Atlantic Electronics Ltd v HM Revenue and Customs (Rev 1)

A specialist tribunal may admit relevant material even where it would be inadmissible in a civil trial. Relevant evidence should normally be admitted unless a compelling reason justifies exclusion. The tribunal must assess relevance, purpose, prejudice, proportionality and procedural fairness.

An appellate court should interfere with a case management decision only within the generous limits governing discretionary decisions. Intervention is nevertheless permitted for a material error concerning relevant or irrelevant considerations; perversity is not the sole ground. A prosecution opening may explain the transactions underlying a conviction but is not evidence of the truth of its contents.

HMRC denied a company input tax credits exceeding £1.1 million on the ground that its mobile telephone transactions were connected with missing trader intra-community VAT fraud and that it knew or should have known of that connection. HMRC sought to adduce a statement exhibiting the conviction, indictment and prosecution opening from the criminal trial of a director of Morganrise Ltd, an alleged fraudulent contra trader linked to two transaction chains.

The First-tier Tribunal refused to admit the disputed material. The Upper Tribunal set that decision aside for error of law and admitted the material. The company appealed. The questions were whether the Upper Tribunal was entitled to interfere with the case management decision and whether admission was just, fair and proportionate.

1. The appeal was dismissed unanimously. Ryder LJ and Arden LJ held that the Upper Tribunal was entitled to set aside the First-tier Tribunal's case management decision. The evidence had been wrongly characterised as stale, and the First-tier Tribunal had failed properly to assess the prejudice to HMRC from its exclusion. Those matters were material to the exercise of discretion.

2. Although appellate courts must accord a wide margin to case management decisions, intervention is not confined to perversity. A decision may be set aside where the primary decision-maker has applied a wrong principle, included an irrelevant consideration, excluded a relevant consideration or materially mis-evaluated a relevant consideration. The error must be material to the exercise of discretion.

3. Beatson LJ agreed with the disposition but considered that the Upper Tribunal had neither shown sufficient caution nor clearly identified a sustainable error in the reasons on which it relied. He nevertheless concluded that the First-tier Tribunal had committed errors of law by treating the different goods and the intervening buffer trader as negating relevance. Those were matters of general relevance to the trial of missing trader VAT fraud and enabled the Upper Tribunal to set the decision aside.

4. Under rule 15(2)(a) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the tribunal could admit evidence whether or not it would be admissible in a civil trial. The Upper Tribunal correctly applied the approach that relevant evidence should be admitted unless a compelling reason justified exclusion. It considered the competing prejudice and reached a fair, just and proportionate decision.

5. The prosecution opening was relevant to explain the dishonest transactions underlying the convictions and Morganrise's alleged knowing participation as a contra trader. It was not evidence of the truth of its contents. Any disputed underlying facts would require more probative evidence. Necessary contextual documents also had to be disclosed in sufficient time.

6. Differences in the goods traded and the presence of a buffer trader did not determine admissibility. The nature of the goods is not usually critical to an alleged missing trader fraud. Greater remoteness may reduce probative value and make knowledge less likely, but those matters remained for evaluation at the substantive hearing.

1. Court of Appeal (Civil Division): Dismissed the company's appeal and upheld the Upper Tribunal's admission of the disputed material: [2013] EWCA Civ 651.

2. Upper Tribunal (Tax and Chancery Chamber): Set aside the First-tier Tribunal's refusal for error of law and remade the decision by admitting the statement and its annexed material.

3. First-tier Tribunal (Tax Chamber): Refused to admit the HMRC officer's statement containing the material from the criminal proceedings.