King v. Walden (HM Inspector of Taxes) [2001] EWHC Ch 419 (18th May, 2001)

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Mr Jeremy Woolf (instructed by Salim & Patel for the Appellant)
Mr Ashley Underwood and Miss Kate Selway (instructed by Solicitor of Inland Revenue for the Respondent)

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this judgment and that copies of this version as handed down may be treated as authentic

1. Mr King, the taxpayer, appeals from a decision dated 23^rd March 2000 of the Special Commissioners (Mr T. Wallace and Dr. A Brice, whom I will call the "2000 Commissioners"). The points raised are numerous. Some are of general importance √ the most important of all being whether a penalty determination for penalising defaulting taxpayers is one involving a charge of a "criminal offence" for the purposes of Art.6(2) of the European Convention on Human Rights.

2. The 2000 Commissioners set out the basic facts in paragraphs 19-59. So I give only a brief summary. Mr King is a New Zealander. Formerly a pilot, he has lived in this country throughout the relevant period, though his domicile has always been New Zealand. Since 1976 he has lived with Miss Johnson, with whom he has had 6 children. Over the years from 1973 properties were acquired. First there was 10 Fielding Terrace (1973) followed by 14 Wolverton Gardens (1977), 91 Twyford Avenue (1979), 9 Fielding Terrace (1981), 6A Florence Road (1981) and Roundwood Lodge (1983). These properties were mainly in the name of Mr King, though Wolverton Gardens and Twyford Avenue were in Miss Johnson's. Broadly the Revenue's case is that the money used to accumulate these properties came from the profits made by Mr King (and Miss Johnson) from using most of them as guest houses, largely by way of rental to local authorities. The Revenue say that there was no other credible source of the money.

3. In January 1989 the Revenue made assessments to tax in respect of Mr King and Miss Johnson. More than half of these were in respect of "out-of-time" years, i.e., those more than 6 years back. For that purpose the Special Commissioners granted leave under s.36 or s.37 of the Taxes Management Act 1970 ("TMA 1970") as it then stood. In the cases covered by s.37 the Revenue had to prove Mr King guilty of " fraud wilful default or neglect." In the older cases (covered by s.36) "fraud or wilful default" had to be proved.

4. Mr King and Miss Johnson appealed these assessments. The matter came before Special Commissioners in 1991. They (Mr. B. O'Brien and Mr T. Everett, whom I will call the "1991 Commissioners") issued their decision on 18^th November 1991. They dismissed the appeals. They rejected submissions by Mr King that he was not liable to tax on the profits of certain of the guest houses. They rejected his claim that he was only a manager for a business conducted by him either for his father or for various partnerships consisting of his family (i.e. himself, his children and his father) in various combinations.

5. Mr King unsuccessfully appealed the 1991 decision to the High Court and the Court of Appeal (reported at (1995) 68 TC 387). Shortly after the High Court decision (given on 26^th November 1993), the Revenue informed Mr King that imposition of penalties was contemplated. On 17^th October 1994 the Revenue issued a penalty determination against Mr King in respect of the matters the subject of the 1991 decision. The Commissioners had already made a determination of 13^th December 1991 that the assessments, the subject of the 1991 decision, should carry interest.

6. By this time, therefore, there were two sets of determinations made against Mr King, one for interest and one for penalties. On 4^th April 1996 further assessments for the years 1977/78 to 1985/86 were made. The basis of these was that the Revenue had recently discovered Mr King's purchase of Roundwood Lodge back in 1983. This was unknown to the Commissioners at the time of the 1991 determination. Mr King had not disclosed it as an asset owned by him, even though he had been required to disclose his assets prior to the determination. The Revenue took the view that Roundwood Lodge had been purchased with profits from the business, hence the increased liability to tax as set forth in the assessments. There has been a decision not to make a penalty determination in respect of the non-disclosure of Roundwood Lodge.

7. Mr King appealed all three sets of assessments. It took a long time for them to be determined. It was not until 18^th May 1998 that the hearing commenced. The final hearing day was not until 23^rd April 1999 and, as I have said, the Special Commissioner's decision was not given until 23^rd March 2000. There were, in all, sixteen hearing days spread over nearly a year. Mr King bears a good measure of the responsibility for this disparate way of proceeding: partly there were delays when he was ill, and in addition there were delays caused by various unsuccessful applications made to the High Court for leave to seek judicial review. No complaint is made in respect of this apparently over-elaborate and over-lengthy aspect of the proceedings. Mr Woolf, who appears for Mr King, does, however, complain of the time it took until the first hearing date in 1998. Part of that time was the fault of neither the Revenue or Mr King: it was in April 1995 that Mr King's appeal against the penalty and interest determinations first came to be considered. That consideration was before the Acton General Commissioners who made a consent direction that the appeal be transferred to the Special Commissioners. Nothing happened for a two-year period, notwithstanding reminders from the Revenue. That two-year period forms part (but only part) of Mr Woolf's complaint based on delay.

8. Subject to minor variations, all three classes of assessment (interest, penalty and "Roundwood Lodge" assessment) were upheld by the 2000 Commissioners. The level of penalty was upheld at 80% of the lost tax. Mr King appeals in respect of each of class of assessment upheld. And, in relation to the penalty class, he alternatively seeks a reduction in the level of penalty.

9. It is common ground that in relation to the interest and Roundwood Lodge assessments, appeal lies only on a point of law. In relation to the penalty assessments, appeal lies on fact and law.

10. The relevant background legislation was summarised in paragraphs 9-13 of the 2000 Commissioners' decision. It was accepted as accurate. For brevity I do not repeat it here.

11. As regards interest the 2000 Commissioners divided the assessments upheld by the 1991 Commissioners into two classes, earlier and later. The earlier class consisted of those assessments in respect of which the 1991 Commissioners made (and necessarily made) findings of wilful default or neglect. The later class consisted of those assessments for which, in 1991, no such finding was necessary or made √ the "in time" years.

12. The 2000 Commissioners held that so far as the earlier class of assessment is concerned they were bound by the 1991 decision both as to the findings of wilful default or neglect and as to the amounts of tax lost. As regards the later class, the 2000 Commissioners held they were bound as to the amount of tax lost. Factually what they had to decide is whether that tax was lost through the wilful neglect or default of the taxpayer. Mr Woolf says the Commissioners were wrong in law as to the binding effect of the 1991 decision and that their factual decision as to "wilful default or neglect" was based on a flawed approach to the meaning of "neglect".

"Where an assessment has been made for the purpose of making good to the Crown a loss of tax wholly or partly attributable to the fraud, wilful default or neglect of any person, the tax charged by the assessment ... shall carry interest ..."

"..... the determination of the General Commissioners or the Special Commissioners in any proceedings under the Taxes Acts shall be final and conclusive"

14. Mr Woolf contended that s.46(2) means only that where Commissioners have held that a sum of tax is due, the taxpayer cannot dispute that liability. There is no further binding effect. So, he submitted, everything (save for the liability to pay the sums due) decided by the 1991 Commissioners was not binding on the 2000 Commissioners. It was open to the taxpayer to re-argue everything else. In particular he could re-argue the question of wilful default or neglect. He could even re-argue the sums held due in 1991 because they affected the amount of interest due.

15. I was at first startled by the proposition. It means that one could have a first finding that tax was due yet a subsequent finding that no interest or that any tax was due because the tax had not been due after all. Or, as is claimed here, a finding of wilful default or neglect justifying out-of-year assessments but then a finding of no interest on those assessments because wilful default or neglect was not re-proved. Moreover the Revenue, or indeed the taxpayer, would find itself having to prove the same thing over and over again in relation to exactly the same facts for exactly the same periods.

16. Mr Woolf based his argument on the decision of Lightman J in Barnett v Brabyn [1996] STC 716. The taxpayer had been assessed for tax for certain years on the basis that he was self-employed. His appeal was compromised on that basis and he paid the tax accordingly. Then certain further payments for the same years were discovered by the Revenue who raised further assessments from which the taxpayer appealed to the Commissioners. The taxpayer contended that he was employed and not an independent contractor. The Commissioners determined the case against the taxpayer on the substantive point, independent contractor or employee. The taxpayer appealed to the court. At the instigation of Sir John Vinelott, before whom the appeal first came, the matter was adjourned so that the question of whether or not the basis of the earlier compromise (i.e. self-employed) could be challenged. The taxpayer contended that it could. It is not obvious from the report that the Crown contended otherwise, or did so wholeheartedly √ Counsel for the Crown pointed out advantages in an agreed appeal being of non-binding effect as regards any other assessment. In those circumstances Lightman J said:

"By virtue of s.54, if after an assessment and a notice of appeal but prior to the determination of the appeal the taxpayer and the inspector enter into an agreement (a s.54 agreement) regarding the assessment of the character described in s.54, the agreement has the same effect as a determination of the appeal to that effect by the commissioners. Accordingly, a s.54 agreement has the same effect for res judicata and estoppel purposes as a determination on appeal by the commissioners.

