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Q1a. Errors of evaluation

General approach

 

"[72] It is common ground that the judge's decision was an evaluative one. It follows that, given that it is not suggested that the judge made any error of law, this Court can only intervene if there is some identifiable flaw in the judge's reasoning, such as a gap in the logic, a lack of consistency or a failure to take account of some material factor, that undermines the cogency of the conclusion: see Re Sprintroom Ltd [2019] EWCA Civ 932, [2019] BCC 1031 at [72]-[78] (McCombe, Leggatt and Rose LJJ, as they then were).
[73] In my judgment there are four identifiable flaws in the judge's reasoning. First, while the judge was correct to say that it is the Trustees' duty to act in the interests of the creditors, what the judge failed to recognise is that the Trustees are experienced professionals who have a statutory discretion as to what steps they should take. It is not the Trustees' duty to act in the interests of the creditors at all costs." (Patley Wood Farm LLP v. Kicks [2023] EWCA Civ 901, Arnold, Lewison, Asplin LJJJ)

"[84] Whether it is "more appropriate" to describe the item as apparatus or premises is clearly a value judgment. As Jacob LJ said in HMRC v Procter & Gamble UK [2009] EWCA Civ 407, [2009] STC 1990 at [9]:
"Often a statutory test will require a multi-factorial assessment based on a number of primary facts. Where that it so, an appeal court (whether first or second) should be slow to interfere with that overall assessment – what is commonly called a value-judgment."
[85] Similarly, in Re Sprintroom Ltd [2019] EWCA Civ 932, [2019] BCC 1031 this court said at [76]:
"So, on a challenge to an evaluative decision of a first instance judge, the appeal court does not carry out a balancing task afresh but must ask whether the decision of the judge was wrong by reason of some identifiable flaw in the judge's treatment of the question to be decided, "such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion"."
[86] I cannot see that the UT's answer to the question that they posed reveals any legal error." (Cheshire Cavity Storage 1 Limited v. HMRC [2022] EWCA Civ 305, Lewison, Baker, Whipple LJJJ)
 

"[76] So, on a challenge to an evaluative decision of a first instance judge, the appeal court does not carry out a balancing task afresh but must ask whether the decision of the judge was wrong by reason of some identifiable flaw in the judge's treatment of the question to be decided, "such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion".
[77] All this said, when assessing an evaluative decision of the facts found by a trial judge, there can be no doubt that one must also bear in mind the well-known passage in the speech of Lord Hoffmann in Biogen Inc. v Medeva plc [1997] RPC 1, 45 where he said:
"…The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved. Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge's evaluation."" (Re Sprintbroom Limited [2019] EWCA Civ 932, McCombe, Leggatt, Rose, LJJJ)

General approach

Error of approach/applying the wrong test is error of law

"[52] The following principles were common ground before us. First, an appeal from the FTT can only succeed if its decision was erroneous in law. Secondly, the Expenses of Management issue does not raise a pure question of law (in contrast to the Capital Expenditure issue, which does). Thirdly, it follows that the role of an appellate court or tribunal is a limited one. Neither this Court nor the UT would be entitled to interfere with the conclusion of the FTT on the Expenses of Management issue unless it erred in its approach to the issue, for example by misdirecting itself on a point of law; or if its findings of fact were unsupported by any evidence; or if its conclusion from those findings was one that was not reasonably open to it." (HMRC v. Centrica Overseas Holdings Limited [2022] EWCA Civ 1520, Singh, Newey, Henderson LJJJ)

“We do not accept that submission. It amounts to saying that if the FTT reached the right conclusion then the fact that the FTT misstated the legal test to be applied does not amount to an error of law. In our view, there would still be an error of law even if the outcome of the appeal before the FTT would inevitably have been the same.” (ETB (2014) Limited v. HMRC [2016] UKUT 424 (TCC), §26, Judges Sinfield and Clark – reasonable excuse penalty appeal).

 

“In Pendragon, between [47] and [50], Lord Carnwath examined the circumstances in which, exceptionally rather than routinely, this tribunal might legitimately interfere with findings of fact by the FtT. He made it clear at [50] that its power to do so was dependent upon its finding what he described as “errors of approach” in the F-tT’s decision; but once such errors were found “it was appropriate for [the Upper Tribunal] to exercise their power to remake the decision, making such factual and legal judgments as were necessary for the purpose.” That was because, as he said at [48] “the Upper Tribunal is itself a specialist tribunal, with the function of ensuring that First-tier Tribunals adopt a consistent approach in the determination of questions of principle which arise under the particular statutory scheme in question.” He also made it clear, at [50], that an “error of approach” might not amount to an error of law in the strictest sense of the term…It follows therefore that if we are to allow this appeal we must first find an error of approach by the F-tT. For the reasons which follow we are satisfied that there was such an error and that it is appropriate for us to intervene.” (HMRC v. SAE Education Limited [2016] UKUT 193 (TCC), §§105…106, Judges Bishopp and Brannan).

“In our view the challenge in this case is not to the findings of the FTT as to primary facts, nor as to any inferences drawn from primary facts. It is a challenge to the legal test applied by the FTT in assessing, first, the seriousness of Trinity Mirror’s default, and secondly whether the surcharge in this case was disproportionate. Those are questions of law. We do not accept that there is any constraint, either by reference to the grounds of appeal as raised by HMRC, or as regards the jurisdiction of this tribunal in this regard.” (HMRC v. Trinity Mirror plc [2015] UKUT 421 (TCC), §45, Rose J and Judge Berner – on the question of whether a penalty was disproportionate).

Less focus on specific wording if case law does not establish a single test

"[40] In Wimpy, the context of Lloyd LJ’s observations was the Court of Appeal’s conclusion from its analysis of the main authorities at that time that there was no single test for defining plant. When Lloyd LJ said that “it is not enough to show that [the commissioners] may have applied the wrong test” (emphasis added to original), in our view he was simply making the point that it is not enough to show in this context that the tribunal “may” have applied the wrong test; as he says a few sentences later, it is necessary to show that they have or must have applied the wrong test." (Urenco Chemplants Limited v. HMRC [2022] UKUT 22 (TCC), Mellor J and Judge Thomas Scott)

Error of approach/applying the wrong test is error of law

Must be an error in applying the principle, not in stating it

 

"[59] Even if there was an error on the face of the decision in the way the FTT transposed its earlier analysis in paragraph 34, without any clarification regarding the non-exceptionality of cases where the taxpayer was misled, then that was an error in the FTT misstating the principle  12  it took from Katib.  It would not, however, be an error that was material so as to justify setting aside the FTT’s decision as it is clear the FTT did not then, as just explained, misapply that principle. We are satisfied the FTT correctly considered the issue of Mr Uddin being misled and the circumstances surrounding that in its consideration of all the circumstances at the third stage. We therefore reject this ground of appeal." (Uddin v. HMRC [2023] UKUT 99 (TCC), Judge Raghavan and Judge Baldwin)

Must be an error in applying the principle, not in stating it

Erroneous approach may not be material

 

"[87] Looking at the decision as a whole, we are satisfied that the FTT’s error in referring to the approach in Weightwatchers was not a material error. We reach that conclusion because on a fair analysis the FTT clearly weighed in the balance all the factors which it considered to be relevant, applying Hall v Lorimer. We also take into account the nature of the alleged error. The approach derived from Weightwatchers involved the application of a presumption, but it was always a rebuttable presumption. It is not suggested that the FTT gave special weight to the fact that mutuality of obligation and a sufficient framework of control existed when it came to its overall analysis, and there is no suggestion in the Decision that it did so. In our view the FTT conducted the balancing exercise anticipated by the Court of Appeal in Atholl House and reached a conclusion looking in the round at all the factors it considered to be relevant." (Red White and Green Limited v. HMRC [2023] UKUT 83 (TCC), Mellor J and Judge Cannan)

Erroneous approach may not be material

Insufficient analysis and ignoring undisputed facts

 

