An interesting decision has recently been issued by the First-tier Tribunal (Tax Chamber) ('FTT') in connection with an application to set aside the issue of witness summonses which had been issued to two individuals who were resident in Jersey.
Clavis Liberty Fund 1 LP ('the Appellant') had applied to the FTT for the issue of witness summonses to be served on two individuals who were based in Jersey who had both been directors of Clavis Liberty 1 GP Limited (the general partner of the Appellant at the relevant time). The application explained, among other things, that the two individuals had indicated they were not prepared to provide witness statements or to attend the substantive hearing of the appeal before the FTT unless required to do so by the FTT. The application was originally refused by the FTT on paper on 13 February 2014, on the ground that the FTT had no jurisdiction to issue a summons to persons who were outside the UK. However, the application was renewed on 25 June 2014, on the basis that the summonses could be served on the two witnesses at the London business address of Sanne Group (UK) Limited ('Sanne UK') of which they were both directors and which, according to the Appellant, they attended on a regular basis.
HMRC objected to the issue of the witness summonses unless the individuals concerned were required to provide witness statements some time in advance of the substantive hearing. The FTT therefore called a hearing to determine the matter. No notice of that hearing was given to the two witnesses.
The hearing was held on 2 October 2014. The FTT (Judge Mosedale) ruled that the witnesses should be summonsed. HMRC's concerns were dealt with by way of a direction that there would be a hearing in advance of the substantive hearing for examination-in-chief of the witnesses, which it was suggested would serve instead of witness statements. The decision records that the witnesses were informed that if they did prepare witness statements, they would not be required to attend the examination-in-chief hearing. The witnesses were summonsed to attend the substantive hearing for cross-examination and re-examination.
The relevant witness summonses were issued by the FTT addressed to the witnesses at the London address of the company at which the FTT had been informed the two individuals regularly attended.
Application to set aside
On 27 October 2014, the two witnesses applied, under Rule 16(4) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ('the Rules'), for the witness summonses to be set aside.
Rule 16(4) provides:
"(4) A person who receives a summons, citation or order may apply to the Tribunal for it to be varied or set aside if they did not have an opportunity to object to it before it was made or issued."
The witnesses submitted that:
- the FTT did not have jurisdiction to issue the summons: and/or
- there was an alternative and more appropriate route to obtain the witness evidence so the summons should not have been issued; and/or
- the Appellant had failed to make full disclosure to the FTT when applying for the issue of the summons.
The FTT's decision
(1) The jurisdiction issue
It was accepted by all the parties that the individuals concerned were resident in Jersey and that they were directors of Sanne UK.
The Appellant's position was that the witnesses had a substantial connection with the UK and that the two gentlemen frequently attended the London offices of Sanne UK.
The FTT concluded that the Appellant had not established that the witnesses were frequent visitors to the UK, but did accept that they occasionally visited Sanne UK's London office.
In the view of the FTT, its jurisdiction to issue a witness summons was not intended to be more restrictive than that granted to the courts and referred to Rule 16(3) of the Rules in support of the proposition that the FTT's jurisdiction was intended to be co-extensive with that of the courts. Rule 16(3) provides:
"(3) No person may be compelled to give any evidence or produce any document that the person could not be compelled to give or produce on a trial of an action in a court of law in the part of the United Kingdom where the proceedings are due to be determined."
The FTT rejected the applicants' argument that the witness summonses would encroach on the sovereignty of another state, namely Jersey, by requiring them to give evidence about what they did in Jersey. The Judge said:
"The applicants were the directors of the general partner of a partnership which submitted a UK tax return and claimed losses in it. Even if the events said to give rise to the tax relief took place in Jersey … the appeal concerns a claim to a UK tax relief. There is no extra-territoriality involved in requiring the persons who effectively represented the entity making the claim to give evidence about the claimed entitlement to it. The Appellant did not need to show exceptional circumstances to justify the issue of a witness summons to a visitor to the UK in this case."
The FTT noted that the applicants, while Jersey residents, were directors of a general partner of a partnership which claimed a UK tax relief in respect of activities which occurred before they resigned as directors. That claim it was said would inevitably be litigated in the UK and it was not for them to say that service of the summons on them when visiting the UK was a breach of sovereignty of Jersey. The Judge said:
"It was also the applicant's position that in any event they should not be equated to temporary visitors to the UK. Their case was that their connection with the UK was weak. Mr [Y's] affidavit suggested it was luck that the summons sent to the London offices of Sanne UK, were even forwarded to them. I am not impressed by that. Mr [Y] and Mr [M] accept that they were non-executive directors of Sanne UK; a company can be supposed to have proper systems in place so that post addressed to even non-executive directors will be given to them promptly."
