Baines Ernst Ltd v Customs and Excise [2004] UKVAT V18516 (04 March 2004)

TRIBUNAL — procedure — failure by Commissioners to comply with direction — application by appellant for appeal to be allowed — whether failure to comply excusable — no — prejudice — small prejudice to appellant by delay, great prejudice to Commissioners if appeal allowed — balance — time for compliance extended on terms

MANCHESTER TRIBUNAL CENTRE

BAINES & ERNST LTD	Appellant

- and -

THE COMMISSIONERS OF CUSTOMS AND EXCISE	Respondents

Tribunal:	Colin Bishopp (Chairman)

Sitting in private in Manchester on 23 February 2004

Arthur Blackburn, chartered accountant, for the Appellant 

Bernard Haley, of the Solicitor’s Office of HM Customs and Excise, for the Respondents

© CROWN COPYRIGHT 2004

DIRECTION

1.	This is an appeal against a decision of the respondents, set out in a letter dated 21 August 2003.  In that letter, the respondents indicated that a repayment of overpaid VAT was, in principle, due to the appellant, but contended that they were not liable to make the repayment, as their doing so would unjustly enrich the appellant.  They relied on section 80(3) of the Value Added Tax Act 1994.
2.	On 17 September 2003, and therefore within the time limit of 30 days prescribed by rule 4 of the Value Added Tax Tribunals Rules 1986 (SI 1986/590) (“the rules”) notice of appeal against that decision was (according to the date on the notice itself) sent to the tribunal, although the tribunal’s own records show that it was received on 26 September, outside the time limit.  No point has been taken, by the tribunal or by the respondents, on any possible failing by the appellant in this respect and I treat the notice of appeal as having been served in time.  The grounds of appeal stated merely that the appellant would not be unjustly enriched if the repayment were made.
3.	The appeal was notified to the Commissioners, by the tribunal, on 6 October 2003, and they should have been aware of it by about 7 October.  On 16 October they sent to the tribunal an application for a direction that the appellant supply further and better particulars of its grounds of appeal. That was followed on 5 November 2003 by an application for an extension of time for service of the statement of case; the extension sought was until 30 days after the provision of the further and better particulars.  Before either application was listed for hearing, particulars to the satisfaction of the respondents were served on them on, it seems, 17 November, but no copy was sent to the tribunal, nor has one since been provided and I do not know the scope of the particulars which were provided.
4.	On 10 December 2003 the respondents sent a notice to the tribunal. Its text is as follows:-
“Take notice that the Commissioners of Customs and Excise hereby confirm that Further and Better Particulars were received from the Appellant’s representative on 17 November 2003 and that time limits are to recommence with effect from the date of this notice.  The Commissioners Statement of Case and List of Documents are now due to be served by 8 January 2004.”
5.	I have no idea what was the perceived basis of that notice.  There is no provision in the rules for the service of a document of that kind.  Rule 8 requires the Commissioners to serve the statement of case, in an appeal of this kind, 30 days after the notification to them of the appeal: in the instant case, that time expired on 6 November 2003.  Rule 9 allows for the provision of further and better particulars, but it does not provide for any extensions, automatic or otherwise, of the time for service of the statement of case. An extension of time may be granted only by the tribunal in accordance with rule 19.  That rule is generally applied on a pragmatic basis (see Jackson v Customs and Excise Commissioners [2003] EWHC 3219 (Ch)) and, although the rules make no specific provision for this eventuality, it is usual for the tribunal to accede to extensions of time agreed (within reasonable limits) between the parties. Whether or not there was a formal agreement here, the appellant does appear to have acquiesced in the extension of time at that point.
6.	In the meantime the tribunal, of its own motion, had given notice of a pre-trial review to be undertaken on 14 January 2004. On 8 January the respondents served another notice, on this occasion seeking an extension of time for service of the statement of case to 10 February 2004. The matter came before me on 14 January; then, as now, Arthur Blackburn, a chartered accountant, appeared for the appellant and Bernard Haley of their solicitor’s office for the respondents.  Mr Blackburn opposed the grant of any further time for service of the statement of case.  Mr Haley told me it was nearly ready for service.  I extended the Commissioners’ time to 4 pm on 28 January 2004, and gave that date (rather than “14 days from today”) to the parties, orally, at the hearing.  A written direction was prepared but for reasons of which I am unaware it was, regrettably, released to the parties by the tribunal only on 3 February, by which date the time limit had expired.
