds of appeal).

58. It is clear from the Decision that Mr Bridger did not provide competent advice to Mr Katib, misled him as to what steps were being taken, and needed to be taken, to appeal against the PLNs and failed to appeal against the PLNs on Mr Katib's behalf (see [7] and [16]). But extraordinary though some of Mr Bridger's correspondence was, the core of Mr Katib's complaint is that Mr Bridger was incompetent, did not give proper advice, failed to appeal on time and told Mr Katib that matters were in hand when they were not. In other words, he did not do his job. That core complaint is, unfortunately, not as uncommon as it should be. It may be that the nature of the incompetence is rather more striking, if not spectacular, than one normally sees, but that makes no difference in these circumstances. It cannot be the case that a greater degree of adviser incompetence improves one's chances of an appeal, either by enabling the client to distance himself from the activity or otherwise.

59. Mr Magee urged us to give particular weight to the FTT's finding, at [15], that Mr Katib did not have the expertise to deal with the dispute with HMRC himself, but that does not weigh greatly in the balance since most people who instruct a representative to deal with litigation do so because of their own lack of expertise in this arena. We do not consider that, given the particular importance of respecting statutory time limits, Mr Katib's complaints against Mr Bridger or his own lack of experience in tax matters are sufficient to displace the general rule that Mr Katib should bear the consequences of Mr Bridger's failings and, if he wishes, pursue a claim in damages against him or Sovereign Associates for any loss he suffers as a result. This conclusion is fortified by the fact that the FTT's findings demonstrate that there were some warning signs that should have alerted Mr Katib to the fact that Mr Bridger was not equal to the task. Despite Mr Bridger assuring Mr Katib that his appeals were in hand, he was still receiving threats of enforcement action ([9]). Mr Bridger's advice to "cease to be a man by making a declaration to this effect" should have alerted Mr Katib to the warning signs. Mr Katib is not without responsibility in this story.

60. For the same reasons we do not consider that Mr Bridger's conduct has any real weight when considering the factors relevant to the final stage of the three-stage approach outlined in Martland. Turning to other factors relevant to that third stage, the FTT concluded that the financial consequences of Mr Katib not being able to appeal were very serious because his means were limited such that he would lose his home. That, the FTT concluded, was too unjust to be allowed to stand. We have considered this factor anxiously for ourselves. However, again, when properly analysed, we do not think that this factor is as weighty as the FTT said it was. The core point is that (on the evidence available to the FTT) Mr Katib would suffer hardship if he (in effect) lost the appeal for procedural reasons. However, that again is a common feature which could be propounded by large numbers of appellants, and in the circumstances we do not give it sufficient weight to overcome the difficulties posed by the fact that the delays were very significant, and there was no good reason for them.

61. Therefore, we have concluded that, in all the circumstances of the case, Mr Katib has not given a sufficiently good reason for a serious and significant delay in appealing against the PLNs. HMRC's appeal is allowed and we remake the Decision so as to refuse Mr Katib permission to make late appeals".

THE BACKGROUND FACTS

15. I was provided with a bundle of documents and authorities. Both Mr Ved and the appellant tendered witness statements and gave oral evidence on which they were cross-examined. From the documents and their oral evidence, I make the following findings:

(1) Mr Ved has acted for the appellant for over 20 years. During that time, the appellant has had no reason to doubt Mr Ved's competence. Whenever the appellant has received correspondence from HMRC, during that time, he has had a cursory look at it and then sent it to Mr Ved for the latter to deal with. This is the case with the correspondence relating to the notice of determination.

(2) If HMRC's notice of determination is upheld, the estate will need to sell assets in order to satisfy the IHT liability.

(3) Mr Ved has considerable experience with disputes with HMRC and the tribunal process. He gave me three such examples, one of which, involving an MTIC appeal, which he ran with a VAT consultant and which collapsed the day before the hearing. He accepted in oral evidence that he was aware of the importance of compliance with statutory deadlines and with tribunal directions.

(4) Sterling Associates were instructed by the appellant to deal with the IHT filings following Mrs Kotecha's death in July 2014. In 2015 HMRC raised a number of queries regarding the IHT return and continued their enquiry until May 2023 when HMRC issued a statutory review conclusion letter upholding their determination.

(5) Mr Ved was instructed by the appellant to appeal against that notice of determination which he did on 25 June 2023.

(6) The tribunal allocated the appeal to the complex track on 17 August 2023, notifying the appellant of this. At this stage neither Mr Ved nor Sterling Associates had completed the appropriate authorised representative form, so correspondence was sent to the appellant.

