City Shoes (Wholesale) Ltd & Ors v The Commissioners for HMRC

A public authority may change policy, including tax-settlement policy, where there is a good reason. A challenge based on conspicuous unfairness is a distinct form of irrationality and requires conduct that is exceptionally unfair, illogical or immoral, amounting to an abuse of power. The categories are not closed, but the court remains supervisory and must consider the position at the time of the impugned decision. Comparative unfairness requires a materially comparable class. Taxpayers whose applications had been accepted and registration certificates issued were materially different from unregistered applicants. Failure to meet an administrative timetable, without identifiable prejudice, did not make the later policy change conspicuously unfair.

HMRC had operated the Liechtenstein Disclosure Facility, offering favourable tax-settlement terms, including a shorter assessment period, a fixed penalty and a composite tax rate. The appellants had used employee benefit trust arrangements and applied for registration while HMRC was reviewing whether such arrangements should continue to receive those benefits. Their applications were placed on hold. HMRC later restricted the favourable terms for cases where an intervention had begun more than three months before the application.

The appellants sought judicial review, alleging conspicuous unfairness, discriminatory treatment and defects in HMRC’s decision-making. Whipple J dismissed the claim in [2016] EWHC 107 (Admin). The central issues on appeal were whether the judge had misdirected herself on conspicuous unfairness, failed to consider relevant circumstances, reached unsupported factual conclusions, or failed to recognise relevant fairness considerations.

1. Appeal dismissed. The judge had correctly treated conspicuous unfairness as a particular and distinct form of irrationality. The doctrine is not confined to cases involving a legitimate expectation, although the absence of any expectation of substantive entitlement made the appellants’ case difficult. The threshold is high: the conduct must be so exceptionally unfair, illogical or immoral that it amounts to an abuse of power.
2. Comparative unfairness must be assessed by reference to materially comparable taxpayers at the time of the decision. Applicants whose LDF applications had been accepted and who had received registration certificates were in a legally and factually different position from applicants whose cases remained on hold. The former could have a legitimate expectation of the LDF benefits; the latter did not.
3. HMRC’s delay in processing the applications beyond the 60-day period in the Memorandum of Understanding was regrettable and potentially relevant, but was an administrative default. The appellants had notice that the LDF was under review and showed no identifiable prejudice caused by the delay. The conduct fell far short of conspicuous unfairness and did not involve objectionable retrospectivity.
4. The alleged comparison with non-EBT taxpayers was insufficiently pleaded and unsupported by sufficiently clear evidence. The court would not infer grave discriminatory treatment from isolated documents or conjecture, particularly where HMRC had not had a fair opportunity to answer the allegation.
5. HMRC’s Commissioners had considered the wider interests of taxpayers, the purpose of the LDF, the likely Exchequer loss, the EBTSO, the treatment of other EBT users, and the change in policy. Their decision-making process showed no material omission or inappropriate weighting. Each ground of appeal was rejected.

• Court of Appeal (Civil Division) dismissed the appeal on 2 March 2018: [2018] EWCA Civ 315.
• High Court of Justice, Queen’s Bench Division, Administrative Court dismissed the judicial review application: [2016] EWHC 107 (Admin).