It is clear that the inspector is entitled after a determination by the commissioners or a s.54 agreement to make an additional assessment if further matters have come to the inspector's notice and attention and that the additional assessment is a new process altogether (see s.29(3) of Taxes Management Act 1970). Prior to the enactment of the Income Tax Management Act 1964 (the 1964 Act), the function of the tax commissioners was to make assessments and to hear appeals. It was well established during the period of that regime that they were not deciding a 'lis inter partes' and accordingly their decision in respect of one year's assessment could not create any form of res judicata or issue estoppel in respect of a later year's assessment (see IRC v Sneath [1932] 2 KB 362, 17 TC 149; Caffoor and others (Trustees of the Abdul Gaffoor Trust) v Comr of Income Tax, Colombo [1961] AC 584 at 598-589 and Spencer Bower and Turner Res Judicata (2^nd edn, 1969) pp 260-266). The 1964 Act removed from the commissioners the function of making assessments. I do not think that this changes the position that (for present purposes) their decision on an appeal is not a decision on a 'lis inter partes'. This view accords with that expressed in the text books (see e.g. Whiteman on Income Tax (3^rd edn, 1988) para 30.02 and Phipson on Evidence (14^th edn, 1990) para 33.48). Accordingly, a determination of an appeal by the commissioners or a s.54 agreement cannot any more since 1964 than before 1964 afford scope for application of the doctrine of res judicata or issue estoppel in respect of assessments in succeeding years or additional assessments in the same year. It is, however, to be noted that Lord Hanworth MR in IRC v Sneath [1932] 2 KB 362 at 384, 17 TC 149 at 163 underlined the fact that such a previous determination of a question may be a cogent factor on a subsequent determination of the same question."

This statement of the position was accepted as accurate by Carnwath J in McNiven v Westmoreland Investments [1997] STC 1103 at p. 132 who himself referred to Tod v South Essex Motors [1988] STC at p.1132 where Knox J accepted the Caffoor principle (see below) as representing the modern law.

17. As Lightman J went on to point out, (accepting the Crown's submission) there are obvious practical advantages in the ability of the Crown and the taxpayer to agree a figure on an appeal regarding a particular assessment without prejudicing the position in respect of another assessment. Such agreements are governed by s.54 which provides:

"Subject to the provisions of this section, where a person gives notice of appeal and, before the appeal is determined by the Commissioners, the inspector or other proper officer of the Crown come to an agreement, whether in writing or otherwise, that the assessment or decision under appeal should be treated as upheld without variation, or as varied in a particular manner or as discharged or cancelled, the like consequences shall ensue for all purposes as would have ensued if, at the time of the agreement was come to, the Commissioners had determined the appeal and had upheld the appeal the assessment or decision without variation, had varied it in that manner or had discharged or cancelled it as the case may be."

That, of course, has no application here. The real question here is not whether a compromised appeal can produce binding effects beyond the compromise itself. It is not even whether a point argued and determined on an appeal in respect of a particular assessment can be re-argued in relation to a separate and distinct assessment involving the same point (what in ordinary litigation would amount to an issue estoppel). The point here is more acute: whether an issue heard and determined in relation to a particular assessment is binding in respect of an assessment itself dependent on and consequential to that particular assessment. Neither Lightman J, nor any of the cases to which he referred, were concerned with such a point. Normally, of course, assessments are independent of each other in the sense that there is nothing in the taxing statutes making one assessment actually turn on an earlier assessment. But in the case of interest that is not so. Section 88(1) says "the tax charged by the assessment .... shall carry interest". The liability and amount of interest assessed therefore assumes the earlier assessment of tax charged to be correct.

18. I next turn to one of the cases referred to by Lightman J, Caffoor v Commissioner of Income Tax, [1961] AC 584, a Privy Council case from Ceylon. The Board of Appeal had held in relation to an assessment for a particular year that the taxpayer (a trust) was exempt because it was charitable. Assessments to tax were made for 5 later years. The taxpayer argued that there was an estoppel, the question of its charitable status having already been heard and determined. The Privy Council held otherwise. Viscount Radcliffe said at p.598:

"The critical thing is that the dispute which alone can be determined by any decision given in the course of these proceedings is limited to one subject only, the amount of the assessable income for the year in which the assessment is challenged. It is only the amount of that assessable income that is concluded by an assessment or by a decision on an appeal against it (see section 75). Although, of course, the process of arriving at the necessary decision is likely to involve the consideration of questions of law, turning upon the construction of the Ordinance or of other statutes or upon the general law, and the tribunal will have to form its view on those questions, all these questions have to be treated as collateral or incidental to what is the only issue that is truly submitted to determination (cf. Reg v Hutchings, [1881] 6 QBD 300 CA)."

19. This passage in Caffoor has recently been quoted as good law by Lord Hope (with whom Lord Hoffmann agreed, though the other members of the House made no comment on the point) in MacNiven v Westmoreland Investments [2001] STC 237. That was a s.54 agreement case but Lord Hope clearly equated an appeal settled by agreement with an appeal settled by determination. He said, at p. 263-4:

"The purpose of an appeal under s.31 of the 1970 Act is to challenge the amount charged to tax by assessment. The finality that attaches to the determination of the appeal by the General Commissioners or the Special Commissioners or to the settling of the appeal by agreement relates only to the amount chargeable under that assessment."

Mr Woolf submitted that these cases fully justified what Lightman J held. He particularly relied upon Lord Radcliffe's words that it is "only the amount of assessable income that is concluded by an appeal" and Lord Hope's similar words "finality attaches ..... only to the amount chargeable under that assessment." Adapting that here, Mr Woolf said all he cannot challenge are the amounts determined by the 1991 Commissioners.

20. Mr Underwood, for the Crown, submitted that insofar as Lightman J equated an earlier settled appeal with an earlier fought out appeal, it was obiter and wrong. He had no quarrel with the proposition that an earlier settled appeal had no binding effect on a later assessment. But that was because if a matter was settled, the only thing determined in the earlier appeal is the amount of tax owing. Mr Underwood pointed out that Lightman J's attention was not drawn to the decision of Megarry J in Slaney v Kean [1970] 1 Ch 243. Megarry J held that the Court had no jurisdiction to allow an appeal by consent. His full analysis of the position (which included consideration of Caffoor) led him to conclude that the nature of appeals to the Commissioners had changed in 1964 when assessments were made by a tax inspector with appeal to the Commissioners. He said:

"Under section 5 of the Act of 1964, assessments are now in general made not by the commissioners but by an inspector of taxes or (in the case of surtax) by the Board of Inland Revenue. The general commissioners are now, under section 1, appointed by the Lord Chancellor, and hold office during his pleasure, with a retiring age of 75. Both they and the special commissioners are subject to the general supervision of the Council on Tribunals. These things were not so when the Court of Appeal spoke in 1932 [in IRC v Sneath [1932] 2 KB 362 per Greer LJ at p.385 and per Romer LJ at p.390] Words which refer to the special commissioners' "administrative duty of collecting surtax" fall oddly upon the ear in 1969. Furthermore, I do not think that it suffices merely to attach the label "administrative" to a tribunal or a function and then say that this solves the problem. One must still look at the realities rather than the label.

It seems to me that today the commissioners discharge functions which are essentially judicial in nature. Virtually all their administrative functions have now gone, and their basic functions are judicial: see Wheatcroft, British Tax Encyclopaedia, p. 1026. They hear evidence and argument, and decide questions of fact and law impartially and without regard to so-called considerations of policy, though this, of course, is nothing new. It is now the inspectors and the Board who, under section 5 of the Act of 1964, are empowered to make assessments "according to the best of their judgment," a phrase which played a substantial part in Rex v Income Tax Special Commissioners, Ex parte Elmhirst [1936] 1 KB 487; 20 TC 381. It seems to be now at least open to question whether proceedings on an appeal to the commissioners ought still to be regarded as being quasi-judicial rather than judicial, on the basis that there is no true lis. But however that may be, in hearing and determining an appeal the commissioners now seem to me to lie squarely on the other side of any reasonable line that the word "administrative" could be held to indicate, in territory which, if not judicial, is at least quasi-judicial. Nothing for which Sneath's case still stands as authority in the different sphere of res judicata seems to me to support the existence of any exception from the broad general rule against decisions being reversed by appellate courts merely by consent."

21. So Megarry J took the view that the Commissioners were indeed acting judicially √ were determining a lis inter partes when they were called upon to determine a dispute between the taxpayer and the Crown. I think his reasoning would go so far as to render any issue determined as a lis between the Crown and the taxpayer as conclusive, either by virtue of s.46(2) or the general law as to issue estoppel.