(7) In a letter dated 22 September 2023, from HMRC to the appellant, HMRC told the appellant that they could not correspond with Mr Ved until he had submitted the appropriate form of authority; notified the appellant that he could apply for alternative dispute resolution (and Mr Thompson-Jones, the author of that letter and HMRC's representative at the hearing indicated that he thought the matter might be suitable for mediation); explained to the appellant the consequences of the tribunal having categorised the appeal as complex: and asking him to confirm, by 2 October 2023, whether he wished to apply for ADR and whether he had appointed a representative.

(8) The letter of 22 September 2023 also stated that the tribunal had set the deadline for HMRC to file its statement of case, and thus Mr Thompson-Jones would appreciate a response on or before 2 October 2023.

(9) The appellant asserts that he passed this letter over to Mr Ved without any real consideration of it. I accept this and find it as a fact. I also find as a fact that Mr Ved received this letter. That this is so is evidenced by an email from Mr Ved to Mr Thompson-Jones dated 2 October 2023 which refers to the 22 September 2023 letter. In that email Mr Ved states that he had passed all the documents relating to this case to "tax experts who are currently reviewing the documents and will advise us on the matter" and that "we will be in touch as soon as we hear from a tax expert".

(10) In cross examination, Mr Ved accepted that he had not advised the appellant about the possibility of opting out of the cost regime. He thought he had advised the appellant about ADR. He also accepted that he had not diarised to follow up receipt or otherwise of the statement of case.

(11) On 3 October 2023, Mr Ved emailed HMRC enclosing the form of authority. This was copied to two employees within Sterling Associates ("the two employees").

(12) I was shown a "spreadsheet" prepared by Mr Ved showing emails which he received into his inbox, and subsequently into his junk mail. It seems from these that on 9 October 2023, Mr Thompson-Jones sought a 21-day extension to file HMRC's statement of case, which Mr Ved granted by way of an email sent some 10 minutes after receipt of HMRC's email.

(13) Mr Ved accepted that he did not diarise this extension of time and when he might expect receipt of that statement of case.

(14) It was Mr Ved's evidence (which was not seriously challenged by Mr Thompson-Jones) that at or around that time, and prior to it, Mr Ved was involved in extensive correspondence with a firm of lawyers (it is my understanding that this was a contentious situation), and that correspondence involved him receiving electronic files of a considerable size. This was clogging up Sterling Associates' server and affecting Mr Ved's ability to store documents. He raised this internally and following correspondence with their IT supplier, Sterling Associates procured a further 30 GB of disk space.

(15) It was Mr Ved's further evidence, on which he was challenged in cross examination, was that this affected his emails. The significant effect was that with effect from 9 October 2023, after the exchange of emails regarding the statement of case, emails from HMRC and from the tribunal went into his junk email folder rather than into his inbox. Notwithstanding this challenge, I accept Mr Ved's evidence and find as a fact that the emails from HMRC and the tribunal were going into his junk email folder and not into his inbox. I also accept his evidence that, as a consequence, he was not aware of them. I also find as a fact that he was not aware of this issue until 2 July 2024.

(16) On 1 November 2023, HMRC filed its statement of case which was copied to Mr Ved.

(17) On 7 December 2023, HMRC filed its list of documents. This was copied to Mr Ved.

(18) On 22 December 2023, the tribunal issued directions directing that the appellant should provide its list of documents and the documents themselves, by 2 February 2024, and witness statements by 1 March 2024. These were sent to Mr Ved.

(19) On 5 February 2024, Mr Thompson-Jones emailed Mr Ved indicating that there had been non-compliance with these directions and asking Mr Ved to confirm whether he intended to file a list of documents and/or witness evidence. This email was copied to the two employees.

(20) On 15 February 2024, the tribunal wrote to Mr Ved asking for the appellant's list of documents, and on 4 March 2024, HMRC emailed the tribunal seeking an unless order for failing to provide a list of documents and witness statements. This was copied to the two employees.

(21) On 11 March 2024, Judge Dean issued an unless order ("the unless order") directing that unless the appellant complied with the December 2023 directions on or before 5pm on 25 March 2024 then the proceedings "will be struck out". The appellant did not comply, and so the proceedings were automatically struck out on that date.

(22) The tribunal notified Mr Ved of this striking out by way of a letter (which I think was sent by email) dated 9 April 2024. The letter explained that the appellant had a right of reinstatement but that any application should be received by the tribunal within 28 days from the date of that letter.

