Q3: Impermissible findings of fact
Misapplication of burden of proof
"Secondly, as Mr Windle submitted, the FTT’s conclusion that it was for Dr Danapal to rebut the FTT’s inference of a pattern of behaviour (based on one year of limited evidence) was an improper approach to the burden of proof. The FTT was wrong to say that it was for Dr Danapal to adduce evidence to rebut the allegation that he had acted deliberately. As Mr Windle submitted, the FTT made a double inference (that there was an underreporting of turnover and that this inferred underreporting was deliberate) thereby effectively removing the requirement that HMRC prove the serious allegation of deliberate behaviour made against Dr Danapal." (Danpal v. HMRC  UKUT 86 (TCC), Judge Herrington and Judge Bowler)
Unparticularised allegation of fraud
“If the particulars of dishonesty are insufficient, the defect cannot be cured by an unequivocal allegation of dishonesty. Such an allegation is effectively an unparticularised allegation of fraud.” (Three Rivers DC v. Bank of England  UKHL 16, §189, Lord Millett);
“if the facts pleaded are consistent with innocence, then it is not open to the court to find fraud,…an allegation that the defendant “knew or ought to have known” is not a clear and unequivocal allegation of actual knowledge and will not support a finding of fraud.” (Armitage v. Nurse  Ch 241, 254 – applicable to tax disputes, see (GSM Export (UK) Ltd v. HMRC  UKUT 0529 (TCC), §182, Proudman J; Blue Sphere Global Ltd v. HMRC  UKVAT 20694, §30);
“In particular, I consider that the FTT ought not to have permitted the Commissioners to advance the case, which was not pleaded or put, that the Appellant had been set up to facilitate fraud; nor should it have made findings as to the fraudulent nature of the Kennyton trades. That is so, even if it thereafter put no material weight on them. In doing so, it encouraged the perception that factors might weigh with it which were not properly before it and which had not fairly been put and tested.” (Edgeskill Limited v. HMRC  UKUT 38 (TCC), §163, Hildyard J).
Deliberateness pleaded but against a different person
" It is also clear in this case that HMRC, in its Statement of Case, made no allegation of deliberate behaviour against Firm A. That document pleaded that a loss of tax had arisen because Dr Danapal himself had acted deliberately or carelessly in completing the returns. Likewise, in its skeleton argument before the FTT, HMRC’s submissions on deliberate behaviour were confined to making submissions of deliberate behaviour on the part of Dr Danapal, making reference to his defence that he acted on the advice of Firm A. However, no direct allegations were made against Firm A and it is therefore to be assumed that HMRC rejected Dr Danapal’s contentions that he acted in accordance with advice given to him by Firm A.
 In those circumstances, it was clearly wrong for the FTT to have made the findings they did of dishonesty on the part of Firm A. Such a finding could have had serious implications for Firm A as a professional firm of chartered accountants and it was given no opportunity to refute them.
 In MRH Solicitors v Apex Hire Ltd and others  EWHC 1795 a court found that in a claim for personal injury the underlying motor accident was staged and the claim was fraudulent. The Judge found the solicitors for the claimant were a party to the fraud. The solicitors had not been given any warning that the findings might be made. The solicitors took the matter to the Administrative Court which observed at  and :
“34. We well understand how the Recorder’s suspicions were aroused. However, in the absence of good reason a Judge ought to be extremely cautious before making conclusive findings of fraud unless the person concerned has at least had the opportunity to give evidence to rebut the allegations. This is a matter of elementary fairness. In Vogon International Ltd v the Serious Fraud Office  EWCA Civ 104 at  May LJ (with whom Lord Phillips MR and Jonathan Parker LJ agreed) said,
“It is, I regret to say, elementary common fairness that neither parties to the litigation, their counsel nor judges should make serious imputations or findings in any litigation when the person concerned against whom such imputations or findings are made have not been given a proper opportunity of dealing with the imputations and defending themselves.”