22. Mr Underwood pointed to indications in other cases that that was so. For instance in Cenlon v Elwood (1961) 40 TC 176 Upjohn LJ said, speaking of s.50(2) of the Income Tax Act 1952 (the predecessor of s.46(2) of the TMA):

"It seems to me that Section 50(2) is directed to the case where a particular point has been determined, and when that point is determined it cannot be re-litigated; both sides are bound."

Upjohn LJ went on to say the same was true if a point was agreed. That agreed point point cannot be re-opened by way of the Crown resorting to an additional assessment, as I understand it, for the very same period.

23. Another indication that any lis actually determined is binding is to be found in Salmon v Havering Commissioners (1968) 45 TC 77. Additional assessments had been made on the taxpayer. He appealed to the Special Commissioners who, after a hearing, announced a decision in principle only, leaving the parties to agree detailed figures, which was done. There was no actual finding one way or another of fraud, wilful default or neglect. Then penalty proceedings were commenced and a penalty imposed. The case came to the Court of Appeal in relation to those proceedings. The taxpayer argued an estoppel: that he had been cleared of fraud wilful default or neglect by the Special Commissioners. His argument was rejected, not on the ground that no estoppel could ever lie but on the simple ground that the point had never been decided. Lord Donovan (sitting in the Court of Appeal) appeared to assume that if the point had been decided, an estoppel would indeed lie. He said, at p.88:

"The Special Commissioners, I repeat, have made no findings on these matters, and I myself know of no alchemy which transmutes no finding at all into a positive finding one way or the other on these issues.

In this connection we were referred to a number of cases, among them Hoystead v Commissioner of Taxation [1926] AC 155. I need not go into the facts there. It is sufficient to quote the summary of the decision which is given in the headnote in these terms:

"Held, that the Commissioner was estopped, since although in the previous litigation no express decision had been given whether the beneficiaries were joint owners, it being assumed and admitted that they were, the matter so admitted was fundamental to the decision then given."

No such corresponding admission was made in this case, and I can see no real relevance in Hoystead's case to this case. I think that the proceedings before the General Commissioners were in order and that the challenge to their jurisdiction fails."

24. Russell LJ, in Fen Farming Co Ltd v Dunsford (1974) 49 TC 246, also appeared to think that once an issue had been determined that was a final determination of that issue. He said, at p. 275:

"It was contended that in all years s.510 (sic) of the Income Tax Act 1952 operated to finalise the situation and prevent any additional assessments. We find difficulty in understanding this contention. The section can only affect what was in issue in the earlier appeals: and ex hypothesi these concealed profits of the Company were not in issue."

Note his assumption that s.510 (which I think must be a misprint for s.50(2)) did affect what was in issue in an appeal.

25. Both Mr Woolf and Mr Underwood directed me to what was said about Slaney in Ranaweera v Ramachandran [1970] AC 962. The majority judgment of the Privy Council, given by Lord Donovan, cast doubt on Slaney. After referring to the 1932 case of Sneath (and particularly the passages in the judgments of Greer and Romer LJJ considered by Megarry J, the majority judgment went on to say:

"In a recent decision in England, Slaney v Kean [1970] Ch 243, Megarry J. was inclined to think that these expressions of opinion were out of date since the passing of the Income Tax Management Act of 1964 which transferred many functions previously exercised by General and Special Commissioners of Income Tax to Inspectors of Taxes and the Board of Inland Revenue. He said, at p.251:

"It seems to me that today the commissioners discharge functions which are essentially judicial in nature. Virtually all their administrative functions have now gone, and their basic functions are judicial."

The taxpayer in the present appeal naturally quoted these observations in support of his argument: but the attention of the judge seems not to have been drawn to paragraph 3 of Schedule 4 to the Income Tax Management Act, which enacts as follows:

"On an appeal to the General Commissioners or Special Commissioners, the commissioners shall have jurisdiction to review any relevant decision taken by an inspector or the board in exercise of the functions transferred to the inspector or the board by this Schedule."

The functions so transferred are identified in the Schedule by references to numerous provisions of the Income Tax Act, 1952, and later Finance Acts: and if these are examined it will be seen that "relevant decisions" may be involved which will relate to many matters of administration and these the General and Special Commissioners are empowered to review. Their Lordships respectfully doubt, therefore, whether it is right to say that these commissioners have virtually lost all their administrative functions, and that the observations of Greer L.J. and Romer L.J. above quoted must now be regarded as spent. On the contrary, they would still appear to have persuasive force in relation to a case such as the present, even if the Board of Review's functions were confined to the determination of the taxpayer's income for the year of assessment in question."

26. That statement of opinion was probably obiter, the issue in the case being whether or not the Board (in Ceylon) was properly appointed. With great respect the reason given for the doubt cast upon Slaney does not seem to me to be good: many appeal bodies undoubtedly exercising judicial functions are given the same powers as the body appealed from √ that does not make the appeal body administrative in character. Nor if it is, is it acting administratively when it determines a dispute. Since the 1970's there has been an increasing realisation that dispute resolution procedures must be speedy and fair: if the taxpayer (or Crown) can re-open an issue which has been fairly and fully fought that is not conducive to modern dispute resolution techniques.

27. But the opinion in Caffoor has been taken as representing the law in many cases by now. I have enormous sympathy with the view that once a matter is decided after a full and fair fight that is that. I can see no real reason for a different rule for tax cases. But I think I must, as a judge of first instance, bow to the weight of authority which does not distinguish between settled and fought appeals. Accordingly I hold that the 1998 Commissioners were wrong to apply s.46(2) to the interest appeals.

28. There is one other point worth mentioning in relation to the effect of s.46(2) which indirectly supports its non-binding effect. Suppose an original assessment upheld by Commissioners. The taxpayer can only appeal to the court on a point of law. Then suppose a penalty determination based on those assessments again upheld by Commissioners. From a penalty determination appeal lies to the court on fact and law. But, if s.46(2) (or the general law of issue estoppel) excluded any challenge to the earlier assessment and particularly to any point necessarily determined to uphold that earlier assessment (e.g. wilful default) then the right of appeal to the court on fact in respect of penalties would be nugatory or emasculated. Mr Woolf rightly characterised this result as absurd.

29. A way out of the absurdity would be a construction of s.46(2) making it not preclusive in relation to penalty appeals only. I do not think there is room for any such construction. I tried to devise one based on a notion of a different standard of proof. The idea was that for penalties there was an inherent higher standard than for interest. But one cannot get that out of the language of the Act and in any event in practice there could not be any real difference. So Mr Woolf's absurdity point indeed has force √ the alternative leads to the inconvenience of potential re-litigation of points already decided, but that is an inconvenience which the Caffoor principle has already accepted.

30. Does s.88(1) make any difference so far as interest appeals are concerned? Is it implicit in s.88(1) that the earlier assessment cannot be challenged in relation to an assessment of interest? I think it is, but only to a limited extent. Section 88(1) says "the tax charged by the [earlier] assessment .. shall carry interest. The one thing which Caffoor says cannot be re-opened is the tax charged by the earlier assessment. Thus in this case, if the Crown can show that the 1991 assessments were for the purpose of making good a loss of tax wholly or partly attributable to wilful default or neglect (I leave out fraud) the amount of lost tax cannot be challenged.

31. However, even though I think the Commissioners were wrong in law as to the effect of s.46(2) I have no doubt that the appeal in respect of the earlier years should be dismissed. At the very least the decision of the 1991 Commissioners was a "cogent factor" for the 2000 Commissioners. Here it is well worth standing back for an overall view of the position as regards Mr King. The fact is that over the years he acquired a series of properties used for lodging houses. There is no reasonable explanation of how he came by the money to buy these properties, otherwise than from profits of the businesses. That was the position in 1991, when the Crown did not know of Roundwood Lodge. It remained the position thereafter - the discovery of Roundwood Lodge only making things worse. Mr Underwood submitted, rightly in my view, that two matters stand out:

32. These two matters colour everything underlying these appeals. In the absence of any proper records or accounts (whether of any of the alleged partnerships or of individuals) a key way to test whether or not there were profits is to look at assets before and after. Mr King, over the years acquired properties √ in the absence of convincing evidence of other sources of money, the only source could be the profits from the guest house businesses.

33. I now turn to the last aspect of the interest appeals √ that in respect of the later class of assessment (i.e. that class in respect of which the 1991 Commissioners were not called upon to make any finding as regards wilful default or neglect). As I have said, the 2000 Commissioners were bound as to the amount of tax lost. Irrespective of the effect of s.46(2) the 2000 Commissioners had to decide the factual question of whether or not the tax lost for the later class was due to the taxpayer's wilful default or neglect. They so held at paragraphs 94-123. The earlier of the paragraphs consider the meaning of these terms. I do not think it necessary to go into the fine shades of such meaning. I think the 2000 Commissioners' findings of fact (at paragraph 104 et seq.) are overwhelming on any reasonable view of the meaning of "wilful default or neglect". Fraud was not alleged, (as Walton J observed in Williams v Commissioners [1975] STC 167] "so be it"). But what one has here are fanciful stories of partnership √ partnerships with infants, partnerships without partnership accounts, partnerships with no injection of capital or work by partners, partnerships with no profit distribution and clearly inadequate disclosure to the Revenue. In my judgment there was no room whatever for any other finding than wilful default or neglect whatever the shades of meaning those words may have.

