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Q4: Relevant and irrelevant considerations

Tribunal must take account of all relevant considerations and exclude all irrelevant considerations where exercising a discretion

 

“Accordingly, provided that we are satisfied that Judge Mosedale applied the correct principles, took into account all relevant matters and did not take account of any irrelevant matters then we will not allow this appeal unless we consider that her decision was so plainly wrong that it must be regarded as outside the generous ambit of the discretion entrusted to the FTT in matters of case management.” (First Class Communications Limited v. HMRC [2014] UKUT 244 (TCC), §26, Judges Sinfield and Clark – what is true of case management appeals is ex hypothesi true of “other” appeals)

Tribunal must take account of all relevant considerations and exclude all irrelevant considerations where exercising a discretion

And when reaching an evaluative judgment on the facts

 

“The FTT was entitled to consider the evidence that was produced and evaluate it in light of the circumstances. We agree that where there is conflicting evidence, that is a circumstance to be considered, with the usual care, by the tribunal. But we do not accept that the FTT failed to take account of all relevant matters, or that its approach can be said to have been wrong in law. The FTT addressed the discrepancies between the various documents and concluded that they did not prevent the original documents being accepted as satisfactory proof of export. That is a conclusion the FTT was entitled to reach on the evidence, and as such it does not disclose any error of law.” (HMRC v. Arkeley Limited [2013] UKUT 393 (TCC), §47, Judges Berner and John Clark)
 

And when reaching an evaluative judgment on the facts

Failing to have sufficient regard to relevant factors

 

“The core of the FTT’s decision is contained in paragraph’s 127-174 of the Decision, under the heading “Our Decision – Applying the law to the facts”. They consider a number of factors, many of which are plainly relevant and significant, in particular whether Mr Glyn had made a distinct break involving a substantial loosening of his family, social and business ties. But, as explained above, they also took into account irrelevant factors and they failed to have regard, or sufficient regard, to certain relevant factors. The FTT itself considered this to be a “borderline” case (see the Reasons for refusing permission to appeal at [10]). In such a case, the errors of law which I have identified mean that the Decision cannot stand.” (HMRC v. Glyn [2015] UKUT 551 (TCC), §102). 

Failing to have sufficient regard to relevant factors

For the appellate tribunal/court to determine what considerations are relevant

 

“In my judgment, this submission goes to the weight to be attached by the primary decision-maker to certain matters in relation to others. While the categorisation of a fact as probative of a particular issue is a question of law, the question whether it is so probative is a question of fact.” (Davis & Dann Limited v. HMRC [2016] EWCA Civ 142, §77, Arden LJ – Not an easy sentence to understand. Appears to say that relevance is a question of law, weight is a question of fact)

“it is for the appellate tribunal to determine what considerations are relevant to the question at issue. It does not defer to the inferior tribunal in the selection or identification of these considerations.” (Teinaz v. Wandsworth LBC [2002] EWCA Civ 1040, §36, Arden LJ)

“As we have said, we regard the reference in paragraph [215] of the First FTT Decision to such further investigations as part of the FTT’s reasoning as to why S&I should have known of the connection to fraud. On that basis, it is open to us to assess the rationality and relevance in relation to the correct legal test (1) of the FTT requiring steps to be taken which consisted of insisting on the source of each new transaction being chased down the chain by an independent third party (who undertook not to divulge details of the suppliers’ identities) as a condition for the completion of a transaction, or of insisting on being given adequately secured personal indemnities from the individuals in charge of a trader’s suppliers against the loss of the input tax at stake as a result of any fraud in the chain, and (2) of the FTT’s conclusion that ‘in each case where there was a fraudulent trader this would … have revealed the fraud’. (S&I Electrical plc v. HMRC [2015] UKUT 162 (TCC), §69, Asplin J and Judge Walters QC).