(23) Since this is a complex tracked appeal HMRC wanted their costs, and in an email dated 2 May 2024, sent to Mr Ved and to the two employees, a costs application along with a schedule of costs.

(24) On 18 June 2024, the tribunal issued a letter to the parties seeking representations on that costs application on or before 2 July 2024.

(25) On 2 July 2024, HMRC emailed the tribunal and Mr Ved confirming that no further representations or contact had been received. This was copied to Mr Ved and to the two employees.

(26) It was Mr Ved's evidence, which I accept, that he was made aware of this email, on that date, by one of the two employees. And immediately following that, he emailed the tribunal and HMRC, indicating that HMRC's email had come as a complete surprise as he had not received any communications from the tribunal. It is this email that HMRC and HMCTS have treated as an application for reinstatement.

(27) It was Mr Ved's evidence, which again I accept, that neither of the two employees, one of whom is a secretary, had any experience of tax litigation, nor of IHT. And the only reason why the email of 2 July 2024 was brought to his attention by one of those employees was because it referred to costs which was something that the employee thought was important and should be brought to Mr Ved's attention. Until then, even though they had been copied into correspondence from HMRC, they had ignored it on the basis that, as far as they were concerned, it had been sent to Mr Ved and it was reasonable for them to assume that he was dealing with it.

DISCUSSION

Submissions

16. In summary, Mr Davies submitted as follows:

(1) The balance of prejudice weighs heavily in favour of granting both applications.

(2) Even if the delay in bringing the out of time application was serious and substantial, and the breaches which led to the unless order (and of the unless order itself) were also serious and substantial, there were good reasons for them.

(3) The reason for both is the same, namely that notifications from both HMRC and the tribunal did not come to Mr Ved's attention as they went into his junk email folder. He was therefore not aware of the directions issued by the tribunal, nor of the unless order, nor of any of the other communications which might have put him on notice of the time limits with which he had to comply as regards the substantive appeal.

(4) It was Mr Ved who was instructed to deal with the appellant's appeal, not Sterling Associates. Even though the communications may have come to the attention of the two employees, they thought that Mr Ved was dealing with them as they had been sent to him. They were not instructed to deal with the appeal.

(5) It was entirely reasonable for the appellant to instruct Mr Ved to deal with the appeal. As far as the appellant was concerned, Mr Ved was competent to deal with it and had satisfactorily dealt with all of the appellant's other tax affairs, in the past. There was nothing which put the appellant on notice that Mr Ved might not be capable of undertaking the work, nor that he was not dealing with the appeal competently and in accordance with time limits.

(6) It was also entirely reasonable for the appellant, having passed on HMRC's letter of 22 September 2023, to Mr Ved, to leave it at that. There was no need for him to follow things up nor to note any time limits that might have been mentioned in that letter, as he could justifiably expect Mr Ved to deal with things on a competent and timely basis. He had always adopted this approach before and had never suffered any detriment in so doing.

(7) It is not fair or just that the appellant should be penalised for failings by Mr Ved.

(8) Whilst HMRC might be prejudiced if the applications were allowed, as they may incur further costs in the ongoing litigation, then the appellant, too, will suffer financial prejudice. Not only will he be denied the opportunity of pursuing his appeal, but assets will have to be sold in order to settle the IHT liability.

(9) The underlying appeal against the notice of determination has merits. If the appellant is allowed to proceed, then those merits, and witness evidence supporting them, will be produced at the appropriate time.

(10) There will be finality in this matter if the applications are granted. It is just that that finality will arise at the conclusion of the appeal rather than now. There will be financial prejudice to the appellant in the costs of liquidating assets to pay for the IHT and possibly, given a forced sale, receiving a lower price for those assets.

17. In summary, Mr Thompson-Jones submitted as follows:

(1) The delay in bringing the out of time application is serious and substantial. It is approximately 56 days after the 28 day deadline. Similarly, the breaches which led to the unless order, and breaches of the unless order itself, were also serious and substantial.

(2) The appellant had been notified of the appeal and other significant matters in HMRC's letter to him of 22 September 2023. Even though he had instructed Mr Ved and passed this letter to him, it was up to him to "keep tabs" on Mr Ved which he failed to do. He did not act reasonably in simply passing all matters over to Mr Ved and then washing his hands of them. It would have been reasonable for him to have enquired, on an ongoing basis, how the conduct of the appeal was progressing.