"It follows that we agree with the UT's finding that the arrangements lacked commerciality. Further, it was, in our judgment, open to the UT to reverse the FTT on this point for the reasons given by the UT: the FTT had made an "illogical and unjustifiable leap" from its conclusion that the parties were not connected in a statutory sense to finding that the arrangements were commercial (UT decision at [250]); the FTT had failed to explain why such a large amount was charged for the licence, and in that regard had failed to refer to the evidence that this was a very unusual arrangement (UT decision at [253]); and the FTT had failed to acknowledge the artificiality in the LLP meeting its interest obligations by means of money which went from the LLP to OVL and back again (UT decision at [254]). Overall, the UT characterised the FTT's failures as containing insufficient analysis and ignoring undisputed facts; the result was an Edwards v Bairstow error of law by the FTT (UT decision at [257], and see [1956] AC 14 per Lord Radcliffe at p. 36)." (London Luton Hotel BPRA Property Fund LLP v. HMRC [2023] EWCA Civ 362, Whipple, Falk, Lewison LJJJ)

Insufficient analysis and ignoring undisputed facts

Correct principle stated but some identifiable flaw in applying (e.g. gap in logic)

 

"[78] In a case such as the present where the tribunal of fact has in substance correctly identified the governing principles of law, the reluctance of an appellate court to interfere should, if anything, be even stronger. Nevertheless, to characterise a question as one of fact and degree does not automatically confer immunity from legal challenge. As this court rightly recognised in Cheshire Cavity at [85], referring to the Sprintroom case [2019] EWCA Civ 932, at [76], the decision of the first instance judge may be "wrong by reason of some identifiable flaw in the judge's treatment of the question to be decided". The examples there given are "a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion"." (Urenco Chemplants Limited v. HMRC [2022] EWCA Civ 1587, Henderson, Thirlwall, Arnold LJJJ)

Correct principle stated but some identifiable flaw in applying (e.g. gap in logic)

Contradictory reasoning is an error of law

 

"[106] It follows that we also agree with Mr Stone that these two passages of the FTT judgment are inconsistent, and that this constitutes an error of law.  The FTT  could not reasonably find both:

(1)          that alcoholism and depression did not constitute exceptional circumstances, even taking into account that they “cause much suffering and distress both for the  individual concerned and for that individual’s family”; and

(2)          that “the combination of the need for the Taxpayer to care for her twin sister and, particularly, for her minor children at a time of crisis caused by the twin sister’s alcoholism does constitute exceptional circumstances”." (HMRC v. A Taxpayer [2023] UKUT 182 (TCC), Green J and Judge Redston)

Contradictory reasoning is an error of law

Not to elevate matters of weight and importance to legal principles

 

"[120] If I may say so, I consider that the UT fell into the trap of over-complicating this part of the case, and of purporting to detect errors of law in what were, in truth, no more than the FTT's evaluative conclusions of fact and degree. So, for example, the UT considered that a purposive construction of "building" in section 21 requires considerations of function to be "particularly important", and "appearance or physical characteristics should not be the primary determinant of the line in the sand which sections 21 to 23 were intended to draw": see the UT Decision at [130]. In my view, this formulation impermissibly seeks to elevate matters of weight and evaluation into a principle of law which cannot fairly be derived from the statutory context." (Urenco Chemplants Limited v. HMRC [2022] EWCA Civ 1587, Henderson, Thirlwall, Arnold LJJJ)

Not to elevate matters of weight and importance to legal principles

Presumption that Tribunal which correctly states legal principles has correctly applied them

 

"[73] We bear in mind the approach advocated by the Court of Appeal in DPP Law Ltd v Greenberg [2021] EWCA Civ 672:

"58. Moreover, where a tribunal has correctly stated the legal principles to be applied, an appellate tribunal or court should, in my view, be slow to conclude that it has not applied those principles, and should generally do so only where it is clear from the language used that a different principle has been applied to the facts found. Tribunals sometimes make errors, having stated the principles correctly but slipping up in their application, as the case law demonstrates; but if the correct principles were in the tribunal’s mind, as demonstrated by their being identified in the express terms of the decision, the tribunal can be expected to have been seeking faithfully to apply them, and to have done so unless the contrary is clear from the language of its decision." (Red White and Green Limited v. HMRC [2023] UKUT 83 (TCC), Mellor J and Judge Cannan)

"[37] The parties are agreed that the FTT correctly stated the legal principles. Therefore [by reference to Greenberg], there is a presumption it applied those principles correctly." (Northside Fleet Limited v. HMRC [2022] UKUT 256 (TCC), Judge Jonathan Richards and Judge Aleksander)

"[28] While it is accepted by the appellant that the FTT correctly stated the relevant legal principle (in that it set out an excerpt of the four stage Perrin approach) the appellant’s case is that the FTT then failed to apply those principles correctly. Both parties referred us to the following extract from DPP Law v Greenberg [2021] EWCA Civ 67 (at [58]) dealing with how an appellate tribunal should deal with the situation where the tribunal has correctly stated the legal principles but there is an issue over the tribunal’s application of the principles. In that case the appeal was from the Employment Appeal Tribunal in relation to a rejection of a claim for unfair dismissal:

“Moreover, where a tribunal has correctly stated the legal principles to be applied, an appellate tribunal or court should, in my view, be slow to conclude that it has not applied those principles, and should generally do so only where it is clear from the language used that a different principle has been applied to the facts found.  Tribunals sometimes make errors, having stated the principles correctly but slipping up in their application, as the case law demonstrates; but if the correct principles were in the tribunal’s mind, as demonstrated by their being identified in the express terms of the decision, the tribunal can be expected to have been seeking faithfully to apply them, and to have done so unless the contrary is clear from the language of its decision.  This presumption ought to be all the stronger where, as in the present case, the decision is by an experienced specialist tribunal applying very familiar principles whose application forms a significant part of its day to day judicial workload.”" (Harrison v. HMRC [2022] UKUT 216 (TCC), Judge Raghavan and Judge Andrew Scott)

Not to focus on occasional words or phrases

"[38] In our judgment, Northside’s focus on occasional words or phrases in paragraphs [110] to [113] fails to put those words and phrases in their proper context. The FTT was quite entitled to proceed on the basis that, in a case such as this, there would be no single “killer” fact or circumstance that would have demonstrated to a reasonable trader that the disputed transactions were connected with fraud. It was permissible for the FTT to proceed on the basis that means of knowledge of an actual connection with fraud could exist if Northside had means of knowledge of a cumulation of factors, those or circumstances, each of which on their own pointed to a risk provided that, taken together factors would have demonstrated to a reasonable trader that the disputed transactions actually were connected with fraud." (Northside Fleet Limited v. HMRC [2022] UKUT 256 (TCC), Judge Jonathan Richards and Judge Aleksander)

Presumption that Tribunal which correctly states legal principles has correctly applied them

Presumption that Tribunal which wrongly states legal principle has applied that wrong principle

"[104] We reject HMRC’s submission that the FTT did, despite its self-direction to the contrary, take into account healthiness and perceived healthiness in the way suggested. The first point is that the FTT’s clear self-direction was that healthiness was  irrelevant as a factor in its overall assessment. It ought, in our view to be presumed that the FTT will act in accordance with its own direction. We consider it did. We agree with Ms Sloane that the fact the word healthy or aspects of that concept appeared in the extracts HMRC refer to did not mean healthiness was (contrary to the FTT’s self-direction) being considered." (WM Morrison Supermarkets Plc v. HMRC [2023] UKUT 20 (TCC), Judge Raghavan and Judge Brannan)

"[75] We bear in mind the approach advocated by the Court of Appeal in DPP Law Ltd v Greenberg [2021] EWCA Civ 672: 58. Moreover, where a tribunal has correctly stated the legal principles to be applied, an appellate tribunal or court should, in my view, be slow to conclude that it has not applied those principles, and should generally do so only where it is clear from the language used that a different principle has been applied to the facts found. Tribunals sometimes make errors, having stated the principles correctly but slipping up in their application, as the case law demonstrates; but if the correct principles were in the tribunal’s mind, as demonstrated by their being identified in the express terms of the decision, the tribunal can be expected to have been seeking faithfully to apply them, and to have done so unless the contrary is clear from the language of its decision.  

