The Court of Appeal held, inter alia, that a common law duty of care, for which the Revenue would be vicariously liable, was owed to a taxpayer by an unidentified Revenue employee who chose to complete an application for a subcontractor's registration card, without the subcontractor's authority, resulting in delay and leading to economic loss for the taxpayer.

Facts

M established a construction industry contracting and sub-contracting business in 1988 and operated as a sole trader until 1999 by which time he employed over 30 people. M had the benefit of a subcontractor's tax certificate issued by the Inland Revenue under the Construction Industry Scheme (‘CIS’) which enabled him to be paid gross for subcontracting work rather than subject to deduction of tax which would otherwise be required.

Following advice from his accountant, M decided to transfer his business to a limited company (‘the taxpayer’). The taxpayer submitted its application for a certificate pursuant to the Income and Corporation Taxes Act 1988, s. 561(1) (‘ICTA 1988’) to its local tax office in June 1999 but the certificate was not received until September 1999. The delay was due in part to a number of administrative errors. The application had been wrongly treated as an application for a registration card (CIS4) rather than for a tax certificate (CIS6) and the declaration required to support an application for a registration card on the CIS3 form had been completed, mistakenly and contrary to the intentions of the taxpayer, by an unidentified Revenue employee. The taxpayer claimed that it lost new business and its cashflow was badly disrupted in the period before the certificate was issued.

The taxpayer commenced court proceedings seeking damages from the Revenue in respect of its alleged losses on the basis of breach of statutory duty and/or breach of a common law duty to process the taxpayer's application for a certificate with reasonable expedition. The court ordered a number of preliminary issues to be tried.

The judge held ([2007] BTC 3) that a breach by the Revenue of the statutory duty imposed by ICTA 1988, s. 561(2) was incapable of giving rise to a cause of action for damages; that the Revenue owed no duty of care to the taxpayer at common law to process the application for a tax certificate with reasonable expedition. But he found that, had either duty been established, the Revenue would have been in breach of that duty. The taxpayer appealed to the Court of Appeal and the Revenue sought to cross-appeal on the finding of breach.

Issues

Whether there was a private law cause of action in a case where the Revenue failed to perform the duty imposed by ICTA 1988, s. 561(2); whether the Human Rights Act 1998, s. 3 required words imposing a reasonable time’ requirement to be read into s. 561(2); and whether the Revenue owed a common law duty of care to the taxpayer to process its application for a certificate with reasonable expedition.

Decision

The Court of Appeal (Chadwick, Smith and Wilson L JJ) allowed the appeal in part.

Private law action

If ICTA 1988, s. 561(2) was read as enacted, it was clear that the legislature did not intend to confer a private law right of action for damages in a case where a certificate ought to have been issued to an applicant in respect of which the relevant conditions were satisfied but was not issued. In such a case the legislature conferred a specific remedy under s. 561(9): the disappointed applicant was given the right to appeal to the general or special commissioners against the refusal. A successful appeal could be expected to lead to the issue of a certificate. Absent a duty to issue a certificate within an ascertainable time, the legislature did not need to provide a remedy in damages.

There was a public law duty, enforceable by way of judicial review, to determine within a reasonable time whether the relevant conditions were met; and (if satisfied that they were met) to issue the certificate without avoidable delay once that determination had been made.

In a case where an appeal under ICTA 1988, s. 561(9) from the Revenue's refusal of a certificate had been allowed, it must have been obvious that the certificate would be issued (following the successful appeal) later than it would have been issued if the Revenue had, itself, issued the certificate as s. 561(2) required. The Revenue's decision to refuse a certificate would have led to the delay occasioned by the appeal process which might well be significant; and it followed, prima facie at least, that the delay could and should have been avoided. Since the legislature plainly had in mind the possibility that the Revenue might err in refusing a certificate, it was impossible to think that the legislature did not also have in mind that the consequence of a wrong decision might be delay in the issue of a certificate. Given that the legislature had the possibility of delay in mind, it must have appreciated that there would be cases in which that delay was both significant and unreasonable.

The legislature, when enacting ICTA 1988, s. 561(9), did not confer powers to award damages in respect of loss suffered by the applicant as the result of a wrongful refusal to issue a certificate because it did not intend to impose a statutory duty to issue a certificate within an ascertainable time.

Accordingly, unless reliance could be placed on the Human Rights Act 1998, s. 3, words were not to be read into ICTA 1988, s. 561(2) which had the effect that the section required that a certificate be issued to an applicant (in respect of which the relevant conditions were satisfied) within a reasonable time of the application.

Reasonable time requirement

The Human Rights Act 1998, s. 3 did not require words imposing a reasonable time requirement to beread into ICTA 1988, s. 561(2). It was impossible to contend that ICTA 1988, s. 559 contravened a sub-contractor's Convention rights under art. 1 of the First Protocol. Nor could it be said that s. 561(2) was incompatible with those Convention rights. The most that could be said was that, read as enacted, s. 561(2) did not go far enough because it did not require the issue of a certificate within an ascertainable time. But that point was met by the availability of a public law remedy (by way of judicial review) by means of which the Revenue might be directed to decide, within a reasonable time, whether it would issue or refuse a certificate, coupled with the statutory right to appeal from a refusal. It was unnecessary to read words into s. 561(2) in order to provide a basis for enforcement of the Revenue's public law duties or to protect an applicant's Convention rights.

Common law duty of care

Since ICTA 1988, s. 561(2) did not impose a statutory duty, enforceable by an individual in a private law suit, it was impossible to hold that it gave rise to a common law duty owed to the applicant to process the application with reasonable expedition. (Stovin v Wise [1996] AC 923, Gorringe v Calderdale Metropolitan Borough Council [2004] UKHL 15; [2004] 1 WLR 1057 and C & E Commrs v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181 applied.) No common law duty of care for which the Revenue would have been vicariously liable was owed in relation to administrative mistakes made in the ordinary course of processing the application under ICTA 1988, s. 561(2). In the circumstances that the legislature did not intend to impose a statutory duty, enforceable by an individual in a private law suit, to process such applications within a reasonable time, it would be wrong for the courts to recognise a common law duty owed by the Revenue's employees to take care to avoid delay.

However, a common law duty of care was owed to the taxpayer by the unidentified employee who chose to complete the declaration in support of an application for a registration card on the CIS3 form without the taxpayer's authority. That went beyond an administrative mistake made in the ordinary course of processing the application under ICTA 1988, s. 561(2). In completing the declaration in support of an application for a registration card the employee took it upon himself (or herself) to make an application on behalf of the taxpayer: an application which the claimant company had chosen not to make, and which it had not made. There was no reason why, in assuming that authority, the employee should not be taken to have assumed a responsibility to the taxpayer. In those circumstances it was fair, just and reasonable that the common law should recognise that a duty of care existed, for which the Revenue could be vicariously liable.

Court of Appeal (Civil Division).
Judgment delivered 25 October 2007.