The Court of Appeal gave permission for an application for judicial review of a decision regarding the taxpayers’ residence in a tax dispute to go ahead where there was a real risk waiting for the outcome of an appeal to the special commissioners in the same matter might be seen as ruling out a claim in the judicial review proceedings.

Facts

The taxpayers were faced with a claim by Revenue and Customs that they were ordinarily resident in the UK in the tax year ended 5 April 2002 and were therefore liable for capital gains tax (CGT). The taxpayers said, first, that they were not resident in the UK during that tax year, and that was the subject of their appeal to the special commissioners against the decision of the Revenue. What they wished to say in the judicial review proceedings was that it was unlawful for the Revenue to treat them as resident in the UK during that period because that would be contrary to the promises that were made by the Revenue in their own guidance in IR20. It would therefore be an abuse of power or maladministration on the part of the Revenue to treat the taxpayers as resident in the UK during that period. By an order dated 27 November 2007, Stanley Burnton J adjourned the applicants’ application for leave to apply for judicial review to be heard after their appeal to the special commissioners. The position before the judge was that there were two sets of proceedings by the taxpayers, their appeal to the special commissioners and their application for permission for judicial review. The real issue facing the judge was whether they should both go on in parallel with one another, or whether one should go before the other. The taxpayers’ position was that the judicial review proceedings should go first; the Revenue's position was that the appeal of the special commissioners should go first. The judge decided that the special commissioners’ appeal should go first on the basis that it was the special commissioners who decided the facts about whether the taxpayers were or were not ordinarily resident during the relevant tax year. They had the expertise that was required to make that sort of decision. If the applicants were held by the special commissioners not to be ordinarily resident in the UK during the relevant year then the judicial review proceedings would not be necessary. It was only necessary for the taxpayers to fall back on the judicial review proceedings if they lost before the special commissioners, and then wished to argue that the Revenue were not entitled to treat them as resident in the UK by reason of the promises in IR20.

The taxpayers appealed. They said that there had been no genuine attempt by the Revenue to apply IR20 and that there was no problem in the judicial review proceedings going ahead. The evidence was in the correspondence, which was before the court. That meant that it would be cheaper for the judicial review proceedings to be determined than the special commissioners’ appeal. The appeal might take two to three weeks; the judicial review might be over in a day, so it would be shorter and it would be less of a drain on judicial and court resources. Further there were obvious advantages all round in having the judicial review proceedings decided first and the judge had wrongly exercised a discretion in adjourning them.

Issue

Whether a decision by the special commissioners would pre-empt the judicial review application.

Decision

The Court of Appeal (Keene, Lloyd and Hughes L JJ) accepted the taxpayers’ argument that if the order stood and the special commissioners found against them on the question of residence, the judicial review application would effectively be pre-empted and would raise a substantial obstacle to them pursing an application for judicial review.

In the present case, assuming that the judicial review claim was well founded, that claim would be pre empted if the commissioners’ determination on the issue of residence went ahead before it. Moreover, it would create a significant obstacle to the taxpayers in pursing a claim for judicial review. There was a real risk that a decision by the special commissioners might be seen as ruling out a claim on the basis of legitimate expectation. Once a judicial decision had established that the taxpayers had been resident during the relevant period, a statutory duty on the Revenue to collect tax would become effective. In those circumstances, on an application for judicial review, the Administrative Court might not feel confident to direct the Revenue not to collect tax which was effectively due.

Accordingly, the judge's order would be set aside and the application for permission to apply for judicial review would be restored.

Court of Appeal (Civil Division).
Judgment delivered 10 July 2008.