DECISION
1.
We set out in this decision notice our reasons for the decisions we gave
at the hearing, with brief reasons only, on applications by the Appellant (“Megantic”)
that certain evidence served by the Respondents (“HMRC”) be excluded. For
reasons of timing, and to permit a revised indicative timetable for the lengthy
substantive hearing to commence on 23 September 2013
and for the parties to be able to prepare accordingly, we considered it
appropriate to give our decisions on each category of evidence in issue in that
way, to be followed by more detailed reasons.
2.
The context of Megantic’s application is that this is, by any measure, a
substantial case. The evidence served is voluminous, such that a system of
electronic document management has been directed to be employed at the
hearing. It is unnecessary to say too much about the substantive issues, save
to say that Megantic’s appeal falls within the category known as missing trader
intra-community (or “MTIC”) fraud, the appeal being against the decision of
HMRC to deny credit for input tax in respect of certain transactions of
Megantic in the accounting periods of May and June 2006, on the ground that
those transactions were connected to the fraudulent evasion of VAT, largely
through contra-trading, and that Megantic knew or should have known of that
connection.
3.
Megantic’s application, made on 9 August 2013, was for the exclusion of
15 witness statements. They were conveniently categorised as follows:
(a)
FCIB (First Curaçao International Bank) evidence. This comprised the
evidence of Michael Downer, Michael Mercer, David Young, Andrew Letherby and
Darren Loftus.
(b)
The overall cell evidence of Nigel Humphries.
(c)
The evidence of Roderick Stone.
(d)
The Operation Ghast evidence of Mr Downer.
(e)
The grey market evidence of John Fletcher.
4.
With the exception of Mr Fletcher, who is an employee of the
professional services firm KPMG, all the witnesses are HMRC officers.
The FCIB evidence
5.
The FCIB evidence, to summarise it very briefly, comprises materials
derived from Dutch and Paris servers containing records of banking transactions
through the FCIB, and analysis carried out by the HMRC officers on that
material, including evidence as to the processes carried out.
6.
There is some history to the admission of the FCIB evidence to which we
have had regard. First, evidence of Mr Downer was, on application, admitted by
this tribunal following a hearing on 18 December 2009; that decision was upheld
on appeal by the Upper Tribunal (see the decision of Arnold J reported at
[2011] STC 1000). Secondly, further evidence of Mr Downer, along with evidence
of Mr Mercer, Mr Young, Mr Letherby and Mr Loftus was, on application, admitted
following a hearing on 3 May 2013.
7.
The FCIB evidence having been admitted, any application that it
subsequently be excluded must point to some material change of circumstances
that would justify such exclusion. The argument of Mr Patchett-Joyce is that
there has been such a change, as a consequence of developments in European law,
that renders the FCIB evidence irrelevant to what he argues is the proper issue
to be determined by this tribunal.
8.
In support of that argument Mr Patchett-Joyce referred in particular to
the judgment of the Court of Justice of the European Union (“ECJ”) in Mahagében
kft v Nemzeti Adó- és Vámhivatal Dél-dunántúli Regionális Adó
Főigazgatósága; Dávid v Nemzeti Adó- és Vámhivatal Észak-alföldi
Regionális Adó Főigazgatósága (Joined cases C-80/11 and C-142/11) [2012] STC 1934, and to paragraphs 43 to 45 of the judgment. On this basis he argued that
the four-stage test adopted, as he put it as a matter of domestic construct,
comprising the questions (1) was there a tax loss; (2) was it occasioned by
fraudulent evasion of VAT; (3) were the transactions in question connected to
that fraud; and (4) did the taxable person know, or should he have known, of
that fraud, was not correct. Instead, he submitted, there was only a two-stage
approach, involving first consideration of whether the conditions for the
establishment of a right to deduct input tax had been established under the EU
directive, and secondly whether, having regard to objective factors, related
solely to the transactions in question, the taxable person knew or should have
known that the transactions were connected to fraud. Mr Patchett-Joyce argued
that the evidence of money movements involving traders not engaged in
transactions with Megantic is far removed from evidence of objective factors
relating to each one of Megantic’s own transactions.
