Introduction

The case of Kandore Ltd & Ors v. Commissioners for Her Majesty's Revenue and Customs ([2021] EWCA Civ 1082) addresses pivotal issues concerning the procedural powers of the First-tier Tribunal (Tax Chamber) in handling applications by Her Majesty's Revenue and Customs (HMRC) for the approval of third-party information notices under paragraph 3 of Schedule 36 to the Finance Act 2008 ("the 2008 Act"). Specifically, the case examines two critical questions:

• Whether the First-tier Tribunal (FTT) possesses the authority to conduct inter partes hearings, including oral hearings involving both parties.
• Whether any hearings held by the FTT regarding such applications should be conducted in public.

The appellants, Kandore Ltd and others, challenged the FTT's procedures, seeking greater transparency and participation in the tribunal's decision-making process regarding third-party notices issued by HMRC.

Summary of the Judgment

The England and Wales Court of Appeal (Civil Division) delivered a comprehensive judgment affirming the Upper Tribunal's decision that the FTT lacks the power to conduct inter partes hearings in the context of approving HMRC's third-party information notices. Additionally, the Court upheld that such hearings should generally remain private, aligning with the judicial monitoring framework established by the 2008 Act.

The Court dismissed both grounds of appeal presented by the appellants:

1. The assertion that the FTT has the power to allow taxpayer or third-party participation in determining HMRC's applications for third-party notices.
2. The argument that HMRC's applications should be heard in public.

Ultimately, the Court reinforced the doctrine that the procedural design of Schedule 36 aims to facilitate efficient and non-adversarial tax investigations, limiting procedural rights to prevent delays and protect the integrity of tax assessments.

Analysis

Precedents Cited

The judgment extensively referenced and built upon prior case law to substantiate its conclusions:

• R (Morgan Grenfell Ltd) v Special Commissioners of Income Tax: This case was pivotal in establishing the non-adversarial nature of judicial monitoring schemes in tax investigations. The Court of Appeal relied on the principles laid out in Morgan Grenfell to reinforce that procedures under Schedule 36 are designed to be streamlined and non-adversarial.
• R (Kotton) v First-tier Tribunal (Tax Chamber): This decision elaborated on the purpose of Schedule 36, emphasizing the balance between efficient tax investigations and the limited procedural rights of taxpayers and third parties.
• Wiseman v Borneman and R (Haralambous) v Crown Court at St Albans: These cases were addressed by the Court of Appeal to differentiate the current context from scenarios involving criminal procedures or broader access to justice principles.
• R (UNISON) v Lord Chancellor: Cited in the context of access to justice, the Court clarified that the principle does not mandate inter partes procedures in the specialized framework of Schedule 36.

These precedents collectively supported the Court's stance that inter partes hearings are inconsistent with the legislative intent behind Schedule 36 and that private hearings are appropriate to uphold the efficiency and integrity of tax investigations.

Legal Reasoning

The Court's legal reasoning hinged on statutory interpretation and the purpose underlying Schedule 36 of the Finance Act 2008. The key points included:

• Nature of Judicial Monitoring: Schedule 36 is crafted as a judicial monitoring mechanism rather than an adversarial litigation framework. Its primary objective is to enable HMRC to obtain necessary information efficiently without the procedural complexities of adversarial hearings.
• Statutory Construction: The Court emphasized that the scope of the FTT's powers is derived from both primary and secondary legislation. Upon close examination, they concluded that the scheme intentionally excludes inter partes hearings to maintain procedural simplicity and prevent delays.
• Interpretation of Tribunal Procedure Rules: The Court analyzed specific rules, such as Rule 19 and Rule 32, to determine their applicability. They concluded that while rules generally allow parties to attend hearings, in the context of Schedule 36 applications made by HMRC, these rules do not extend participation rights to taxpayers or third parties.
• Balancing Interests: The Court recognized the importance of open justice but determined that the specific exceptions within Rule 32 adequately address concerns related to public hearings. They maintained that the limited circumstances where hearings might be public do not necessitate altering the fundamental private nature of Schedule 36 proceedings.

By integrating these elements, the Court affirmed that the existing procedural framework under Schedule 36 is both consistent with legislative intent and effective in facilitating HMRC's investigatory functions without unnecessary adversarial impediments.

Impact

This judgment has significant implications for the administration of tax law and the procedural dynamics between HMRC and taxpayers or third parties. Key impacts include:

• Clarification of FTT Powers: The decision clearly delineates the boundaries of the FTT's authority, reinforcing that inter partes hearings are beyond its purview in the context of Schedule 36 applications.
• Reaffirmation of Private Proceedings: Upholding the privacy of such hearings ensures that sensitive tax investigations remain confidential, protecting both HMRC's investigatory strategies and taxpayers' private financial information.
• Streamlined Tax Investigations: By maintaining a non-adversarial and private procedural framework, the judgment supports HMRC's ability to conduct efficient and effective tax investigations, minimizing procedural delays.
• Judicial Review Pathways: The ruling underscores that while procedural participation is limited, decisions by the FTT are still subject to judicial review, providing a mechanism for oversight without necessitating inter partes hearings.

Future cases involving Schedule 36 will reference this judgment to understand the procedural confines of the FTT, ensuring consistency in the application of the law and the maintenance of the integrity of HMRC's investigatory processes.

Complex Concepts Simplified

Inter Partes vs. Ex Parte Hearings

Inter Partes Hearing: A legal proceeding where all parties involved have the opportunity to present their case, respond to evidence, and participate directly in the hearing process.

Ex Parte Hearing: A legal proceeding where only one party is present or represented, and the other party is not given the opportunity to participate or respond in the hearing.

Schedule 36, Finance Act 2008

Schedule 36 of the Finance Act 2008 provides HMRC with powers to obtain information and documents from third parties to verify a taxpayer's tax position. It establishes a judicial monitoring scheme that allows procedural oversight through the First-tier Tribunal without resorting to adversarial litigation.

Judicial Monitoring Scheme

A framework under which judicial bodies oversee and approve certain administrative actions (like information notices) to ensure they are justified and comply with legal standards, thereby maintaining accountability without engaging in full-scale litigation.

Open Justice

A legal principle that emphasizes the public's right to access legal proceedings, ensuring transparency and accountability within the judicial system.

Conclusion

The Court of Appeal's judgment in Kandore Ltd & Ors v. Commissioners for Her Majesty's Revenue and Customs serves as a definitive clarification on the procedural limitations of the First-tier Tribunal concerning HMRC's applications for third-party information notices under Schedule 36 of the Finance Act 2008. By rejecting the appellants' arguments for inter partes hearings and public proceedings, the Court reinforced the non-adversarial, streamlined nature of judicial monitoring schemes in tax investigations.

This decision underscores the balance between efficient administrative processes and the protections necessary for taxpayers and third parties, ensuring that tax investigations can proceed without undue procedural hindrances. It also reaffirms the importance of judicial review as a mechanism for oversight, maintaining accountability within the boundaries established by legislation.

In the broader legal context, this judgment emphasizes the judiciary's role in upholding legislative intent and clarifying the scope of tribunal powers, thereby contributing to the stability and predictability of administrative law.