“I find the submission that HMRC should not be required to include in the list of documents any documents that the decision-maker had considered but concluded were irrelevant astonishing.  If accepted, it would allow the HMRC officer whose decision is being challenged to determine what materials the FTT should consider when reviewing that decision.  That is not the role of the decision-maker and it would risk preventing the FTT from carrying out its role properly.  Mr Hays’ submission was necessarily limited to cases in which the decision-maker “ultimately (and correctly) concludes that it is irrelevant” but, if the document is not disclosed, how could the correctness of the officer’s opinion ever be tested?” (OWD Limited v. HMRC [2017] UKFTT 411 (TC), §26, Judge Sinfield)  

 

For the appellate tribunal/court to determine what considerations are relevant

Not necessary to show that failure to have regard to relevant matter was perverse

 

"[39] HMRC relied on a number of authorities at Court of Appeal and Upper Tribunal level in support of their submission that it is only where a tribunal has failed to take into account a matter, which no tribunal properly instructed would have left out of account, is there an error of law (i.e. perversity). We consider however that, for the reasons we explain below, none of those authorities on closer analysis support that proposition. Rather the consistent message, in line with the Court of Appeal’s approach in Pringles, is that, while a requirement to show the decision is perverse applies in relation to matters of weight /evaluation, failing to take account of a  relevant factor  or taking an irrelevant factor into account will constitute an error of law (albeit there will be subsequent issue of whether any such error is material to the decision in question).

[...]

[51] In our judgment, neither of the extracts from Aria or Northside Fleet, properly analysed, supports HMRC’s case that there is an additional perversity hurdle. Both passages in Northside Fleet [28] and Aria [34] relied on by HMRC must be read in the light of the contrast the Court of Appeal drew in Davis & Dann , that the question of what facts are relevant is a question of law (i.e. at level of principle) with the question of whether the fact is actually probative on the facts (which is question of fact). (We have some doubt therefore whether the statement in [29] of Aria “…The decision of what primary facts are relevant for the purpose of reaching the overall factual conclusion is essentially one for the fact-finding tribunal: it is part of the fact-finding process.  …if an appellate body were simply to substitute its own assessment of what primary facts should be taken into account, it would itself be engaged in fact-finding and not restricting the appeal to a question of law”  is correct as it seems to be at odds with the principles explained in Davis & Dann and also Teinaz at [35] and [36])." (WM Morrison Supermarkets Plc v. HMRC [2023] UKUT 20 (TCC), Judge Raghavan and Judge Brannan)

But see:

"[34] At the margins, questions of some difficulty can arise as to whether the selection of which considerations are relevant, and which irrelevant, involves a question of fact or law. We tend to agree with [the taxpayer's] submission, based on the judgment of Arden LJ, as she then was, in Davis v Dann Ltd v HMRC [2016] EWCA Civ 1899 at [101] that the categorisation of matters as relevant or irrelevant involves a question of law, but that a superior court or tribunal should only interfere with the categorisation adopted by the fact-finding tribunal if that categorisation was perverse in the sense that it could not have been adopted by any reasonable tribunal. However, as will be seen from the next paragraph, we do not need to determine any question of categorisation in this case." (Northside Fleet Limited v. HMRC [2022] UKUT 256 (TCC), Judge Jonathan Richards and Judge Aleksander)

Not necessary to show that failure to have regard to relevant matter was perverse

Only considerations that were before the decision-maker (unless new evidence admitted)

“…unless permission is given for fresh evidence to be adduced on appeal, the appellate tribunal makes this determination on the factual material before the inferior tribunal.” (Teinaz v. Wandsworth LBC [2002] EWCA Civ 1040, §36)

“Even if it were correct that no evidence has been lost, the appellants cannot complain that the availability of evidence to support the merits of the appeals vitiates the FTT’s decision as they were not asked to consider the point.” (Graham v. HMRC [2014] UKUT 75 (TCC), §16, Judges Reid and Ghosh).