9.
That of course is a different approach to that taken by HMRC in the way
they have put their case. That case includes an assertion, which HMRC say is
supported by the FCIB evidence, that numerous of the traders were under common
control, that a striking number of deals involved the same few, often
connected, parties and that there was repeated circularity in the goods and
money chains. HMRC say that this tends to the conclusion that there was an
overall contrived fraudulent scheme.
10.
There is clearly an issue as to the correct approach to be taken as a
matter of law. That issue can, however, only be addressed by the tribunal
hearing the substantive appeal. It is not appropriate, in those circumstances,
for us to express any view on the respective merits of the parties’ cases on
this important issue. The sole question for us is whether the argument raised
by Mr Patchett-Joyce has the effect of rendering the FCIB evidence irrelevant
so that, having regard to the circumstances that now prevail, it should
properly be excluded.
11.
In our view the clear answer is that it should not be excluded on this
basis. In a case where an issue can clearly be re-defined by reason of an
accepted change in the law, or in the proper understanding of the law, it may
be possible for evidence to become unarguably irrelevant, such that it would be
proper to exclude it on that basis. Those circumstances do not exist in this
case. There is a dispute on the law, which will have to be resolved, but until
it is the FCIB evidence remains as relevant to the case as put by HMRC as it
was when originally admitted.
12.
Mr Patchett-Joyce took us to a number of specific examples of payment
chains put forward in the evidence of Mr Downer as showing the way money is
alleged to have moved between various traders, including Megantic, in the chain
of transactions said by HMRC to be capable of being traced in respect of the
goods dealt in by Megantic. Mr Patchett-Joyce argued that, where the
connection to fraud was said to arise through contra-trading (at one or two
removes), that evidence was not relevant to establishing a connection with any
tax loss because there was no tax loss in the sequence of supplies or payments
in question.
13.
We do not intend for this purpose to engage in an analysis of the
probative value of particular strands of evidence. That is a matter for the
tribunal hearing the substantive appeal, having considered each element of the
evidence in its proper context, and having heard submissions following examination
and cross-examination of the evidence. The case of HMRC is, to an extent,
based on their submission that the transactions of Megantic were part of an
overall contrived fraudulent scheme. Evidence of what HMRC say is a tracing of
supplies and payments from and to Megantic and more remotely cannot, in our
view, in those circumstances be regarded as irrelevant.
14.
Mr Patchett-Joyce also argued that the FCIB evidence was opinion
evidence, and should not be admitted as it was not the evidence of expert
witnesses. He cited in support of this argument the conclusions reached in two
decisions of this tribunal in JDI Trading Limited v Revenue and Customs
Commissioners [2012] UKFTT 642 (TC) and Chandanmal and others (t/a
Narain Bros) v Revenue and Customs Commissioners [2012] UKFTT 188 (TC). In
each of those cases evidence of the conclusions drawn by an HMRC witness that a
pattern of payments showed circularity was held to be a matter of opinion, and
was not admitted.
15.
In both JDI and Chandanmal the tribunal considered the
excision of certain limited passages only of the evidence relating to payment
chains. We respectfully agree that an expression of a view that certain
payments demonstrate circularity is not a matter of fact but a matter of
opinion. It is merely a view of a witness on a matter on which the tribunal
itself must reach its own conclusion, and as such is of no value as evidence.
Such evidence may rightly be excluded on that basis. In most cases, however,
we would not see it as necessary, or indeed proportionate, for a forensic
exercise to be undertaken, either by the parties or by the tribunal, to
identify any such matters in each witness statement and for the tribunal formally
to direct that they be excluded. Generally speaking, we think that the parties
can rely upon the good sense of the tribunal to disregard purported evidence
that represents conclusions that the tribunal itself must reach. That can
usually conveniently be the matter of submission at the substantive hearing,
rather than a formal application to exclude.
