Tax Tribunal’s strict stance on case management

In a significant case management decision for tax litigators, the Tax Tribunal has ruled that, where a party wishes to exhibit to a witness statement a document that was not included in its list of documents, it must apply to the Tribunal for permission to do so.

Background

The appeal concerned an HMRC landfill tax assessment of £112,596 relating to waste deposited at a Derbyshire site. Burton Skip Hire Limited (“Burton”) appealed the assessment to the Tribunal. Following service of HMRC’s statement of case, the parties exchanged their lists of documents pursuant to rule 27 of the Tribunal Rules.

The Tribunal then made case management directions providing for the exchange of lists of documents and the subsequent exchange of witness statements. Burton filed an amended list and HMRC relied on its original list.

When HMRC served its witness evidence, it included several documents in an exhibit bundle that was not contained  in its list of documents. This included letters from the Environment Agency, notes of telephone interviews, site visit reports and photographs.

In preparing the hearing bundle, Burton objected to the inclusion of these documents, arguing  that HMRC was not entitled to rely upon documents  not on its list of documents. Burton applied to exclude the documents under rule 15(2)(b) and HMRC applied to admit them into evidence.

Submissions

Burton submitted that the list of documents must include all documents a party wishes to rely upon and that HMRC therefore failed to comply with the direction. Burton would be prejudiced if the disputed documents were admitted because it had not had an opportunity to address them.  Hence, the proceedings would have been unfair.

HMRC stated that the disputed documents were either unavailable when preparing its list or their relevance only became apparent during the drafting of witness statements. HMRC argued that excluding the documents would risk the Tribunal reaching a decision on incorrect facts and that there was a presumption in favour of admitting relevant evidence, unless there was a compelling reason to exclude it.

The Decision

The Tribunal identified three issues:

1. Can a party rely on documents not included in its list of documents?
2. If not, what sanction should apply?
3. Should the Tribunal admit the disputed documents?

The Tribunal set out a number of principles drawn from case law on case management and disclosure in tax appeals. It held that, on the basis of its construction of the rules, where a party wishes to “rely upon new evidence not included in its list of documents, it must first obtain a direction to that effect from the Tribunal”.

As HMRC had failed to comply with the Tribunal’s directions, Burton argued that it would not be fair to permit it to rely on the disputed documents. However, the Tribunal concluded that the documents were relevant and that the potential unfairness to Burton could be remedied by giving Burton an appropriate opportunity to respond, noting that the proceedings were still at a relatively early stage.

The Tribunal therefore dismissed Burton’s application to exclude, and allowed HMRC’s cross-application to admit the documents. Therefore it did not need to decide issue 2 on sanctions. The disputed documents were admitted into evidence because to exclude them “would risk the Tribunal reaching a decision based on incorrect facts”. That reasoning is especially significant in tax cases where  there is a public interest in taxpayers paying the correct amount of tax (known as the venerable principle of tax law).

Comment

The substantive outcome was unremarkable: HMRC may rely upon the disputed documents with Burton given a sufficient opportunity to respond. However, the result of this decision may be to create an additional procedural step in many tax cases. The Tribunal noted that, in practice, parties usually apply to amend their list of documents to rely upon a document not on their original list. However, this is certainly not always the case where the document in question is an exhibit to a witness statement.

It appears that a party must now either apply to amend its list of documents or otherwise apply to admit an exhibit to a witness statement  not contained within its list.

In many cases, that application may not be an unduly burdensome step but it nonetheless creates an additional cost for parties and, in some cases, will increase the scope for pre-trial disputes.