HM Revenue & Customs v Infinity Distribution Ltd

Evidence must be relevant to a pleaded case and must not unfairly prejudice the opposing party. A positive case of fraud, dishonesty or bad faith must be distinctly pleaded with sufficient particularity. Evidence purporting to prove such misconduct is objectionable where that case is not pleaded, unless it serves another legitimate purpose.

Evidence may support more than one possible case. Material showing that a freight agent habitually fabricated documents or lacked facilities could properly be used to challenge the reliability and weight of documents offered as proof of export, even if it might also support an unpleaded misconduct case. While an extant pleaded case has not been struck out or abandoned, relevant supporting evidence should generally be admitted. Difficult questions about the legal sufficiency of that case should ordinarily be determined at the final hearing.

HM Revenue and Customs appealed from the Upper Tribunal (Tax and Chancery Chamber), which had dismissed an appeal concerning a First-tier Tribunal case-management decision in conjoined VAT appeals.

The appeals concerned deductions based on allegedly invalid invoices and zero rating based on purported intra-community exports. HMRC sought to rely on evidence of convictions of persons associated with a supplier and evidence concerning the reliability of Magic Transport, which had supplied transport documents. HMRC advanced no positive case that Infinity had participated in fraud, acted in bad faith or knew of fraud.

The central questions were whether the excluded evidence was irrelevant or unfairly prejudicial, and whether it was relevant to HMRC’s pleaded cases notwithstanding the unpleaded allegations which it might also support.

Disposition. The appeal was allowed in relation to the Magic Transport evidence and dismissed in relation to the Wafer statement and the Invalid Invoice Appeals. Lord Justice Underhill and Lady Justice Arden agreed with Lord Justice Briggs.

1. Case management and pleading. Rule 15(2) of the Tribunal Procedure (First tier Tribunal) (Tax Chamber) Rules 2009 gives the First-tier Tribunal flexibility to admit evidence which would not be admissible at a civil trial and to exclude otherwise admissible evidence where admission would be unfair. Relevance remains a cardinal consideration, although irrelevant material mixed with relevant evidence need not always be disentangled before the final hearing where its admission causes no unfairness.
2. Unpleaded misconduct. Where a party advances a positive case of fraud, dishonesty or bad faith, it must be distinctly pleaded with the requisite particularity. The principle stated in Armitage v Nurse CH 241 and Belmont Finance Corporation Limited v Williams Furniture Limited [1979] CH 250 was applicable. Where no such case is advanced, evidence purporting to substantiate that misconduct is inherently objectionable unless it serves another legitimate purpose.
3. Wafer statement. The statement sought to prove convictions of third parties but showed no necessary connection with the transactions in issue and did not advance HMRC’s case that the invoiced phones could not have been supplied. The proposed reliance on criminal Opening Notes was raised too late and had not been deployed below. Since appeals from the tax tribunals proceed on error of law, the material could not establish such an error. Any reliance on it required a fresh application to the First-tier Tribunal for admission of late evidence. The Court therefore did not need to address the Upper Tribunal’s additional reliance on Hollington v Hewthorn [1943] KB 587.
4. Magic Transport evidence. Evidence that a purported freight forwarder habitually fabricated documents, lacked business premises or had no facilities for storing or handling goods was plainly relevant to the weight and reliability of CMRs offered as evidence of export. The facts were pleaded with reasonable particularity. Evidence may serve more than one purpose, and its possible support for an unpleaded misconduct case did not prevent its use in support of the pleaded challenge to the CMRs.
5. Unresolved VAT issue. The Court declined to determine whether HMRC could resist zero rating or deductions without alleging relevant fraud or misconduct by the trader, including the issue referred to through Teleos PLC and Others v The Commissioners Customs and Excise C-4039-04. That difficult question was left for the final hearing, after the relevant facts had been found.

• Court of Appeal (Civil Division) allowed the appeal concerning the Magic Transport evidence, dismissed it concerning the Wafer statement and Invalid Invoice Appeals, and left the underlying VAT questions for the final hearing.
• Upper Tribunal (Tax and Chancery Chamber) dismissed HMRC’s appeal from the First-tier Tribunal’s case-management decision in May 2015. It upheld the exclusion of the Wafer statement and relied additionally on the decision in Hollington v Hewthorn [1943] KB 587.
• First-tier Tribunal (Tax Chamber) Tribunal Judge David Porter ordered the Wafer statement and specified parts of the Holden statement, including the Magic Transport evidence, to be struck out on 1 November 2012. Written reasons were released on 27 December 2012.