16.
To the extent that the tribunal in JDI or Chandanmal based
its conclusion on the mere fact that the evidence was opinion evidence of the
witness, and decided that because the witness was not an expert the evidence
must thereby be excluded, we must respectfully disagree. There is no such rule
applicable to this tribunal. The position was summarised by Arnold J in Megantic
(at [80]):
“... r 15(2)(a) of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009, SI 2009/273, allows the
tribunal to admit evidence whether or not the evidence would be admissible in a
court trial. It follows that the tribunal is entitled to admit evidence which
would not be admissible in a court and give it such weight, if any, as the
tribunal considers that it is worth. What weight should be given to the
evidence is a matter for the tribunal to decide in the light of all the
evidence at the hearing. Even if Mr Downer is not qualified to give expert
evidence, that would not prevent his opinion evidence being received by the
tribunal.”
17.
We do not accept Mr Patchett-Joyce’s argument in this connection that
rule 15(2)(a) is designed for the special circumstances of the tribunals,
having regard to the use of the tribunals by self-represented parties, and that
the application of the rule should therefore be confined to such cases. That was
certainly not the view taken by Arnold J in this very context. Each case must
be considered individually, having regard to the overriding objective to deal
with cases fairly and justly. If there is no unfairness or injustice in the
admission of opinion evidence by a non-expert, then it may be admitted.
18.
Nor, having regard to the regime which statute has provided for the
tribunal, do we consider that the references made by Mr Patchett-Joyce to the
Civil Evidence Act 1972, to the rules of civil procedure that are applicable to
the courts (CPR, rule 35) and to authorities, such as R v Bonython [1984]
SASR 45 and J P Morgan Chase Bank v Springwell Navigation Corporation
[2007] 1 All ER (Comm.) 549, to which we shall return later, directed towards
the exception in non-tribunal cases for opinion evidence to be admitted if it
is expert evidence, can affect that conclusion. The purpose of the tribunal’s
rules is to relax the normal civil procedure rules to enable evidence to be
admitted that could not otherwise be admitted. That includes the opinion
evidence of a non-expert. It would be contrary to the intention of the rules
to import as a general matter the same restraints on non-expert opinion
evidence as would apply to expert evidence, unless in a particular case the
interests of fairness and justice would demand it.
19.
Mr Patchett-Joyce reserved special criticism for the evidence of Mr
Letherby, explaining the mechanics for the extraction of information from the
Dutch and Paris servers. Mr Patchett-Joyce submitted that this evidence
purported to be expert in nature, but was given by a non-expert. He criticised
a number of elements of the evidence as failing to comply with the duties and
responsibilities of an expert witness, referring in this regard in particular
to the summary of those duties given by Cresswell J in National Justice
Campania Naviera SA v Prudential Assurance Co Ltd (The Ikarian Reefer) (No 1)
[1993] F.S.R. 563 (at ¶5B). Those are not matters that we consider should lead
us to exclude Mr Letherby’s evidence. They are instead matters for
cross-examination which will go to the weight the tribunal will give to that
evidence.
20.
This application was not for any “filleting” exercise to be undertaken,
as was the case in JDI and Chandanmal. It was for the wholesale
exclusion of the FCIB evidence. There is in our view no basis for such an
exclusion, either on the grounds of relevance or on the ground that the
witnesses are not expert witnesses. We refuse the application on that basis.
Having said that, we indicated to the parties that there were in the witness
statements clear expressions of view on the conclusions that could be drawn
from the analysis presented, and that such expressions of view, on matters
which it is for the tribunal to determine, did not amount to evidence to which
the tribunal would have regard. We are grateful for the indication from the
parties that they will cooperate to agree which elements of the evidence can
simply be disregarded, although as we have said, the tribunal itself is quite
capable of distinguishing between the evidence on which a conclusion falls to
be drawn by the tribunal and an attempt by a witness to draw that conclusion
themselves.
