Loan Charge regime - High Court strikes out taxpayers' Part 8 claims as abuse of process

In HMRC v Labeikis and others [2024] EWHC 2009 (KB), the High Court allowed HMRC's appeal, determining that the taxpayers' Part 8 claims were abusive for having been brought in the wrong forum and therefore should be struck out.

Background

The taxpayers had all brought claims in the High Court, under CPR Part 8, challenging the lawfulness of the Loan Charge regime on the basis that it was incompatible with European Union law, the Human Rights Convention, and the Human Rights Act (the Claims).

HMRC applied to strike out the Claims, contending that they constituted an abuse of process on two bases. Firstly, because the Claims comprised challenges to prospective decisions by HMRC that would be subject to the exclusive jurisdiction of the First-tier Tribunal (FTT) in due course and were therefore inconsistent with the principle in Autologic Holdings plc v Inland Revenue Commissioners [2006] 1 AC 118 (the Autologic principle). Secondly, because the Claims comprised public law challenges to the lawfulness of primary tax legislation, they should have been brought by way of a judicial review claim in accordance with CPR Part 54.

HMRC's application was refused by a Master. On the first ground, the Master determined that the Autologic principle did not mean that a taxpayer has to wait and in due course seek redress before the FTT, but can instead seek to resolve the matter through the courts. In circumstances where HMRC had not initiated any enquiry, there was no possibility of a closure notice being obtained, and there was no assessment. The Master concluded that requiring the taxpayers to wait and then progress their appeals before the FTT would result in the absence of an effective remedy and therefore breach the principle of effectiveness under EU law.

On the second ground, the Master concluded that the Claims plainly fell within the scope of CPR Part 54 and were subject to the exclusivity principle established in O’Reilly v Mackman [1983] 2 AC 237, such that "at first sight" the Claims were an abuse. However, and having regard to the fact that a claim for judicial review would be out of time and require the Administrative Court to exercise its discretion to extend time, the Master declined to strike out the Claims, finding it was appropriate to stay the Claims "in order to see what happens in the Administrative Court".

HMRC appealed to a High Court judge.   

High Court decision

The High Court judge found against the taxpayers and struck out the Claims. 

The judge held that, having decided on the application of the exclusivity principle in O’Reilly v Mackman that the Claims raised only issues of public law which should have been pursued by way of claims for judicial review in accordance with CPR Part 54, and were therefore an abuse of process, the Master should have struck out the Claims. His reasons for not doing so and preferring to stay them were wrong in principle. The judge noted that the Master's decision ran contrary to the exclusivity principle and interfered with the undoubted powers of the Administrative Court to manage justly any claims for judicial review in accordance with the CPR, the principle of effectiveness and the exclusivity principle itself. In particular, the judge determined that both the existence of the 3-month time limit in CPR Part 54 and the possibility that the Administrative Court might enforce it, were essential to the operation of the exclusivity principle.

While that was sufficient to determine HMRC's appeal, the judge also went on to consider the Master's application of the Autologic principle. In that regard, the judge found that the fact that the Claims were constructed on EU law principles was not justification for disapplying the Autologic principle. This was because there was sufficient scope for the taxpayers to appeal according to established statutory tax appeal processes under the Taxes Management Act 1970 and the Income Tax (Pay As You Earn) Regulations 2003. As a result, the judge determined that the Claims should also have been struck out on the basis of the Autologic principle.

Commentary

This decision reaffirms the longstanding principle of exclusivity, both under the Autologic Principle in respect of tax appeals and for judicial review in respect of claims founded on public law grounds. The decision also emphasises the importance of ensuring that claims are pursued in the correct forum, and the adverse consequences that can follow for taxpayers where an incorrect forum is chosen.

The judgment can be viewed here.