N11: Estoppels and abuse of process

Issue estoppel (very limited scope in tax appeals)

 

General

 

“Issue estoppel may arise where a particular issue forming a necessary ingredient in a cause of action has been litigated and decided and in subsequent proceedings between the same parties involving a different cause of action to which the same issue is relevant one of the parties seeks to re-open that issue.” (Arnold v. NatWest Bank Plc [1991] 2 AC 93, Lord Keith).

 

“We agree with Judges Richards and Berner that the question whether Mr Garland is entitled to pay voluntary NICs in Period 1 has been conclusively decided against him by UT 1, and it is not possible for us to re-open that question. There is a public interest in the finality of litigation and a defined appellate process which, as we have explained, Mr Garland has exhausted. Accordingly, even if we should think there was merit in Mr Garland’s arguments in respect of Period 1 we are obliged to refuse permission on ground (5).” (Garland v. HMRC [2016] UKUT 431 (TCC), §28).

 

“However, issue estoppel does not appear to have any actual application in tax cases.  In Cafoor [1961] AC 584 PC it was held that a decision in one tax year does not create an issue estoppel for another tax year.  That doctrine was held to apply as much to VAT as direct tax cases in Littlewoods [2014] EWHC 868 (Ch) at §190.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §25).

 

Overriding purpose 

 

“designed to prevent the re-litigation of facts and other issues which have been or could have been decided in earlier proceedings between the same parties” (Bennett v. CEC [2001] STC 150)

 

Three requirements

 

“It is common ground that, in order for an issue estoppel to arise, three conditions need to be satisfied:
(i) the same question must previously have been decided;
(ii) the judicial decision which is said to create the estoppel must have been a final decision of a court of competent jurisdiction; and
(iii) the parties to the prior judicial decision … must have been the same persons as the parties to the subsequent proceedings in which the estoppel is raised…” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §152, Henderson J).

 

Must be the same question in both proceedings

 

For tax purposes, issue estoppel only applies to the liability to tax itself, and even then, only when that liability is the ultimate question before the Court or Tribunal. For example, interest is a separate liability to tax, as is a consequent penalty.

 

"I consider that the Caffoor principle applies to the underlying determinations of VAT and section 85 agreements in the present case, and that no issue estoppel can arise in relation to the separate claims for interest now advanced by the claimants so as to prevent HMRC from arguing that the VAT was in fact due as a defence to the claims. The position is in my judgment similar in all essential respects to that considered by Jacob J in King v Walden, which I respectfully think was correctly decided.” (Littlewoods Retail Ltd v. HMRC [2014] EWHC 868 (Ch), §207(1)).

 

“The appellant points out that issue estoppel is of limited application in tax proceedings due to the doctrine described in Cafoor [1961] AC 584 PC.  That doctrine is that a decision in one tax year does not create an issue estoppel for another tax year.  That doctrine was held to apply as much to VAT as direct tax cases in Littlewoods (supra) at §190.” (Bradonbay Ltd v. HMRC [2015] UKFTT 229 (TC), §52).

 

“If there effectively is no issue estoppel in actions for interest on tax over or underpaid, then it seems an irresistible conclusion that a tribunal determination on liability to VAT cannot create an issue estoppel in penalty actions arising out of that liability.” (Foneshops Ltd v. HMRC [2015] UKFTT 410 (TC), §28).

 

Must be a final decision of a court of competent jurisdiction

 

“The appellant appears to accept that this Tribunal is a court of competent jurisdiction…” (Bradonbay Ltd v. HMRC [2015] UKFTT 229 (TC), §50 – HMRC were arguing that issue estoppel would apply to the decision of the FTT).

 

Or possibly a withdrawal or judgment by consent

 

“In my view, what emerges from these authorities is that there is no inflexible rule to the effect that a withdrawal or judgement by consent invariably gives rise to a cause of action or issue estoppel.  If it is clear that the party withdrawing is not intending to abandon the claim or issue that is being withdrawn, then he or she will not be barred from raising the point in subsequent proceedings unless it would be an abuse of process to permit that to occur.” (Ako v Rothschild Asset Management Ltd [2002] EWCA Civ 236, §41).

 

“The decision that the appeals should be allowed by consent was obviously not intended to be an end to the deregistration decision and we therefore decided that HMRC was not estopped from making the second deregistration decision… In our view the appeal against HMRC’s decision to reduce both input and output tax to nil for the period to 09/08 and to refuse the repayment claims in the subsequent returns were allowed by Judge Brooks, by consent.  This does of course mean that that decision has already been made and has not been challenged by HMRC in any way within the prescribed time limits.  It is therefore subject to res judicata and we cannot interfere with that decision.” (Wicked Wang Promotions v. HMRC [2017] UKFTT 100 (TC), §§19…22).