(3) Mr Ved's failing is also unreasonable. Even if he is to be believed that the emails went into his junk email folder, that is not a justifiable reason for failing to comply with time limits or tribunal directions. He had clearly received correspondence putting him on notice that there were procedural matters with which he had to comply. And many of these were copied to the two employees. So Sterling Associates was aware of the ongoing position.

(4) It is clear from Katib that failings by an adviser are treated as failings by an appellant.

(5) Mr Ved was fully aware, from the letter of 22 September 2023, that HMRC were obliged to file a statement of case. Furthermore, he had specifically granted HMRC an extension of time to do this in his email to Mr Thompson-Jones of 9 October 2023. So he knew that HMRC were to provide a statement of case, yet he did not follow up when it failed to materialise. He did not diarise important dates in this litigation. He should have done this notwithstanding his ostensible reason for not doing so, namely the issues with the lawyers.

(6) The fact that the appellant might lose the opportunity of challenging the notice of determination if the applications are refused does not weigh heavily in the balance of prejudice at the final evaluation stage. The prejudice to the appellant in this case is far less than the prejudice which was suffered by Mr Katib. Indeed, the appellant has not shown, in the context of a substantial estate, how payment of the tax would prejudice the estate.

(7) HMRC will be prejudiced if I allow the applications. There has already been considerable satellite litigation which has caused delay and additional costs. If I allow the applications, there will be further delays and additional cost.

(8) The merits of the underlying appeal against the notice of determination are fanciful. It is clear that the loan notes carried no voting rights, let alone voting rights which gave the holder control of the issuing company. This is a fundamental prerequisite for business property relief.

(9) Following the application for reinstatement in July 2024, the appellant has done nothing to prosecute his appeal. He has not provided a list of documents nor witness statements. He has not amended his grounds of appeal to take into account the technical arguments which he now appears to wish to run. The original grounds of appeal are poorly articulated and do not plead any legal grounds.

(10) The delays have already impacted on HMRC's and the tribunal's time and financial resources. The original enquiry started nearly 10 years ago. It is reasonable to expect the matter to have been finalised by now.

My view

18. Mr Davies made a single set of written and oral submissions in respect of both applications. In his view the issues were the same, and, in essence, the same good reason for failure to comply with the directions and the unless order (namely the fact that the correspondence from both the tribunal and HMRC had gone into Mr Ved's junk email folder) and which is relevant to the reinstatement application, applies equally to the out of time application.

19. Mr Thompson-Jones, on the other hand, made separate oral and written submissions in respect of each application.

20. I have to say that I have not found this decision an easy one, but I have been greatly assisted by the Upper Tribunal's decision in BMW Shipping Agents. I have referred to this case above. It was not an authority to which I was taken. It shares two important characteristics with this appeal. Firstly, emails sent by the tribunal and HMRC to a working email address provided by the appellant's agent did not reach that agent. Secondly, the agent had not diarised dates to check when, for example, the statement of case should have been served. It also dealt with both an out of time application and reinstatement application.

21. Although it was an Upper Tribunal decision, it was one where the tribunal, having found that the FTT had made an error of law, went on to remake that decision. In their decision, the Upper Tribunal started with a consideration of the out of time application and then went on to consider the reinstatement application. I intend to adopt the same approach in this decision.

The out of time application

22. I will apply the three stage approach set out in Martland. I remind myself that I am exercising judicial discretion, and in that regard I am subject to the overriding objective in Rule 2 namely to deal with the case fairly and justly.

23. Mr Davies did not dispute that the reinstatement application was made approximately 56 days late. He accepts that this is both serious and significant. I agree. I can therefore move on to the second stage, namely to assess the reasons for the failure.

24. Again, this is very straightforward. Mr Davies admits that it was not possible for Mr Ved, acting on behalf of the appellant, to submit the reinstatement application in time, because he was wholly ignorant of the fact that the appeal had been struck out.

25. And so, I proceed to the third stage of the Martland approach, namely to undertake an evaluation of all the circumstances of the case. This requires me to conduct a balancing exercise, assessing the merits of those reasons, with the prejudice which would be caused to both parties by granting or refusing permission. And in undertaking this balancing exercise, I must take into account the particular importance of the need for litigation to be conducted efficiently and at proportionate cost, and for statutory time limits to be respected.