35. This is not only required because of fairness to the party affected but also to avoid the Court falling into error - see for instance Co-operative Group (CWS) Ltd v International Computers  EWCA Civ 1955 at [ 38]. As Megarry J memorably said in John v Rees  CH 345, 402,
“As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were answered; of inexplicable conduct , which was fully explained…Nor are those with any knowledge of human nature who pause to think for a moment likely to underestimate the feelings of resentment of those who find that a decision against them has been made without their being afforded any opportunity to influence the course of events”
 Accordingly, we reject [HMRC's] submissions that the fact that an allegation of dishonesty in relation to the capital allowances and underdeclared turnover as made in HMRC’s skeleton argument and in the Statement of Case was sufficient. As we have observed, those allegations were made only against Dr Danapal and not against Firm A. Neither does the fact that questions were put to Dr Danapal regarding the behaviour of Firm A by a member of the FTT’s panel make any difference to the position. Questions from the Tribunal did not amount to a cross examination and in any event the questions were only put to Dr Danapal, not to Firm A." (Danpal v. HMRC  UKUT 86 (TCC), Judge Herrington and Judge Bowler)
Deliberateness not put to witness in cross-examination
" Finally, the FTT does not record that any of its inferences of deliberate behaviour were put to Dr Danapal in cross examination and we can therefore infer that they were not. It was therefore clearly inappropriate for the FTT to have made that finding without the issue having been put squarely to Dr Danapal in cross-examination." (Danpal v. HMRC  UKUT 86 (TCC), Judge Herrington and Judge Bowler)
Finding contrary to/disbelief of unchallenged evidence
“it seems most unlikely that nothing more was said on either side at the time in connection with the disposal of the house beyond what was stated in the affidavit; but though the appellant was cross-examined at length on other matters she was not asked a single question as to what the testator said to her about the gift of the house or as to how she reacted to what he said. The judge therefore had to proceed on the footing that what was stated in the affidavit was an accurate and complete record of what passed between the parties.” (Schaefer v. Schuhmann  AC 572 at 583, Lord Cross, PC).
“The first reason given [by the judge]…is that it was Mr Buckby who ‘primarily determined the broad scope of the claims’. But that cannot stand with the unchallenged evidence of Mr Allman which we have quoted.” (Markem Corp v. Zipher Ltd  EWCA Civ 267, §62).
" However, irrespective of any requirement as to pleading that does not answer Award’s argument based on Ingenious that, to the extent the tribunal were being asked to disbelieve the documents, Mr Judd should have been specifically cross-examined on them. This is on the basis that a finding that the transaction documents, in particular those which were produced by Award, were disbelieved, while not amounting to a specific finding of dishonesty might imply dishonesty or misconduct on the part of Award. While Ingenious refers to findings of dishonesty, in our opinion the principle in Browne v Dunn regarding the need to challenge extends to matters in which the witness’s evidence is not proposed to be accepted. There appears no reason why, in terms of the principle of fairness, a witness should not have a chance to explain something which might otherwise be disbelieved even if that does not entail suggesting he or she was dishonest."
“It is not clear from the Decision why, notwithstanding Mr Beal’s clear statement the FTT came to the conclusion that it was possible (no higher than that) that Reed would have proceeded without a dispensation. Mr Beal’s evidence was not challenged in cross examination and we have not been shown any other evidence which suggests that any doubt should be cast on the categoric nature of Mr Beal’s statement. In those circumstances we accept Mr Glick’s submission that the only finding on the evidence before it that was open to the FTT was that Reed would not have proceeded with the Schemes without a dispensation. We therefore make that finding of fact for the purpose of our consideration of Issue 7.” (Reed Employment Plc v. HMRC  UKUT 160 (TCC), §165, Proudman J and Judge Herrington).
“in the absence of any challenge to [the taxpayer’s] evidence to the Tribunal…it was not open to the Tribunal to disbelieve that evidence…This rule of evidence is simply an application of the principles of natural justice which apply in all courts and tribunals.” (Okolo v. HMRC  UKUT 416 (TCC));
“I regard it as essential that witnesses are challenged with the other side’s case. This involves putting the case positively. This is important for a judge to enable him to assess that witness’s response to the other case orally, by reference to his or her demeanour and in the overall context of the litigation. A failure to put a point should usually disentitle the point to be taken against a witness in a closing speech. This is especially so in an era of pre-prepared witness statements. A judge does not see live in chief evidence, thereby depriving the witness of presenting himself positively in his case.” (EPI Environmental Technologies Inc v. Symphony Plastic Technologies plc  EWHC 2945 (Ch), §74(iii)).
“We do not believe that this principle goes so far as to suggest that a tribunal is bound to accept every word in a witness statement unless the passage in question was put to the witness specifically in cross-examination and challenged. In a case such as this, with a vast amount of documentary evidence submitted as well as lengthy witness statements and extensive oral evidence, that would be impracticable and indeed is not encouraged. In Markem Corporation, relied on by Arnold J in Okolo, in the passage quoted above, the principle being enunciated was that it was not open to challenge the evidence of a witness upon a matter which he has not had the opportunity of giving an explanation by reason of there having been no suggestion whatsoever in the course of the case that his story is not accepted…It must be open to the Tribunal to consider all the evidence put before it in the round when considering whether to accept a particular unchallenged passage in a witness statement, as opposed to considering the credibility of a witness’s story as a whole.” (Reed Employment Plc v. HMRC  UKUT 0160 (TCC), §128, Proudman J and Judge Herrington. Query: the fact that HMRC pursued the tax in Okolo must, if nothing else, have indicated non-acceptance of the taxpayer’s story. And see also §165, quoted above.)
