Court of Appeal rules on procedure for challenging partial defeat in the First-tier Tribunal

09 February 2021

In many tax appeals, the First-tier Tribunal (FTT) must decide more than one issue and a party can “win” overall without succeeding on every issue.

A good illustration of this is the case of SSE Generation Limited v HMRC, which was an appeal against HMRC’s refusal of claims for capital allowances in respect of several items of expenditure incurred in the construction of the Glendoe Hydro Electric Power Scheme in the Scottish Highlands.

The FTT ([2018] UKFTT 416 (TC)) decided that SSE was entitled to claim allowances for some of the disputed items of expenditure but upheld HMRC’s view on others. For expenditure relating to plant known as “cut and cover” conduits, the FTT decided that SSE was entitled to some but not all of the allowances claimed, making findings against each party.

Where a party has succeeded on enough of the issues, it might be satisfied not to appeal on the issues it has lost unless the other party appeals.

That was apparently the situation here. HMRC applied for permission to appeal to the Upper Tribunal (UT) against parts of the FTT’s decision that they had lost, including findings against them in relation to the conduits. SSE, however, did not do the same. Instead, SSE waited until HMRC was granted permission to appeal and had lodged a “notice of appeal” with the UT. Only then did SSE submit a “respondent’s notice” containing the original arguments for claiming full allowances on the conduits which had been rejected by the FTT.

At this point, it is worth noting the process that parties must follow to appeal from the FTT to the UT.

First, the losing party must apply for permission to appeal (initially to the FTT and, if necessary, to the UT). If this application is successful then, within one month, the appellant must submit a “notice of appeal” to the UT (see r.23 of the Tribunal Procedure (Upper Tribunal) Rules 2008 (the Rules)). The notice of appeal contains information about the grounds of appeal that the UT will have to decide.

The other party may then submit a “respondent’s notice” in response (see r.24 of the Rules). The notice must state, amongst other things, “the grounds on which the respondent relies, including (in the case of an appeal against the decision of another tribunal) any grounds on which the respondent was unsuccessful in the proceedings which are the subject of the appeal, but intends to rely in the appeal” (see r.24(3)(f)).

The question in SSE’s case was what r.24(3)(f) meant by “any grounds on which the respondent was unsuccessful in the proceedings which are the subject of the appeal”. Did it mean that, through its respondent’s notice, SSE could rely on any (or all) of the unsuccessful arguments it raised in the FTT? Or did it mean that SSE could only raise previously unsuccessful arguments that contested HMRC’s grounds of appeal? If the former interpretation was correct, then SSE could argue for full capital allowances on the conduits. However, if the latter interpretation was correct, then SSE could only rely on any unsuccessful arguments (in addition, of course, to its successful arguments) for the partial allowances awarded to it by the FTT.

The UT ([2019] UKUT 332 (TCC)) considered that the former interpretation of r.24(3)(f) of the Rules was correct and therefore permitted SSE to rerun previously unsuccessful arguments for full allowances. The UT ultimately accepted these arguments.

The Court of Appeal ([2021] EWCA Civ 105) reversed the UT’s decision, concluding that r.24(3)(f) referred only to “the grounds on which the party relies in its character as a respondent to the appeal”. If SSE wished to raise unsuccessful arguments in respect of an issue which it lost before the FTT (i.e. entitlement to full allowances) then it was necessary for SSE to apply for permission to appeal. (Frustratingly for SSE, the Court of Appeal noted that it would have agreed with the UT that such allowances were due.)

The Court of Appeal noted that the tribunal’s procedural rules are different from CPR 52.13, which applies to appeals to the civil division of the Court of Appeal, the High Court and the County Court. Under that rule, a respondent may seek permission to appeal in its respondent’s notice, as well as asking the appeal court to uphold the decision of the lower court for reasons different from, or additional to, those given by the lower court. There is no need to seek permission first from the lower court.

This difference may seem a fine one, but it has significant practical implications. What should a party do if, like SSE, it has succeeded on most (or the most valuable) issues? If that party does not wish to appeal on the issues it lost, it would seem wasteful for it to spend time and money preparing an application for permission to appeal on those issues unless it is clear that the other party will itself seek permission to appeal. CPR 52.13 gives the first party the option of deferring its permission to appeal application but the tribunal rules do not.

Under the tribunal rules, the respondent will usually have two options: either it can prepare a permission to appeal application it might never submit; or, it can wait until the other party has signalled how it wishes to proceed, and respond accordingly. The other party might volunteer information about its intentions on a without prejudice basis, although care will need to be taken about whether that information can be relied upon, especially if any assurances are couched in general terms. More often, the respondent will have no information about the appellant’s intentions, which makes the “wait and see” approach much riskier.

While the Court of Appeal suggested that a respondent who adopts the “wait and see” approach will be treated much more leniently by the tribunal if its application is late, this is ultimately a matter of discretion for the tribunal. This necessarily puts the respondent in a more precarious position than under a statutorily prescribed period for making its application, as is the case under CPR 52.13.

This position is unsatisfactory: it can lead to unnecessary costs being incurred and an increased risk that parties will be prompted to appeal even when they might be prepared to accept the FTT’s decision.

It is understood that the same problem exists for appeals from the UT to the Court of Appeal because a party cannot apply to the Court of Appeal for permission to appeal unless an application has been rejected by the UT (see r.44(1) of the Rules).

It is suggested that the Tribunal Procedure Committee, which has the power to amend the Rules with the approval of the Lord Chancellor, should align the Rules with CPR 52.13 to enable the respondent to defer its permission to appeal application.

However, this amendment might need to wait at least until the Supreme Court has ruled on any further appeal(s) in SSE’s case.

In the meantime, parties will need to be cautious about how they pursue arguments on appeal where both parties have been partially successful and partially unsuccessful in the tribunal below.

One party might be content for the proceedings to end there, but it will still need to think carefully about how it deals with the issues on which it lost. Otherwise, on an appeal by the other party, it could risk facing a procedural bar if it relies on the respondent’s notice alone.