 

Includes interlocutory decision

 

“Yet I take it to be too clear to need citation of authority that the parties to the suit are bound by the determination of the issue. They cannot subsequently in the same suit advance argument to adduce further evidence directed to showing that the issue was wrongly determined. Their only remedy is by way of appeal from the interlocutory judgment and, where appropriate, an application to the appellate court to adduce further evidence.” (Fidelitas Shipping 30 Co Ltd v V/O Exportchleb [1966] 1 QB 630 at 642, Diplock LJ).

 

“The fact that the decision which is said to create an issue estoppel was an interlocutory decision is not a bar to its creation.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §9, Judge Herrington).

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And attempt to reargue procedural issue

 

“Osman proceeded on the basis that the original decision which was stated to have created an issue estoppel was a final decision on disclosure and the further application was seeking to re-litigate the same issue. In this case, as Mr Furness accepts, the Targets cannot seek to re-litigate the Carmelite Application, being an application for disclosure, but the question as to whether to strike out the Targets’ pleadings on the underlying issue has not been specifically litigated.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §24, Judge Herrington).

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But not substantive issues raised in the context of interlocutory decisions on a procedural issue

 

“However, as Mr Furness points out, the Carmelite Application was not extensively argued, as it undoubtedly would have been had the issue been on the table as, in effect, a preliminary issue. I therefore accept the distinction he draws between an application that has been set up for hearing as a purely procedural one, as the Carmelite Application was, dealing with the question of disclosure, and a hearing that has been set up to argue the merits of a preliminary issue.” (Granada Rental & Retail Limited v. The Pension Regulator [2014] UKUT 175 (TCC), §22, Judge Herrington).

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Does not apply where earlier appeal struck out for procedural reasons

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"[51] In considering whether the striking out of an appeal constituted a “decision” on the underlying grounds put forward by an appellant, I was assisted by Takhar v Gracefield Developments Ltd [2019] UKSC 13.  In that case, Lord Sumption (with whom Lords Hodge, Lloyd-Jones and Kitchin agreed) held that where a case is struck out for a procedural reason, the “cause of action” is the set aside application itself, and this “relates to the conduct of the earlier proceedings, and not to the underlying dispute”.  Lord Sumption went on to say that, as a result. “there can therefore be no question of cause of action estoppel” applying. In other words the substantive issues in the appeal have not previously been decided.  Although Takhar concerned a strike-out application on the basis of fraud, in my judgment the principle is the same in other cases." (Henry v. HMRC [2024] UKFTT 237 (TC), Judge Redston)

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Only applies as between the same parties 

 

Change in the law subsequent to initial decision

 

New material that could not have been adduced with reasonable diligence

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"[223] I record for completeness that Mr Jones did not refer to the exception set out at §196 and §197, namely that issue estoppel does not apply “in the special circumstance that further material relevant to the correct determination of a point involved in the earlier proceedings, whether or not that point was specifically raised and decided”.  In particular, he did not seek to argue that the new arguments included in the Claim (see §25) based on the UT judgment in University of Cambridge constituted “special circumstances” for the purposes of issue estoppel.

[224] The Arnold exception only operates, of course, where the newly adduced material “could not by reasonable diligence have been adduced in those proceedings”.  The UT’s judgment in University of Cambridge was issued in June 2015, so before the Assessment was appealed to the FTT, and thus prima facie could have been adduced in those proceedings." (Telent Technology Services Limited v. HMRC [2022] UKFTT 147 (TC), Judge Redston)

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Persuasive effect of earlier findings

 

“I am therefore of opinion that the assessment is final and conclusive between the parties only in relation to the assessment for the particular year for which it is made. No doubt, a decision reached in one year would be a cogent factor in the determination of a similar point in a following year, but I cannot think that it is to be treated as an estoppel binding upon the same party for all years.” (IRC v. Sneath 17 TC 149 at 163, per Lord Hanworth).

 

Confiscation order proceedings do not give rise to res judicata or estoppel

 

“That decision clearly does not preclude HMRC altogether from investigating Mr Martin’s tax affairs. In my judgment, it does not preclude HMRC from raising assessments based on the results of their investigation; they are not bound to accept that the house was constructed before the earliest of the assessment periods.” (Martin v. HMRC [2015] UKUT 161 (TCC), §55, Warren J).