26. Mr Davies submits that it was simply not possible for Mr Ved to submit the reinstatement application in time since he was not aware that the appeal had been struck out until 2 July 2024. Once he was made aware of it, he wrote to HMRC and the tribunal on that date, and it was that letter which has been treated by both as the application to bring the reinstatement application out of time. This reason outweighs any prejudice which HMRC might suffer. It also reflects no disrespect by Mr Ved to the principles of conducting litigation efficiently and that time limits should be respected. He simply did not know of the striking out and could not therefore, with the best will in the world, make the reinstatement application until that striking out became known to him. Once it was, he proceeded with alacrity, something which reflects a virtuous approach towards compliance with time limits.

27. He also submitted that it was wholly reasonable for the appellant to rely on Mr Ved to safeguard his interests as regards the appeal. There was no reason for the appellant to suspect that Mr Ved was anything other than wholly capable of doing this and given that the appellant has no understanding of the way in which the tax system works, and has always devolved responsibility for his tax affairs to Mr Ved, he should not be penalised for any failings by Mr Ved.

28. Mr Thomson-Jones took the view that on the basis of Katib, failings by an adviser are treated as failings by the appellant. And where an adviser has been guilty of delay, then the appellant has a high bar to get over to persuade the tribunal that this is a good reason for the delay. Furthermore, in this case there has been a failure not just by Mr Ved, but also by the appellant himself who failed to monitor Mr Ved's actions in respect of the appeal, and also by Sterling Associates since correspondence by HMRC and the tribunal had been copied to the two employees who failed to take any action in response to them. Furthermore, the failings to comply with the time limits and with the tribunal and HMRC correspondence could have readily been avoided by making a diary note to check when, for example, service of the statement of case was due to be sent by HMRC (he had seen the letter of 22 September 2023, and indeed had allowed HMRC an extension of time for service of their statement of case). This failure to make such a diary note aggravates the position.

29. In my view many of the failings identified by Mr Thompson-Jones above, whilst highly relevant to the reinstatement application, are of less relevance to the out of time application.

30. In BMW Shipping Agents the Upper Tribunal made the point that where an application for reinstatement is made out of time, the focus should be on the proximate cause of why the 28 day time limit was missed, and not on a wider examination of the litigants conduct leading up to the strike out (which is relevant when considering the underlying application for reinstatement).

31. I consider that Mr Ved had an understandable reason for missing the 28 day deadline as it was simply not possible for him to apply for reinstatement before the point at which he knew that the appeal was struck out. And that was only on 2 July 2024 when HMRC's letter following up their costs application was brought to his attention by one of the employees.

32. It is true that Mr Ved should have made a diary note to monitor HMRC's statement of case, and that failure has contributed to the appellant's current position. But that is something which is much more important as regards the reinstatement application rather than the out of time application. Having failed to make that diary note, it would have been impossible, in the absence of any external stimulus, for Mr Ved to have been aware that the application had been struck out, and that time was therefore running to make an application for reinstatement.

33. There are other factors of course which I must take into account when conducting the balancing exercise. I have considered, albeit briefly, the respective merits of each party's underlying case. However, I have attached a little weight to these respective merits. I have given reasons for this below as regards the reinstatement application, but in simple terms it has been impossible for me to undertake any sort of sensible analysis as to whether the appellant's likelihood of succeeding in the appeal are "fanciful" and thus whether they can be taken into account when considering the reinstatement application.

34. As regards time and costs, both parties will be prejudiced whichever way I go. If I grant the out of time application, then HMRC will have to devote time and energy into considering the reinstatement application (modest given that they have already done so). If I deny the application, then the appellant will lose the opportunity of bringing the reinstatement application. As in BMW Shipping Agents, I take the view that the balance of prejudice on this point weighs in favour of the appellant. If I allow the out of time application, HMRC are still able to argue that the reinstatement application should be rejected, on the basis of the agent's behaviour recorded above. In denying the out of time application, then the appellant loses all prospect of challenging the notice of determination.

35. Accordingly, in the circumstances of this case, I consider that the fair and just course is to allow the out of time application.

The reinstatement application

36. When considering this application, I also adopt the Martland approach as slightly modified by Chappell. This means that when considering the reinstatement application, I should not take into account the merits of a party's case unless it is unanswerable.

37. The first stage therefore is to consider the seriousness and significance of the appellant's failure to comply with the appeal timetable and with the unless order.

38. That failure was identified in the unless order as being a failure to comply with directions issued on 22 December 2023, and a failure to reply to the tribunal's letter dated 15 February 2024. It also, of course, includes a failure to comply with the unless order itself.

