Judgment summary
This is an appeal against a case management decision of the First-tier Tribunal (FTT) dated 6 June 2024 relating to a substantive appeal by L Rowland & Co (Retail) Limited (Rowlands). The FTT had directed that each party name five locum pharmacists as additional witnesses, with the Tribunal to issue witness summonses of its own initiative if necessary, and that HMRC would only be required to provide further and better particulars of its case on the third stage of the Ready Mixed Concrete test after that additional witness evidence was available (see paragraphs 1 to 2, 25 to 26).
Rowlands appealed on two grounds: that the FTT had no jurisdiction to require a party to call evidence from a particular witness (Ground 1), and that even if it had jurisdiction, the directions were vitiated by errors of law in the exercise of discretion (Ground 2) (paragraph 3).
The Upper Tribunal dismissed Ground 1, finding that the FTT did have jurisdiction under Rule 16 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to summon witnesses of its own initiative (paragraphs 83 to 100). However, the Tribunal allowed Ground 2, finding that the FTT erred in law in exercising its discretion to make both disputed directions, and set them aside (paragraphs 130 to 189). The Upper Tribunal remade the directions itself rather than remitting the matter (paragraphs 190 to 196).
Background
The Appellant's substantive appeal to the FTT (Appeal reference TC/2022/12708) challenges HMRC decisions to issue Regulation 80 Determinations under the Income Tax (Pay As You Earn) Regulations 2003 and Section 8 Decisions under the Social Security Contributions (Transfer of Functions, etc) Act 1999, for the tax years 2015/16 to 2017/18. Some £16 million is in dispute in the Relevant Period, with a further £12 million at issue in subsequent tax years (paragraph 7).
The appeal concerns the Appellant's engagement of approximately 1,400 locum pharmacists during the Relevant Period, and whether they were self-employed (as Rowlands contends) or employees (as HMRC contends) (paragraph 8).
HMRC had a section in its Employment Status Manual (ESM4270) dealing with locum pharmacists, which Rowlands says it relied on in treating locums as self-employed. This Guidance was withdrawn by HMRC with effect from 30 June 2023 (paragraphs 10 to 11).
HMRC structured its pleaded case by reference to the three-stage test in Ready Mixed Concrete (South East) Ltd v Minister of Pensions and National Insurance [1968] 2 QB 497. HMRC pleaded a case on the first two stages (mutuality of obligation and control) but stated it could not presently plead a detailed case on the third stage (RMC3), reserving the right to amend after disclosure and/or service of the Appellant's witness statements (paragraphs 12 to 14).
At a case management hearing on 14 May 2024, the FTT addressed applications including Rowlands' application for further and better particulars on RMC3 and HMRC's application for a sample case approach involving additional locum witnesses (paragraphs 15 to 16). The FTT gave an oral decision and later issued its written Decision on 6 June 2024, which is the subject of this appeal (paragraphs 17 to 19).
Core dispute
The dispute concerned two directions made by the FTT. The first required each party to name five further locum pharmacist witnesses, totalling ten additional witnesses, with the Tribunal to issue witness summonses of its own initiative if the witnesses would not cooperate voluntarily, and for evidence in chief to be elicited at a preliminary hearing if no witness statements were provided (paragraph 25).
The second required HMRC to provide further and better particulars of its case on the third stage of the Ready Mixed Concrete test only after all of the additional witness evidence became available to HMRC (paragraph 26).
Rowlands argued that the FTT had no jurisdiction to make directions requiring a party to call a particular witness, contrary to the principle of party autonomy (Ground 1), and alternatively that even if jurisdiction existed, the directions were wrong in the exercise of discretion because they were contrary to the overriding objective, involved a fishing expedition, caused unnecessary delay and practical difficulties, and required evidence to be given before HMRC's case was pleaded (Ground 2) (paragraphs 3, 29, 33, 103).
HMRC argued that the FTT had not directed Rowlands to call the witnesses but rather envisaged the FTT calling them itself if Rowlands chose not to, and that the FTT made no error of law in the exercise of its case management discretion (paragraphs 69, 101 to 122).
