Commissioners for HMRC v Marlborough DP Limited

A tribunal does not act unfairly merely because it adopts a formulation of a statutory test which neither party advanced, where that formulation was derived from an authority central to the parties’ arguments and the affected party had addressed its application to the facts. A draft judgment is not an opportunity to re-argue issues already determined.

Procedural fairness requires a fair opportunity to address a genuinely new and crucial point. It does not require further submissions where the point was plainly in issue and the further submissions repeat those already made. On an appeal under section 12 of the Tribunals, Courts and Enforcement Act 2007, parties should ordinarily address remittal or remaking at the substantive hearing and alert the Upper Tribunal if further submissions may reasonably be required.

HMRC appealed against a First-tier Tribunal decision published on 1 September 2021, as amended. In its draft decision on the appeal, the Upper Tribunal held that the First-tier Tribunal had erred in its approach to the connection required by section 554 A(1)(c) of the Income Tax (Earnings and Pensions) Act 2003. It decided that loans made through trust arrangements to Dr Thomas were connected with his directorship and were taxable under Part 7A.

After the draft was circulated, Marlborough DP Ltd alleged that the Upper Tribunal had adopted an unargued strong or direct connection test and had unfairly remade the decision without further submissions. The Tribunal held a further hearing to determine that complaint.

1. The allegation of procedural unfairness was rejected. The strong or direct connection formulation did not arise unexpectedly. It was derived from London Luton Hotel BPRA Property Fund LLP v HMRC [2023] EWCA Civ 362, an authority central to both parties’ submissions on the connection issue.

2. Marlborough had expressly submitted at the original hearing that, whatever the correct test of connection, it could not be satisfied on the First-tier Tribunal’s findings. It had also argued that the loans reflected company profits and its shareholder’s position, rather than employment. Its further submissions repeated that case. It therefore had a fair opportunity to address both the applicable test and its factual application.

3. The authorities on procedural fairness require parties to have a proper opportunity to address a genuinely new point on which a court proposes to decide a case. They do not permit a party, following circulation of a draft judgment, to reopen arguments already made. The Tribunal explained that the guidance in Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002 and Re M (Fact-Finding Hearing: Burden of Proof) [2008] EWCA Civ 1261 must be read consistently with that distinction.

4. Under section 12 of the Tribunals, Courts and Enforcement Act 2007, an appeal will ordinarily be dealt with at one hearing: error of law, setting aside, and remittal or remaking. A party which reasonably anticipates needing further submissions before remaking should raise that at the appeal hearing.

5. In any event, had unfairness been established, the Tribunal would not have altered its conclusion. The loans were connected with Dr Thomas’s directorship because he was the sole director and guiding mind responsible for the company’s business, from whose profits the loans were financed. The question under Part 7A was one of connection, not source or causation. Costs of the further hearing remained subject to the appeal costs regime.

• Upper Tribunal (Tax and Chancery Chamber): In this supplemental decision, rejected the respondent’s procedural-unfairness challenge to the draft decision. The finalised decision on the appeal set aside and remade the relevant part of the First-tier Tribunal’s decision concerning Part 7A of the Income Tax (Earnings and Pensions) Act 2003.
• First-tier Tribunal: Decision published on 1 September 2021, subsequently amended. Its citation is not stated in the judgment.