[74] We accept Mr Gordon’s submission that a similar approach should apply in this case. Where the FTT has referred to an erroneous legal principle, we should be slow to conclude that it did not then apply that principle.

...

[87] Looking at the decision as a whole, we are satisfied that the FTT’s error in referring to the approach in Weightwatchers was not a material error. We reach that conclusion because on a fair analysis the FTT clearly weighed in the balance all the factors which it considered to be relevant, applying Hall v Lorimer. We also take into account the nature of the alleged error. The approach derived from Weightwatchers involved the application of a presumption, but it was always a rebuttable presumption. It is not suggested that the FTT gave special weight to the fact that mutuality of obligation and a sufficient framework of control existed when it came to its overall analysis, and there is no suggestion in the Decision that it did so. In our view the FTT conducted the balancing exercise anticipated by the Court of Appeal in Atholl House and reached a conclusion looking in the round at all the factors it considered to be relevant." (Red White and Green Limited v. HMRC [2023] UKUT 83 (TCC), Mellor J and Judge Cannan)

Presumption that Tribunal which wrongly states legal principle has applied that wrong principle

Confusing passage to be assessed in light of the whole decision

 

"[80] I would accept that these passages could have been better phrased, and that the point which the FTT was seeking to make in them is not immediately apparent. Read in context, however, I do not accept that they evince any error of law, let alone a material one. The FTT was plainly well aware of the actual trade carried on by Urenco at the TMF, because it accurately identified that trade at the beginning of [95] itself. The FTT was also fully aware of the imperative need for the design and structure of the five facilities at the TMF to satisfy stringent environmental and safety criteria. The means by which these criteria were satisfied are reflected in the FTT's functional analysis of the component parts of each of the five facilities in [98]. However, I agree with HMRC that the crucial finding of fact in [95] is "that the safety functions of shielding, containment and seismic qualification are properly viewed as part of the setting in which that trade is carried out".

[...]

[82] That is the broader context within which the potentially problematic sentences in [95] must be placed. On a fair reading, I consider that the FTT was doing no more in those sentences than...

...

[85] As a cross-check on this part of the case, I find it helpful to try to imagine how the FTT, on a remitter, might reasonably be expected to approach and perform its task in a significantly different way, with the benefit of the guidance and criticisms contained in the UT Decision at [78] to [87]. I confess that I find it hard to imagine the FTT coming to a different conclusion, which is perhaps another way of saying that, to my mind, the FTT's conclusions are essentially of an evaluative nature, where an appellate court or tribunal should generally resist the temptation to interfere." (Urenco Chemplants Limited v. HMRC [2022] EWCA Civ 1587, Henderson, Thirlwall, Arnold LJJJ)

"[36] In approaching the grounds of appeal we acknowledge that we must not over-analyse the FTT’s reasoning process; be hypercritical of the way in which the Decision is written; or focus too much on particular passages or turns of phrase to the neglect of the Decision read in the round (see Mummery LJ in Brent LBC v Fuller [2011] EWCA Civ 267)." (Red White and Green Limited v. HMRC [2023] UKUT 83 (TCC), Mellor J and Judge Cannan)

"[48] However, the fact that the paragraph is confusing does not of itself mean that it betrays an error of law. The FTT’s conclusions and reasoning must be determined from an analysis of the Decision as a whole. As Mummery LJ said at p813 of the judgment of the Court of Appeal in Brent v Fuller [2011] ICR 806: The reading of an employment tribunal decision must not, however, be so fussy that it produces pernickety critiques. Over-analysis of the reasoning process; being hypercritical of the way in which a decision is written; focussing too much on particular passages or turns of phrase to the neglect of the decision read in the round: those are all appellate weaknesses to avoid.

[49] In our judgment, the paragraph after [110(13)] is unnecessary and the reference to the “overall impression” that the transactions were “inappropriate” is unfortunate and lacks precision. However, when the Decision is read as a whole in the light of the FTT’s self-direction as to the law which both parties agree to be correct, it is clear that the FTT realised that the “should have known” aspect of the Kittel test involved an objective examination..."(Northside Fleet Limited v. HMRC [2022] UKUT 256 (TCC), Judge Jonathan Richards and Judge Aleksander)

Confusing passage to be assessed in light of the whole decision

Inferences from facts as questions of fact


“[44] In practice the main difficulties that arise in determining whether an appeal raises a point of law occur when legal rules are applied to particular factual situations. The First-tier Tribunal makes findings of primary fact, and may draw inferences of fact from these, such as that goods acquired by the taxpayer are intended to be sold at a profit.  Findings of that nature are not susceptible to review unless they fall within the third and fourth categories discussed above, where there is a lack of evidence for an inference of fact or a breakdown in proper intellectual processes.The next question, however, is whether a statutory charge to tax applies to the facts so found, and that is a point of law.  Thus deciding whether an intended sale at a profit is an adventure in the nature of trade involves the application of legal rules and thus raises a point of law.” (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77)

“[114] Appellate courts have been repeatedly warned, by recent cases at the highest level, not to interfere with findings of fact by trial judges, unless compelled to do so. This applies not only to findings of primary fact, but also to the evaluation of those facts and to inferences to be drawn from them...The reasons for this approach are many. They include:

i) The expertise of a trial judge is in determining what facts are relevant to the legal issues to be decided, and what those facts are if they are disputed.

ii) The trial is not a dress rehearsal. It is the first and last night of the show.

iii) Duplication of the trial judge's role on appeal is a disproportionate use of the limited resources of an appellate court, and will seldom lead to a different outcome in an individual case.

iv) In making his decisions the trial judge will have regard to the whole of the sea of evidence presented to him, whereas an appellate court will only be island hopping.

v) The atmosphere of the courtroom cannot, in any event, be recreated by reference to documents (including transcripts of evidence).

vi) Thus even if it were possible to duplicate the role of the trial judge, it cannot in practice be done.(Fage UK Limited and another v Chobani UK Limited [2014] EWCA Civ 5, Lewislon LJ)

Complex inferences may go beyond mere questions of fact

"[44] ...No doubt cases exist where the inferences drawn are complex, involving both law and fact, and in that event the court must attempt to distinguish the two categories.  Borderline cases will obviously exist, but the distinction is still important." (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77)

Inferences from facts as questions of fact

Sufficiency of evidence is a value judgment 

 

“[27] It is of course the case that we are dealing here with the application of a statutory provision. But not every decision in that regard will be a finding of law. If a statutory condition is that a car must be red, a finding that it was red would be a finding of fact. If the clear evidence is in fact that it was green, then that finding of fact may be upset as an error of law. The FTT in this case was required to consider whether, on the facts that it found as to the evidence of export available to Arkeley at the material time, that evidence was sufficient to satisfy the statutory conditions. If the FTT made an error as to what the statutory conditions required, then we accept that would be an error of law. But if the only error asserted is that the FTT was wrong in its assessment of the sufficiency of the evidence, that would in our view fall into the category of a multi-factorial assessment based on a number of primary facts, or a value judgment.” (HMRC v. Arkeley Limited [2013] UKUT 393 (TCC), §27, Judges Berner and John Clark).