The overall cell evidence
21.
The evidence in question under this category is that of Mr Humphries.
Mr Patchett-Joyce argued that Mr Humphries has no expert credentials and no
direct knowledge of the facts or circumstances of this case. What Mr Humphries
has done is to take information provided by others, reviewed it, and prepare
various charts in support, it is said by HMRC, of an argument that there has
been an overall contrived scheme involving the fraudulent evasion of VAT.
22.
The absence of expert credentials of Mr Humphries is, as we have
described, no bar to the admission of his evidence. It is clearly appropriate
for evidence to be given of the genesis of charts which are used to support a
party’s case. That evidence is, again for the reasons we have outlined, and
having regard to the rival submissions of the parties on the applicable law,
relevant to be considered by the tribunal.
23.
To the extent that Mr Humphries’ evidence includes conclusions,
particularly as to the contrivance of the deal chains, the commercial logic or
the supposed rationale of the transactions, that evidence should rightly be
disregarded. The application for the exclusion of Mr Humphries’ evidence as a
whole did not contemplate such an exercise of excision, but we are once again
grateful to the parties for the indication that this will be attempted. In any
event, the tribunal will be mindful of the zero weight to be attached to the
expression of any view by a witness on a matter which the tribunal itself must
decide.
24.
Mr Patchett-Joyce made other criticisms of Mr Humphries’ evidence,
largely going to probative value or weight. We do not find those criticisms to
be such as to merit the exclusion of this evidence. Such matters are more
properly addressed by way of cross-examination.
Mr Stone’s evidence
25.
The admissibility of Mr Stone’s evidence, in similar form to that in
this case, has been the subject of judicial decision at the level of this
tribunal in a number of cases. For example, in Atlantic Electronics Ltd v
Revenue and Customs Commissioners [2011] UKFTT 314 (TC), the tribunal judge
(Judge Wallace) expressed (at [31]) the following view when deciding to exclude
Mr Stone’s evidence:
“...the statement contains very limited potential
evidential value and a considerable amount of material which is irrelevant or
potentially prejudicial. Some of it is after the event, such as the revocation
of FCIB’s licence and the reverse charge legislation. It contains substantial
expressions of opinion although Mr Stone does not purport to be an expert
witness. Unless ignored the evidence will take up time both in reading and
cross-examination and distract the Tribunal from the direct evidence. The
appeal falls to be decided on the facts of this case, not on Mr Stone’s view of
other cases.”
26.
A similar view was adopted by the tribunal in Digit Three Ltd v
Revenue and Customs Commissioners [2013] UKFTT 288 (TC), where the tribunal
said that the evidence “seemed to consist of general comments and that as the
Tribunal was familiar with the background to MTIC fraud generally such evidence
added nothing of specific relevance and should be excluded”. In other cases,
such as Chandanmal and more recently CCA Distribution Ltd (in
administration) v Revenue and Customs Commissioners [2013] UKFTT 253 (TC),
only those elements of Mr Stone’s evidence that consisted of opinion were
excluded. In CCA Distribution, having heard the evidence, the tribunal
concluded that, although it had included some factual evidence of relevance, it
had largely consisted of general background and had not been of material
assistance in determining the issues of substance.
27.
Having regard to the evidence of Mr Stone as a whole, we share the approach
of the tribunal in Chandanmal and CCA Distribution, that is to
accept that there are matters of relevance, and appropriate to be considered by
the tribunal, within the statements, but that there are clearly also
expressions of opinion, going to matters that it is for the tribunal to
determine on the facts, that ought properly to be disregarded. We accept that
the examples provided by Mr Kinnear, such as evidence of a memorandum of
understanding, the operation of the MTIC validation team at Redhill, the
identification of IMEI numbers and the description of the NEMESIS database, are
all matters of relevance or potential relevance.
28.
