Paul Ellis & Anor v The Commissioners for HMRC

The Upper Tribunal may interfere with a First-tier Tribunal case-management decision only where the tribunal applied incorrect principles, failed to consider relevant matters, or reached a decision outside the generous ambit of its discretion.

For late evidence, the applicable framework is Rule 15 of the Tribunal Procedure Rules, read with the overriding objective in Rule 2. The tribunal should consider the timing, relevance and significance of the evidence, the explanation for lateness, and prejudice to the other party. Relief-from-sanctions principles do not directly apply, although similar considerations may be relevant.

Disclosure may be broad where necessary to test generalised evidence in high-value and complex litigation. However, a disclosure direction must remain proportionate and should contain appropriate temporal limits.

Mr Paul Ellis and North Yorkshire Properties Limited appealed against a disclosure direction made by the First-tier Tribunal in their substantive tax appeals. The disclosure concerned documents relating to six property-development companies, the personal affairs of Mr Ellis and Mr Broadbent, and correspondence concerning an HMRC Code of Practice 9 investigation.

The appellants challenged the admission and reliance on a late letter from the provisional liquidators, argued that HMRC had known since January 2018 about the documents sought, and contended that the disclosure direction was excessively broad. The Upper Tribunal had to determine whether the First-tier Tribunal had made errors of law and, if so, whether the disclosure decision should be set aside or remade.

1. Late evidence. The First-tier Tribunal’s admission of the liquidators’ letter was a meta case-management decision. Rule 15, read with Rule 2, gave it a broad but judicial discretion. The relevant considerations included the explanation for late service, the evidence’s relevance and significance, and prejudice to the opposing party. The relief-from-sanctions authorities did not directly govern the admission of evidence because there had been no breach of a direction, rule or time limit, although similar factors could be relevant.
2. The First-tier Tribunal erred by failing to identify and apply the relevant legal test and by giving no express reasons for admitting the letter. Those errors did not materially affect the ultimate disclosure decision. The Upper Tribunal was satisfied that the letter could properly have been admitted and that the First-tier Tribunal was entitled to prefer it to Mr Ellis’s evidence.
3. Timing of disclosure. The First-tier Tribunal materially erred by failing to address the January 2018 letter and the appellants’ submission that HMRC had long known of the documents. The Upper Tribunal set aside the decision on that ground but remade it. The January 2018 letter was ambiguous, particularly when read with the amended notice of appeal, and HMRC were reasonably entitled to regard the detailed witness evidence served in February 2020 as the first disclosure of the wider reservoir of material. The disclosure application was therefore not impermissibly late.
4. Scope and proportionality. In a high-value and complex dispute, the First-tier Tribunal was entitled under Rules 5 and 16, subject to Rule 2, to order broad disclosure needed to test generalised assertions against the full contemporaneous material. The alternative of producing the hard drive and search software reduced the burden on the appellants.
5. It was nevertheless unjustified and disproportionate to impose no temporal limit. The direction was set aside and remade in the same terms, limited to material falling within the tax periods in issue, namely 11 July 2008 to 5 April 2015. The first ground was dismissed, the second was allowed to the limited extent of setting aside and remaking the decision, and the third was allowed in part.

• First-tier Tribunal (Tax Chamber) — granted HMRC’s disclosure application and directed disclosure by a decision dated 13 April 2021.
• Upper Tribunal (Tax and Chancery Chamber) — dismissed the first ground, set aside and remade the decision on the second ground, and allowed the third ground in part by imposing a temporal limit on disclosure.