34. In so holding I do not overlook the "family loan" book adduced in evidence before me, before the 1991 Commissioners but not the 2000 Commissioners. It is said to have been mislaid over the whole period of the 1998 hearing (16 days in all over a year). This book purports to record loans made between family members. But it, like a number of other matters relied upon by Mr King (e.g. the Business Names Act registration) is self-serving. These matters could be incidental indicia of a real partnership, but indicia of substance (partnership accounts, sharing of profits and expenses etc.) are simply not here. You do not make a partnership just by assertion, as Mr King has sought to do over the years.

37. The relevant penalty legislation at the time was Part X (ss. 93 to 106) of the TMA. The key provision was s.95(1) which, so far as relevant, provided:

he shall be liable to a penalty not exceeding [effectively 100% of the lost tax]"

38. Section 100(1) provided for the imposition of a penalty, saying that an authorised officer "may make a determination imposing a penalty ... setting it at such amount as, in his opinion, is correct or appropriate".

39. Section 100B(2) set out what the Commissioners could do on an appeal against a penalty determination √ briefly set it aside or confirm it or reduce (even to nil) or increase it up to the maximum.

40. Section 101 is a provision concerning penalty determinations, whether by the authorised officer or on appeal. Mr Woolf questioned its appropriateness in the context of his HRA challenge to the penalty determinations. It reads:

"For the purposes of the preceding provisions of this Part of this Act any assessment which can no longer be varied by any Commissioners on appeal or by order of the court shall be sufficient evidence that the income or chargeable gains in respect of which tax is charged in the assessment arose or were received as stated therein."

"The Board may in their discretion mitigate any penalty, or stay or compound any proceedings for a penalty and may also, after judgment, further mitigate or entirely remit the penalty."

41. The 2000 Commissioners neatly summarised the position in their paragraph 132:

"The effect of s.95 with s.92 was that if there was fraud or negligence a penalty could be imposed not exceeding ё50 plus the amount of tax lost, although the Inland Revenue had power to mitigate it. The effect of s.101 was that a final assessment was "sufficient evidence" that the tax was due for the purpose of the penalties."

42. It may be noted that in cases where fraud is alleged, penalty proceedings can be instigated directly in the Court, see s.100D. These proceedings are deemed to be civil proceedings (s.100D(3)). Even if fraud is not proved the court can, if it considers that the person concerned is liable to a penalty, impose one. Finally, again in the case of fraud, it was common ground that the Crown had an option to prosecute in a criminal court for the common law offence of cheat.

43. The position of the Court on appeal from the Commissioners is governed by s.100B:

"Without prejudice to s.56 of this Act, an appeal from a decision of the Commissioners against the imposition of a penalty which has been determined under s.100 above or this section shall lie, at the instance of the person liable to the penalty, to the High Court ...; and on that appeal the court shall have like jurisdiction as is conferred on the Commissioners by virtue of this section."

So the right of appeal from the Commissioners in the case of penalties can cover both fact and law √ unlike the appeals in respect of interest or the Roundwood Lodge determinations, which are governed by s.56 and are limited to points of law.

44. In paragraphs 133-143 the 2000 Commissioners considered whether or not the findings of the 1991 Commissioners regarding the earlier class of assessments were binding. They held they were, both by virtue of s.46(2) and s.101. Mr Woolf challenges both holdings.

45. I begin with s.101. As the Commissioners noted, it overlaps but is not co-terminous with s.46(2). S.46(2) applies to all appeals, not just penalty appeals. It is limited to determinations of Commissioners. s. 101 applies to any assessment which can no longer be varied, whether an assessment by an inspector or one determined on appeal. Again s.46(2) applies to "any determination" whereas s.101 relates only to sufficient evidence that the income ... arose." Finally s.46(2) speaks of the determination being "final and conclusive" whereas s.101 uses the expression "sufficient evidence".

46. The 2000 Commissioners held that that s.101 indeed meant that a no-longer-variable assessment was conclusive. They based themselves upon Walton J in Williams v Special Commissioners and Fox J in Sparks v West Brixton General Commissioners [1977] STC 212. However in neither case did the point really arise for there was no acceptable contrary evidence. The 2000 Commissioners were not referred to Duce v Boots [1937] Ch 642. In that case Bennett J, considering s.36(7) of the Administration Estates Act 1925 which used the phrase "sufficient evidence" said:

"The fact is that the proper interpretation of the words depends upon the context in which they are placed, and I think one must find some context of a compelling kind before one can decide that the word "sufficient" has the same meaning as "conclusive.""

47. Mr Woolf submitted that "sufficient evidence" in s.101 meant no more than that in the absence of contrary evidence the earlier assessment would be taken as good. There was no "context of a compelling kind" to indicate that the phrase meant "conclusive". Indeed, given that context is one penal in nature it is improbable that Parliament intended to preclude the "accused" from challenging the earlier assessment if he had the means so to do. Moreover, it is not without significance that the self-same Act, in s.46(2) has used "conclusive" so it is particularly improbable that the use of a different phrase was intended to have the same meaning.

48. Mr Underwood accepted that that submission had force and accordingly did not seek to defend that part of the 2000 Commissioners' reasoning which was based on s.101 being conclusive. It was not that provision which precluded Mr King from challenging the assessments upheld by the 1991 Commissioners in these penalty proceedings. The effect of s.101 was merely that those assessments were to be taken as good unless the taxpayer could show they were wrong.

49. Mr Underwood took his ground on s.46(2). It was that, he said, which prevented any challenge to the 1991 decision, including, in the case of the earlier assessments, the finding of wilful default or neglect. Mr Woolf took issue, raising the absurdity point I mention above. Since I have held that the Caffoor principle applies to penalty determinations and that s.46(2) does not mean that the earlier findings of wilful default and neglect were binding, I need take this no further than to comment on what Scott J said in Willey v IRC [1985] STC 61. Having considered a point advanced in mitigation of a penalty Scott J said:

"I think that is a reasonable point of mitigation. Counsel for the Crown said it was not because it involved impugning the validity of the assessments. I do not think it does do that. As far as mitigation is concerned, it seems to me it is proper to take into account any fact relevant to the original assessments or relevant to the circumstances in which the penalties are claimed. Of course, I accept that there cannot in this process of mitigation be a retrial of the matters which led to the original assessments. But, subject to that, I do not think there ought to be any artificial restrictions on matters properly to be taken into account by the tribunal which is charged with deciding the proper penalties to be imposed."

Scott J's observation that there could not be a retrial of the matters which led to the original assessments is contrary to my understanding of the Caffoor principle. His instinctive reaction (without reference to any of the cases) accords with my initial reaction but not my final one.

50. It is at first sight odd that no case has hitherto considered the effect of s.46(2) or the general law as to issue estoppel on penalty appeals. There are perhaps several reasons. First the number of cases where the point can arise are comparatively few: s.46(2) only comes into play when the taxpayer has had a full appeal hearing and has lost. Many penalty determinations are made without such a precursor √ and if they are only s.101 comes into play. Secondly there must be many who, having lost, accept the result or at least do not see any point in re-litigating. Thirdly it is not as though the taxpayer is not given an opportunity of an indirect challenge to the earlier assessment in the penalty hearing. For it was common ground that in mitigation he can put forward any material and that includes material concerning the assessment upheld on the previous appeal. The mitigation can reduce the penalty to nil.

51. This last point shows also that the significance of an issue estoppel cannot be that which it normally has. Normally of course, an estoppel excludes inquiry into the facts concerning the point estopped. But that cannot happen in a penalty appeal. Indeed in this case, because that is so, there was no question of Mr King being prevented from putting any evidence before the 2000 Commissioners. Mr Woolf accepted that his client had been allowed to advance all the material he wished and on all three classes of appeal.

52. Having thus held that the 2000 Commissioners were wrong to hold that Mr King was estopped from challenging the findings of the 1991 Commissioners, I must turn to the question of whether the penalty appeals have any factual merit. The 2000 Commissioners of course in part also had to consider the factual merit of those parts of the appeals which concerned penalties for the later (in-time) assessments. So in relation to those I am simply reviewing their decision (see CPR 52.11(1) and should reverse it if it was wrong or unjust for procedural reasons (more fully in CPR 52.11(3)).