For these reasons we do not consider that it would be right to exclude
Mr Stone’s evidence as a whole. On the other hand, having regard to the views
we expressed at the hearing, we are grateful for the indication that the
parties that they will together seek to narrow down the areas of Mr Stone’s witness
statement that the tribunal will be invited to consider, and in particular that
Mr Kinnear and Mr Chapman will indicate to Mr Patchett-Joyce those parts of Mr
Stone’s evidence on which HMRC will not seek to rely.
The Operation Ghast evidence
29.
What is termed the Operation Ghast evidence is in the witness statement
of Mr Downer in this respect. It takes its name from the name given to a
police operation in connection with a murder investigation in which two CDs had
been uplifted. Those CDs had been considered irrelevant to the police
investigation, but they are considered by HMRC to contain information relevant
to the claim that two companies, alleged to be relevant contra-traders in this
case, were involved in a substantial and orchestrated MTIC fraud in 2005.
30.
Mr Patchett-Joyce’s objections to this statement are, first, that the
evidence is from a period which pre-dates the periods in which the transactions
in this appeal took place, and secondly that the entities in question,
Blackstar and Digikom, feature only in chains relied upon by HMRC as part of
their contra-trade construct, and accordingly in supply sequences to which
Megantic was not a party. Mr Patchett-Joyce submitted that the statement was
not relevant, was prejudicial and contained pure opinion.
31.
Mr Patchett-Joyce referred us again to Atlantic Electronics, this
time to [69], where Judge Wallace had excluded similar evidence of Mr Downer.
But we find no assistance from that comparison: in Atlantic Electronics
Judge Wallace had refused to exclude similar evidence of a Mr Jolly (except for
certain paragraphs) and the principal reason for excluding Mr Downer’s evidence
was that it was duplicative, and an exhibit could be produced by another
witness.
32.
In our view Mr Downer’s Operation Ghast evidence is relevant. We do not
accept the submission that evidence put forward to show the involvement in
similar fraud of an entity at an earlier time to the transactions in issue in
this appeal cannot be relevant to the question of involvement of those entities
at a later time. Mr Patchett-Joyce’s arguments on the relevance in the
contra-trading construct go back to his submissions of law based on EU law. As
we have described, those are matters that will need to be decided by the
tribunal hearing the substantive appeal, but the existence of such an argument
does not render the evidence irrelevant to the case as put by HMRC.
33.
To the extent that the evidence consists of opinion, there is no bar to
its admission, for the reasons we have given earlier. But the tribunal will be
mindful to disregard any conclusions drawn by Mr Downer which are properly
matters for determination by the tribunal itself. The existence of any such
conclusions is not, however, a reason to exclude the whole of Mr Downer’s
statement in this regard.
The grey market evidence
34.
Evidence as to the grey market, and commentary in that context on
certain of Megantic’s transactions, has been provided in an expert report of Mr
John Fletcher of KPMG. As this is put forward as expert evidence, and the
tribunal is accordingly invited to give it appropriate weight, it is evident
that, in order to meet the requirements of fairness and justice, certain
safeguards in the assembly and presentation of that evidence are required.
35.
In our view Mr Fletcher is an expert for this purpose. As we alluded to
earlier, we were referred by Mr Patchett-Joyce to Springwell Navigation,
where (at [20]) Aikens J said:
“The tests that must be satisfied before opinion
evidence can be adduced by an expert were set out by Chief Justice King in the
Australian case of R v Bonython [1984] SASR 45, at page 46. This test
has frequently been acknowledged and adopted in English cases. Chief Justice
King said:
‘Before admitting the opinion of a witness into
evidence as expert testimony, the Judge must consider and decide two questions.
