Totel Ltd, R (on the application of) v The First-Tier Tribunal (Tax Chamber) & Ors

Lord Justice Moses:

1. The first question in this appeal is whether the power to make provision by statutory instrument conferred by s.124 of the Finance Act 2008 included the power to abolish a statutory right to appeal to the Upper Tribunal from a decision of the First-tier Tribunal. That statutory right had been conferred by s.11(2) of the Tribunals, Courts and Enforcement Act 2007 (TCEA 2007), which came into force on 3 November 2008. In judicial review proceedings, ([2012] QB 358, [2011] EWHC 652 (Admin)) Simon J held that s.124 successfully conferred such a power and dismissed Totel Limited’s legal challenge to the decision of the First-tier Tribunal. That Tribunal had, in relation to two tax appeals, dismissed Totel’s applications that it should be relieved of the obligation to pay the tax in issue before those appeals were entertained. I set out all the relevant legislation in my annexe to this judgment.

2. The chronology is of importance. The Commissioners sought to recover input tax paid to the appellant, Totel, in the periods 01/06 and 03/06. For that purpose they raised an assessment for the first period, under s.73(2) of the Value Added Tax Act 1994 by letter dated 3 October 2006, reclaiming £205,625.

3. Totel had a right of appeal to a VAT Tribunal against the first assessment under s.83 (p) of the VATA 1994. But such a appeal could not be entertained unless the amount which the Commissioners had determined to be payable had been paid or deposited or the Commissioners or the VAT Tribunal were satisfied that Totel would suffer hardship were it to pay or deposit such an amount (s.84(3) VATA 1994).

4. Totel appealed the first assessment on 15 December 2006, and in its notice of appeal sought a direction that hardship would be caused if it paid the sum in question. By 4 January 2007 the Commissioners had made it clear that they did not agree hardship would be caused, and, accordingly, Totel required a decision from the Tribunal as to hardship before it could pursue its appeal against the assessment. The history of the delay in mounting a hearing for such a decision has been fully set out in the decision of the First-tier Tribunal of 11 May 2009. Had the Tribunal been able to reach a conclusion as to hardship before 3 November 2008, and if it had been adverse to Totel, Totel would have had a right of appeal on a point of law to the High Court by virtue of s.11 of the Tribunals and Inquiries Act 1992.

5. For the second period, 03/06, HMRC raised an assessment for £1.2 million on 10 November 2008. Totel exercised its right of appeal, under s. 83(p), against the second assessment on 26 November 2008, and again sought a direction that hardship would be caused. S.3 of the Tribunal Courts and Enforcement Act 2007 provided that there “were to be” tribunals known as the First-tier and Upper Tribunals for the purpose of exercising the functions of, amongst other bodies the existing VAT Tribunal. Section 3 had been brought into force on 3 November 2008, twenty-three days before Totel’s appeal against the second assessment (s.148(5) and Art 2 TCEA 2007 Commencement No 6 and Transitional Provisions Order 2008 (2008/2696)). But it should be observed that the functions of a “scheduled” tribunal such as the VAT Tribunal were not to be transferred to the new tribunal until the Lord Chancellor had made an order for that purpose (s.30 TCEA 2007), at which point he could, by order abolish the existing tribunal (s.31 TCEA 2007).

6. Accordingly, Totel’s appeal against the second assessment was made to a VAT Tribunal whose functions were not transferred in November 2008. HMRC objected to Totel’s hardship application by notice of 9 December 2008. Had a hearing in relation to Totel’s assertion of hardship been convened before 1 April 2009, it would have been heard by a VAT Tribunal. S.11 of the TCEA 2007 was brought into force on 3 November 2008 (Art 2 of 2008/2696). S. 11 conferred a right of appeal to the Upper Tribunal on a point of law, “arising from a decision made by the First-tier Tribunal”. This is the statutory right of appeal at the heart of this part of the instant appeal.

7. But on 1 April 2009 that statutory right was removed by the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 (2009/56). Totel’s appeals against both assessments, coupled with its application for a direction that the appeal should be considered without payment of the tax in dispute were “current proceedings” within the meaning of Paragraph 1(2) of Schedule 3 of the Transfer Order 2009 because Totel had served notice for the purpose of beginning proceedings before the “existing tribunal”, as the VAT Tribunal is described in Art.2 (c) of the Transfer Order. By Art.6 such current proceedings were to continue on and after 1 April as proceedings before the First-tier Tribunal (according to the definition of tribunal in Art. 1(1)).