Only considerations relied upon by a party

“The FTT made its determination on the matters put before it. Even though Judge Raghavan had himself been the recipient of the Hearing Statement at the June 2012 hearing, he was entitled to determine the costs application without regard to any matters not put before him by the parties. As the Hearing Statement was made in open court in the presence of MORI, and there had been no non-disclosure of it, it was open to MORI to raise it in relation to the costs applications. The fact that it did not do so cannot amount to an error of law on thepart of the FTT.” (Market & Opinion Research International Limited v. HMRC [2015] UKUT 12 (TCC), §62, Judges Berner and Powell)
 

Only considerations that were before the decision-maker (unless new evidence admitted)

Express reference in decision indicates tribunal did have a consideration in mind

 

"[43] Submission 2 has an unpromising start because Northside accepts that the FTT mentioned all of these factors in the Decision. We stress that we are far from saying that the only way a factor can be shown to be taken into account is if that factor is expressly mentioned in the Decision. As Popplewell LJ said at [67] of DPP Law to which we have already referred: “it is ... false reasoning that what is out of sight in the language of a decision must be assumed to be non-existent or out of mind”. However, in our judgment, the express reference to the factors on the face of the Decision is a strong indicator that the factors were taken into account.

[44] Northside’s complaint, therefore, relies on the fact that the FTT did not expressly cross refer to all of these factors when it set out the balancing exercise described between [110] and [113]. We reject that complaint. As Ms Vicary pointed out in her oral submissions, it amounts to a criticism of the FTT’s failure to repeat itself in what was already a lengthy decision. It is clear on the face of the decision that the FTT had well in mind that there were aspects of the transactions and the circumstances in which they were undertaken that pointed away from a conclusion that Northside had means of knowledge of connection to fraud. It referred to a subset of those factors expressly when introducing its balancing exercise at [110] by referring to “the fact that [the disputed transactions] resembled in many ways the purchases that the Appellant made from its large company suppliers”. The FTT’s repeated reference to the difficulty it had in deciding the case demonstrates that it had the relevant factors firmly in mind since it was those factors that were the cause of the difficulty." (Northside Fleet Limited v. HMRC [2022] UKUT 256 (TCC), Judge Jonathan Richards and Judge Aleksander)

Express reference in decision indicates tribunal did have a consideration in mind

Tribunal not required to refer to every relevant consideration in decision

 

“The judge is not, of course, required to deal with every point raised in argument, however peripheral, or with every part of the evidence.” (Weymont v. Place [2015] EWCA Civ 289, §6).

 

No express reference but clear Tribunal had it in mind

 

“There is no explicit reference by the FTT in its Decision to the fact that the proceedings involve allegations of fraud both against the Appellants and Mr Kohli personally. However, it is clear from its summary of the arguments made by Mr Hewitt at [27] of the Decision, that the FTT clearly had in mind Mr Hewitt’s submission that the Tribunal could not conduct a fair hearing without considering the evidence of Mr Kohli’s mens rea on entering into the disputed transactions.” (Westminster Trading Ltd v. HMRC [2017] UKUT 23 (TCC), §64).

 

Consideration that could not have made any difference to conclusion

 

“In our view, Judge Mosedale cannot be criticised for omitting to refer to the Strutt & Parker letter in the Decision. The letter could not have made any difference to her conclusions. Accordingly, we reject this ground of challenge.” (Massey and Massey t/a Hilden Park Partnership v. HMRC [2015] UKUT 405 (TC), §93, Rose J and Judge Sinfield)

 

Factors raised and noted by Tribunal should be discussed

 

“We do not say that any or all of those facts necessarily constitute a reasonable excuse but we consider that, having been raised and noted by the FTT, they should have been discussed.” (ETB (2014) Limited v. HMRC [2016] UKUT 424 (TCC), §28, Judges Sinfield and Clark).

 

Reasons given contradict apparent attempt to take into account

 

“I find that, although HMRC stated that they had taken the appellant’s mental illness into consideration in their assessment that there were no special circumstances which might apply to reduce the penalty, the reasons given by HMRC make it clear that they assessed the appellant’s behaviour on the basis of the actions and decisions that would be expected of a person who was neurotypical and so did not in fact take into account the appellant’s mental illness.” (Appellant v. HMRC [2018] UKFTT 103 (TC), §81, Judge Fairpo).
 