Question is whether there was a fair opportunity to deal with the issue
" In our view there was sufficient challenge in the course of the proceedings and opportunity for explanation to meet any issue with the possible implications that might be drawn from a finding that the transaction documents were not to be believed. HMRC’s Amended Statement of Case of 10 May 2017, filed following Mr Judd’s first witness statement in June 2016, gave sufficient notice of challenge. It made it plain the documents were sham in the sense they were designed to give the impression that taxable supplies were being made in France when that was not the case. Their challenge was not, as Award argues, limited only to the extent of any claim that the documents established a French supply for VAT purposes; HMRC’s case, which was not resiled from as contended by Award, was that although the documents purported to show a transaction for consideration in bond there was in truth no such transaction. HMRC did not make a specific challenge regarding loss of possession and control falling short of a sale but they did not have to. The way in which the case had been argued at that point was that possession and control had been lost through genuine commercial sales to genuine customers for cash. HMRC’s overall case was that the sales were purported sales and the customers purported customers. As mentioned above, Mr Judd filed a supplemental witness statement in April 2018 which included further transaction documents. He had the opportunity there to give any explanation of why HMRC’s case was wrong." (Award Drinks Ltd (in liquidation) v. HMRC  UKUT 201 (TCC), Judge Raghavan and Judge Thomas Scott)
Findings on matters not raised with the witnesses
“By its findings at  the FTT has plainly breached this fundamental principle of elementary common fairness and Mr Cunningham did not seek to argue otherwise. It was quite wrong to have made the findings it did without first having given Mr Edmonds the opportunity of responding to them. In common with Lord Phillips in Vogon, we have no hesitation in finding that the FTT’s adverse findings as to Mr Edmonds’s honesty were unjustified and should not have been made…As Vogon makes it clear, in those circumstances we should not examine the details of the evidence given to see whether the FTT’s findings might have been justified.” (BTS Specialised Equipment Ltd v. HMRC  UKUT 159 (TCC), §§95…96, Warren J and Judge Herrington).
“In our judgment, the FTT erred in law in taking into account in its legal reasoning in relation to its alternative conclusion at paragraph  of the Second FTT Decision the further investigations mentioned at paragraph  of the First FTT Decision, because there were no grounds for it to do so. Those further investigations were not raised with S&I’s witnesses and were not the subject of any evidence, at least no such evidence was referred to. In our judgment, in the circumstances, there can have been no reasonable and proper basis for advancing them and relying upon them.” (S&I Electronics Ltd v. HMRC  UKUT 162 (TCC), §71, Asplin J and Judge Walters QC).
Not required to put case on matters about which witness claims to have no knowledge
“The Commissioners did not have to prove that Mr. Rashid knew of the circularity of funds. That evidence was documentary and spoke for itself. It would have been a waste of time and wholly inappropriate to put documents to Mr Rashid for comment, when he had made clear he could give no evidence.” (Edgeskill Limited v. HMRC  UKUT 38 (TCC), §138, Hildyard J).
Wholly peripheral matter renders error of law not significant on its own
“…the wording indicates that the FTT has 30 made its assessment of Mr Tomlinson’s honesty independently of its assessment of Mr Edmonds. We therefore accept Mr Cunningham’s submission that the evidence of Mr Edmonds was wholly peripheral in this case and the error of law in respect of its finding of dishonesty against Mr Edmonds is not on its own significant in relation to the outcome of the appeals.” (BTS Specialised Equipment Ltd v. HMRC  UKUT 159 (TCC), §98, Warren J and Judge Herrington).
Permissible to “elevate” case put to the witness as long as it does not alter the nature of the case
“I would accept that it would have been preferable for Mr Rashid to have been confronted specifically with the later elaboration of the Commissioners’ case to extend to the contention that the Appellant was set up to facilitate fraud, and that Mr Rashid and the Appellant knowingly and actively collaborated with Uni-Brand in the fraudulent evasion of VAT. But (a) that was not a necessary 10 part of the Commissioners’ case; (b) my reading of the transcripts is that Mr Rashid knew in reality that this was being suggested but preferred not to descend to particularity; and (c) I accept the FTT’s view (in paragraph 437 of the FTT Decision) that this “elevation” of the evidence “did not alter the nature of the case against the Appellant…”” (Edgeskill Limited v. HMRC  UKUT 38 (TCC), §135, Hildyard J).