53. The issue in relation to all the penalty appeals is whether Mr King negligently made incorrect returns or statements. By virtue of the agreed construction of s.101 there is a rebuttable presumption that the income in respect of which the tax was charged is as stated in the original assessments. Mr King seeks to rebut the presumption. However I think he conspicuously fails to do so. Essentially his case involves acceptance of his story about there being a partnership or a business conducted by him for his absent father. Both the 1991 Commissioners and the 2000 Commissioners saw and heard Mr King. Each did not find him reliable and in part untruthful (1991 Commissioners at 68 TC p.397, 2000 Commissioners e.g. at paras. 193-197). They had ample grounds for so holding - indeed given the myriad of conflicting stories they were driven so to conclude, quite apart from the presumption of s.101.

54. As to whether Mr King was "negligent", I have no doubt that he was. Mr Woolf argued that the benefit of any doubt as to negligence should be given to the taxpayer. With that I agree. But when one finds a taxpayer offering a variety of improbable stories as to the nature of the business conducted and the accumulation of substantial property in the taxpayer's name, one is compelled to the view that his conduct in making tax returns and supplying information has, at the very least, been negligent.

55. The HRA came into force for England and Wales on 1^st October 2000, well after the events with which this case is concerned and indeed after the decision of the 2000 Commissioners. Broadly the Act is not retrospective. However s.22(4) of the Act provides:

"s.7(1)(b) applies to proceedings brought by or at the instigation of a public authority whenever the act in question took place; but otherwise that subsection does not apply to an act taking place before the coming into force of that section."

"A person who claims that a public authority has acted (or proposes to act) in a way which is made unlawful by s.6(1) may -

56. It is suggested that there was a breach of a Convention right and that Mr King was a victim of that breach. Before one gets to that, the preliminary question arises as to whether the Act is relevantly retrospective This turns on whether the proceedings were "instigated" by the Revenue. The Revenue says not, the proceedings concerned being the appeal to the Commissioners launched by Mr King. Mr King says not so, the "proceedings" were instigated by the Revenue by issuing the assessments the subject of the appeals.

57. To decide which is right, it is necessary to understand the machinery involved a little more. Assessments to tax are, in the first instance, made by an inspector (see s.29 of the TMA as it stood before amendment in 1994, now s.30A). If the taxpayer is unhappy, he may appeal within 30 days. If he does not appeal, the assessment stands. So the taxpayer's only method of challenge to an assessment is by way of "appeal". Thus an appeal is essentially a defensive step, rather than offensive.

58. In these circumstances I think it is artificial to say that proceedings are instigated by the taxpayer. It is the assessments which instigate the proceedings which come before the Commissioners, not the appeal itself.

59. I am reinforced in that view by s.3(1) of the HRA itself. This requires that, so far as it is possible, primary legislation (that includes the HRA by way of self-reference) to be read and given effect in a way which is compatible with the Convention rights. So if one is choosing between two constructions, one of which confers Convention rights and the other not, one chooses the former, as I do here.

60. Finally on this point I think my view is supported by what Lord Steyn said in R v DPP ex parte Kebilene [2000] 2 AC 206 at p. 368. He was dealing with an argument that s.22(4) applied only to a trial, so that if a defendant in a criminal appeal was the appellant, it was he, and not the Crown, who had instigated the appeal. Lord Steyn said:

"It was an argument of some technicality. The language of the statute does not compel its adoption and a construction which treats the trial and the appeal as parts of one process is more in keeping with the purpose of the Convention and the Act of 1998. It is the sensible and just construction."

Lord Woolf LCJ in giving the judgment of the Court of Appeal in R v Benjafield (21^st December 2000) specifically applied that passage (at para.50). He added (para.51):

"In our judgment, where the original proceedings are brought by, or at the instigation of, a public authority, as is the case with a prosecution, an appeal by the defendant is part of the proceedings to which s.22(4) applies. There cannot be a different position on an appeal from that of the trial so far as applying the HRA is concerned."

Now it is true that an assessment to tax is not the same as a criminal prosecution, but the same logic, namely of treating the whole procedure as part of one process, applies to that too.

(c)(1) Are penalty appeals cases where a person is charged with a criminal offence for the purposes of Art. 6(2) of the Convention?.

"Everyone charged with a criminal offence shall be presumed innocent until proved guilty according to law"

62. Mr Woolf invoked this Article for two purposes. First, and mainly, if he was wrong about s.46(2) or issue estoppel. His point here was that if he could not challenge the 1991 findings of wilful default or neglect then the case against Mr King for penalties was virtually decided against him in advance of the decision to impose penalties or the appeal. There would be an irrebuttable presumption against Mr King contrary to Art 6(2). Mr Woolf makes a similar point in relation to s.101 and indeed more generally in relation to any adverse finding in the 1991 decision being used against his client. Since I have held that there is no irrebuttable presumption, only the second point survives to be considered. Before coming to it I must first decide whether Art. 6(2) applies at all, to which problem I now turn.

63. The question of what is or is not "criminal" for the purposes of the Convention is not further defined in the Convention itself. There is, however, case law from the European Court of Human Rights (ECHR). The case most in point is Georgiou v UK [2001] STC 80. It was concerned with whether penalty assessments in respect of VAT and the hearing of appeals from these were "criminal". It held they were. It said:

"In the present case, the applicants argue that the penalty proceedings under s 13 of the 1985 Act determined a 'criminal charge'. The criteria for establishing whether a 'criminal charge' has been determined are the domestic classification of the 'offence', and the nature and degree of severity of the potential and actual penalty (see, for example, Ravnsborg v Sweden (1994) 18 EHRR 38 at 50, para 30 and Schmautzer v Austria (1995) 21 EHRR 511 at 523, para 27). The court notes that the penalty proceedings in the present case were classified as civil, rather than criminal, in domestic law. However, as in Bendenoun v France (1994) 18 EHRR 54 at 74-74, paras 44-48, the penalty was intended as a punishment to deter re-offending, its purpose was both deterrent and punitive and the penalty itself was substantial. These factors taken together indicate that the penalty imposed in the present case was a 'criminal charge' within the meaning of art 6(1)."

64. Not surprisingly in view of that, a VAT Tribunal has held that VAT penalty procedures are criminal even if they are merely tribunal procedures and are concerned merely with "civil evasion" penalties, as Mr Stephen Oliver, the Tribunal Chairman described them (Han & Yau Martins, Decn. No. 16990, 5^th December 2000). I understand that Mr Oliver's decision is under appeal. Even so I find his analysis (independent of his reliance on Georgiou) of the problem and of the case law powerful and am persuaded by it.

65. Now the criteria applied in Georgiou are well-established in the ECHR case law. They have been applied in the cases cited in the passage quoted and in several other tax cases, as well as other kinds of case. It did so, for instance, in AP, MP and TP v Switzerland (1997) 26 EHRR 541 at para. 39. There the court held that the imposition of "fines" on the heirs of a deceased was criminal in nature. It said:

"39. The Court reiterates that the concept of "criminal charge" within the meaning of Article 6 is an autonomous one. In earlier case law the Court has established that there are three criteria to be taken into account when it is being decided whether a person was "charged with a criminal offence" for the purposes of Article 6. These are the classification of the offence under national law, the nature of the offence and the nature and degree of severity of the penalty that the person concerned risk incurring.

40. As regards the nature and severity of the penalty risked, the fines were, in the Court's Opinion, not inconsiderable: they amounted to 3,875.85 Sfr for the fiscal year 1981-1982 and 2,882.90 Sfr for 1983-1984. Moreover, in setting these figures, the authorities took the applicants' co-operative attitude into account; the fines might in fact have been four times as large.

41. As regards the nature of the offence, it is noted that tax legislation lays down certain requirements, to which it attaches penalties in the event of non-compliance. The penalties, which in the present case take the form of fines, are not intended as pecuniary compensation for damage but are essentially punitive and deterrent in nature.

42. As regards the classification of the proceedings under national law, the Court attaches great weight to the finding of the highest court in the land, the Federal Court, in its judgment in the present case, that the fine in question was "penal" in character and depended on the "guilt" of the offending taxpayer."

66. Mr Philip Baker in an exhaustive analysis of Strasbourg case law "Taxation and the ECHR" [2000] BTR 211, after reviewing the cases, concludes:

"It now seems clearly established, therefore, that a tax-geared penalty can entail a criminal charge, and the issue of liability to penalties of 25% or higher has been regarded as involving the determination of a criminal charge."

67. Faced with this weight of authority, Mr Underwood argued that there were differences between the British and the Continental European approaches. He suggested that the Continental approach was to ask whether the conduct justifying the fine was merely regulatory and that there was a distinction between things wrong in themselves and those things simply regulatory (the ancient distinction between mala in se and mala prohibita). Further he submitted that the level of penalty in the instant case could be proportional to the regulatory transgression so it was wrong to look at the maximum penalty only (100% of lost tax). It could, after all, be mitigated to nil. He pointed to the lack of any potential custodial sentence, the lack of any criminal record and the fact that under UK law the penalty procedure was regarded as civil. He faintly suggested that there was no social stigma involved in a penalty proceeding, though I suspect few ordinary citizens who properly make tax returns and pay their tax would agree: John Citizen would think very little of a man who did not pay his proper contribution to society.