39. Furthermore, as Mr Thompson-Jones has indicated, HMRC had pointed out on no fewer than three occasions that either the appellant, or Mr Ved, needed to interact with HMRC, and the consequences of failing to do so.

40. There is no doubt in my mind that these failings are serious and significant. I must therefore go on to consider the reasons for them.

41. It is the appellant's case that failings by Mr Ved should not be attributed to the appellant, who should not be prejudiced by those failings. But I am directed by Katib that a failure by an adviser to advise a taxpayer of the deadlines for making appeals or to submit timely appeals should "generally" be treated as a failure by the litigant when considering whether the reason for failing to comply with such deadlines should be treated as a "good" reason for that failure.

42. In my view there have been a number of "failings" which have resulted in the appellant's failure to comply with the relevant directions and the unless order. The first is the fact that Mr Ved's email system collapsed for lack of adequate storage, in October 2023, and in introducing further storage into the system, it affected Mr Ved's emails so that correspondence from HMRC and from the tribunal went into his junk email folder, rather than into his inbox. Secondly, the appellant, who received the letter of 22 September 2023 which set out matters relating to the appeal, simply passed this letter over to Mr Ved and then failed to monitor Mr Ved's ongoing actions in respect of the appeal. Thirdly, that emails sent by both the tribunal and by HMRC were received by the two employees who did not bring them to Mr Ved's attention. Fourthly, the failure by Mr Ved to make a diary note to review HMRC's obligation to submit a statement of case by the extended deadline which he had agreed with HMRC on 9 October 2023.

43. Taking these in turn.

44. Firstly, the fact, as I have found, that email communications from the tribunal and from HMRC went into Mr Ved's junk email box, and he was unaware of them until 2 July 2024.

45. In my view this is not a seriously culpable failing. It is simply one of those IT issues which, horror of horrors, might have happened to anyone. Whilst it had serious consequences, I do not think that blame can be levelled at either the appellant or Mr Ved for the problems that led to the requirement for additional memory to be introduced into the Sterling Associates IT system, nor for the consequences to Mr Ved's email system of such introduction.

46. Secondly, after the appellant had given Mr Ved HMRC's letter of 22 September 2023, the appellant's failure to ask Mr Ved, on an ongoing basis, how his appeal was progressing.

47. In the Upper Tribunal's decision in Uddin ([2023] UK UT99), the Upper Tribunal stated that "Put another way, a client will always rely on their advisers, but their advisers failings are still laid at their door. Why the adviser failed and how they lead their client to continue to rely on them is not relevant to the Martland analysis, unless the client can show that they did whatever any reasonable taxpayer in that situation would have done (which would generally be to make sufficient efforts to keep tabs on the adviser and make sure that matters were on track)".

48. Mr Thompson-Jones submitted that the appellant should have taken a more active interest in the conduct of the appeal even though he had asked Mr Ved to deal with it. And he cannot say that simply because he had devolved responsibility to Mr Ved, he had done everything possible to ensure that the appeal was conducted properly and timeously.

49. Mr Davies points out that the appellant is a 70-year-old pharmacist with no knowledge of the tax system, and who has always relied on Mr Ved to safeguard his interests as regards the tax authorities.

50. As regards the latter point, as has been said in a number of cases, an advisers failings are laid at the door of the appellant.

51. But it is equally clear that an appellant's "obligation" to keep tabs on their adviser, once they have devolved responsibility for conducting appeal to that adviser, is qualified by a reasonableness test. One puts oneself in the position of the taxpayer, with that taxpayers qualities, and considers whether failing to monitor the ongoing activities of the adviser was reasonable in respect of the taxpayers personal qualities and the circumstances in which he found himself.

52. The only correspondence which the appellant received after he had made his appeal, was the letter of 22 September 2023 which he passed on to Mr Ved. After that all correspondence went to Mr Ved. The appellant clearly knew that an appeal was being conducted on his behalf, but was wholly ignorant of the complexities of the tribunal process and the time limits which had to be met. He relied on Mr Ved.

53. It is true that knowing about the appeal, he could have contacted Mr Ved on a number of occasions and asked how the appeal was progressing. But I am not sure that this would have had any impact on the failures to comply with the tribunal's directions and the unless order. The reason for this, of course, is that Mr Ved would simply have reported back to the appellant that he had heard nothing from either HMRC or the tribunal, and so as far as Mr Ved was concerned, there was no reason to suggest that the appeal was not proceeding in an orderly fashion. The reason for this, in turn, was because the correspondence to the contrary did not come to his attention as it was sitting in his junk email folder.