Pre-eminently for trial judge to decide whether witness sufficiently aware honesty was being challenged
" The question whether it had been sufficiently brought home to Mr Perry, by cross-examination or otherwise, that the court was being invited to conclude that he was lying in his evidence about his inability to carry out the domestic tasks without assistance was pre-eminently a matter for the trial judge, and it is clear, as noted above, that he concluded, after hearing submissions from counsel on the point, that it had been. The question for an appellate court is therefore whether there was material upon which the judge could reasonably reached that affirmative conclusion. Having read those parts of the cross-examination to which this court was directed by counsel, there clearly was such material. It consisted, in the main, of counsel for Raleys putting in considerable detail to Mr Perry aspects of his documented medical history, and evidence (including photographic evidence) of fishing and gardening activities after his retirement as a miner which were, as the judge held, wholly inconsistent with his evidence about his disability in carrying out the relevant tasks. The judge was entitled to conclude that this sufficiently brought home to Mr Perry that he was being accused of lying about it. The fact that an appellate judge might, if trying the case at first instance, have preferred or required the matter to be put to Mr Perry differently or more directly, is, with respect, neither here nor there." (Perry v. Raleys Solicitors  UKSC 5)
Tribunal can make adverse findings against third party not before the Tribunal if necessary
" The current case involves an allegation of MTIC VAT fraud which, by its designed nature, brings together a number of persons into a chain to trade the deals. We consider it is not usually practicable for Tribunal proceedings involving an appeal against disputed Kittel or Mecsek VAT assessments to require or permit participation by persons in the chain who are not the direct parties to the proceedings; as Nicol J stated in MRH Solicitors (above), “There are many cases heard in the civil courts (and also family and criminal courts) where the conduct of an absent person falls to be considered. For example, in a conspiracy case not all the alleged conspirators may be before the court as parties or witnesses. In complex commercial frauds it may well be part of the case that an absent person or institution was party to dishonest conduct somewhere in the chain. Everything will depend on the facts of the individual case.” The task of the Tribunal in this regard is to evaluate the evidence before us to determine, on the balance of probabilities, whether such a person was dishonest, as alleged. It is up to the party making the allegation (here, HMRC) to decide what evidence they wish to lead in support of their allegation. As the Upper Tribunal stated in Katib (above), the mere fact that a third party might feel aggrieved at findings that were made in their absence does not allow the parties to the proceedings to escape the implications of those findings." (Lynton Exports (Alsager) Limited v. HMRC  UKFTT 224 (TC), Judge Kempster)
Irrelevant consideration does not have to be weighty in borderline case
“HMRC submitted that this irrelevant matter was considered by the Judge to be highly material. While CCA accepted that the Judge regarded this matter as relevant, it submitted that it had not been demonstrated that the Judge regarded it as highly material. We have no way of knowing what precise weight the Judge gave to this matter. He plainly gave it some weight. In a borderline case, a matter which has some weight is capable of affecting the outcome…We consider that, on this ground alone, the Decision as to Mr Trees’ knowledge cannot stand.” (HMRC v. CCA Distribution Ltd (in administration)  UKUT 513 (TCC), §§83…84, Morgan J and Judge Herrington).
Finding contrary to agreed or accepted facts
" On the contrary, we consider that it was absurd for HMRC to be put in the position in which they now find themselves. They saw that Hi-Octane had conceded the presence of limb (1) to (3) of Kittel. Nothing before or during the hearing before the FTT, would have suggested that they needed to explain their case on those aspects of the Kittel test. Nor would they have had any idea that the FTT had reservations that needed to be allayed. Yet, on opening the FTT’s decision, they would have seen that they had failed in a material aspect of their case on a ground that was not even in dispute. The word “ambush” is sometimes overused in litigation. We do not consider it an overstatement to say that in these proceedings regrettably HMRC were ambushed, not by their opponent, but by the FTT itself." (McCord v. HMRC  UKUT 153 (TCC), Judge Richards and Judge Brannan)
Judge's note conclusive as to whether a point was agreed
" There is therefore a clear conflict between what Mr Ginniff says and what the Judge’s notes record. In those circumstances, the Judge’s notes must be regarded as conclusive of the matter. That principle was established, as far as the Upper Tribunal is concerned, by Birss J (as he then was) in HMRC v Royal College of Paediatrics and Child Healthcare and Others  UKUT 0038 (TCC)...
 In our view, this principle is equally applicable to a conflict between what counsel says and the Judge’s notes record as to the agreed issues before the tribunal." (Douglas v. HMRC  UKUT 163 (TCC), §8(5) Judge Herrington and Judge Scott)
Query whether objection that point was not pleaded must be raised before first-instance tribunal
" It is accordingly also unnecessary for us to reach a view on whether the cases Gary James Keane -v- David Sargen and others  EWCA Civ 141, and the Hawksworth -v- Chief Constable of Staffs  EWCA Civ 293, established a proposition, applicable to tribunals litigation, that a party wishing to take a point on appeal that an issue was not pleaded must have first objected to and insisted on a ruling from the first instance hearing judge hearing on the new matter being taken." (JC Vision Limited v. HMRC  UKUT 166 (TCC), Judge Raghavan and Judge Dean)