Tribunal not required to refer to every relevant consideration in decision

Irrelevant considerations: examples

 

Erroneous inference 

 

“The matters referred to in the first sentence of [392] were irrelevant to the question whether Mr Trees knew that the CCA transactions were connected with fraud. What the Judge seemed to be saying was: (1) the persons responsible for the criminal investigation must have thought that CCA was not involved in the fraud which they were investigating; and (2) that indicated that Mr Trees did not know that the CCA transactions were connected with fraud. We consider that it is not possible to draw any inference as to what those persons actually thought about the involvement of Mr Trees and CCA from the fact that they did not contact Mr Trees in connection with the criminal investigations. There are many possible reasons why they did not contact Mr Trees, apart from the suggested reason.” (HMRC v. CCA Distribution Ltd (in administration) [2015] UKUT 513 (TCC), §81, Morgan J and Judge Herrington).

 

Incorrect statement that there was no evidence on a particular matter

 

"[30] In addition, paragraphs [173] and [174] of the Decision indicate that the FTT may have misunderstood the nature of HMRC’s case, or what HMRC needed to establish that case. The FTT stated that it had seen “no evidence which proves or even suggests that [Mr Orton] did in fact know that [Beigebell’s transactions were connected with fraud]”. The difficulty with this statement is that there was clearly evidence that “suggested” that Mr Orton knew the transactions were connected with fraud." (HMRC v. Beigebell Ltd [2020] UKUT 176 (TCC), Judge Richards and Judge Cannan)

"[28] The Appellant’s first criticism relates to the FTT’s conclusion, at [59], that “no evidence was provided to show how quickly cells degrade in the environment in which they are normally used”. The Appellant contended that there was ample evidence on this issue in a document annexed to Mr Xu’s witness statement that explained the various stages in the manufacture of a solar module...

...

[30] We reject this attempt to justify the Decision and we accept the Appellant’s submission that, in reaching its conclusion at [59], the FTT was ignoring important and uncontested evidence that was properly before it...

[31] Of course, the significance of that evidence needed to be assessed, but we reject HMRC’s submission that there was “no evidence” as to how quickly cells degrade in the environment in which they are normally used or that some better “technical” evidence was needed." (Renesola UK Ltd v. HMRC [2020] UKUT 60 (TCC), Marcus Smith J and Judge Richards)

“Clearly, Vital Nut’s prospects of establishing an Edwards v. Bairstow type of error of law were better if it was the Original Decision that was being appealed than if it was the Revised Decision that was the subject of the appeal. That is because, as we have noted, [55] of the Original Decision makes a statement about the evidence (“…there was no evidence before us …”) that suggests that the FTT excluded from its consideration legally relevant and probative evidence that was undoubtedly before it. That, plainly, is very much Edwards v. Bairstow territory.” (Vital Nut Co Limited v. HMRC [2017] UKUT 192 (TCC), §43, Marcus Smith J and Judge Bishopp – on the facts the FTT sought to correct the error through the review procedure).

 

The opinion of others as to whether a person was knowingly involved in fraud

 

“But even if it were appropriate to infer that those persons actually thought that Mr Trees did not know of the relevant fraud, the belief of those persons has no probative value as to what Mr Trees did know. The Judge was required to determine on the evidence before the F-tT whether it had been demonstrated on the balance of probabilities that Mr Trees knew that the CCA transactions were connected with fraud. What other people thought at an earlier time, probably by reference to material which was different from the evidence before the F-tT, was irrelevant.” (HMRC v. CCA Distribution Ltd (in administration) [2015] UKUT 513 (TCC), §81, Morgan J and Judge Herrington).
 

HMRC's views

 

"[37]...We also consider the FTT erred to the extent it included HMRC’s views as expressed in the closure notice. That was clearly an irrelevant factor to consider." (Khan v. HMRC [2020] UKUT 168 (TCC), Judge Raghavan and Judge Andrew Scott)

Irrelevant considerations: examples

Set aside if decision might have been different

"[60] As mentioned above, as regards the Upper Tribunal’s discretion to set aside the decision, HMRC argue for in essence a more stringent test: that the FTT decision would have been different rather than that it might have been different.