54. There was, therefore, nothing to put Mr Ved on notice that anything was amiss. So, prompts by the appellant would not have resulted in any change to the ongoing situation.

55. Thirdly, there is the issue concerning the fact that copies of the emails sent to Mr Ved were sent to (and received by) the two employees who did nothing about them until 2 July 2024. It was Mr Thompson-Jones' submission that it was Sterling Associates who were acting as the appellant's agent and not Mr Ved. And so non receipt of the relevant directions and of the unless order cannot be justified as a reason for the appellant's failure.

56. Mr Davies submitted that it was not Sterling Associates, but Mr Ved personally who was responsible for conducting the appeal on behalf of the appellant.

57. I accept this submission. It is clear from the notice of appeal that Mr Ved was identified as the appellant's representative, and this was also clear from the evidence that the appellant had instructed Mr Ved over a number of years and it was Mr Ved, personally, who the appellant wanted to conduct the appeal on his behalf.

58. Mr Thompson-Jones also submitted that the two employees should have brought the HMRC and the tribunal correspondence into which they were copied, to Mr Ved's attention. And their failure to do so negatives any suggestion that the fact that the correspondence went into Mr Ved's junk email folder is a good reason for his failure to comply with the relevant directions and the unless order.

59. But I am sympathetic to Mr Davies' submission that it was reasonable for the two employees to have assumed Mr Ved was dealing with this matter, and there was no action that they should take (or indeed, on the facts, that they had the technical competence to take) since Mr Ved had conduct of the appeal. This was a reasonable approach for them to adopt. Nor was it mistaken. The problem was not that Mr Ved was not in charge of the appeal. The problem was that he was not aware of the relevant correspondence. And this is something of which the two employees were ignorant. As far as they were concerned, Mr Ved was receiving the correspondence and was dealing with it appropriately.

60. So, I now turn to what I consider to be the most significant and relevant failing by Mr Ved, namely his failure to diarise a follow-up if HMRC failed to submit their statement of case by the extended deadline. Mr Ved had conducted several pieces of tax litigation before and therefore knew the importance of the statement of case. He can be treated as knowing the tribunal rules, and that such a statement of case should be forthcoming by HMRC at an early part of an appeal. Furthermore, in the specific circumstances of this appeal, the letter of 22 September 2023 clearly identified that a statement of case was to be served, and Mr Ved had also permitted HMRC a 21 day extension of time for such service.

61. In his evidence, Mr Ved accepted that he should have diarised a follow-up, but failed to do so.

62. This failure has had a dramatic consequence. If he had made a diary note, then notwithstanding he had not received HMRC and tribunal communications, he would have been able to write to them to ascertain the state of play, and it would then have become apparent, I suspect, of the problems with his inbox. That is not necessarily the case. Responses to such an approach might well have led to further communications being sent to him which would have not come to his attention as they would have gone into his junk email folder. But it would have afforded him a chance to find out what was going on.

63. So, I now need to consider the balancing exercise at the third Martland stage and the requirement that I give particular weight to the importance of litigation being conducted efficiently and at proportion of cost and of directions and time limits being respected. However, as stated in BMW Shipping Agents "... It remains a balancing exercise which invites, among other considerations, a consideration of the nature of the reasons for the breach of direction and the results that would follow if the appeal is, or is not, reinstated".

64. I have very briefly considered the merits of the underlying appeal against the notice of determination. I was taken to HMRC's case by Mr Thompson-Jones who claims that the appellant's case is fanciful. I am not necessarily convinced by this, but what is clear is that the matter is complex and subtle and given the time restraints of the hearing, it was not possible for me to undertake any sensible or technically worthwhile evaluation of the respective merits as part of these applications. And certainly not to the extent that I am able to say that either party has an overwhelmingly strong case. And therefore, following Chappell, I shall not consider the merits in this balancing exercise.

65. Furthermore, given that HMRC's response to this decision might be to make an application to strike out the appellant's case, I would not wish to make any comments which would have an impact on any such application.

66. As in BMW Shipping Agents, I do not consider that the reasons for the failings are particularly good or particularly bad. As in that case, the reasons on their own are relatively modest, but the combination of the correspondence going into Mr Ved's junk email folder (with the consequence that he did not see them) with the fact that he had not diarised to follow up the submission of HMRC statement of case, was dramatic.