The first is whether the subject matter of the opinion falls within the class
of subjects upon which expert testimony is permissible. This first question may
be divided into two parts: (a) whether the subject matter of the opinion is
such that a person without instruction or experience in the area of knowledge
or human experience would be able to form a sound judgment on the matter
without the assistance of witnesses possessing special knowledge or experience
in the area; and (b) whether the subject matter of the opinion forms part of a
body of knowledge or experience which is sufficiently organised or recognised
to be accepted as a reliable body of knowledge or experience, a special
acquaintance with which of the witness would render his opinion of assistance
to the court. The second question is whether the witness has acquired by study
or experience sufficient knowledge of the subject to render his opinion of
value in resolving the issue before the court.’”
36.
Of particular relevance here is the question whether Mr Fletcher’s
opinion relates to a body of knowledge that is sufficiently organised or
recognised to be accepted as a reliable body of knowledge or experience.
Clearly, as a matter of general observation, questions of medicine or foreign
law would satisfy this criterion. Analysis of a market by a professional
experienced in the industry in question is no less capable of doing so. The
grey market is a part of the telecoms industry, and that industry is capable of
giving rise to a reliable body of knowledge or experience, such as that
demonstrated by Mr Fletcher’s evidence. If doubts remain as to the nature of
that experience, those can be explored in cross-examination.
37.
In that regard we note the similar conclusion reached by Sir Andrew Park
in Mobile Export/Shelford IT Limited v Revenue and Customs Commissioners
[2009] EWHC 797 (Ch) where, at [17.2], he said, in relation to similar evidence
to that of Mr Fletcher:
“For most purposes, I think that Mr Taylor can be
regarded as an expert. He has considerable past experience, which he describes
in his witness statement, of the mobile telephone business generally, even
though he has not himself worked in the particular sector of it in which the
appellants have operated. Further, an important point in my opinion is that Mr
Taylor appears to be KPMG's internal expert upon the mobile telephones sector.
In that role it must be expected that he would have acquired a great deal of
specialist knowledge of the business. And the content of his evidence displays
to my mind that he plainly does have extensive knowledge and understanding of
the field to which the evidence is directed.”
38.
In common with Sir Andrew Park, we do not consider that a finding that
Mr Fletcher was not an expert would have precluded his evidence from being
admitted. As we have described, the tribunal may admit opinion evidence even
if that evidence is not given by an expert. If it does, then there will be a
question of weight. If the evidence is not given by an expert, or if it is
given by an expert, but relevant safeguards have not been observed, that may go
to the weight that the tribunal may give to the evidence. But neither of those
matters compels a conclusion that the evidence, if it is relevant, should not
be admitted.
39.
This, we consider, is the extent of the role that CPR 35 can play in
tribunal proceedings. There is no such rule in the tribunal’s rules.
Nonetheless, the principles that underlie CPR 35 are relevant to consideration
by the tribunal of the quality, and thus probative value, of the evidence. It
is therefore likely to assist the tribunal if an expert giving evidence
complies with CPR 35 and states that he has done so (see Chandanmal, per
Judge Mosedale at [12] and [13]). But a failure to do so will not, unless the
tribunal considers that such evidence will only be acceptable in particular
circumstances if full compliance is demonstrated, necessarily result in the
evidence being excluded; such failure will instead raise questions of weight.
40.
In view of our conclusion on that matter, it would not be appropriate
for us to consider at this stage the criticisms levelled by Mr Patchett-Joyce
as to the extent to which, as he put it, Mr Fletcher paid “lip service” only to
the provisions of CPR 35, nor the deficiencies which Mr Patchett-Joyce sought
to identify in the evidence by reference to the summary of the duties and
responsibilities of expert witnesses given by Cresswell J in The Ikarian
Reefer, to which we have referred. As those are matters on which Mr
Fletcher will be subject to cross-examination when giving evidence at the
substantive hearing, it will be for the tribunal at that stage to consider what
weight, if any, it attaches to Mr Fletcher’s evidence.
41.
It is axiomatic that expert evidence can only be given by an expert who
is independent of the parties, and who has no conflicts of interest that call
that independence into question. This is, in our view, fundamental, and is not
simply a question of weight. If an expert is not independent, or has such a
conflict of interest, his evidence will for that reason alone be of no value,
and should accordingly be excluded.