7.	The statement of case was not served by 4 pm on 28 January; it was served on 29 January by fax. On 30 January Mr Blackburn wrote to the tribunal asking for a direction that the appeal be allowed on the grounds that the respondents had failed to comply with the direction I made on 14 January. It was his application which came before me today.
8.	It became apparent during the hearing that on the morning of 29 January (that is, the day after the last day for service prescribed by my direction) Mr Blackburn telephoned the tribunal office in order to discover whether the statement of case had been served. His call prompted a further call by the tribunal staff to the respondents’ solicitor’s office, which in turn led to the service, by fax, of the statement of case the same afternoon. It also became clear that the statement of case had been prepared within the solicitor’s office, and had been sent to other departments within Customs for approval before service; and that the solicitor in charge of the matter within the solicitor’s office was under the impression that the due date for service had been extended to 10 February, the date sought in the last of the respondents’ applications. How she had come to that conclusion must be a matter for speculation. Mr Haley told me he had made a note of my direction of 14 January on that day, and had placed it on the respondents’ file; but it cannot be said whether the solicitor read but misunderstood the note, or did not read it at all and merely assumed that the extension sought by the Commissioners had been granted.
9.	I have the power to grant Mr Blackburn’s application, and allow the appeal: see rule 19(4). Equally, I have the power to waive the failure to comply with my direction and to extend the time for compliance: rules 19(5) and 19(1) respectively. I have a discretion to exercise those powers as I see fit, provided I exercise my discretion judicially.
10.	The parties referred me to the tribunal’s decision in Neways International (UK) Ltd v Commissioners of Customs and Excise (2002, Decision 17888), but, surprisingly, not to the High Court decision in the same case (Commissioners of Customs and Excise v Neways International (UK) Ltd [2003] STC 795), nor to the Court of Session decision in Commissioners of Customs and Excise v Young [1993] STC 394; and they did not mention the recent tribunal decision of Cilfaouglu and others v Commissioners of Customs and Excise (2003, Decision 18409). What emerges from these cases is that directions of the tribunal – as well as the rules – are to be complied with, and that a failure to comply should be excused only for adequate reasons. I respectfully agree with that proposition.  On the other hand, it must be recognised that the summary allowing (or dismissing) of an appeal is a severe step which should not be taken lightly, and that the tribunal’s primary purpose is to adjudicate on the substance of disputes.
11.	I take into account that the circumstances of the three cases I have mentioned differ from those of this appeal, and that the gravity of the respondents’ failings there were worse than those here. In Young, they failed to comply with a direction that the statement of case be served by a date about six weeks after the direction was given, and eventually complied about two weeks late. The delay was due, in part, to an inadvertent mistake. The tribunal did not accept that the mistake was sufficient to justify the failure to comply, and allowed the appeal. One gains the impression that the Court of Session considered the decision hard, but within the reasonable bounds of an exercise of discretion, and the Commissioners’ appeal against the tribunal’s decision was dismissed. In Neways various extensions of time for service of the statement of case had been granted by consent. The Commissioners did not comply with the final, agreed, extension but issued another application for a further extension. For reasons which are not apparent that application was not notified by the tribunal to the appellant; instead, the tribunal listed a pre-trial review for hearing. Before that hearing, the appellant applied for a direction allowing the appeal; this application was also not notified to the Commissioners. They served the statement of case two days before the hearing of the pre-trial review; that was 47 days after the expiry of the last extension which had been granted. The cause of the delay was, shortly put, poor management in the Commissioners’ solicitor’s office. The tribunal allowed the appeal because of the Commissioners’ failure to serve the statement of case within time, and Lloyd J dismissed their subsequent appeal against that decision. In Cilfaouglu the Commissioners failed to comply with a direction for disclosure of documents (though it is conspicuous that the statement of case was served only after six extensions of time) when, on any view, that failure was inexcusable, and the only explanation advanced was that the solicitor’s office was overworked. In that case, too, their failure led to a direction that the appeal be allowed.