Sufficiency of evidence is a value judgment 

Interfering with evaluation: threshold varies depending on factual content

 

[45] Decisions of the First-tier Tax Tribunal frequently involve elements of evaluation and judgment.  In general, a court, or the Upper Tribunal, should be slow to interfere with the decision of the First-tier Tribunal in cases of this nature. This is explained by the Court of Appeal in Proctor & Gamble UK v HMRC, [2009] STC 1990[2009] EWCA Civ 407, a case on VAT.  Food is generally zero rated for VAT purposes, but there is an exception for “potato crisps… and similar products made from the potato, or from potato flour, or from potato starch…”.  The question that arose was whether a savoury snack product known as “Regular Pringles”, with a potato flour content of approximately 40%, was subject to that exception.  The Value Added Tax and Duties Tribunal, the predecessor of the First-tier Tribunal, held that it was, and this was upheld on appeal.  Toulson LJ, at paragraphs [47]-[49], stated that the question of whether Regular Pringles should be classified as falling within the exception required a combination of fact finding and evaluative judgment; in particular the question of similarity to potato crisps and other potato products required an evaluative judgment.  Parliament had created a specialist tribunal to determine these matters, and in reviewing the decision of such a tribunal he thought it right to bear in mind remarks by Baroness Hale in AH (Sudan) v Secretary of State for the Home Department, [2008] 1 AC 678.  She referred to the fact that the Immigration Tribunal was “an expert tribunal charged with administering a complex area of law in challenging circumstances”; consequently the ordinary courts should approach appeals from them with appropriate caution, because it is probable that the tribunal will have reached the right decision.  Similar remarks were made by Jacob LJ in Proctor & Gamble at paragraphs [9]-[15], in which he cited a range of statements in earlier cases regarding the need for appellate caution in reversing a judge’s evaluation of the facts.

[46] We agree with the general proposition advanced by Toulson LJ.  Nevertheless, it appears to us that evaluative decisions cover a wide spectrum.  At one end is the sort of decision that is typically made by an immigration tribunal: it has a high factual content, frequently dependent on detailed information about the country from which the would-be immigrant has come.  The same can be said of the question in Proctor & Gamble: it was in essence whether Regular Pringles were a potato product in the same category as potato crisps.  That is an evaluative exercise in which the factual component is clearly dominant.  Yet another example would be where a First-tier Tax Tribunal one of whose members was, as here, a chartered accountant reaches a conclusion on the application of accounting principles.  It is common sense that in such a case an appellate court should be very slow to interfere, unless the case falls into the third or fourth of the categories discussed above where the First-tier Tribunal has misunderstood the evidence or proceeded without evidence or has made a fundamental error in its method of reasoning.

[47] In some tax appeals, however, the evaluative exercise contains a much smaller factual component; an example would be a case such as the present where the transaction that must be evaluated involves legal institutions such as trusts or contracts or assignations.  In a case of that nature it is much easier for an appellate court to interfere; the legal element is identifiable, and clearly raises a point of law.  In an extreme case, for example if the First-tier Tribunal misconstrued the rights of the parties under a trust, that would be a straightforward error of law.  In a slightly less extreme case, where the Tribunal had assessed the overall effect of a series of transactions, there is a greater element of evaluation, but we still consider that in such a case the courts might properly interfere if they considered that the transaction or the legal concepts involved in it had been misconstrued.  It is a matter of degree: the higher the factual component in the evaluative exercise, the slower the court should be to interfere, but correspondingly if the factual component is relatively low and the legal component is high the court may properly interfere.  As we have indicated, we consider that the present case falls into the latter category.” (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77, underlining added)

Interfering with evaluation: threshold varies depending on factual content

Interfering with evaluation: threshold depends upon precision of legal test to be applied

 

Less room to interfere if it is simply a matter of degree/a matter of impression​

 

"[54] Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge's evaluation." (Biogen Inc v. Medeva Plc [1996] UKHL 18, Lord Hoffmann)

"The question of substantiality is one of mixed law and fact in the sense that it requires the judge to apply a legal standard to the facts as found. It is, as I said, one of impression in that it requires the overall evaluation of the significance of what may be a number of copied features in the plaintiff's design. I think, with respect, that the Court of Appeal oversimplified the matter when they said that they were in as good a position to decide the question as the judge. I say this for two reasons.

    First, although the question did not depend upon an assessment of the credibility of witnesses, there seems to me no doubt that a judge may obtain assistance from expert evidence in identifying those features of an artistic work which enable it to produce a particular visual effect. The plaintiff's expert Mr. Herbert described his expertise as "the art of visual literacy." This seems to me to be right. So I think that the judge, having heard Mr. Herbert, was well placed to assess the importance of the plaintiff's designer's brush strokes, resist effect and so forth in the overall artistic work. The Court of Appeal, on the other hand, adopted a reductionist approach which ignored these elements.

    Secondly, because the decision involves the application of a not altogether precise legal standard to a combination of features of varying importance, I think that this falls within the class of case in which an appellate court should not reverse a judge's decision unless he has erred in principle: see Pro Sieben Media A.G. v. Carlton U.K. Television Ltd. [1999] 1 WLR 605, 612-3. I agree with Buxton L.J. in Norowzian v. Arks Ltd. (No. 2) [2000] FSR 363, 370 when he said:

"...[W]here it is not suggested that the judge has made any error of principle a party should not come to the Court of Appeal simply in the hope that the impression formed by the judges in this court, or at least by two of them, will be different from that of the trial judge."
In my opinion the judge made no error of principle. His decision that the copied features formed a substantial part of the work should therefore not have been reversed. I would allow the appeal." (Designer Guild Limited v. Russell Williams (Textiles) Limited [2000] UKHL 58, Lord Hoffmann)

"[9] Often a statutory test will require a multi-factorial assessment based on a number of primary facts. Where that it so, an appeal court (whether first or second) should be slow to interfere with that overall assessment – what is commonly called a value-judgment.
[10] I gathered together the authorities about this in Rockwater v Technip [2004] EWCA (Civ) 381:

[71] … In Biogen v Medeva [1997] RPC 1 at p. 45 Lord Hoffmann said when discussing the issue of obviousness:
"The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans la nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved. When the application of a legal standard such negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge's evaluation."
[72] Similar expressions have been used in relation to similar issues. The principle has been applied in Pro Sieben Media v Carlton [1999] 1 WLR 605 at pp. 613-614 (per Robert Walker LJ) in the context of a decision about "fair dealing" with a copyright work; by Hoffmann LJ in Re Grayan Building Services [1995] Ch 241 at p.254 in the context of unfitness to be a company director; in Designer Guild v Russell Williams [2000] 1 WLR 2416 in the context of a substantial reproduction of a copyright work and, most recently in Buchanan v Alba Diagnostics [2004] UKHL 5 in the context of whether a particular invention was an "improvement" over an earlier one. Doubtless there are other examples of the approach.
[73] It is important here to appreciate the kind of issue to which the principle applies. It was expressed this way by Lord Hoffmann in Designer Guild:
"Secondly, because the decision involves the application of a not altogether precise legal standard to a combination of features of varying importance, I think that this falls within the class of case in which an appellate court should not reverse a judge's decision unless he has erred in principle."

[11] It is also important to bear in mind that this case is concerned with an appeal from a specialist Tribunal. Particular deference is to be given to such Tribunals for Parliament has entrusted them, with all their specialist experience, to be the primary decision maker, see per Baroness Hale in SH (Sudan) at [30] cited by Toulson LJ." (HMRC v. Procter & Gamble UK [2009] EWCA Civ 407, Jacob LJ)

“[28] Where the finding comprises the application of a legal standard involving no question of principle, but is simply a matter of degree, an appellate tribunal should be very cautious in differing from the evaluation by the tribunal below. Where a decision involves the application of a not altogether precise legal standard to a combination of features of varying importance, that will fall within the class of case in which an appellate court should not reverse the lower tribunal’s decision unless it has erred in principle (Proctor & Gamble UK v Revenue and Customs Commissioners [2009] STC 1990, per Jacobs J at [9]–[10]; Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000] 1 WLR 2416, per Lord Hoffman at p 2423).” (HMRC v. Arkeley Ltd [2013] UKUT 393 (TCC), Judges Berner and John Clark)

Interfering with evaluation: threshold depends upon precision of legal test to be applied

Vaguer the standard and the more factors the court has to weigh, higher threshold

 

"The judge is deciding a question of mixed fact and law in that he is applying the standard laid down by the courts ( [in that case] conduct appropriate to a person fit to be a director) to the facts of the case. It is in principle no different from the decision as to whether someone has been negligent or whether a patented invention was obvious: see Benmax v Austin Motor Co.Ltd [1955] A.C. 370. On the other hand, the standards applied by the law in different contexts vary a great deal in precision and generally speaking, the vaguer the standard and the greater the number of factors which the court has to weigh up in deciding whether or not the standards have been met, the more reluctant an appellate court will be to interfere with the trial judge's decision." (Re Grayan Building Services 1995 Ch 241, 254, Hoffmann LJ)

Vaguer the standard and the more factors the court has to weigh, higher threshold​

To what extent can a point of general principle be identified in the evaluation?