42.
Mr Patchett-Joyce argued that Mr Fletcher’s status as an independent
expert was compromised in four ways:
(1)
First, that KPMG had been retained by a company, Caledonian Consulting,
that was part of a group structure with Megantic that KPMG had been advising
on, to assist with Caledonian’s due diligence procedures. Caledonian, as we
understand the position, was providing employee services to Megantic.
(2)
Secondly, that KPMG had been involved in advising a company, Dragon
Futures, involved in MTIC trading.
(3)
Thirdly, that KPMG had an involvement with the Anti-Gray Market Alliance
in the US, exemplified by a 2008 Report compiled by KPMG which commented that
“most channel partners believe their market positions would benefit by
eliminating gray markets”.
(4)
Fourthly, that KPMG were a major provider to the UK government, and had received substantial fees for the expert reports compiled by Mr
Fletcher in relation to grey market trading in a number of cases.
43.
We are not persuaded that any of these matters, individually or
collectively, amount to a conflict of interest that could compromise Mr
Fletcher’s independence for the purpose of giving expert evidence in this
matter. In this respect we respectfully disagree with the tribunal in JDI,
and agree with the differently-constituted tribunal in Libra Tech Limited
and related appeal v Revenue and Customs Commissioners [2013] UKFTT 180 (TC) in that tribunal’s conclusion that, having regard to the nature of the
global organisation of KPMG, the mere fact that Mr Fletcher was an employee of
KPMG was too remote a connection to compromise his own independence. We reach
the same conclusion in this case. That is not to say that this cannot be the
subject of cross-examination at the hearing; there always remains the question
of weight to be attached to evidence according to the circumstances of the
particular witness.
44.
Irrespective of the particular status of Mr Fletcher’s evidence, Mr
Patchett-Joyce submitted that it should in any event be excluded as
irrelevant. He based this submission on the conclusion drawn by Mr Fletcher in
respect of Megantic’s trading transactions between April and May 2006, namely
that those transactions were extremely unlikely to have been part of the
profitable arbitrage market or any other rational and profitable white or grey
handset trading market.
45.
Mr Patchett-Joyce says that the evidence of Mr Fletcher is not relevant
because Megantic’s transactions cannot be taken out of the common system of VAT
by virtue of the nature of the market in which those transactions took place.
In support of this argument he took us to two cases in the ECJ, that of Optigen
Ltd and others v Customs and Excise Commissioners (Joined Cases C-354/03,
C-355/03 and C-484/03) [2006] STC 419 and that of Gábor Tóth v Nemzeti Adó- és
Vámhivatal Észak-magyarországi Regionális Adó Főigazgatósága (Case C-324/11).
46.
At [38] of his Opinion in Optigen, Advocate General Poiares
Maduro explained that, with the exception of certain activities with special
characteristics, such as the supply of narcotic drugs, the principle of fiscal
neutrality precludes any generalised differentiation between lawful and
unlawful activities. In Tóth, Mr Patchett-Joyce referred us to one of
the questions before the ECJ, which asked whether the fact that the issuer of
an invoice had no declared workers and was thus part of the “black” economy
would preclude the deduction of input tax by the recipient of the supply. Mr
Patchett-Joyce argued that Tóth showed that even a transaction taking
place in the black economy remained subject to the common system of VAT.
47.
We consider that, like the arguments on relevance in the context of the
FCIB evidence, Mr Patchett-Joyce’s arguments on the relevance of Mr Fletcher’s
evidence essentially anticipate legal submissions on the scope of the right to
deduct input tax and the parameters of the power to refuse such deduction that
will be addressed by the tribunal at the substantive hearing. His argument on
relevance might have some force were HMRC in these proceedings arguing that the
mere nature of the trading activity of Megantic, or its supplier, precluded the
right to deduct. That was the argument in Optigen to which the Advocate
General was responding. But that is not the way in which HMRC put their case.