12.	The failure in this case is by no means as bad as in Cilfaouglu and rather less bad than in Neways. It seems to me to be more closely comparable with the fault in Young, although it has to be said that the Commissioners’ notice of 10 December 2003, in effect taking it for granted that the tribunal would allow an extension, is difficult to justify and the apparent assumption that an extension to 10 February would be (or had been) allowed was casual, to say the least. Nevertheless, I do not regard this as a case in which the tribunal’s direction was simply ignored; had that been so I would not have hesitated to allow the appeal. I take into account, in reaching that conclusion, the fact that my written direction was not released until some time after the hearing at which it was made.
13.	The tribunal expressed the view in Cilfaouglu that prejudice, or the absence of it, was not necessarily a determining factor. Here, the additional delay has caused minor prejudice to the appellant, in that the progress of its appeal has been delayed. The prejudice to the Commissioners of losing the entire appeal would be substantial. They would have brought that prejudice upon themselves, but I cannot leave it out of account altogether. I am fortified in that view by what Lloyd J said in Newey at paragraph 28 of his judgment: 
“Looking at the matter generally, I accept Mr Thomas’ submission that time limits are laid down in order that appeals will be processed without unnecessary delay. Such limits, whether as laid down by the rules or as varied by the tribunals, ought to be observed, not just disregarded or forgotten. If, however, a time limit is not kept to, so that the need arises to consider whether, against opposition, to extend it further or otherwise to deal with the default, the tribunal should conduct a balancing exercise. Essentially, and without seeking to set out the position comprehensively, it should weigh the consequences of the default for the, as it were, innocent party, against the consequences of any possible sanction for the party in default. In any given case there may be several possible courses, ranging from allowing or, as the case may be, dismissing the appeal by default at one extreme, to granting an extension on no other terms than that the party in default pays the costs of obtaining the extension on the other, and there may be intermediate possibilities, particularly as regards the imposition of terms. Under r 19(5), which I have read, the tribunal may impose terms as it thinks just when waiving any default. Where the main prejudice is as to delay, the tribunal might be prepared to order an expedited hearing, or it may regard the award of interest on any eventual repayment, if that is what is at issue, as a sufficient compensation.”
14.	Bearing these principles in mind, and weighing the considerable prejudice to the Commissioners of allowing the appeal against the modest prejudice to the appellant of continuing delay, it does not seem to me that it is appropriate in this case to take the extreme step the appellant requests. I have concluded instead that I should extend the Commissioners’ time for compliance with the direction I made on 14 January so as to cover the actual date of service of the statement of case, but on terms. First, I direct that (subject to any representations to the contrary the appellant may wish to make) this appeal shall be set down to be heard at Manchester, on the first available date convenient to the parties, once they have provided an estimate of the expected length of the hearing. I make it clear that while the tribunal will pay full heed to the convenience of the appellant, rather less indulgence may be expected by the respondents; the appeal is to be given a reasonably early hearing, commensurate with its proper preparation. I do not make any direction in respect of interest, as Lloyd J suggested; interest will follow the event, and I cannot sensibly add to that. The respondents are to pay the appellant’s costs of and occasioned by this application, on the indemnity basis, in any event. I have also concluded that they should pay a penalty, imposed pursuant to paragraph 10(1) of Schedule 12 to the Value Added Tax Act 1994, of £500. Since I did not raise that possibility at the hearing, and Mr Haley had no opportunity to deal with it, the direction I make is that the Commissioners shall suffer the penalty unless, within 14 days after the release of this direction, they apply to show cause why they should not suffer it. If they do so, I shall hear what they say before adjudicating on the matter.

COLIN BISHOPP
CHAIRMAN

Release Date:

MAN/03/661