"[51] There may in theory be a case, where it can be shown that the sole disagreement between the two tribunals related to an issue of pure fact, but such a case is likely to be exceptional. In the present case, as Lord Sumption has shown, there were no significant issues of primary fact. The differences between the two tribunals related to the understanding of the "abuse of law" principle, and their evaluation of the facts in the light of that understanding. The Upper Tribunal reached a carefully reasoned conclusion on law and fact. The task of the Court of Appeal was to determine whether that conclusion disclosed any error of law." (HMRC v. Pendragon Plc [2015] UKSC 37, Lord Carnwath)

"[55]...If no question of principle were involved, I think it would be wrong to interfere with the judge's assessment. But the inventiveness alleged in this case is of a very unusual kind. It is said to consist in attempting something which a man less skilled in the art might have regarded as obvious, but which the expert would have thought so beset by obstacles as not to be worth trying. In The Raleigh Cycle Co. v. H. Miller & Co. (1946) 63 R.P.C. 113 the Court of Appeal was prepared to assume that it could be inventive to realise that a bicycle hub dynamo of conventional design could function satisfactorily even though it rotated at a lower speed than was previously thought essential. There may be a question of principle here but, like the Court of Appeal in that case, I shall not pursue the question of whether this amounts to an inventive step for the purposes of patent law because I am content to assume, without deciding, that what Professor Murray did was not obvious." (Biogen Inc v. Medeva Plc [1996] UKHL 18, Lord Hoffmann)

"[99] In the present case, the Upper Tribunal had to decide whether the facts as found by the FTT justified the findings of knowledge to the no other reasonable knowledge standard. In other words, they had to consider whether the facts found by the FTT would have led a reasonable person to conclude that there was a fraud. This therefore involved a categorisation of the facts and thus involved potentially a question of law (see per Lord Hoffmann in the citation from Lawson v Serco Ltd).
[100] A similar point was made in helpful terms by the Supreme Court of the United States in Bose Corp v Consumers Union of U.S. 466 U.S. 485 (1984), where it held:

'A finding of fact in some cases is inseparable from the principles through which it was deduced. At some point the reasoning by which a fact is "found" crosses the line between application of those ordinary principles of logic and common experience which are ordinarily entrusted to the finder of fact into the realm of a legal rule upon which the reviewing court must exercise its own independent judgment. Where the line is drawn varies according to the nature of the substantive law at issue. Regarding certain largely factual questions in some areas of the law, the stakes – in terms of impact on future cases and future conduct – are too great to entrust them finally to the judgment of the trier of fact.'

[101] I have no doubt that the categorisation of fact in the present case constitutes a question of law which founds this Court's jurisdiction and that of the UT (see paragraph 77 above). (Moreover, if the UT found an error of law, it had jurisdiction to substitute its own decision: see Pendragon). There are, however, as appears from paragraph 77 above, limits to this: how the tribunal applies any categorisation of the fact to the circumstances of a particular case is likely to be a question of fact and not of law. For the reasons given in this paragraph, this Court is entitled to ask whether the UT was correct to evaluate the facts in the way that it did, namely as indicating normal market transactions, or whether, as HMRC contend, that conclusion was itself in error." (Davis & Dann Ltd v. HMRC [2016] EWCA Civ 142, Arden LJ, underlining added).

"[47] In some tax appeals, however, the evaluative exercise contains a much smaller factual component; an example would be a case such as the present where the transaction that must be evaluated involves legal institutions such as trusts or contracts or assignations.  In a case of that nature it is much easier for an appellate court to interfere; the legal element is identifiable, and clearly raises a point of law.  In an extreme case, for example if the First-tier Tribunal misconstrued the rights of the parties under a trust, that would be a straightforward error of law.  In a slightly less extreme case, where the Tribunal had assessed the overall effect of a series of transactions, there is a greater element of evaluation, but we still consider that in such a case the courts might properly interfere if they considered that the transaction or the legal concepts involved in it had been misconstrued..." (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77)

Level of generality at which to apply a test is a question of principle

"[39] In my opinion, the First Tier Tribunal's conclusion on the second Halifax test was wrong in law. My reasons overlap with those of the Upper Tribunal but do not wholly correspond with them. I think that while the First Tier Tribunal's discussion of the evidence does not sufficiently distinguish between purpose and motive, it is difficult to demonstrate that this had a decisive effect on their reasoning. I have the strongest doubts about whether the scale of the tax advantage had the significance which the Upper Tribunal apparently attached to it. And for reasons which I have given, I do not consider that the choice of an offshore bank was in itself abusive. To my mind, the objection to the reasoning of the First Tier Tribunal is more fundamental. They approached their task at too high a level of generality. They observed, quite correctly, that the secured financing of carrying costs through a bank was an ordinary commercial arrangement. They identified a number of commercial objectives which they regarded as explaining why Pendragon entered into the scheme. But they did not ask themselves whether Pendragon's commercial objectives explained the particular features of the transactions which produced the tax advantage. In particular, they did not ask themselves whether they explained the particular method by which the bank was involved at Steps 2, 3 and 4. This meant that they did not answer the critical question on which, in point of law, the identification of the "essential aim" depended. If they had done, they would have been bound to conclude that the features which produced the tax advantage had no other rationale." (HMRC v. Pendragon Plc [2015] UKSC 37, Lord Carnwath)

To what extent can a point of general principle be identified in the evaluation?​

Examples of high threshold for interfering with evaluation

Circumspection before interfering even with evaluative questions of law​

 

“As in the case of the supply of goods and services so, in my view, in the case of the place of supply, the evaluation of the primary facts and the application to them of the provisions of art 9 of the Sixth Directive as interpreted by the ECJ in cases such as Berkholz, DFDS and RAL is a matter of law. The appellate court is entitled to interfere but should show circumspection before doing so.” (HMRC v. Zurich Insurance Co [2007] STC 1756, §35, Sir Andrew Morritt C)

"[34] The issue [capital or income] is thus one of “fact and degree and above all judicial common sense in the circumstances of the case”. Pausing here, this feature has implications for how quick an appellate court should be to interfere with the fact-finding tribunal’s evaluation. This was highlighted by Lawrence Collins LJ’s statement, to which HMRC referred us, in Able, that there was much to be said for the view that: “where the answer to a question is a matter of degree, taking account of all the circumstances, then an appellate court should show some circumspection before interfering with the decision at first instance”. In a similar vein, Buxton LJ in Able while acknowledging (at [28] of his decision) that the issue was an issue of law, was of the view it was a special sort of issue as it had to be determined from a practical and business point of view." (Kieran Looney v. HMRC [2020] UKUT 119 (TCC), Judge Raghavan and Judge Greenbank)

"[133] In the present case, once the challenge under the third and fourth categories is rejected (as I have rejected it), one is left with the central question which is whether the facts as found do or do not lead to the conclusion that there is to be found the immediate and direct link which EU law requires. The Judge carried out the appropriate evaluative exercise. Placing the present case in the range of cases contemplated by the Inner House in [47] of its opinion, that evaluation is one with which I can properly interfere if I consider that the Judge has misconstrued the transaction or the legal concepts. But I should be slow to interfere: I need to be sure that the Judge has got his evaluation wrong." (Norseman Gold Plc v. HMRC [2016] UKUT 69 (TCC), §133, Warren J)

Circumspection before interfering with evaluative questions of law​
Examples of high threshold for interfering with evaluation

- Main aim or purpose of taxpayer

 

"[150] We are not satisfied that these criticisms take HMRC far enough to satisfy the high threshold required by Edwards v Bairstow in order to set aside the FTT’s finding that there was a commercial purpose to LLC5 and the Loans which was a main purpose. 

