Ingenious Games LLP & Ors v HMRC

Factual and Procedural Background

This opinion concerns an appeal by the Appellant, the Tax Authority, against an order of Judge Sinfield of the First-Tier Tribunal (Tax Chamber) ("the FTT") made after a hearing on 11 October 2013. The FTT had dismissed applications by the Appellant seeking disclosure of documents from the Respondents (three limited liability partnerships within a family of partnerships promoted by Company A), third party disclosure orders, and an adjournment of the hearing to determine the Respondents' appeals against closure notices issued by the Appellant. The Upper Tribunal granted permission to appeal.

The Respondents are involved in promoting and managing investments in film and video game productions. The appeals concern tax issues arising from the Respondents' activities between 2002 and 2011, primarily whether the Respondents were carrying on a trade and the correct accounting treatment of their profit and loss accounts. The tax at issue is approximately £1 billion, marking this as major tax litigation.

During the Appellant's investigation, both parties agreed to focus on a sample of film and game projects to make the investigation manageable. However, the appeals were not limited to this sample, and the scope could extend to all transactions. The parties agreed directions for case management, including designation of lead cases and the exchange of statements of case and witness evidence. The Appellant later sought wider disclosure of documents beyond the sample, which the Respondents resisted, arguing the requests were too broad and burdensome.

The Appellant also sought third party disclosure from two entities, Company B and Company C, which had dealings with the Respondents. The FTT refused all three of the Appellant's applications (disclosure from Respondents, third party disclosure, and adjournment), leading to this appeal.

Legal Issues Presented

1. Whether the FTT erred in refusing the Appellant's application for further disclosure from the Respondents beyond that agreed in the directions.
2. Whether the FTT erred in refusing the Appellant's application for third party disclosure from Company C.
3. Whether the FTT erred in refusing the Appellant's application for an adjournment of the appeal hearing.
4. The proper exercise of the FTT's case management powers under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, particularly rules 5 and 16, and the application of the overriding objective in rule 2.

Arguments of the Parties

Appellant's Arguments

• The FTT took an unduly narrow approach to disclosure powers, wrongly contrasting them with the Civil Procedure Rules and disallowing generalised requests for disclosure.
• The Appellant's request for further disclosure was justified as a "special circumstance" due to the limited investigation scope agreed with the Respondents, which prevented the Appellant from seeing all relevant documents before issuing closure notices.
• The Appellant's request was not a fishing expedition but a necessary and proportionate request to ensure a fair hearing, given the complexity and value of the case.
• The FTT incorrectly concluded that the Appellant had decided not to seek documents earlier, ignoring that the limited investigation scope was a negotiated agreement.
• The burden on the Respondents from further disclosure was not disproportionate given the stakes and the extensive prior investigation and preparation.
• The FTT erred in refusing an adjournment, which was necessary if further disclosure were ordered to allow adequate preparation.
• Regarding third party disclosure, the Appellant contended that the FTT misunderstood the position of Company C, which had indicated willingness to comply with a formal order, unlike Company B.

Respondents' Arguments

• The directions issued by the FTT definitively set the disclosure framework, and the Appellant was not entitled to seek wider disclosure at this late stage.
• The Appellant had ample opportunity and powers to obtain documents earlier but chose not to do so.
• The requests for disclosure were overly broad, particularly regarding projects considered but not taken forward or abandoned, and would impose an unreasonable burden.
• The timing of the Appellant's requests was unreasonable, causing unnecessary delay and cost.
• Company C and Company B resisted third party disclosure on grounds of confidentiality obligations and burden, with Company C willing to comply if formally ordered but opposing informal requests.
• It would be unfair to adjourn the hearing given the prejudice to the Respondents and the existing timetable.

Table of Precedents Cited

Court's Reasoning and Analysis

The court analysed the FTT's exercise of case management powers under rules 5 and 16 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, within the overriding objective of dealing with cases fairly and justly as set out in rule 2. The court found that the FTT had taken an unduly narrow and restrictive approach to disclosure, wrongly equating the tribunal's disclosure regime with the Civil Procedure Rules and disallowing generalised disclosure requests.

The court emphasised that, while the usual position in tax appeals is that HMRC will have inspected all relevant documents during investigation, the unusual agreed limitation of investigation to a sample of transactions here constituted a special circumstance justifying wider disclosure. The Appellant's requests, formulated with reference to the Respondents' Statements of Case, were not fishing expeditions but reasonable and proportionate to ensure a fair hearing in complex, high-value litigation.

The court rejected the FTT's conclusion that the Appellant had chosen not to seek documents earlier, clarifying that the limited investigation scope was a negotiated agreement. It found no evidence that the burden on the Respondents would be disproportionate or unmanageable, especially given the two-month timetable proposed for compliance and the context of £1 billion at stake.

Regarding third party disclosure, the court held that the FTT correctly understood the differing positions of the two third parties. Company B had objected outright on confidentiality and burden grounds, while Company C, though objecting to informal requests for similar reasons, had indicated willingness to comply with a formal order. The court agreed with the FTT that this did not amount to an error in conflating their positions.

The court also addressed the issue of projects considered but not pursued or abandoned, finding that documents relating to such projects could be relevant to the issues on appeal and thus disclosure requests relating to them were justified.

Consequently, the court allowed the appeal in part, ordering further disclosure by the Respondents and an adjournment of the appeal hearing to allow for this, while dismissing the appeal relating to third party disclosure from Company C.

Holding and Implications

The court's final decision was to ALLOW IN PART the appeal:

• The appeal against the refusal to order further disclosure by the Respondents was allowed. The court found the FTT erred in law by taking an unduly restrictive approach to disclosure and failing to properly apply the overriding objective of fairness and justice.
• The appeal against the refusal to adjourn the appeal hearing was allowed, as the hearing would need to be postponed to accommodate the further disclosure ordered.
• The appeal against the refusal to order third party disclosure from Company C was dismissed, as the FTT correctly understood and applied the appropriate test given Company C's position.

The direct effect of the decision is that the Respondents must provide further disclosure of relevant documents not previously disclosed, and the appeal hearing is to be adjourned to a later date after 1 October 2014 to allow for this. The decision does not establish new precedent beyond clarifying the appropriate exercise of case management powers in complex tax appeals, emphasizing flexibility, fairness, and adherence to the overriding objective in disclosure matters.