HMRC subject to strict requirements of unless order

The FTT has held that, in the case of a breach by HMRC of a mandatory unless order in case management directions, there is no discretion for the tribunal to nevertheless allow HMRC's application to progress, based on the over-riding objectives to deal with cases fairly and justly: HMRC v Elite Management Consultancy Ltd [2024] UKFTT 567. As such, the decision stands as a stark warning for litigants (including HMRC) to comply with unless orders, even as to procedural requirements.

This short decision concerns HMRC's application for an order that arrangements entered into by the respondents were notifiable tax avoidance arrangements under the DOTAS scheme. The respondents in the case sought an order striking out HMRC's application on the basis that HMRC had failed to comply with the necessary time limits in directions for serving the authorities bundle. In particular, the case management directions (Direction 12) in this case included a requirement on HMRC to serve an authorities bundle by 17 June 2024. In addition, Direction 17  stated that "failure to comply with these Directions WILL result in the proceedings being STRUCK OUT".

HMRC did not serve its bundle of authorities until after 7pm on 17 June and it was accepted that Rule 12 of the Tribunal Rules required service by 5pm on the relevant date and, as such, HMRC were in breach of the directions and subject to the terms of the unless order in Direction 17. However, HMRC contended that Rule 2(3) of the Tribunal Rules requires the Tribunal to give effect to an over-riding objective when exercising its power under the Rules, the over-riding objective being to deal with cases "fairly and justly". Since there had been no substantive breach of Direction 12, the respondent had not suffered any prejudice and it would be disproportionate to strike out the application in the circumstances.

The FTT disagreed. Direction 17 was a mandatory unless order and failure to comply with it engaged the automatic strike out provisions "as night follows day". In those circumstances, the mandatory strike out provision left the FTT no discretion and the FTT could not take into account the over-riding objectives in Rule 2(3).

Those over-riding objectives would, however, be of crucial importance if HMRC decided to make a reinstatement application, which was the correct course of action in this case.