[151] Mr Ewart QC did not challenge the accuracy of the board minutes.  Furthermore, the FTT found Mr Kushel to be a reliable witness and accepted his evidence. Ultimately Mr Kushel’s evidence as to a purpose of LLC5 and the Loans being a commercial one was accepted by the FTT. The FTT could have explained its conclusion in [121] more clearly and more fully. The compressed basis for the conclusion by reference to LLC5’s general business activities did not capture the evidence that had been accepted. Nonetheless, it was clear from [118] of the Decision that the FTT’s reference at [121] to “the evidence” included, in particular, the board minutes of the 30 November 2009 board meeting and Mr Kushel’s oral evidence about that meeting. There was no other direct evidence of what was in the minds of LLC5’s directors at the time. 

[152] Accordingly, while the FTT’s findings could have been better expressed, we do not consider that the Edwards v Bairstow threshold has been crossed. The FTT was entitled to find that one of the main purposes of LLC5 and the Loans, as subjectively held by its board members, was a commercial purpose. There was support in the evidence for that factual conclusion." (HMRC v. Blackrock Holdco 5 LLC [2022] UKUT 199 (TCC), Michael Green J and Judge Rupert Jones)

"[66]...This, however, is simply a disagreement with the FTT’s factual conclusion and an invitation by HMRC to go island Lewison LJ’s wellknown analogy at [114] of hopping in a sea of evidence (drawing on FAGE UK Limited and another v Chobani UK Limited a nd another [2014] EWCA Civ 5). The FTT was entitled to consider that an analysis of the amount of time and expense Euromoney spent on different components of the overall scheme or arrangements had something to say about its beliefs as to the relative impor tance of those components. It was for the FTT to evaluate what conclusions should be drawn from that analysis."(HMRC v. Euromoney Institutional Investor Plc [2022] UKUT 205 (TCC), Joanna Smith J and Judge Jonathan Richards) 

"[164] The FTT granted HMRC permission to appeal the decision on the Third Appeal on the ground that it erred in law in finding that Dr Allam did not have as a main purpose of being a party to the transaction the obtaining of a tax advantage...

...

[166] [HMRC] acknowledged that Edwards v Bairstow imposes a high hurdle on an appeal such as this. We must be satisfied that the FTT made an error of law in making the finding it did. That would be the case if the finding of the FTT was made without any evidence, or upon a view of the facts which could not be supported, or where the finding was inconsistent with the only reasonable conclusion available to the FTT." (Allam v. HMRC [2021] UKUT 291 (TCC), Edwin Johnson J and Judge Cannan)

“[12]...Lord Carnwath pointed out [in Pendragon, which concerned the concept of 'abuse of law'] that that jurisdiction recognizes the UT’s function of ensuring that the FTTs adopt a consistent approach to the determination of questions of principle which arise under the particular statutory scheme in question. He went on to state that “law’ for this purpose is widely interpreted to include issues of general principle affecting the jurisdiction in question

[13] In this case, it seems to me that the wider interpretation referred to in Pendragon is not engaged, at least in relation to the amendment to the Grounds of Appeal upon which [the taxpayer] focused her submissions. The issue in that regard is whether the FTT properly applied a well known test [namely, what was the 'main aim' of the taxpayer]. It seems to me that the position is less clear in relation to those Grounds of Appeal which are concerned with whether the aims of UGLE fell predominantly within the categories set out in Article 132 1(l). In circumstances where the FTT finds quite properly that there are numerous aims of equal or near equal importance which may fall within different categories of exemption and each may fall within that category only to some extent, the determination of a question of principle and therefore, the wider interpretation referred to in Pendragon may well be engaged.” (United Grand Lodge of England v. HMRC [2015] UKUT 589 (TCC), Asplin J)

- Main aim or purpose of taxpayer

- Conclusion on application of accounting principles

 

"[46]...Yet another example would be where a First-tier Tax Tribunal one of whose members was, as here, a chartered accountant reaches a conclusion on the application of accounting principles.  It is common sense that in such a case an appellate court should be very slow to interfere, unless the case falls into the third or fourth of the categories discussed above where the First-tier Tribunal has misunderstood the evidence or proceeded without evidence or has made a fundamental error in its method of reasoning." (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77)

- Conclusion on application of accounting principles

- Similarity 

 

"[12] In its full form the statutory question merely re-stated is whether Pringles are "similar [to potato crisps, potato sticks, potato puffs] and made from the potato, or from potato flour, or from potato starch."
[13] As Toulson LJ observed in oral argument, it is a composite question. So although it is convenient to ask separately whether Pringles are "similar" to potato crisps etc and whether they are "made from potato", one must also take into account the composite nature of the question. Moreover it is, to my mind, precisely the sort of question calling for a value judgment of the sort to which the Biogen principle applies.
[14] Before going further, I have this general observation. This sort of question – a matter of classification - is not one calling for or justifying over-elaborate, almost mind-numbing legal analysis. It is a short practical question calling for a short practical answer. The Tribunal did just that." (HMRC v. Procter & Gamble UK [2009] EWCA Civ 407, Jacob LJ)

- Similarity 

- Suitability for use as a single dwelling

 

"[34] In his skeleton argument, Mr Cannon purported to be challenging the FTT’s “legal conclusion” from the facts as found. However, in response to questioning from the Tribunal at the beginning of his oral submissions Mr Cannon conceded that the Appellants could only succeed by establishing that the FTT’s findings of fact or evaluative judgment involved material errors of law." (Doe v. HMRC [2022] UKUT 2 (TCC), Judge Thomas Scott and Judge Rupert Jones)

- Suitability for use as a single dwelling

- Improvement

 

"[31] The Lord Ordinary applied this test and came to the clear view that the 321 patent was an improvement. As the question is one of degree, I agree with the observation of Lord Clarke that an appellate tribunal should not substitute its opinion for that of the judge of first instance unless it considers that he has made some error of principle. The question is in this respect similar to that as to whether an invention is obvious (Biogen Inc v Medeva plc [1997] RPC 1, 45) or whether a substantial part of a copyright work has been copied (Designers Guild Ltd v Russell Williams (Textiles) Ltd [2000] 1 WLR 2416.)" (Buchanan v. Alba Diagnostics Limited, Lord Nicholls)

- Improvement

- Obviousness or negligence

 

"[54] The question of whether an invention was obvious has been called "a kind of jury question" (see Jenkins L.J. in Allmanna Svenska Elektriska A/B v. The Burntisland Shipbuilding Co. Ltd (1952) 69 R.P.C. 63, 70) and should be treated with appropriate respect by an appellate court. It is true that in Benmax v. Austin Motor Co. Ltd [1955] A.C. 370 this House decided that, while the judge's findings of primary fact, particularly if founded upon an assessment of the credibility of witnesses, were virtually unassailable, an appellate court would be more ready to differ from the judge's evaluation of those facts by reference to some legal standard such as negligence or obviousness. In drawing this distinction, however, Viscount Simonds went on to observe, at p. 374, that it was "subject only to the weight which should, as a matter of course, be given to the opinion of the learned judge." The need for appellate caution in reversing the judge's evaluation of the facts is based upon much more solid grounds than professional courtesy. It is because specific findings of fact, even by the most meticulous judge, are inherently an incomplete statement of the impression which was made upon him by the primary evidence. His expressed findings are always surrounded by a penumbra of imprecision as to emphasis, relative weight, minor qualification and nuance (as Renan said, la vérité est dans une nuance), of which time and language do not permit exact expression, but which may play an important part in the judge's overall evaluation. It would in my view be wrong to treat Benmax as authorising or requiring an appellate court to undertake a de novo evaluation of the facts in all cases in which no question of the credibility of witnesses is involved. Where the application of a legal standard such as negligence or obviousness involves no question of principle but is simply a matter of degree, an appellate court should be very cautious in differing from the judge's evaluation." (Biogen Inc v. Medeva Plc [1996] UKHL 18, Lord Hoffmann)

