The Commissioners for HMRC v Charles (t/a Boston Computer Group Europe)

A party to litigation does not owe its opponent a common-law duty of care to verify or correct evidence used in the litigation, even where the document originated with that party. The principle applies to HMRC defending a statutory VAT appeal. HMRC must not wilfully or recklessly mislead the tribunal, but it need not investigate every document relied upon by its opponent or ensure that only the best evidence is deployed. An administrative error made during a public tax investigation does not itself create a duty. A duty may arise in a different case where an employee positively assumes responsibility beyond ordinary administration. The pleaded duty therefore had no realistic prospect of success.

HMRC disallowed input tax on purchases made by Ian Charles, trading as Boston Computer Group Europe. Mr Charles appealed to the First-tier Tribunal, which dismissed his appeal in relation to the relevant transaction ([2014] UKFTT 481 (TC)). The Upper Tribunal held that the First-tier Tribunal was entitled to reach that conclusion ([2014] UKUT 0328 (TCC)), and permission to appeal was refused ([2015] EWCA Civ 750).

A report prepared during an HMRC investigation had omitted a supplier from a supply chain. Mr Charles later sued HMRC, alleging negligence based on its failure to verify and correct the report after he relied on it in the tax litigation. HHJ Jarman QC struck out the contractual and statutory-duty claims but declined to strike out the negligence claim. The issue was whether HMRC owed a common-law duty of care in those circumstances.

1. Disposition. The appeal was allowed. Lady Justice Asplin gave the reasons, with Lord Justice Newey and Lord Justice Lewison agreeing. The High Court was wrong to conclude that the negligence claim had a realistic prospect of establishing a duty of care.
2. Initial investigation. The omission in the report occurred while HMRC officers were collecting information during a public investigation into VAT fraud. It was an administrative error, not conduct directed towards Mr Charles or a positive assumption of responsibility for his interests. The approach in [2007] EWCA Civ 1041 distinguishes ordinary administrative mistakes from an employee going beyond administration by assuming authority and responsibility to act for a claimant. It did not support the broad duty advanced in this case.
3. Conduct of litigation. The principles summarised in [2007] 1 AC 181 did not permit a duty to be imposed. A party to litigation owes no duty of care to its opponent in relation to the opponent’s conduct of the litigation, even where the opponent relies on a document created by that party. There was no assumption of responsibility, and the incremental, foreseeability, proximity, and fair, just and reasonable tests could not be satisfied.
4. Scope of HMRC’s obligations. HMRC’s status as a public body, the statutory nature of the VAT appeal, and the fact that HMRC bore the burden of defending the tax assessment did not create an exception. HMRC, like any litigant, had to avoid wilfully or recklessly misleading the tribunal, but was not required to verify every document relied upon by Mr Charles or ensure that only the best evidence was deployed. Imposing such a duty would increase the cost and length of litigation contrary to the overriding objective in the Civil Procedure Rules 1998.
5. Order. HMRC’s appeal was allowed. Mr Charles was ordered to pay HMRC’s costs of and incidental to the appeal and the hearing below.

• Court of Appeal (Civil Division): The appeal from the refusal to strike out the negligence claim was allowed. Costs of the appeal and hearing below were awarded to HMRC.
• High Court, Queen’s Bench Division: On 27 February 2019, HHJ Jarman QC struck out the contractual and statutory-duty claims but declined to strike out the negligence claim.
• Upper Tribunal (Tax and Chancery Chamber): The First-tier Tribunal was held entitled to find that the relevant supply chain included EMS ([2014] UKUT 0328 (TCC)).
• First-tier Tribunal (Tax Chamber): Mr Charles’s appeal against the disallowance of input tax was dismissed ([2014] UKFTT 481 (TC)).
• Court of Appeal permission application: Briggs LJ refused permission to appeal from the Upper Tribunal’s decision ([2015] EWCA Civ 750).