[61] The most recent higher authority in relation to the exercise of the Upper Tribunal’s discretion to set aside is Degorce v HMRC  [2017] EWCA Civ 1427.  The issue was whether the taxpayer, Mr Degorce, who had participated in a film scheme, was carrying on a trade. It was admitted the FTT made an error (which the court described as an error of approach) in not taking account of the taxpayer’s other film-related activities because no findings regarding them had been made by a court or tribunal because they were subject to an enquiry by HMRC ([96]). The UT nevertheless declined to exercise its discretion to set aside the decision. In the Court of Appeal the taxpayer argued the UT had misstated the test as requiring that if the evidence had been approached correctly “[The FTT’s] doing so would, or at least might have affected the outcome”:

[62] Henderson LJ considered the test of materiality will have a (([95]):

 "…crucial, and usually decisive role to play in the decision of the Upper Tribunal whether or not to set aside the decision of the FTT”.

[63] He continued:

“At least in case of the present type, I find it difficult to envisage circumstances in which the Upper Tribunal could properly leave the decision of the FTT to stand, once it is satisfied that the error of law might (not would) have made a difference to that decision. As a taxpayer, Mr Degorce is entitled to be taxed according to the law, and if an error of law is detected in the FTT’s decision, which is material in the sense I have mentioned, justice will normally require nothing less than that the decision is set aside.”

[64] Applying the test to the facts, Henderson LJ went on to conclude the admitted error of approach was immaterial ([100]).

[65] Mr Watkinson draws a distinction between the materiality test where the error of law is an error of approach. There, he accepts it is enough that the error might have produced a different conclusion. In contrast, where the error concerns a multi-factorial assessment, he submits, it needs to be shown the FTT’s decision would have been different. That, he argues, would be extremely difficult as the factor wrongly ruled as irrelevant would have to be of such great weight that it outweighed the cumulative weight of all the relevant characteristics that were taken into account.

[66] In our view, the facts of this case are such that we do not need to decide the scope of the materiality test and whether it varies, as HMRC submit, according to the type of legal error. That is because the error in issue in Degorce is directly analogous to the error here. The issue of whether Mr Degorce was carrying on a trade also required a multi-factorial analysis and the relevant error concerned the FTT’s disregard of a relevant factor, which the FTT had mistakenly ruled out of account. Similarly, if the appellant’s case here is made out, it rests on the FTT wrongly ruling out a factor as irrelevant. Moreover, both errors bear the same character of being said to stem from a misconception of the law. Thus, if the appellant successfully makes out its case, that the FTT made error(s) of law by disregarding one or more relevant factors, there is no reason to adopt a different test of materiality from that adopted in Degorce.

[67] We in any case are sceptical of the distinction HMRC advance. As Ms Sloane pointed out, the underlying rationale - that justice will require the person is taxed according to the law - does not suggest the principle is limited depending on the type of error of law. (Against that we recognise however that by prefacing his views with “at least in the case of the present type” Henderson LJ was leaving scope for the argument a different test might apply)." (WM Morrison Supermarkets Plc v. HMRC [2023] UKUT 20 (TCC), Judge Raghavan and Judge Brannan)

Decision invalidated unless consideration played not significant role/would have played no significant role

“If the appellate tribunal finds that an irrelevant consideration has been taken into account or that a relevant consideration has been left out of account, the appellate tribunal must conclude that the exercise of discretion by the inferior tribunal is invalidated, unless it can be satisfied that the consideration did not play any significant role in the exercise of the discretion and thus constituted a harmless error involving no prejudice to the appellant.” (Teinaz v. Wandsworth LBC [2002] EWCA Civ 1040, §36).

"[31] However, where a material aspect of this “multifactorial” approach is either overlooked or misstated, the conclusion reached by the fact finder cannot be permitted to stand as it is vitiated by an error of law consisting of a failure properly to take into account a relevant consideration or considerations." (Renesola UK Ltd v. HMRC [2020] UKUT 60 (TCC), Marcus Smith J and Judge Richards)

 

“In our view, Judge Mosedale cannot be criticised for omitting to refer to the Strutt & Parker letter in the Decision. The letter could not have made any difference to her conclusions. Accordingly, we reject this ground of challenge.” (Massey v. HMRC [2015] UKUT 405 (TCC), §93).