8. Had the VAT Tribunal reached an adverse decision in relation to the s.73(2) VAT assessments before 1 April 2009, then there would have been a right of appeal on a point of law to the Upper Tribunal (paragraph 11 (1)(a) and 11(2) of Schedule 3 to the Transfer Order). But had the VAT Tribunal reached an adverse decision in relation to the hardship application before 1 April 2009, paragraph 11(2) of the Transfer Order provides that there is no greater right of appeal than that which lies from the decision of a First-tier Tribunal after 1 April 2009. A decision of the First-tier Tribunal in relation to a hardship application after 1 April 2009, even if it was a decision in current proceedings would, if the relevant provisions (paragraph 221(5) of the Transfer Order) are lawful, be final.

9. These are the consequences of a combination of Art.3, Paragraph 221 of Schedule 1 and (in the event that the decision in relation to hardship had been made before 1 April 2009) Paragraph 11 (2) of Schedule 3 of the Transfer Order.

10. Art. 3 (1)(a) introduces Schedule 1 which, so it says: “contains amendments to primary legislation which – (a) transfer functions of existing tribunals and (b) make consequential and other provision (including provision about reviews of decisions by (HMRC))”

11. Paragraph 221 of Schedule 1 makes provision in relation to appeals by amendment to Section 84 of the VATA 1994. The requirement to pay or deposit tax in issue is broadly the same as that previously contained in s.84(3), save in the crucial respect that the decision of a First-tier Tribunal is said to be final. The newly inserted sections, s.84(3B) and (3C) provide: “(3B) In a case where the amount determined to be payable as VAT or the amount notified by the recovery assessment has not been paid or deposited an appeal shall be entertained if— (a) HMRC are satisfied (on the application of the appellant), or (b) the tribunal decides (HMRC not being so satisfied and on the application of the appellant), that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship. (3C) Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.”

12. Paragraph 11(2) applies the finality of a decision of the First-tier Tribunal on hardship to a decision of the VAT Tribunal made before 1 April 2009 : “ …such rights of appeal shall lie from the decision (of an existing tribunal) as would lie from a decision of the First-tier Tribunal made on or after that date”.

13. The essential question is whether there was power to provide in the Transfer Order that the decision of the First-tier tribunal on the hardship application was final. Resolution of this question turns on the provisions of the statute, the Finance Act 2008 which, so HMRC contends, conferred the power to declare such a decision final.

14. I should emphasise that the power, if it exists, is not contained in s.11 of the TCEA 2007 itself. S.11(1) applies to all decisions of the First-tier Tribunal other than excluded decisions. A decision as to hardship is not an “excluded decision” within s.11 (5) and by virtue of s.11 (6) could not be so specified.

15. S.124 of the Finance Act 2008 provides: “(1) The Treasury may by order made by statutory instrument make provision – (a) for and in connection with reviews by the commissioners, or by an officer of Revenue and Customs, of HMRC decisions, and (b) in connection with appeals against HMRC decisions. (2) An order under subsection (1) may, in particular, contain provision about - (a) the circumstances in which, or the time within which – (i) a right to a review may be exercised, or (ii) an appeal may be made, and (b) the circumstances in which, or the time at which, an appeal or review is, or may be treated as, concluded. (6) Provision under subsection (1) may be made by amending, repealing or revoking any provision of any Act or subordinate legislation (whenever passed or made, including this Act and any Act amended by it). (8) A statutory instrument containing an order under subsection (1) may not be made unless a draft of it has been laid before and approved by resolution of the House of Commons.”

16. Absent the introduction of s.84(3C) into VATA 1994 by paragraph 221(5) of Schedule 1 of the Transfer Order 2009, Totel would have had a right of appeal to the Upper Tribunal under s.11 of the TCEA 2007 from a decision of the First-tier Tribunal in relation to hardship. Paragraph 221(5) purports to remove that right and does so, as s.84(3C) records, notwithstanding the provisions of s.11 of the TCEA 2007. The question is whether that amendment to s.11 can be achieved by the delegated legislation within the Transfer Order 2009. Resolution of that question turns on whether the words conferring that power are sufficiently clear.