- Obviousness or negligence

- Fair dealing and fitness

 

"That is the right approach on this appeal. The Judge's conclusions, especially on fair dealing, should not be disturbed unless they proceeded from some error of principle or are clearly unsustainable." (Pro Sieben Media v. Carlton UK Television Limited [19998] EWCA Civ 2001, Robert Walker LJ)

- Fair dealing and fitness

- More appropriate

 

"[84] Whether it is "more appropriate" to describe the item as apparatus or premises is clearly a value judgment. As Jacob LJ said in HMRC v Procter & Gamble UK [2009] EWCA Civ 407, [2009] STC 1990 at [9]:"Often a statutory test will require a multi-factorial assessment based on a number of primary facts. Where that it so, an appeal court (whether first or second) should be slow to interfere with that overall assessment – what is commonly called a value-judgment."[85] Similarly, in Re Sprintroom Ltd [2019] EWCA Civ 932, [2019] BCC 1031 this court said at [76]:"So, on a challenge to an evaluative decision of a first instance judge, the appeal court does not carry out a balancing task afresh but must ask whether the decision of the judge was wrong by reason of some identifiable flaw in the judge's treatment of the question to be decided, "such as a gap in logic, a lack of consistency, or a failure to take account of some material factor, which undermines the cogency of the conclusion"."[86] I cannot see that the UT's answer to the question that they posed reveals any legal error." (Cheshire Cavity Storage 1 Limited v. HMRC [2022] EWCA Civ 305)

- More appropriate

- Whether printed materials were part of a single supply of education

 

"[35] Lord Hoffmann made another important general observation in Beynon [2005] 1WLR 86, 93, para 27. Agreeing with the Court of Appeal's view that the characterisation for VAT purposes of a supply is a question of law, he said,
"The Courts have not treated VAT classification in the same way as some questions of classification (for example, whether a contract is of service or for services) which, notwithstanding that there are no facts in dispute, are deemed to be questions of fact so as to exclude on appeal on a question of law: see the discussion in Moyna v Secretary of State for Work and Pensions [2003] 1 WLR 1929, 1935, paras 22-25. On the other hand, as Lord Hope of Craighead said in the British Telecommunications case [1999] 1WLR 1376, 1386, the question is one of fact and degree, taking account of all the circumstances. In such cases it is customary for an appellate court to show some circumspection before interfering with the decision of the tribunal merely because it would have put the case on the other side of the line."
[36] This case seems to me to reinforce the importance of that call for circumspection. The Tribunal saw and heard the witnesses giving their oral evidence. Not every nuance of a first-instance tribunal's assessment of the evidence can be conveyed in its written reasons, however carefully prepared (see Biogen Inc v Medeva Plc [1997] RPC 1, 45: characterisation of supplies for VAT purposes, like a question of obviousness in patent law, involves applying an abstract categorisation to a sometimes disparate aggregation of primary facts). Ward LJ substituted his own view as to the evaluative conclusion to be derived from the primary facts. In my respectful opinion his reasons for doing so (as explained at the end of para 45 of his judgment) were inadequate and unconvincing." (College of Estate Management v. HMRC [2005] UKHL 62, Lord Walker)

 

- Whether printed materials were part of a single supply of education

- Whether hypothetical officer could reasonably have been aware of insufficiency of tax​

 

"[42] We begin from the position that we do not accept Mr Baldry’s suggestion that we could or should simply substitute our own view for that of the FTT...

...

[45]We consider that in light of its findings the FTT was entitled to reach the conclusions which it did in relation to section 29(5) for the 2011/12 and 2012/13 discovery assessments, for the reasons it gave. In particular, the findings summarised at [34] and [35] above form an adequate and rational basis for those conclusions." (Good v. HMRC [2021] UKUT 281 (TCC), Green J and Judge Thomas Scott)

- Whether hypothetical officer could reasonably have been aware of insufficiency of tax

- Just and reasonable​

 

"[41] Likewise it cannot be said that the FTT’s determination as to what was “just and reasonable” for the purposes of section 850C(4) was “plainly wrong”. While this is not an exercise of judicial discretion but a judicial determination, we should not interfere with it unless we are satisfied that the high hurdle expounded in Piglowska v. Piglowski, [1999] 1WLR 1360 is met."(Walewski v. HMRC [2021] UKUT 133 (TCC), Marcus Smith J and Judge Rupert Jones) 

- Just and reasonable​

- Whether something is plant​

 

"[77] My starting point in considering this ground of appeal is to emphasise the reluctance with which an appellate court or tribunal should interfere with an evaluative conclusion reached by the tribunal of fact on the question whether a disputed asset is plant. Although the meaning of "plant" in what is now section 11(4)(a) of CAA 2001 is ultimately a question of law, the application of the legal test to the facts of a particular case is a question of fact, or sometimes a question of fact and degree, and there are cases in which it is possible to take either view without erring in law: see Cheshire Cavity at [3]. In particular, evaluation of the "premises test" formulated by Hoffmann J in Wimpy is a question of fact and degree, as illustrated by cases such as Gray, Anduff and Bradley: ibid at [81] to [83]." (Urenco Chemplants Limited v. HMRC [2022] EWCA Civ 1587, Henderson, Thirlwall, Arnold LJJJ)

- Whether something is plant​

- Employment​

 

"[37]  We also take into account that there is limited scope to interfere with an evaluative judgment of the FTT. In Quashie v Stringfellow Restaurants Limited [2012] EWCA Civ 1735 at [9], the Court of Appeal endorsed the following statement of principle:

…The responsibility of determining and evaluating all the relevant admissible evidence (both documentary and otherwise) is that of the tribunal in the first instance; an appellate tribunal is entitled to interfere with the decision of that tribunal, that a contract of employment does or does not exist, only if it is satisfied that in its opinion no reasonable tribunal, properly directing itself on the relevant question of law, could have reached the conclusion under appeal, within the principles of Edwards v Bairstow [1956] AC 14." (Red White and Green Limited v. HMRC [2023] UKUT 83 (TCC), Mellor J and Judge Cannan)

- Employment​

- Source of interest

"[79] In considering whether the FTT made an error of law, the first point to note is that as the issue of source of interest requires a multi-factorial evaluation, the appellate tribunal should be slow to interfere with that evaluation. As Arden LJ noted at §40 of Ardmore, the appellant had to satisfy it that the evaluation of the Tribunals was wrong in the sense that they left a material factor out of account, took a matter into account that should have been left out, misdirected themselves in law or fact, or reached a perverse conclusion." (Hargreaves Property Holdings Limited [2023] UKUT 120 (TCC), Bacon J and Judge Raghavan)

- Source of interest

Examples of lower threshold for interfering with evaluation

Examples of lower threshold for interfering with evaluation

- Applying the Ramsay principle

"[48] Furthermore, the issues in the present case are, first, the scope of the redirection of earnings principle and its application to the particular facts of the case, and secondly, the application of the Ramsay principle by reference to the powers of a protector of a trust: in particular, the question is whether a protector can exercise those powers to secure a benefit for himself.  In our opinion these issues raise clear questions of law.  To the extent that legal principles have been misapplied, the court can and must interfere with the decision of the First-tier Tribunal." (Advocate General For Scotland v. Murray Group Holdings Ltd [2015] CSIH 77)