The evidence of Mr Fletcher as to the nature of the trading activity is
relevant to the case that Megantic knew, or ought to have known, of a connection
to fraud. Mr Patchett-Joyce may argue, as he did before us, that HMRC’s case
shows a fundamental misapprehension as to how the common system of VAT works,
but that is an argument for the substantive hearing, and cannot for these
purposes render evidence relevant to HMRC’s case as put as irrelevant so as to
be excluded.
48.
Mr Patchett-Joyce also referred us to certain observations on Mr
Fletcher’s evidence made by the First-tier Tribunal in H T Purser Limited v
Revenue and Customs Commissioners [2011] UKFTT 860 (TC). It will suffice
for us to note that those observations were made by a tribunal that in the
course of the substantive hearing had heard the evidence of Mr Fletcher under
cross-examination. Those observations will not be binding on the tribunal in
this case. The observations went to the weight the tribunal placed on Mr
Fletcher’s evidence. H T Purser does not therefore support any argument
that Mr Fletcher’s evidence is irrelevant; the question is one of weight, which
in this case will be a matter for the tribunal at the substantive hearing.
49.
Having found that Mr Fletcher is an expert for this purpose, we should
add that we do not consider there to be any requirement in this tribunal for
permission to be given for the service of expert evidence. That is a question
that has divided tribunals in the First-tier. In Chandanmal, Judge
Mosedale (at [13]) expressed the view that it was arguable that rule 15(1)(c)
of the tribunal’s Rules:
“… the tribunal may give directions as to … whether
the parties are permitted or required to provide expert evidence, and if so
whether the parties must jointly appoint a single expert to provide such
evidence”
required such permission to be obtained. The tribunal in
JDI took this a step further, stating (at [75]) that it was apparent
that the tribunal’s Rules envisaged that a direction should be sought for
permission to adduce expert evidence before serving a statement of an expert
witness. On the other hand, the tribunal in Libra Tech refused to
follow that interpretation, reasoning (at [31]) that rule 15(1)(c) could not be
construed as imposing a mandatory requirement to seek such permission.
50.
We agree with the tribunal in Libra Tech. Although we accept, as
Mr Patchett-Joyce submitted, that in the higher courts there is an express duty
to restrict expert evidence to that which is reasonably required to resolve the
proceedings (CPR 35.1), that does not itself translate into a mandatory
requirement for permission to be obtained before that evidence is adduced; but
if such evidence is served without permission, and it is found to be have been
unnecessary, the costs of that evidence may be irrecoverable. That does not,
therefore, provide for support for an interpretation of the tribunal’s Rules as
imposing a requirement for permission.
51.
Rule 15(1)(c) must be construed and applied in the usual way, that is
having regard to the overriding objective of dealing with cases fairly and justly
(rule 2(3)). The language of rule 15 is not mandatory but permissive. It
contains no requirement, such as can be found where relevant in other parts of
the Rules, for any application to be made. Its context is that of the
exercises of case management powers generally in relation to evidence and
submissions, none of which powers are susceptible to construction as a
mandatory requirement. The tribunal is given power to intervene and make
directions as to evidence, including expert evidence, but there is no
requirement (and it is not possible in our view to infer one) that expert
evidence can be served only if the tribunal gives permission.
Decision
52.
For the reasons we have given, we refuse in each case Megantic’s
application to exclude the witness evidence of the HMRC witnesses at issue.
Application for permission to appeal
53.
This document contains full findings of fact and reasons for the
decision. Any party dissatisfied with this decision has a right to apply for
permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure
(First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be
received by this Tribunal not later than 56 days after this decision is sent to
that party. The parties are referred to “Guidance to accompany a Decision from
the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this
decision notice.
JOHN WALTERS QC
ROGER BERNER
TRIBUNAL JUDGES
RELEASE DATE: 13 September 2013
