The Commissioners for HMRC v Michael Breen

On an application to reinstate an appeal automatically struck out for breach of an unless order, the Martland assessment requires the tribunal to consider the full history of non-compliance leading to the order. Long and unexplained breaches are serious and significant. At the final balancing stage, particular importance attaches to enforcing compliance with tribunal orders and conducting litigation efficiently and proportionately.

The merits of the substantive appeal are generally irrelevant where strike-out resulted from procedural non-compliance. The allocation of the burden of proof is likewise not a material factor unless it properly falls within the very limited exception for an unanswerable case. A material error of law should lead to the decision being set aside where it might have affected the result.

HMRC appealed against a First-tier Tribunal decision which reinstated Mr Breen’s tax appeal after it had been automatically struck out for non-compliance with an unless order.

The underlying appeal concerned income tax assessments and allegations relating to Mr Breen’s domicile and income. Before the strike-out, he had failed over a lengthy period to provide a list of documents, identify disputed factual assertions, and give information about proposed witness evidence. He complied with the final unless order four days late.

The FTT applied the Martland test and reinstated the appeal by a narrow margin. HMRC contended that the FTT had overlooked earlier breaches concerning objections and witnesses, and had wrongly treated the burden of proof in the substantive tax appeal as favouring reinstatement.

1. Appeal allowed. The FTT’s reinstatement decision contained material errors of law. It was set aside and remade. Mr Breen’s application for reinstatement was refused, so his substantive appeal remained struck out.

2. The FTT’s finding that there had been no earlier requirement to provide points of objection and witness information was perverse. Judge Popplewell’s directions of 2 September 2020 required that information, and the first unless order did not remove those requirements. The FTT therefore failed to consider the full extent of nearly 26 months’ non-compliance, contrary to the approach in Chappell v The Pensions Regulator [2019] UKUT 2009.

3. The omission was material. Applying Degorce v HMRC [2017] EWCA Civ 1427 and BPP Holdings v HMRC [2017] UKSC 55, an error normally requires the FTT decision to be set aside if it might have made a difference. Given that reinstatement had been granted by the finest of margins, the Upper Tribunal could not be satisfied that the omitted breaches had made no difference.

4. The FTT also erred by treating the initial burden on HMRC and allegations of deliberate conduct as material factors favouring reinstatement. That consideration came impermissibly close to assessing the merits of the substantive appeal. In a strike-out for non-compliance, the merits are generally irrelevant unless the exceptional unanswerable-case situation arises: Chappell v The Pensions Regulator [2019] UKUT 2009; Global Torch Ltd v Apex Global Management Ltd [2014] 1 WLR 4495.

5. Remaking the decision under section 12(2) of the Tribunals, Courts and Enforcement Act 2007, the Upper Tribunal held that all three failures were serious and significant, with no good reason for the long non-compliance. The need to enforce compliance, the prejudice to HMRC, and the final nature of the unless order outweighed the later compliance and reassurance as to future conduct.

• Upper Tribunal (Tax and Chancery Chamber): HMRC’s appeal was allowed. The Tribunal set aside the FTT’s reinstatement decision and remade it by refusing reinstatement: [2023] UKUT 252 (TCC).
• First-tier Tribunal (Tax Chamber): The FTT had reinstated Mr Breen’s appeal after its automatic strike-out for breach of an unless order. The decision was released on 29 March 2022 and was unpublished.