17. The principle which should be applied is set out in plain terms in R (Spath Holme Ltd) v Secretary of State for Transport, the Environment and Regions [2000] 3 WLR 141: “Parliament does not lightly take the exceptional course of delegating to the executive the power to amend primary legislation. When it does so the enabling power should be scrutinised, should not receive anything but a narrow and strict construction and any doubts about its scope should be resolved by a restrictive approach”.[35]

18. The purpose of the requirement that the statute which purports to confer a power to amend primary legislation by delegated legislation should use clear words is obvious. Parliament should be told, in clear terms, if the executive intends to amend primary legislation. As Lord Hoffmann observed, in the context of the purported removal of a fundamental right, if clear words are not used, the full implication and width of the power may pass unnoticed in the democratic process ( R v Home Secretary, Ex.p Simms [2000] 2 AC 115, 131E-F and R (Orange Personal Communications) v Secretary of State for Trade and Industry [2001] 3 CMLR 36 per Sullivan J at [70]).

19. Does s.124 of the Finance Act 2008 contain words of sufficient clarity to forewarn that a right of appeal from First-tier Tribunal to Upper Tribunal was to be withdrawn? There can be no dispute as to the manner in which the power may be exercised. Provisions may amend repeal or revoke any provision of any Act (S.124 (6)). But the point is not the manner in which the power may be exercised but the matter for which provision may be made.

20. The question turns on whether a provision made for revoking the right of appeal from the decision of a First-tier Tribunal to the Upper Tribunal in relation to a decision as to hardship is a “provision….in connection with appeals against HMRC decisions”.

21. The paradigm of such a provision is contained within s.124 itself. S.124(2) confers power “in particular” to make provision about the circumstances in which an appeal may be made. The reference to an appeal is clearly a reference to appeals under s.83 VATA 1994. The circumstances in which such appeals may be made clearly include those provisions within s.84, under the rubric “Further provisions relating to appeals”, such as the provision requiring the tax in dispute to be paid before the appeal may be entertained. Accordingly, those provisions in Paragraph 221 of the Transfer Order which omit s.84(2) and substitute s.84(3),(3A) and insert (3B) are all provisions which make provision about the circumstances in which, for example, an appeal against an assessment under s.83(p) may be made.

22. But a provision which revokes or removes a right of appeal does not seem to me properly to be described as a provision about the circumstances in which an appeal may be made. The decision of the First-tier Tribunal as to whether a taxpayer would suffer hardship if it was required to pay the tax in issue is a decision in relation to the circumstances in which an appeal may be made but is not, as is clear from the terms of s.84(3B) and its predecessor (3)(b), itself an appeal. A provision in relation to the circumstances in which an appeal may be made pre-supposes the existence of a right of appeal not its abolition.

23. S.124(2) is, of course, only an example of the matters with which s.124 provisions may deal. S.124(1)(b) may have a wider reach. But the provision in paragraph 221(5) which revokes the right of appeal from the decision of the First-tier Tribunal to the Upper Tribunal, conferred by s.11 TCEA 2009, is not a provision in connection with appeals against HMRC decisions. The impact of the meaning of “in connection “ is reinforced by the contrast with the preceding subsection s.124(1)(a) where the phrase “ for and in connection with” is used. (Provisions made under that sub-section do create, in certain circumstances, rights of review). That contrast suggests that that which is envisaged in s.124(1)(b), where the word for is omitted, is provision as to the circumstances in which an appeal may be entertained rather than provisions which create or remove rights of appeal.

24. As I have recalled, the decision of the First-tier Tribunal as to hardship is not an appeal against an HMRC decision. Paragraph 221(5) is a provision in relation to an appeal from a First-tier tribunal decision to the Upper Tribunal. A provision in connection with an appeal pre-supposes the existence of an appeal not the revocation or abolition of a right of appeal.

25. Nor does s.124(2)(b) assist. Since the decision of the First-tier Tribunal is not an appeal, the provision in paragraph 221(5) which makes the decision final is not a provision about the circumstances in which an appeal is or may be treated as concluded. That again pre-supposes the existence of a right of appeal.