Court findings
On Ground 1, the Upper Tribunal held that, properly interpreted, the FTT's direction at paragraph 18 of the Decision meant that if the Appellant chose not to call the additional locum witnesses voluntarily, the FTT would issue witness summonses of its own initiative, calling them as the FTT's own witnesses, rather than requiring Rowlands to call them (paragraphs 70 to 82). The Tribunal found that Rule 16 of the FTT Rules, worded identically to Rule 16 of the Upper Tribunal Rules, gives the FTT jurisdiction to summon witnesses of its own initiative, and that the correct approach to determining jurisdiction is statutory construction rather than debate over whether FTT proceedings are adversarial or inquisitorial (paragraphs 83 to 91). Ground 1 was dismissed; the FTT had jurisdiction to make the directions it made (paragraph 100).
On Ground 2, the Upper Tribunal held that the exercise of discretion to make the additional witnesses direction was wrong in principle because it offended the principle of party autonomy explained in QX v Secretary of State for the Home Department [2022] EWCA Civ 1541, even though the FTT was not itself selecting the witnesses' identities (paragraphs 132 to 153). The direction wrongly enabled HMRC to secure attendance of witnesses it alone wished to examine while retaining the ability to cross-examine them, contrary to the non-impeachment principle discussed in Banque Havilland SA & others v FCA [2024] UKUT 115 (TCC) (paragraphs 136 to 142). The Tribunal found this was not a case justifying an inquisitorial approach, given that the parties were sophisticated, well represented, and able to identify and, if necessary, summon witnesses themselves (paragraphs 143 to 151).
On the further and better particulars direction, the Tribunal held that the FTT wrongly reversed the normal order of proceedings under the FTT Rules, in particular Rule 25(2), by allowing HMRC to defer pleading its case on RMC3 until after additional witness evidence was obtained. This was inconsistent with the requirement that a party know the case it must meet, as established in cases including Citibank NA v HMRC [2014] UKFTT 1063 (TC), Kingston Maurward College v HMRC [2023] UKUT 69 (TCC), and The Prudential Assurance Co Ltd v HMRC [2016] EWCA Civ 376 (paragraphs 155 to 185). The Tribunal found HMRC could and should have pleaded, at least in broad terms, its position on the nine factors set out in the Appellant's grounds of appeal (paragraphs 176 to 177).
Outcome
The Upper Tribunal allowed the appeal on Ground 2, finding material errors of law in the exercise of the FTT's discretion in respect of both directions, and set aside the directions at paragraphs 18 to 21 of the FTT Decision (paragraph 189). Ground 1 was dismissed, the FTT having had jurisdiction to make the directions (paragraph 100).
Rather than remitting the matter, the Upper Tribunal remade the case management decision. It dismissed HMRC's application for additional witnesses to be identified and called in the terms sought in its April 2024 application, and granted the Appellant's application for HMRC to provide further and better particulars of its case on the third stage of the Ready Mixed Concrete test (paragraphs 191 to 192).
The Upper Tribunal directed that HMRC provide further and better particulars of its case on RMC3 within 28 days of the decision, that the Appellant may reply within a further 28 days, that the Appellant file further documentary and/or witness evidence within 42 days of the particulars, that HMRC file further evidence in reply within a further 42 days, that either party seeking to call uncooperative witnesses apply for witness summonses at the same time as filing that evidence, and that the parties provide updated hearing time estimates and availability 14 days after HMRC's reply evidence (paragraph 194). The case was to proceed before the same FTT judge, with liberty to apply to vary the directions (paragraphs 196).
Major issues / areas of contention
- Whether the FTT had jurisdiction under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to direct the identification and, if necessary, summonsing of additional locum pharmacist witnesses.
- Whether such directions contravened the principle of party autonomy in adversarial litigation as established in QX v Secretary of State for the Home Department.
- Whether the FTT properly exercised its case management discretion in directing that HMRC's provision of further and better particulars on the third stage of the Ready Mixed Concrete test be deferred until after additional witness evidence was obtained.
- Whether HMRC's statement of case adequately set out its position on the third stage of the Ready Mixed Concrete test in accordance with Rule 25(2) of the FTT Rules.
- The proper approach on appeal to case management decisions of the FTT, including the threshold for appellate interference established in HMRC v BPP Holdings Ltd.
- The scope of the FTT's power to summon witnesses of its own initiative under Rule 16 and the circumstances in which such power should be exercised.