In Outram and another v HMRC [2021] UKFTT 29 (TC) the First-tier Tribunal (FTT) prevented HMRC from relying on a new argument contained in its skeleton argument which had not been included in its statement of case.

Background

This was a case management decision relating to appeals by two taxpayers, Anthony and Ross Outram (the Applicants) concerning their participation in a Montpelier tax mitigation arrangement (the Scheme).

In February 2015, HMRC issued discovery assessments, pursuant to section 29, Taxes Management Act 1970, to the Applicants in relation to their 2005/06 tax returns, which included trading losses they claimed had been generated as a consequence of their participation in the Scheme. The time limit for HMRC to enquire into the returns had expired.

The Applicants had conceded that the losses were not allowable. The only issue to be determined at the hearing of the substantive appeal was the validity of the discovery assessments.

For the assessments to be within the extended time limit of 20 years for deliberate conduct, HMRC had to show that the Applicants, or a person "acting on [their] behalf", had deliberately brought about a loss to tax.

In its amended statement of case produced on 29 September 2015, HMRC made allegations of deliberate conduct on the part of the Applicants only. No mention was made of any deliberate conduct by a person acting on their behalf. When HMRC produced its skeleton argument on 21 January 2021, for the substantive appeal hearing which was due to take place on 4-5 February 2021, it included a fresh allegation of deliberate conduct by Montpelier acting on behalf of the Applicants.

The Applicants applied to the FTT to prevent HMRC from relying on this alternative argument at the substantive hearing on the grounds that if HMRC had wanted to make such an allegation, it should have been pleaded in its statement of case.

FTT decision

The application was granted.

The FTT agreed with the Applicants that including a new allegation in its skeleton argument was tantamount to HMRC seeking to introduce a new issue or ground in its case.

The FTT applied the test formulated in Quah International v Goldman Sachs [2015] EWHC 759 (Comm), which sets out the principles which apply to very late applications seeking permission to amend a statement of case. The two main factors considered were:

i. whether the new argument introduced by HMRC was better than merely arguable; and ii. how the court should exercise its discretion to strike the balance of prejudice as between the parties.

The FTT also considered HMRC v Hicks [2020] STC 254, a case that concerned another Montpelier arrangement and which provided a definition of "acting on behalf". Based on the definition in Hicks, the FTT considered that HMRC would "face an uphill task" in establishing that Montpelier had acted on behalf of the Applicants, but that the position was arguable.

The FTT acknowledged that by preventing HMRC from relying on its new argument, it might cause it some prejudice since it was an argument that might succeed. However, the FTT did not believe that the justification given by HMRC for its failure to raise the new argument earlier in the proceedings was sufficient to outweigh the potential prejudice to the Applicants by allowing HMRC to raise a new argument so late in the day. The FTT highlighted the importance to both parties of keeping the scheduled hearing date and of enabling litigants to "obtain justice efficiently". The balance of prejudice lay in allowing the application.

Comment

This decision is a useful reminder that points that form part of a party's case must be properly pleaded in its statement of case or grounds of appeal, as the case may be. The inclusion of a new argument for the first time in a skeleton argument is not likely to be looked upon favourably by the FTT.

It is important to carefully consider an opposing party's skeleton argument to ensure that it does not raise a new ground or argument, which is 'disguised' as mere elaboration of an existing ground. This issue is more pronounced where allegations of deliberate conduct are being made. In such cases, the accused party must be permitted an adequate opportunity to prepare its case in response to such serious allegations.

In order to raise a new argument in an appeal before the FTT, permission from the FTT must be sought and the later in the day any such application is made, the more likely it is that prejudice will be caused to the other party, and the more likely it is that the application will be denied.

The decision can be viewed here.