Judgment summary
This appeal concerned the correct interpretation of paragraph 8 of a Court of Appeal order dated 4 April 2023 (the CA Order), which remitted the issue of the correct apportionment of a Residual Amount to the First-tier Tribunal (FTT) (paragraph 2, 7). The dispute arose out of a Closure Notice issued by HMRC on 5 February 2016 denying elements of a claim to business premises renovation allowances (BPRA) made by London Luton Hotel BPRA Property Fund LLP (LLH) in its 2010-11 tax return (paragraph 2).
The FTT, in a case management decision reported at [2024] UKFTT 001104 (TC) (FTT24), determined that the only matter remitted by the Court of Appeal was a mathematical calculation of the apportionment, the methodology having already been settled in the FTT's 2019 decision ([2019] UKFTT 212 (TC)) (FTT19) (paragraph 3, 8-13). LLH appealed that case management decision to the Upper Tribunal.
The Upper Tribunal (Judge Amanda Brown KC and Judge Andrew Scott) dismissed the appeal, holding that FTT24 correctly construed the CA Order and correctly declined to reopen the methodology of apportionment (paragraph 103).
Background
LLH claimed BPRA on the full Development Sum paid to a developer for the conversion of a property known as Blush House, on the basis that there was a single item of expenditure (paragraph 4). HMRC's Closure Notice took the view that the correct approach was to look behind the Development Sum at its component elements, denying seven individual heads of expenditure and a proportion of a balancing figure, the Residual Amount, calculated by reference to the proportion of qualifying to total development costs, including the land purchase price (paragraph 4-5).
The return was adjusted by denying £6,478,201 of the total £12,478,201 BPRA claimed, later revised down to £5,255,761 (paragraph 4).
FTT19, following a 16-day hearing in 2018, determined entitlement by reference to component elements of expenditure, with some findings favourable to LLH and some to HMRC, and addressed the Residual Amount at [228] to [231] of its decision (paragraph 6). On appeal, the Upper Tribunal in [2021] UKUT 147 (TCC) (UT21) held that no apportionment of the Residual Amount was required (paragraph 7). The Court of Appeal in [2023] EWCA Civ 362 (CA23) allowed HMRC's appeal on this point, set aside UT21, and remitted 'the issue of the correct apportionment of the Residual Amount... to be addressed in the manner referred to at [231] of the [FTT19]'s decision' (paragraph 7, 43).
Following remittal, the FTT issued case management directions envisaging further evidence, prompting HMRC's application dated 22 March 2024 for clarification of the scope of the remitter (paragraph 8).
Core dispute
The central question was whether paragraph 8 of the CA Order remitted only the arithmetical calculation of the apportionment of the Residual Amount, on the basis that FTT19 had already determined the methodology (HMRC's position), or whether it remitted the methodology itself for fresh determination, allowing LLH to adduce new evidence and submissions (LLH's position) (paragraph 9, 15-30).
LLH argued that FTT19 had decided only the principle of apportionment, not the method, that the CA Order's reference to a possible future FTT hearing presupposed something substantive remained to be decided, and that, in any event, if FTT19 had decided methodology, the issue should be reopened following the appellate clarification of the law in CA23, relying on Larner v Warrington [1985] STC 442 (paragraph 15-24).
HMRC contended that FTT19 had determined both the principle and the method of apportionment (a pro-rata approach based on total project expenditure including land costs), that the CA Order, properly construed against the accompanying judgment per San Souci Ltd v VRL Services Ltd [2012] UKPC 6 and Coward v Phaetos Limited [2021] EWHC 9 (Ch), remitted only the calculation, and that reopening methodology would offend finality of litigation (paragraph 25-30).
Court findings
The Upper Tribunal held that paragraph 8 of the CA Order could not be understood without reference to the accompanying CA23 judgment (paragraph 37, applying the approach in San Souci Ltd v VRL Services Ltd [2012] UKPC 6 at [13]-[16]).
Reviewing CA23 at [161]-[173] and [175(c)], the Tribunal found that the Court of Appeal expected the FTT to proceed in accordance with [231] of FTT19, effectively picking up where FTT19 had left off in 2019 (paragraph 45-46, 77-81).
Analysing FTT19 itself, the Tribunal concluded that the FTT had, at [228]-[231], accepted HMRC's pro-rata apportionment methodology (spreading the developer's profit across the entire 'cradle-to-grave' package, including land acquisition costs, between qualifying and non-qualifying expenditure), rather than merely deciding that apportionment in principle was required (paragraph 54-60). This conclusion was supported by the wording of FTT19, the fact that the FTT had left only a calculation exercise (pending resolution of legal costs) to the parties with liberty to apply, and the improbability that such a significant issue would be left open without express words after a 16-day hearing (paragraph 55-61).
The Tribunal reviewed the pleadings, statements of case, evidence (including that of Mr Lewis) and skeleton arguments before FTT19 and found that LLH had in fact challenged the methodology, including the inclusion of the land purchase price, and that this was rejected by the FTT (paragraph 62-75).
The Tribunal also considered HMRC's conduct of the appeal to the Court of Appeal, including pleadings and transcript extracts, and concluded that, although HMRC's submissions could have been clearer, they were consistent with the FTT19 methodology having already been determined; the CA had not been misled (paragraph 83-95).
On the alternative ground concerning reopening, the Tribunal accepted that, until a final decision disposing of the appeal under section 50 TMA, the FTT retained jurisdiction to reopen an issue, but found Larner v Warrington [1985] STC 442 distinguishable because FTT19 had determined entitlement on each head of expenditure, including the Residual Amount, and CA23 had, in substance, upheld the Closure Notice (paragraph 97-102). The Tribunal held that allowing relitigation would offend the principle of finality in litigation, referring to AIC Limited v Federal Airports Authority of Nigeria [2022] UKSC 16 (paragraph 101).
Outcome
The appeal was dismissed. The Upper Tribunal held that FTT24 did not err in law in its construction of the CA Order, nor in refusing to reopen the methodology of apportionment (paragraph 103).
The remitter was held to require the parties to undertake the calculation of the non-qualifying proportion of the Residual Amount by applying the method indicated at [231] of FTT19, taking account of the now settled position on qualifying items. FTT24 and its directions were affirmed (paragraph 103).
Major issues / areas of contention
- Whether the FTT erred in law in FTT24 in construing paragraph 8 of the Court of Appeal's remittal order.
- Whether FTT19 had determined only the principle of apportionment of the Residual Amount, or also the methodology of apportionment.
- Whether the FTT erred in law in refusing to reopen the question of methodology following the Court of Appeal's decision in CA23.
- Whether HMRC's conduct of the appeal before the Court of Appeal misled the court as to the scope of what remained to be decided.
- The correct approach to construing a court order by reference to the accompanying judgment, per San Souci Ltd v VRL Services Ltd and Coward v Phaetos Limited.
- The application of the principle of finality in litigation and the circumstances in which an FTT may reopen an issue before final determination under section 50 TMA, including consideration of Larner v Warrington.