UT (Tax & Chancery) UT/2025/000047 - [2025] UKUT 00362 (TCC)

HMRC submitted that there is a general principle of reciprocity in respect of disclosure obligations in both the FTT and the courts in civil litigation, with this being said to be at the “heart” of HMRC’s argument (at [24] of the HMRC UT Skeleton).

We look first at the position in the FTT.

Mr Tolley sought in particular to rely on Ingenious Games, HMRC v Smart Price Midlands Ltd [2017] UKUT 465 (TCC) (“Smart Price UT”), Mitchell v HMRC [2023] EWCA Civ 261 (“Mitchell”) and Ellis v HMRC [2022] UKUT 254 (TCC) (“Ellis”) in support of this proposition, each of which we consider below.

Mr Tolley referred to Sales J’s consideration of the “default rule” in Ingenious Games and why it made “considerable sense” as set out by Sales J at [25], but submitted that, as Sales J acknowledged, the default rule becomes problematic in cases where HMRC have not in fact had the opportunity to see all the relevant documents in the taxpayer’s possession. Mr Tolley relied on Sales J’s conclusion at [67] that:

“…in order for the main appeal to be determined fairly and justly, in accordance with the overriding objective, HMRC should have an equal opportunity to review the further relevant documents held by ITP, IFP2 and Ingenious Games which they have not yet disclosed to HMRC and which they do not wish themselves to rely upon in the appeal. Put another way, it would be unfair and unjust for ITP, IFP2 and Ingenious Games to be able to suppress or keep from the view of HMRC and the FTT relevant documents which may be harmful to their case, as a consequence of the limitation on the extent of HMRC's inspection of documents during the investigatory stage as a result of a sensible co-operative approach to the conduct of the investigation which was agreed as being in the interests of both sides.”

Mr Tolley emphasised that by the time this appeal was heard by Sales J, HMRC had agreed to give general disclosure to the taxpayers on a CPR-style basis and HMRC was seeking the equivalent order against the taxpayers, submitting that Sales J’s reasoning was that unfairly the FTT’s decision to refuse to order disclosure against the taxpayers had generated an outcome which produced an inequality of approach.

Whilst Sales J noted at [42] that the taxpayers had sought wider disclosure from HMRC when applying for relevant third party documents in HMRC’s hands, we do not accept that this decision is supportive of any general principle of reciprocity. As noted in McCabe, the decision is very fact-dependant, and Sales J’s reasoning emphasises that, in the context of the approach (which had been agreed between HMRC and the taxpayers) to disclosure in respect of a specimen of film and games investments during HMRC’s investigation, HMRC had not obtained documents relating to other investments outside of that sample in circumstances where the taxpayers subsequently served pleadings which included reference to films and gains other than the specimen films previously identified. His statement at [67] must be read in that context.

Mr Tolley referred to the decision in Smart Price UT, where at [44] the UT said:

“[W]e regard Rule 27 Disclosure as a starting point or default position which applies unless the Tribunal is persuaded that something else is, in the circumstances of the appeal, just and fair. However, it is no more than that. The rule expressly provides that its provisions are “subject to any direction to the contrary”. Where the FTT, in the exercise of its discretion, decides that it should depart from this starting point to enable it to deal with the case justly and fairly, it is entitled to do so…”

We agree with this statement of principle, as did Mr Bedenham for Ducas. However, it is the broadest possible acknowledgement of the FTT’s discretion to direct that “something else” is just and fair in the circumstances of a particular appeal. There is nothing in this which supports a conclusion that that “something else” requires reciprocal orders for disclosure.

Mr Tolley submitted that when the FTT departs from the default disclosure rule in Rule 27, the requirements of fairness and justice are always paramount, by reference to the UT’s decision in Ellis:

“121.

As a matter of principle, if the circumstances of a case require comparatively wide or general orders for disclosure to deal with it fairly and justly then the Rules permit such a request. Where material has not been revealed by the taxpayer during an investigation (such as here, where the FTT found that the material should have been produced in response to the information notices), and the default disclosure regime under r27 of the Rules has been set aside, the fair determination of the case may require such further disclosure.”

We agree that this statement of principle is particularly apt in the present case. However, neither the decision in Ellis, nor the particular paragraph above on which Mr Tolley relies, support a conclusion that the fair determination requires reciprocal orders be made.

Mr Tolley also relied on the judgment of Whipple LJ in Mitchell (acknowledging that the discussion of the powers and discretion of the FTT was obiter but submitting that it was highly authoritative). At [61] Whipple LJ addressed the error which had been made in that case by the FTT. The first two reasons given were particular to the facts of that case (being based on the documents being held by HMRC and the application being made by one taxpayer for disclosure of documents held in respect of a second taxpayer). It is Whipple LJ’s third reason which is of general importance:

“61…. Thirdly, in determining what approach to disclosure it should apply, the FTT appears to have lost sight of the overriding objective which requires the FTT to ensure that the proceedings are fair and just. The FTT did not engage with HMRCs case that fairness required disclosure of Level 2B and 4 Disputed Documents to Mr Bell because they had the potential to assist his appeal. The FTT limited the scope of disclosure going to credibility, when credibility is necessarily a general concept, and was an obvious line of argument for Mr Bell. The FTT suggested that Mr Bell could make an application for specific disclosure in due course, but that was not realistic given that he did not know what was in the Level 2B and 4Disputed Documents. The point which the FTT should have had in mind was that rule 27(2) provided only the starting point for disclosure, but the rule is flexible and can be varied in appropriate circumstances to meet the fairness and justice of the case. That was the point made by the Court of Appeal in Smart Price Midlands [2019] 1WLR 5070(see para 6 above). In many cases before the FTT that starting point is adequate as an end point too, because HMRC and the taxpayer already have all the documents which relate to the dispute. But this case was different, because it involved two appellants with apparently divergent cases, in circumstances where HMRC held documents relating to the tax affairs of one of them, which documents could have real significance to the other. The FTT needed to consider whether the scope of disclosure should be broadened to something closer to the standard rule under the CPR.”

This passage does not support a general principle of reciprocity; indeed, the reference to the rule being flexible and being varied in appropriate circumstances to meet the fairness and justice of the case in fact support a conclusion that there is no rigid rule which requires that extended disclosure should be ordered reciprocally. We regard such a conclusion as self-evident. HMRC’s approach would not take account of the availability of relevant documents, the need for proportionality, or facts relevant to a particular party.