Or see Q1: Error of law on this being a question of law

- Applying the Ramsay principle

- Applying the abuse of law principle

"[50] The difficult concept of "abuse of law" as developed by the European court, though not strictly one of statutory construction, is a general principle of central importance to the operation of the VAT scheme. It matters little whether it is described as involving an issue of mixed law and fact, or of the evaluation of facts in accordance with legal principle. However it is described, it was clearly one which was particularly well suited to detailed consideration by the Upper Tribunal, with a view to giving guidance for future cases. Having found errors of approach in the consideration by the First Tier Tribunal, it was appropriate for them to exercise their power to remake the decision, making such factual and legal judgments as were necessary for the purpose, thereby giving full scope for detailed discussion of the principle and its practical application. Although no doubt paying respect to the factual findings of the First Tier Tribunal, they were not bound by them. They had all the documentation before the First Tier Tribunal, including witness statements, and transcripts of the evidence and submissions, and detailed written and oral submissions. It is clear that they undertook a thorough exercise involving a hearing lasting six days.
[51] Against this background, it was unhelpful, in my view for the Court of Appeal to identify the main issue as to whether the Upper Tribunal went beyond its proper appellate role. The appeal to the Court of Appeal (under section 13) was from the decision of the Upper Tribunal, not from the First Tier, and their function was to determine whether the Upper Tribunal had erred in law. That was best approached by looking primarily at the merits of the Upper Tribunal's reasoning in its own terms, rather than by reference to their evaluation of the First Tier's decision. True it is that the Upper Tribunal's jurisdiction to intervene had to begin from a finding of an error of "law". But that was not the main issue in the appeal, which was one of more general principle. Indeed, given the difficulties of drawing a clear division between fact and law, discussed by Lord Hoffmann, it may not be productive for the higher courts to spend time inquiring whether a difference between the two tribunals was one of law or fact, or a mixture of the two. There may in theory be a case, where it can be shown that the sole disagreement between the two tribunals related to an issue of pure fact, but such a case is likely to be exceptional. In the present case, as Lord Sumption has shown, there were no significant issues of primary fact. The differences between the two tribunals related to the understanding of the "abuse of law" principle, and their evaluation of the facts in the light of that understanding. The Upper Tribunal reached a carefully reasoned conclusion on law and fact. The task of the Court of Appeal was to determine whether that conclusion disclosed any error of law." (HMRC v. Pendragon Plc [2015] UKSC 37, Lord Carnwath)

- Applying the abuse of law principle

- Direct and immediate link​

 

"[133] In the present case, once the challenge under the third and fourth categories is rejected (as I have rejected it), one is left with the central question which is whether the facts as found do or do not lead to the conclusion that there is to be found the immediate and direct link which EU law requires. The Judge carried out the appropriate evaluative exercise. Placing the present case in the range of cases contemplated by the Inner House in [47] of its opinion, that evaluation is one with which I can properly interfere if I consider that the Judge has misconstrued the transaction or the legal concepts. But I should be slow to interfere: I need to be sure that the Judge has got his evaluation wrong." (Norseman Gold Plc v. HMRC [2016] UKUT 69 (TCC), §133, Warren J)

- Direct and immediate link​

- Transfer of a going concern​

 

"[16] The appellant submits the FTT judge erred in law. Its argument is that on the facts as found, the legal conclusion, that the transfer was a TOGC, does not follow. The respondent submits that this appeal does not raise a point of law at all and that the appellant’s argument is outside the scope of what can be argued in the Upper Tribunal applying Edwards v Bairstow [1956] AC 14.

[17] In my judgment it is open to the appellant to make the submission it wishes to. The argument is of the same character as the one permitted in Edwards v Bairstow. The question is whether on the facts as found the legal conclusion follows. Therefore I do not need to resolve on this appeal whether the scope of the Upper Tribunal’s appellate jurisdiction is wider than Edwards v Bairstow." (HMRC v. Royal College of Pediatrics and Child Health [2015] UKUT 38 (TCC), §17, Birss J )

- Transfer of a going concern​

- De minimis​

 

"[51] We have, therefore, reached the same conclusion as the FTT and for similar reasons. There was, however, one point on which we differ from the FTT. At [63] the FTT concluded, noting that it was not necessary for its decision, that if there were scope for small preferential rights to be ignored, the preferential right attaching to the 20 Ordinary Shares would be sufficiently small to be ignored. The FTT regarded the preference attaching to the Ordinary Shares of £933 out of a total issued share capital of £2.2 million (which presumably includes share premium as well as nominal capital) as de minimis.

[52] First, we reject [the taxpayer]’s submission that the FTT’s conclusion was a finding of fact which cannot be disturbed by this Tribunal. It seems to us that the conclusion that the facts as found fell within the scope of de minimis principle is a conclusion on the application of a legal test or at least a question of mixed fact and law which falls within this Tribunal’s jurisdiction to review on appeal." (Flix Innovations Limited v. HMRC [2016] UKUT 301 (TCC), Mann J and Judge Brannan)

- Novelty​

 

"[74] I do not think the question of novelty involves the application of a "not altogether precise legal standard." It involves a precise standard. Nor is it applied to a "combination of features of varying importance." On the contrary one must look for every claim element to see whether it is fully disclosed in the prior art. It may be that in some cases, Biogen-type principles may come into the question at an earlier stage. I have in mind, for instance, where the court has to evaluate evidence as to what a particular prior use actually was and whether it was enabling or where there is an evaluation of what is exactly disclosed by something like a photograph (see van der Lely v Bamfords [1963 RPC 61), or even, perhaps, the meaning of a technical term or phrase where experts have disagreed. But in a case such as this, where the issue is simply what does the prior art describe and does it fall within the claim?, the Biogen principle does not apply." (Rockwater Ltd v. Technip France SA [2004] EWCA Civ 381, Jacob LJ)

- Novelty​

- Place of supply​

 

"[34] As I read the judgment of Moses J [in CCE v. Chinese Channel (Hong Kong) Ltd] his conclusion was based on a strict application of the principles of Edwards v Bairstow to the facts and circumstances of that case. I do not read the decision of the Court of Appeal in Commissioners of Customs and Excise v Westmoreland Motorway Services Ltd [1998] STC 431, 435h as suggesting any different test. However three recent decisions of the House of Lords indicate that at least in some areas a classification of goods or services for the purposes of VAT is a question of legal evaluation and therefore of law. Thus in Commissioners of Customs and Excise v British Telecommunications plc [1999] 1 WLR 1376, 1381 Lord Slynn of Hadley referred to the categorisation of a supply as single or split into two or more separate supplies as a matter of law. In Beynon v Commissioners of Customs and Excise [2005] 1 WLR 86, 93 paras 26 and 27 Lord Hoffmann agreed with the Court of Appeal that the categorisation of the supply as one of services or of goods and services was a question of law. To the like effect is the speech of Lord Walker of Gestingthorpe in College of Estate Management v Commissioners of Customs and Excise [2005] STC 1597, 1610 paras 35 and 36.
[35] In both the latter cases Lords Hoffmann and Walker of Gestingthorpe emphasised the need for the appellate court to show circumspection before interfering with the decision of the Tribunal, even though it was on a point of law, "merely because it would have put the case on the other side of the line". As in the case of the supply of goods and services so, in my view, in the case of the place of supply, the evaluation of the primary facts and the application to them of the provisions of Article 9 of the Sixth Directive as interpreted by the ECJ in cases such as Berkholz, DFDS and RAL is a matter of law. The appellate court is entitled to interfere but should show circumspection before doing so." (HMRC v. Zurich Insurance Company [2007] EWCA Civ 218)

- Place of supply​

Exercising discretion: weighing of factors pre-eminently within jurisdiction of FTT 

 

“[15] The question of what weight to attach to a relevant factor in the exercise of a statutory discretion is pre-eminently within the province of the decision maker exercising the discretion. It is not relevant to consider whether another FTT or we, as the Upper Tribunal, might or would have attached different weight or importance to these factors. It was not argued and we do not think it could be argued that the FTT’s assessment was perverse, irrational or wholly unreasonable. Accordingly, this aspect of the challenge to the FTT’s decision does not establish any error on a point of law on the part of the FTT and must therefore fail.” (Graham v. HMRC [2014] UKUT 75, Judge Gordon Reid and Judge Ghosh)

Exercising discretion: weighing of factors pre-eminently within jurisdiction of FTT 
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