 

“[The taxpayer], as we see it, sought to identify a number of findings which, if he is right, were wrong, or unfair. In doing so he treated them as if each stood alone, and as if each was critical to the F-tT’s overall conclusion. We agree, however, with Mr Collins that this is the approach which the EAT (presided over by Elias J, as he then was) condemned in ASLEF v Brady. We have already made the point that the F-tT’s decision is lengthy and detailed. It would be remarkable if, in such a document, there was no example of a finding which a differently constituted panel might not have made in the same terms, or at all, or even of a finding, whether of primary fact or of inference, which was demonstrably wrong. But, as the authorities have repeatedly shown, that is not the correct approach.” (Earthshine v. HMRC [2014] UKUT 271 (TCC), §67, Judges Bishopp and Sadler)

 

“The words of paragraph [96] make clear that the considerations in [95] were material to the FTT’s conclusion. Thus we conclude that the FTT took into consideration a materially irrelevant factor. Accordingly its decision betrayed an error of law…It does not seem to us that this was a harmless error involving no prejudice to Mr Wright or that the FTT would inevitably have reached the same conclusion had it not taken this factor into account. Accordingly we set the decision aside.” (Wright v. HMRC [2013] UKUT 481 (TCC), §§47…48, Judges Hellier and Gort).
 

Decision not set aside if quite satisfied that the error made no difference to the decision​

"[21] This was a full and very carefully considered judgment. However, it would nonetheless be appropriate for an appellate court to interfere with it, if it could be shown that irrelevant material was taken into account, relevant material was ignored (unless the appellate court was quite satisfied that the error made no difference to the decision), there had been a failure to apply the right principles, or if the decision was one which no reasonable tribunal could have reached. Ms Simor has argued that there were a number of errors in the judgment, and also that the ultimate decision was outside the bounds of what a reasonable tribunal could have decided." (HMRC v. BPP Holdings Ltd [2017] UKSC 55, Lord Neuberger)

UT not accepting FTT’s attempt, in PTA decision, to explain reference to irrelevant consideration in decision

 

“I would not take issue with anything there said by Judge Nowlan [in the PTA decision], nor I think would HMRC. The fact however remains that in a large number of places in the Decision under appeal, the FTT addressed, as a relevant issue, whether Mr Glyn had a settled purpose, or a single or dominant purpose, for his visits to the UK. I do not think that these references can be explained as an unfortunate expression, intended in fact to apply a different test. It follows that, in my judgment, HMRC make good their submission that the FTT adopted and applied a legally irrelevant test when considering the significance of Mr Glyn’s return visits to the UK. As Lloyd LJ said in Grace at [18], which I have earlier cited, the enquiry which the FTT had to undertake involved assessing the duration of Mr Glyn’s presence in the UK and the regularity and frequency of his visits, the nature of the visits and his connection with this country. The reasons for those visits are, in my judgment, relevant but what is irrelevant is whether they demonstrated any settled purpose.” (HMRC v. Glyn [2015] UKUT 551 (TCC), §75, David Richards J).
 

UT not accepting FTT’s attempt, in PTA decision, to explain reference to irrelevant consideration in decision
Consequence

Not an exercise of counting up the number of factors in each direction

"[134] First, it must be recognised that the multi-factorial evaluation cannot be reduced to an exercise of counting up the numbers of factors which point in a particular direction. Rather, the exercise is qualitative and it is possible that because of the weight ascribed to a particular factor in forming an overall impression it outweighs a number of other factors which point in the other direction. We did not understand Mr Watkinson to disagree with that in principle..." (WM Morrison Supermarkets Plc v. HMRC [2023] UKUT 20 (TCC), Judge Raghavan and Judge Brannan)

- Not an exercise of counting up the number of factors in each direction
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