26. A benevolent construction might, at a stretch, include, within the meaning of a “provision as to the circumstances in which an appeal may be made”, the abolition of a right of appeal where the subject-matter is the circumstances in which an appeal may be entertained. It might even, at a stretch, include, within the meaning of a provision “in connection with an appeal against an HMRC decision”, abolition of the right of appeal against a decision of the First-tier tribunal, where that subject-matter is in issue. But the need for clear words precludes any such benevolence.

27. I conclude that s.124 did not give a power to revoke the right of appeal, conferred by s. 11 of TCEA 2009, from the First-tier Tribunal to the Upper Tribunal in relation to hardship decisions. Paragraph 221(5) is ultra vires .

28. I have reached this conclusion on the basis that the wording of s.124 of the Finance Act 2008 does not clearly confer the power to revoke the right of appeal from First-tier Tribunal to Upper Tribunal in relation to hardship applications. Mr Beal QC, for Totel Ltd argued that the attempt to revoke the right of appeal failed for two other reasons. First, he contended that the specific right to appeal conferred by s.11 TCEA 2007 could not be cut down by subordinate legislation made under a power conferred by a different statute, the Finance Act 2008. For that proposition he relied on R v Secretary of State for Social Security ex p Joint Council for the Welfare of Immigrants [1997] 1 WLR 275 in which Simon Brown LJ made the unqualified statement: “Specific statutory rights are not to be cut down by subordinate legislation passed under the vires of a different Act. So much is clear [290A-B]”. (and to the same effect see Waite LJ 293E)

29. But JCWI and Mercury Personal Communications v Secretary of State for Trade and Industry [2000] UKCLR 143, in which Mummery LJ (at 151F) endorsed this principle, whilst concluding it had no application in that case, are miles away from this case. In JCWI asylum seekers’ rights of application and appeal conferred by primary legislation were rendered nugatory by regulations restricting their right to urgent benefits. But provided the power conferred by one statute to amend the provisions of another by delegated legislation is clear and express so that it is plain that Parliament understood the nature and scope of the power it was conferring on the executive, there is no reason in principle why the statute should not do so.

30. The true principle is that expressed in Bennion on Statutory Construction (5 th Edn. Section 81 p.293-4): “An Act may confer power for the amendment of itself or another Act by delegated legislation. An amendment made by the use of such a power is as effective as if made directly by an Act.”

31. Bennion acknowledges the need to ensure that the delegated legislation is not ultra vires whilst criticising judicial expressions of disapproval of this process. There is no need, in the instant case, to express any disapproval: had the words in the Finance Act 2008 been sufficiently clear, the rules in the Transfer Order of 2009 could have achieved their purpose.

32. As a second basis of objection, Mr. Beal contended that the Transfer Order deprived Totel of a fundamental right to appeal. He did so in order to invoke the principle expressed in ex p. Simms (q.v.supra) and R v Secretary of State for the Home Dept. ex p Pierson [1998] AC 539 that clear words would be needed to remove a fundamental right. But I agree with Simon J [30] that no fundamental right is in play here. It is highfaluting to describe a right of appeal from the decision of the First-tier Tribunal to the Upper tribunal in relation to a hardship application as a fundamental right, analogous to freedom of expression, or access to justice. The right is a right to appeal, only with permission on a point of law. Since judicial review is available, Totel was not deprived of a very great deal: at most, a hearing before a specialist tribunal able to substitute its own view, should an error of law be disclosed, whereas the Administrative Court on judicial review would be far more likely merely to quash the decision and send it back to the First-tier Tribunal.

33. I should, however, since I have the misfortune to differ from Simon J in his conclusion, mention the passage which followed his correct dismissal of the submission that a fundamental right was denied to Totel. He concluded that, even if a fundamental right was at stake : “it is difficult to conceive of clearer or more emphatic words than those used in s.84(3C): ‘Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final’.”

34. But s.84(3C) is not the source of the power to make the delegated legislation in issue. That source was s.124 of the Finance Act 2008 and it is to that section it is necessary to look to identify the width and extent of the power. The judge’s error may only be a slip of the pen and an erroneous statutory reference. S.84(3C) echoes s.124(6) which certainly does confer a power to amend primary legislation; but s.124(6) says nothing about what may be amended. That is described in s.124(1) and (2). S.84(3C) was introduced in the purported exercise of the power under the Finance Act 2008, it is irrelevant to the issue of vires.