68. Mr Underwood also sought to distinguish Georgiou because VAT penalties could only be imposed where "the conduct involves dishonesty" (see. s.13 of the Finance Act 1985) whereas the penalties in this case could be imposed for negligent as well as fraudulent conduct (TMA s.95(1)). Moreover the penalties in the case of VAT could only be mitigated to 50% of the lost tax whereas in the case of income tax there could be 100% mitigation.

69. Next Mr Underwood suggested that there was a margin of appreciation allowed to States as to what is criminal and a further margin in that the manner in which penalties were allowed to work was itself controlled by the court.

70. I am impressed by none of these points. I do not think the cases bear out the suggested distinction between Continental and British approaches to penalties for non-payment of taxes. Nor do I think there is significant room for a margin of appreciation of the kind referred to by Lord Hope in ex parte Kebiline [2000] 2 AC 326 at pp.380-1. The ECHR has already held that the concept of a "criminal offence" is "autonomous." So the idea that exactly the same conduct could be criminal in one State but not another must have limited scope. In fact, however, a margin of appreciation is to some extent built into the already established test - one item of which is whether the conduct is treated by national law as "criminal." It is difficult to see any scope for any further "margin of appreciation."

71. In my judgment the system of imposition of penalties for fraudulent or negligent delivery of incorrect returns or statements is "criminal" for the purposes of Art. 6(2). I so hold for the following reasons:

(a) Plainly the system is intended to punish the defaulting taxpayer and to operate as a deterrent;

(c) The amount of fine is not related to any administrative matter. In particular the fine is not limited to the administrative and other extra cost of dealing with the taxpayer concerned. (Curiously I suspect the cost to the State of dealing with Mr King, taking into account the Revenue's internal costs as well as the cost of the Commissioners greatly exceeds the fine actually imposed, namely ё58,000).

(d) The amount of fine imposed depends upon the degree of culpability of the taxpayer, the less culpable the more mitigation there is. Mitigation is an essentially criminal rather than civil consideration.

(e) It is accepted that generally (leaving out of account s.46(2) and s.101) it is not for the taxpayer to show that the determination of penalties was wrong. On appeal the burden of proof lies on the Crown. In this regard there is a clear distinction between a penalty determination and an appeal against ordinary assessment where the burden of showing it was wrong lies on the taxpayer.

72. Finally Mr Underwood also sought to rely upon a number of authorities, none of which in my judgment displace the clear conclusion to which I have come. I turn to these.

73. First there was Pierre-Bloch v France [1997] EHRR 202. The applicant was elected to the National Assembly but had exceeded the maximum permitted amount of election expenditure. The sanction was an obligation to pay a sum equal to the amount of overpayment together with disqualification from office and deprivation of entitlement to stand in another election for a period of one year. The court applied the familiar three criteria test. As regards the national classification of the "offence" it held it essentially formed part of electoral law, not inherently criminal in nature. It then went on to consider the second criterion, saying:

55. Three "penalties" are or may be imposed on candidates who do not keep within the statutory limit on expenditure: disqualification from standing for election, an obligation to pay the Treasury a sum equal to the amount of the excess, and the penalties provided in Article L. 113-1 of the Elections Code.

56. The Constitutional Council may disqualify from standing for election for a period of one year any candidate whom it finds to have exceeded the maximum permitted amount of election expenditure; if, as in the instant case, the candidate has been elected, the Council declares him to have forfeited his seat.

The purpose of that penalty is to compel candidates to respect the maximum limit. The penalty is thus directly one of the measures designed to ensure the proper conduct of parliamentary elections, so that, by virtue of its purpose, it lies outside the "criminal" sphere. Admittedly, as the applicant pointed out, disqualification from standing for election is also one of the forms of deprivation of civic rights provided in French criminal law. Nevertheless, in that instance the penalty is "ancillary" or "additional" to certain penalties imposed by the criminal courts; its criminal nature derives in that instance from the "principal" penalty to which it attaches.

The disqualification imposed by the Constitutional Council is, moreover, limited to a period of one year from the date of the election and applies only to the election in question, in this instance the election to the National Assembly.

57. In short, neither the nature nor the degree of severity of that penalty brings the issue into the "criminal" realm.

58. Where the Constitutional Council has found that the maximum permitted amount of election expenditure has been exceeded, the National Commission assesses a sum equal to the amount of the excess, which the candidate is required to pay to the Treasury. The Court has already indicated that the proceedings before the National Commission are not separable from those before the Constitutional Council.

The obligation to pay relates to the amount by which the Constitutional Council has found the ceiling to have been exceeded. This would appear to show that it is in the nature of a payment to the community of the sum of which the candidate in question improperly took advantage to seek the votes of his fellow citizens and that it too forms part of the measures designed to ensure the proper conduct of parliamentary elections and, in particular, equality of the candidates. Furthermore, apart from the fact that the amount payable is neither determined according to a fixed scale nor set in advance, several features differentiate this obligation to pay from criminal fines in the strict sense: no entry is made in the criminal record, the rule that consecutive sentences are not imposed in respect of multiple offences does not apply, and imprisonment is not available to sanction failure to pay. In view of its nature, the obligation to pay the Treasury a sum equal to the amount of the excess cannot be construed as a fine.

59. In short, the nature of the penalty in the instant case likewise does not bring the issue into the "criminal" realm."

74. Mr Underwood particularly relied on the reference to the fact that there is no criminal record, or consecutive sentences, nor any sanction by way of imprisonment. But that alone cannot, in view of the other cases to which I have referred be determinative. Perhaps the real explanation for the decision is that the fine was considered to be compensatory in nature ("in the nature of a payment to the community of the sum of which the candidate in question improperly took advantage") and designed to ensure equality of candidates. Viewed in that way the case does not support Mr Underwood.

75. Mr Underwood next relied on Inocênco v Portugal (Petition 43862/98, 11^th January 2001). Here a penalty of 500,000 escudos (about ё1,600) was imposed on the applicant for having works done on his home contrary to planning controls. The maximum possible penalty was 20m escudos (about ё65,000). The court held that the penalty was not "criminal" for the purposes of Art. 6. It said:

"The Court reiterates its consistent judicial practice whereby reference should be made to three criteria in establishing the existence of a 'criminal charge'. They are: (i) the legal status of the measure at issue in national law; (ii) the nature of that measure; and (iii) the nature and gravity of the 'penalty' (see, most recently, Escoubet v Belgium [GC], no. 26780/95, ї32, ECHR 1999-VII). These criteria are alternatives rather than cumulative. For Article 6 to apply by virtue of the words 'criminal charge', it is sufficient for the offence concerned to be 'criminal' by nature in the terms of the Convention, or to have made the person concerned liable to a penalty which, by its nature and severity, falls within the general scope of the 'criminal'. That does not prevent a cumulative approach being adopted if separate analysis of each criterion does not lead to a clear conclusion of the existence of a 'criminal charge' (see the judgment in Garyfallou Aebe v Greece of 24 September 1997, Case Reports 1997-V,p 1830 ї33).

On the first criterion, the Court accepts the Government's argument that the offence of which the petitioner is accused falls within the scope of the law concerning offences, not that of the criminal law. It cannot however ignore that there is no absolute division between the two types of law: this is proven by the wording of Article 32 of the Constitution and by the subsidiary applicability of the provisions of common law governing criminal proceedings to the proceedings involved in an offence, as in the case in point. Anyway, the evidence of domestic law is only relative. The second of the above criteria √ the nature of the offence, considered in relation to the corresponding penalty, is a consideration which carries greater weight (cf. the жztűrk judgment referred to above, p 19, ї52).

Thus, in the ordinary meaning of the words, offences for which the perpetrators become liable to sanctions designed to have a deterrent effect √ usually custodial measures and fines, do generally fall within the scope of the criminal law (cf. Escoubet v Belgium referred to above, ї36).

As for the nature of the offence, it seems that the requirement to obtain a licence to undertake building works must be viewed as a regulation governing the use of property. Its purpose is the operation of a balanced town planning policy. The penalty for breach of such a requirement cannot constitute a punitive and deterrent measure generally applicable to all citizens. This factor is therefore insufficient by itself to make the penalty in question intrinsically criminal in nature.

As for the nature and severity of the penalty, the Court first notes that the coima in question is in no case replaceable by a custodial sentence in case of non-payment. Thus the case in point differs from other cases in which the Court found that Article 6 was applicable (cf. above all the Garyfallou Aebe judgment referred to above, p 1831, ї34). It is true that the maximum amount of the fine incurred was PTE 20 000 000, which is certainly a considerable sum. Nevertheless, it should be pointed out that the petitioner was not subject to any threat of criminal proceedings replacing enforcement of the pecuniary penalty in question, unlike the cases of Deweer v Belgium (judgment of 27 February, 1980, series A no 35, p 23, ї45) and Société Sténuit v France (opinion of the Commission attached to judgment of 27 February 1992, ї62, series A no 232-A, p 13)".