Accordingly, the FTT decided that the applicants were clearly occasional visitors to the UK. The FTT therefore did have jurisdiction to issue them with witness summonses and the Appellant did not need to show exceptional circumstances.
(2) Alternative means of obtaining evidence
The FTT rejected the applicants' argument that under Rule 7(3) of the Rules, the FTT could make a reference to the Upper Tribunal and ask the Upper Tribunal to exercise its powers under section 25 of the Tribunals, Courts and Enforcement Act 2007 (Upper Tribunal to have powers of High Court), and despatch Letters of Request to Jersey (Letters of Request require a foreign court to take a deposition from a person within its jurisdiction). In the Judge's view, Rule 7(3) was intended to deal with failure by a person to comply with directions and summonses issued by the FTT.
However, even if she was wrong on this, the Judge did not agree that the availability of Letters of Request would be a reason not to issue a witness summons that the FTT itself had jurisdiction to issue. The Judge was satisfied that there was no proper means by which a hearing in the FTT could benefit from the Upper Tribunal's powers to issue Letters of Request.
(3) Full disclosure
On 12 October 2012, the Appellant's junior counsel wrote to the witnesses seeking their agreement to provide evidence about the activities of the partnership. The letter gave a general outline of the appeal and explained that the Appellant would like the former directors to provide witness statements and be prepared to attend the substantive hearing.
One of the witnesses replied to this letter stating that he did not consider that the ex-directors could give any relevant evidence, having a role in defending the tax claim was outside the terms of Sanne UK's engagement, that the partnership had continued the tax planning activities after Sanne UK's withdrawal as general partner and that the Appellant was in possession of all relevant documents in any event.
Subsequently, solicitors wrote to the witnesses requesting that they provide witness evidence and documents. The letter asked for co-operation but indicated that a failure to co-operate might lead to the issue of witness summonses.
Solicitors instructed on behalf of the witnesses and Sanne UK replied to this letter on 22 February 2013 and confirmed that consideration was being given to the requests, but that a number of questions arising from the request needed to be answered before a decision could be taken.
The Judge considered that the questions raised on behalf of the witnesses were reasonable. Moreover, she was of the view that the statement made on behalf of the Appellant in both applications for the issue of the summonses (and repeated at the hearing at which the request for the issue of the summonses was considered), that the proposed witnesses had refused to provide witness statements unless issued with witness summonses, was a misrepresentation to the FTT. The Judge considered that at the time the statements in the applications were made, the last contact between the parties had been the letter sent on behalf of the witnesses on 22 February 2013 and that no one could reasonably have described the position adopted in that letter as a refusal to provide evidence unless witness summonses were issued. On the contrary, it was an indication that evidence would be given if questions (which the Judge found to be reasonable) were answered. By the time of the application hearing to have the witness summonses set aside, a great deal of further correspondence had taken place between the parties, however, the questions raised were still outstanding and remained unanswered. The witnesses had neither agreed nor refused to provide evidence. The Judge commented:
"They wanted answers to reasonable questions before deciding; as their tone was conciliatory, a reasonable person would assume that if reasonable answers were provided, witness statements would be forthcoming. It was a clear misrepresentation to say the applicants had refused to give evidence unless summonsed. Moreover I am satisfied that by failing to provide answers to the applicant's reasonable questions the Appellant prevented agreement being reached on the voluntary provision of evidence by the applicants. This was not drawn to my attention in the October hearing either. There was a serious failure in the duty of full and frank disclosure to the Tribunal."
In addition, the FTT was not satisfied that the misrepresentation had been innocently made.
The FTT was not persuaded that if the Appellant was unable to rely on the evidence of the applicants it would be especially prejudicial to its case. In any event, setting aside the summonses would not necessarily deprive the Appellant of the evidence it wished to rely upon as the applicants had not refused to give evidence voluntarily. Accordingly, the FTT ordered that the witness summonses should be set aside.
This case provides helpful guidance on the powers of the FTT to issue witness summonses, especially in circumstances where the witnesses concerned are outside the UK.
The decision is also a stark reminder of the duty of full and frank disclosure which litigants owe to the FTT. Authority on the duty of disclosure is contained in Knauf GmbH v British Gypsum Ltd and this case was referred to by the Judge in her decision. In that case the Court of Appeal said.
"… there is a "golden rule" that an applicant for relief without notice must disclose to the court all matters relevant to the exercise of the Court's discretion; that failure to observe this rule entitles the court to discharge the order obtained even if the circumstances would otherwise justify the grant of such relief; ..."
Any litigant who is found to be in breach of this duty may face serious consequences as the FTT made clear that in such circumstances there is a real prospect that any order obtained will be discharged.