35. Equally irrelevant is the evidence of the executive’s misapprehension as to a pre-existing right of appeal, described by Simon J in his judgment [17] and [24]. Either s.124 Finance Act 2008 conferred power to amend s.11 TCEA 2007 or it did not. It may have been a very good idea had it done so, but that does not assist.

36. I have seen the judgment of Arden LJ. Since no-one else spotted the point on retrospectivity, we have heard no submissions on the issue. So although it sounds right to me, I have not felt able, despite my admiration for her eagle-eyes, to express any explicit agreement with it.

37. For the reasons I have given I would allow Totel’s appeal and hold that it is entitled to appeal to the Upper Tribunal against the ruling as to hardship. I would rule that the insertion of s.84(3C) by paragraph 221(5) was ultra vires . Since I have reached that view I shall say nothing as to whether Totel has any greater chance of success before the Upper Tribunal than it had before Simon J in establishing any error of law. Lady Justice Arden:

38. I agree with the judgment of Moses LJ. For the reasons he gives, the enabling power in section 124 of the Finance Act 2008 is simply not sufficiently clear to confer power to remove a right of appeal in existing proceedings.

39. Totel certainly lost rights of appeal in this case, though the source of those rights is open to debate. Paragraph 221(5) of schedule 1 to the Transfer Order (as defined by Moses LJ) came into force on 1 April 2009 simultaneously with the transfer of the jurisdiction of the VAT tribunal to the First-tier Tribunal. On that basis, what came to an end as a result of the Transfer Order was the right of appeal by way of case stated to the High Court conferred by section 11 of the Tribunals and Inquiries Act 1992, and paragraph 44 of schedule 1 to that Act, rather than the right of appeal conferred by section 11 of the TCEA (as defined by Moses LJ), which never applied to hardship applications. On either analysis, the effect of the application of the Transfer Order to VAT tribunals was to bring to an end a right of appeal which existed before the transfer of the jurisdiction of the VAT tribunal to the First-tier tribunal.

40. Apart from the reasons given by Moses LJ, there is another potential objection to the removal of the right of appeal in this case, and that objection is based on retrospectivity. As counsel did not address this point, I only express provisional views, but the point is important for the future for statutory drafting purposes. To bring to an end a right of appeal in existing proceedings has been held to constitute retrospective legislation even where the decision sought to be appealed has not yet been made and the right has not in that sense crystallised: see the terse advice of the Privy Council given by Lord Macnaghten in Colonial Sugar Refining Co Ltd v Irving [1905] AC 360. That decision held ineffective for the purposes of pending proceedings an attempt by statute to abolish the right of appeal to the Privy Council from the Supreme Court of Queensland, after the institution of the High Court of Australia. In that case, the proceedings were pending before the Supreme Court of Queensland when the statute received Royal Assent, but no judgment had then been given. The Privy Council held that a right of appeal in pending proceedings was not a mere matter of procedure which could be altered with retrospective effect without express words or necessary implication.

41. As Lord Rodger explained with great clarity in Wilson v First County Trust [2004] 1 AC 816, there is a presumption that Parliament did not intend to enact retrospective legislation, and, accordingly, under the principles relating to retrospective legislation also, clear wording in section 124 would be necessary to confer the power to remove of a right of appeal in existing proceedings. The implications are these. First, even if section 124 empowered the Treasury to make an order amending rights of appeal, it might still not empower the removal of the right of appeal in a case such as this. That would depend on the clarity of the words used. Second, had section 124 extended to amending rights of appeal but the Treasury wished fully to avoid retrospective effect, it could have done so by suitable transitional provisions. However, limited transitional provisions applying only to decisions before the commencement date, as in this case, would not fully avoid retrospectivity: see the Colonial Sugar Refining case above.

42. Viewed from the perspective of retrospectivity and access to court, in my judgment, the removal of the right of appeal involves interference with a fundamental right.

43. It is unnecessary to express any view on the other grounds of appeal argued by Mr Beal.

44. I would therefore also allow the appeal, and hold that the insertion of section 84(3C) of the VATA 1994 by paragraph 221(5) of schedule 1 to the Transfer Order was ultra vires section 124 of the Finance Act 2008. Master of the Rolls, Lord Neuberger:

45. I agree with what Moses LJ says in his judgment, and I also agree with the additional remarks in the judgment of Arden LJ. There is nothing which I can usefully add.