76. Mr Woolf submitted that the heart of this case was the Court's decision that the rules concerned were those "governing the use of property" rather than "punitive and deterrent applicable to all citizens." I accept that submission. Again the case is not anywhere near as close to this as Georgiou.

77. As to UK authority, Mr Underwood relied on Greenfield v Secretary of State CA, 2^nd February 2001 and HM Advocate for Scotland v McIntosh PC, [2001]D1 UKPC 1 (5^th February 2001). In Greenfield the Court of Appeal held that a decision that a prisoner should lose remission because he failed a mandatory drugs test was not a decision upon a criminal charge. Latham LJ said at para. 27:

"Accordingly we take account of the fact that at the time of the imposition of additional days, the claimant was of necessity, a serving prisoner. He was therefore already subject to loss of liberty. We take into account that the facts on which the offence was based could have founded a criminal charge of possession of a class A drug. Nonetheless we observe that the offence itself was directly connected to the procedure of drug testing which is considered a necessary disciplinary tool for the purposes of controlling the use of drugs in prison. We also take into account the fact the maximum that could have been awarded of 42 additional days which although not an insignificant period of detention is nonetheless wholly different in kind from the penalty which would be imposed for the equivalent criminal charge. The question is whether or not, together with the nature of the offence, it is in the category of severity which requires the protection provided by Article 6. In doing so we also take into account the fact that it does not carry with it the stigma and other consequences of a criminal conviction. We are quite satisfied that this is a good example of a procedure properly described as disciplinary in the context of a prison."

That is fully understandable. Mere loss of a short period of remission (of a prison term which has already been imposed) for violation of prison rules is miles away from the imposition of a substantial financial penalty for the twin purposes of punishing tax defaulters and deterring citizens generally from making false tax returns.

78. In McIntosh the Privy Council was concerned with a confiscation order made consequential upon a conviction for the supply of heroin. It was submitted that an application for such an order was a charge of a criminal offence within Art.6(2). The submission was rejected, essentially because such an order was regarded as part of the sentencing process. Lord Bingham of Cornhill said, after reviewing a number of cases:

"None of these authorities, in my opinion, provides substantive support for the respondent's contention. He cannot overcome the problem of showing either that he is "charged" or that he is accused of any "criminal offence". He faces a financial penalty (with a custodial penalty in default of payment) but it is a penalty imposed for the offence of which he has been convicted and involves no accusation of any other offence."

The penalty proceedings here are not in the same case. Only if one regarded them as no more than a sentencing following the 1991 decision could one begin to so regard them. That, I suppose, might be so if that decision had been conclusive of the penalty appeals.

79. In the result I hold that penalty proceedings are cases in which a person is charged with a criminal offence within the meaning of Art. 6(2).

80. Since I have held that s.46(2) and the doctrine of issue estoppel has no application here, the only statutory provision which may be in point is s.101. Also in point is the more general question of the extent to which findings of fact by the earlier Commissioners can be taken into account in the penalty appeals.

81. The suggestion on behalf of Mr King is that to the extent that the penalty appeals took into account the primary facts determined by the 1991 Commissioners and the limited presumption created by s.101 there was a shift in the burden of proof contrary to Art.6(2). I do not agree. I think these matters amount to no more than the evidential case against Mr King. The true legal position is that the ultimate (so-called "legal") burden at all times lay on the Revenue. The 1991 primary facts and the s.101 presumption (which itself arises from primary facts) form part of the evidence against him. Look at it another way: there is no matter giving rise to the penalty determinations which the Revenue have not at one point or another had to prove. So to say the burden of proof was cast upon Mr King makes no sense.

82. Even if that analysis were wrong, however, I would regard the presumptions as well within the reasonable limits for such presumptions as are permitted by Art. 6(2). Here I take into account what was said by Lord Bingham in Brown v Stott [2001] SLT 59:

"The right to be presumed innocent of a criminal offence until proved guilty according to law is expressed in art 6(2). This appears on its face to be an absolute requirement. But it has been held that it does not prohibit rules which transfer the burden to the accused to establish a defence, provided the overall burden of proof remains on the prosecution, nor does it necessarily prohibit presumptions of law or fact provided these are within reasonable limits. In Salabiaku v France the court held, in para. 28 of its judgment:

"Presumptions of fact or of law operate in every legal system. Clearly, the Convention does not prohibit such presumptions in principle. It does, however, require the Contracting States to remain within certain limits in this respect as regards criminal law ... Article 6(2) does not therefore regard presumptions of fact or of law provided for in the criminal law with indifference. It requires States to confine them within reasonable limits which take into account the important of what is at stake and maintain the rights of the defence. The Court proposes to consider whether such limits were exceeded to the detriment of Mr Salabiaku.""

83. The proper way to look at this case is to ask whether the reasonable limits of any presumption were exceeded. The answer is no - the earlier findings giving rise to the presumption were all themselves the subject of a full hearing. And Mr King had a full opportunity of re-challenging those findings in the later hearing. His problem throughout is that he has advanced improbable and inconsistent stories of partnerships or of a business carried on for his absent father.

84. Mr Woolf alternatively seeks to rely upon the rule in Hollington v Hewthorn [1943] 1 KB 587. In a civil trial for negligence against a driver, the plaintiff sought to adduce in evidence the conviction of the driver for careless driving. Goddard LJ said:

"The court which has to try the claim for damages knows nothing of the evidence that was before the criminal court. It cannot know what arguments were addressed to it, or what influenced the court in arriving at its decision."

He went on to hold the conviction inadmissible. The rule has of course been reversed by statute for civil proceedings (see s.11(1) of the Civil Evidence Act 1968). In most cases the effect of such reversal is to shift the onus of proof onto the convicted party to show that he was not guilty of the offence. In the case of defamation the effect is conclusive (see s.13). Now proceedings before Commissioners are not governed by the strict rules of evidence - any probative material is admissible. I see no reason why the rule in Hollington applies at all to Commissioners' decisions. Moreover the position is not the same as in Hollington in any event. There what was sought to be adduced was simply the conviction - an overall result of the criminal trial. That is not the case here at all. The 2000 Commissioners had the detailed consideration of the evidence by the 1991 Commissioners. That on any rational view was admissible material, even if the ultimate value judgment ("wilful default or negelect") was not.

"In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitled to a fair and public hearing within a reasonable time ...."

86. Mr Woolf contended that there was a violation of this provision in the case of the penalty determinations. Mr King was warned in December 1987 of the possibility of a criminal prosecution or a penalty determination by a so-called "Hansard" letter. Yet it took until January 1994 for a warning that penalties were contemplated and until October 1994 for the actual determination. Then there was no resolution of the appeal until May 2000. So, overall, it took 12 years which, says Mr Woolf is more than a "reasonable time."

87. Mr Woolf's argument takes 1987 as the start date, though he maintains the argument even if the appropriate start-date is January 1989 (the date of the assessments considered by the 1991 Commissioners) or November 1991 (the date of their decision). Mr Underwood says the relevant date is October 1994, the date of the penalty determination. And if that is the right date the period to the determination of the 2000 Commissioners is 5Ґ years. Mr Woolf did not expressly contend that, if that is the correct date, then such a period was not unreasonably long.

88. First then, what is the appropriate start date? Mr Woolf relies upon Eckle v Germany (1982) 5 EHRR 1. In that case periods of 15 and 20 years from initial complaint to disposal of final appeals in cases fraud prosecutions were held to violate Art. 6(1). The ECHR said:

" 73. In criminal matters, the 'reasonable time' referred to in Article 6(1) begins to run as soon as a person is 'charged'; this may occur on a date prior to the case coming before the trial court, (see, e.g. Deweer v Belgium (1980) 2 EHRR 439, para. 42) such as the date of arrest, the date when the person concerned was officially notified that he would be prosecuted or the date when preliminary investigations were opened. (see Wemhoff v Germany (1968) 1 EHRR 55, para 19; Neumeister v Austria (No 1) (1968) 1 EHRR 91, para 18 and Ringeisen v Austria (No 1) (1971) 1 EHRR 455, para 110). 'Charge', for the purposes of Article 6(1), may be defined as the 'official notification given to an individual by the competent authority of an allegation that he has committed a criminal offence', a definition that also corresponds to the test whether 'the situation of the [suspect] has been substantially affected'. (see Deweer v Belgium, supra, note 14, at para 46)."

So here, Mr Woolf says, the real start date is that of the 1987 warning - and if not that date at least the date of the assessments the subject of the 1991 appeals, for these assessments made it plain that in respect of the earlier, out-of-time, assessments the Revenue were alleging "wilful default or neglect."

89. Mr Woolf pointed out that the Eckle statement of principle was accepted without question in McIntosh (as recorded in the opinion of Lord Prosser at para. 7). Although the judgment was reversed in the Privy Council, it was not on that point. Indeed Lord Bingham appeared to accept the Eckle principle.