67. As far as the consequences of these failings are concerned, if I reject the reinstatement application, the appellant loses the opportunity to contest the notice of determination. As was stated in Katib, that is simply a consequence which attaches to any appellant whose appeal is struck out for failure to meet a time limit. And in Katib, the consequence was dramatic. The appellant lost his house. But this loss of opportunity is something which I can take into account at the final evaluation stage. The question is the weight which I should attach to it.

68. If I allow the reinstatement application, then, as Mr Thompson-Jones says, there will be further delay and litigation before this matter is resolved. This will involve a cost in time and money to HMRC. But equally, as Mr Davies submits, if I reject the reinstatement application, the appellants too will suffer financial prejudice not just in the loss of the opportunity to contest the notice of determination, but in hard financial terms in finding the money to pay the tax.

69. My final task, therefore, is to weigh all the relevant factors in the balance. It is my view that the balance comes down, albeit, as in BMW Shipping Agents, by a "slender margin", in favour of reinstating the appeal. As recorded in that case, strike out as a draconian sanction and therefore it is not exercised without warning. It is true that a warning had been given in the unless order itself, but that had gone into Mr Ved's junk inbox and thus had not been seen by Mr Ved. No effective warning of the strike out had therefore been given. I do not think that the fact that the warning went into Mr Ved's junk email box is a conscious failing that can be visited on Mr Ved himself.

70. I have set out my views of the reasons given for the defaults, above. In my judgement, not to reinstat this appeal will involve imposing a sanction on the appellant which is disproportionate to the seriousness of the conduct that led to the failings to comply with the directions and the unless order.

71. I am conscious that I must give particular weight for the need for litigation to be conducted efficiently and at proportion of cost and for directions to be complied with. I am also conscious that, when considering the reasons for default, failings by an agent are treated as failings by the taxpayer.

72. But at this third stage, I need to conduct an evaluation of "all of the circumstances of the case". And one of those circumstances is the fact that the appellant, knowing that he had no ability to look after his own tax affairs, put the matter of the appeal in the hands of an agent in whom he had total confidence and who had always acted satisfactorily in the past.

73. So whilst his agent's failings can be attributed to him, the fact that the appellant, recognised that as a 70 year old pharmacist he was wholly ignorant of the tax system, and so appointed an agent to deal with the appeal, demonstrates that he wanted to ensure that his duties towards the tax system generally, and this appeal in particular, were discharged. This is virtuous behaviour. It shows that the appellant (albeit that he did not express it in this way) wanted to ensure that his appeal was conducted efficiently and that time limits were to be respected. He knew he could not do that himself, so he appointed an agent.

74. I also note that Mr Ved had responded with alacrity to HMRC's application for an extension of time to submit their statement of case, and then again, on 2 July 2024, when he was first aware of the failings by dint of the costs letter. This reflects a respect for the tribunal system. Mr Thompson-Jones observes that, notwithstanding the directions to submit documents and file witness statements, the appellant has still done neither. But I can understand the appellant's reluctance to incur further costs unless and until the future conduct of his appeal has been resolved. There would have been absolutely no need to submit documents or file witness statement if this appeal was not reinstated.

75. To my mind, therefore, the reasons are adequate to support reinstatement. Notwithstanding the admonition that litigation should be conducted efficiently and that case management directions are complied with, I can give weight to the fact that not reinstating this appeal would impose a sanction that is disproportionate to the seriousness of the breach. As is said in BMW Shipping Agents, "Considerations of proportionality remain at the heart of the overriding objective set out in Rule 2 of FTT Rules".

DECISION

76. For the foregoing reasons, I allow the applications.

RIGHT TO APPLY FOR PERMISSION TO APPEAL

77. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this 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. 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.

NIGEL POPPLEWELL

TRIBUNAL JUDGE

Release date: 14^th MARCH 2025

APPENDIX

RELEVANT CASE LAW

Late application

Katib

41. In Katib the Upper Tribunal had to consider the extent to which reliance on agent was a justifiable reason for failing to make a timely appeal. On the facts of that case, the Upper Tribunal concluded that failings by the appellant's agent could not be relied upon by the appellant at any stage in the Martland analysis. The Upper Tribunal said this:

"53 The first stage of the Martland examination can be addressed briefly. Mr Katib's delay in appealing against the PLNs was, at the very least, 13½ months. That was "serious and significant". The real question is how the second and third stages of the evaluation should be performed, having regard to the particular importance of statutory time limits being respected.

First-tier Tribunal (Tax)