In the 20 October edition of Tax Journal, Matthew Greene and Anastasia Nourescu explained the rule 18 lead case procedure, reviewed recent case law developments clarifying its scope and set out a few practical tips. A shorter version of this article follows; see here for the full version including case examples.
The high volume of cases before the First-tier Tribunal (Tax Chamber) (“FTT” or “the Tribunal”) and HMRC’s approach to assessing taxpayers mean that, quite often, there are several live appeals that raise the same or similar issues. In such cases, it is in both the parties’ and the Tribunal’s interest to avoid having separate hearings, as this will save time and costs and avoid the risk of conflicting decisions being issued by different judges on similar points.
There are three options for dealing with such cases:
- The appeals may be joined or consolidated under rule 5(3)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009;
- Some appeals may be stayed pending the outcome of one case under rules 5(3)(b) and (j);
- An appeal may be formally designated as a lead case and related cases may be stayed under rule 18.
The FTT’s case management powers under rule 5 are well-known and relatively straightforward. However, it is worth exploring rule 18 in more detail, especially as the FTT has provided helpful guidance on its application in recent years.
The basics of rule 18
Rule 18 applies where the following three conditions are all met:
- two or more cases are before the FTT;
- the FTT has not issued a decision disposing of the proceedings in those cases; and
- the cases concern common or related issues of fact or law.
When these conditions are met, the Tribunal may issue a direction under rule 18(2) designating one or more of the appeals as a lead case or lead cases, and staying the other appeals behind the lead case. It is clear from the wording of rule 18(2) that the Tribunal may issue a direction on the parties’ application or of its own volition, although it would be unusual for the Tribunal to do so without being prompted and without reference to the parties. The direction will generally include a description of the common or related issues agreed by the parties; where the parties cannot reach agreement, the Tribunal will normally list a hearing to consider the issues.
Lead cases in the High Court
Rule 18 has similarities to an equivalent procedure under the Civil Procedure Rules (“CPR”). The court may issue a group litigation order (“GLO”) under CPR 19.22 where multiple claims have been issued that raise common or related issues of fact or law. Any judgment on a GLO issue will be binding in relation to all other claims on the group register, unless the court orders otherwise. GLOs are useful tools that, like rule 18, avoid multiple sets of proceedings being pursued in the same court and avoid the risk of inconsistent decisions being issued in each case.
Unlike the GLO procedure, rule 18 is far less prescriptive and does not make provision for cost-sharing or appeals. This reflects the Tribunal’s relative informality compared to the higher courts, but the flexibility provided by rule 18 is at the expense of the certainty inherent in the more formal CPR provisions. From the perspective of the lead case taxpayer, the absence of a costs sharing mechanism can be particularly frustrating. Unless cost sharing can be agreed on a contractual basis with the follower cases (which is challenging but not impossible), the lead case will in effect determine the common or related issues at its own expense.
GLOs are publicised to enable claims within their scope to join the litigation. Similarly, rule 18 lead cases are publicised on a web page on the Tribunal website that sets out details of existing lead cases. However, it is unclear if this is still being updated, as the last update was made in May 2020.
Rule 18 or rule 5?
Taxpayers should carefully consider whether the lead case procedure under rule 18 is appropriate in their case, or whether it would be better to apply for a simple stay under rule 5 pending the outcome of another case, without the decision in that case becoming binding. The disadvantage of a rule 5 direction is that the parties do not have certainty with regards to the outcome of the case, which may have to be progressed and heard separately following the decision in the case they are stayed behind. However, while a rule 18 direction provides the advantage of certainty, the lead case decision will be binding on the followers and the onus will be on the taxpayer to prove that their case can be distinguished.
The Tribunal will be reluctant to order a stay, whether under rule 5 or rule 18, if the taxpayer objects. Every taxpayer has a right to have their appeal heard, and it would be unusual for the Tribunal to impose a significant delay on them without their agreement unless there are very good reasons for doing so.
Unbinding the followers
If a taxpayer disagrees with the decision in the lead case, their options will depend on the scope of the lead case directions. In broad terms, however, two options are likely: they can either apply for a direction under rule 18(4) that the decision in the lead case does not apply to them, or they can seek to distinguish their case on the facts.
An application under rule 18(4) must be made within 28 days after the date that the Tribunal sent a copy of the decision in the lead case to a party in a follower case. Such applications are not granted lightly, as they have the potential to undermine the rule 18 procedure.
When considering whether to apply for a rule 18 direction or dealing with such an application by HMRC, taxpayers and advisers should bear the following in mind:
- Knowledge of lead case: Before applying for or agreeing to a direction under rule 18, taxpayers should ensure they have sufficient knowledge of the facts and legal issues in the lead case (or the proposed lead case) to enable them to make an informed decision. If the taxpayer in the lead case is unrelated, it can be difficult to obtain such information, as neither the Tribunal nor HMRC tend to provide details of other cases before they have been heard. In the absence of such details, taxpayers may wish to consider a stay under rule 5 to ensure they are not bound by a case that they have insufficient knowledge of.
- Agreeing to HMRC’s application: Taxpayers should exercise caution in agreeing to an application by HMRC to have their case stayed under rule 18, as HMRC may choose – deliberately or otherwise – a lead case where the facts are more favourable to it. If a taxpayer is uncertain or, as mentioned above, does not have the necessary information to make an informed decision, it may object to the use of the rule 18 procedure and apply for a general stay pending the final outcome of the lead case under rule 5.
- Consider the scope of the common or related issues carefully. If a rule 18 direction has not yet been made by the Tribunal, the taxpayer should pay close attention to the proposed scope of the common or related facts and issues and make representations to the Tribunal if necessary. Are the issues in your case really the same, or are there subtle differences in the facts or in your legal arguments compared to those in the other cases?
- Withdrawal of lead case: If the lead case is withdrawn or otherwise disposed of, it is possible for one of the followers to become the lead case. If this happens, the Tribunal will notify the parties in the follower cases, who should request details of the new lead case and consider whether they are comfortable with their appeals being stayed behind it. Taxpayers in the follower cases should consider whether they would be willing to be the lead case and apply to the Tribunal accordingly.
- What if you are the lead case? Taxpayers in lead cases should progress their appeals as usual, although they may wish to liaise with the appellants in follower cases (if they know who those appellants are and if they are willing to share information) to identify any other potential lead cases, or to share details of HMRC’s approach to their respective cases.
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