90. I think Mr Woolf must be right about this. Look at the substance. The Revenue knew what their case for a penalty determination was by the time they wrote the Hansard warning letter. Indeed the fact that they have contended that the 1991 decision was conclusive of liability to penalties shows that the penalty hearing could have taken place at the same time. The period from then on was avoidable.

91. But mere avoidable delay is not of itself enough to make the time to the hearing "unreasonable". It is obviously a factor but no more. The word "unreasonable" clearly implies that one must consider all the circumstances of the case. At least the following factors seem to be material:

(i) The complexity of the case - the more complex the longer the period which is reasonable;

(ii) In a criminal case, the nature of the potential punishment - particularly whether or not there is a possibility of a custodial sentence. There is a very big difference between holding a threat of prison over an accused from the mere threat of a fine. And all the more so when the amount of that fine (or its maximum amount) is defined in advance. It must also be relevant that if the fine is ultimately upheld whether or not its imposition gives rise to a formal "criminal record". Where the only thing at stake is a fine of a maximum amount delay may prejudice a man's budgetary plans but nothing more other than the anxiety of the legal process itself;

(iii) The extent to which the accused has contributed to the delay, e.g. by obfuscation, procedural manoeuvres or some other matters;

92. There may well be other factors in other cases, but those seem to me to be the factors here. Mr Woolf makes no complaint of delay up to the 1991 decision. He complains of delay thereafter. It is this point which has given me most anxiety in reaching a decision. However in the end I have concluded that the period was not, in all the circumstances, unreasonable. It was very close to it.

93. I begin by observing that there was never any threat of a custodial sentence. Nor was there a threat of a criminal record from that determination. Moreover Mr King knew the sum claimed, ё58,000, from the time of the determination in 1994. Further, no interest was claimed on that sum. So, as time went on, inflation was eating gently into its value and, even if were ultimately payable, Mr King had the use of the money meanwhile.

94. Next I turn to the timetable. The decision of the 1991 Commissioners was released on 18^th November 1991. Mr King waited some 5 weeks before asking for a case stated (appeal by way of cases stated was the procedure then). There was then an 8 month delay before that was produced (delay not of Mr King's making). The appeal was launched on 17^th August 1992. Judgment was given on 14^th January 1993. The Revenue delayed making a penalty determination until 17^th October 1994. Whilst it is understandable, and at least not unreasonable, for the Revenue to wait until the hearing of the first appeal, it makes no sense for them to have waited some 9 months thereafter. The possibility of a determination was simply left hanging. Meanwhile the parties' attention was focussed on other things, namely Mr King's further appeal to the Court of Appeal and, more significantly so far as Mr King's contribution to delay was concerned, the Revenue's discovery of the purchase in 1983 by Mr King of the substantial property, Roundwood Lodge. This lead to further assessments and appeals therefrom which, it was decided fairly early on, should be heard with the interest and penalty appeals. There was meanwhile the hiatus between the General and Special Commissioners to which I have referred. Eventually the matter came to a hearing in 1998, though that was prolonged by a number of adjournments, some of which were undoubtedly caused by Mr King.

95. It seems clear that but for Mr King's concealment of Roundwood Lodge, the two other appeals would have been heard earlier than 1998. It is not possible to be precise as to how much delay was caused by the introduction of this factor into the case, but it is far from insignificant. Naturally it prolonged the hearing itself, but on top of that I think a fair estimate of its effect is that it delayed the penalty and interest appeals for about three years.

96. The result of all this is that there was delay through no fault of Mr King of, say, 5 years from the date of the 1991 decision. Is that too much? Marginally, but only just, I think not. He was not thereby prejudiced (I am not impressed by the medical evidence suggesting some loss of memory - the overall improbable story about partnerships has little to do with memory). He merely had to pay the penalty later. But for the complication of Roundwood Lodge, however, I think the time to determination of the penalty appeals would have been inconsistent with Art.6(1). In future cases it is highly desirable that such appeals (and penalty determinations) are put on a fast track. So far as I can see they were treated in the same way as other determinations and appeals, but it should be appreciated that more is at stake in the case of penalties. Serious consideration should be given to penalty determination being made earlier - in appropriate cases along with the assessments giving rise to the penalties. In this case, for instance, I see no reason why the 1991 Commissioners could not have dealt with a penalty determination appeal if such a determination had been made at the same time as the 1989 determinations or shortly thereafter.

98. The 2000 Commissioners considered mitigation in paragraphs 158-163. Mr Woolf did not really challenge their reasoning (save insofar as it related to Roundwood Lodge). His point was that, although the maximum level of penalty was formally 200% of the lost tax in cases of fraud and 100% in other cases, the Revenue had a practice (published in IR 73) of never going above 100% even in cases of fraud. He submitted that the Commissioners were probably not aware of this practice and may have been setting the 80% against a standard for fraud of 200% rather than 100%.

99. This does not convince me. The relevant version of IR73 can at best be only a general guide. The Commissioners did not refer to any version of it and did not openly use it in approving the level of penalties. Moreover if they had they would have seen that reductions of up to 30% for voluntary disclosure, up to 40% for co-operation and up to 40% for cases in which the conduct was lacking in gravity could be allowed. Applying that general measure to the matters referred to in paragraphs 158-163 would not necessarily bring the case down to below 80% of the lost tax. In my judgment those matters indicate a grave case, less than adequate voluntary disclosure and less than adequate co-operation. This was a serious case for penalties.

100. I would add that the Revenue had decided not to impose penalties in respect of the non-disclosure of Roundwood Lodge. Mr Underwood pointed out if the lost tax in respect of that were taken into account then the real level of penalty was only about 50%. That too is a material consideration, though I do not rest my judgment upholding the level of penalties on that point.

101. These arose out of the discovery by the Revenue of the fact that Roundwood Lodge had been bought in 1983 and was in the name of Mr King. Appeal lies only on a point of law. Mr Woof does not challenge the Commissioners' decision that s.46(2) did not preclude the Commissioners from making the assessments. Nor did he challenge the Commissioners summary of the legislation in paragraphs 166-172.

102. The Commissioners held that Mr King owned Roundwood Lodge and that he provided all the funds for its purchase. Their reasoning is detailed and appears at paragraphs 192-197. I have to say I find it convincing. Indeed the suggestion that the property was really that of Mr King senior is near absurd. If it were, then surely his estate would have made some claim to it, but none was. It followed that he had given misleading information to the Revenue and to the 1991 Commissioners. It is common ground that the Revenue had to show that the further assessments were to make good a loss of tax attributable to Mr King's wilful default (for the years before 83/84) or negligent conduct (for the later years).

103. Mr Woof submitted that the Commissioners applied the wrong definition of "neglect". His submission was, however, bound up in a submission of fact, namely that even if Mr King did own the property and it was bought with his profits, he did not appreciate those facts and so could not be described as having acted wilfully or neglectfully. That to my mind is fanciful. Once one concludes the facts, it is inconceivable that Mr King did not know he owned the property. For his account of things, namely that the property was really his father's was disbelieved. It follows as night follows day that he knew the property was his - and so must have known that he was giving false information in 1991. On any view that was wilful default or worse.

104. Alternatively Mr Woolf sought to construct a point of law by saying that the Commissioners made findings of fact unsupported by the evidence. Here he attacked the findings that there was no explanation for cash withdrawals for just over ё40,000 - an important matter since the purchase was made with cash. Mr Woolf submitted that the Commissioners overlooked the evidence of Miss Johnson and thereby made an error of law. Miss Johnson said the money was withdrawn to repay loans made by Mr King senior - but she may well have believed that without personal knowledge of the facts. I do not think that this point amounts to an error of law. Moreover I doubt that Miss Johnson's evidence was overlooked (the Commissioners refer to her evidence in at least two other places) and in any event the last sentence of paragraph 201 is capable of being read as encompassing Miss Johnson's evidence too. Paragraph 193 of the decision deals with the variety of different explanations offered for the source of funds used to pay for Roundwood Lodge. The mere fact that that there were a number of these suggests that none of them were credible.

105. I am not satisfied that any error of law was made here. Likewise I am not satisfied that the fresh evidence consisting of the loan book would have made any difference for the reasons I have already given. If Roundwood Lodge were really Mr King senior's it would have been in his name and his estate would have known about it.

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	England and Wales High Court (Chancery Division) Decisions
You are here: BAILII >> Databases >> England and Wales High Court (Chancery Division) Decisions >> King v. Walden (HM Inspector of Taxes) [2001] EWHC Ch 419 (18th May, 2001) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2001/419.html Cite as: [2001] EWHC Ch 419, [2001] STC 822

England and Wales High Court (Chancery Division) Decisions

King v. Walden (HM Inspector of Taxes) [2001] EWHC Ch 419 (18th May, 2001)