A pensions dispute, tax issues, appeals by stated case and the court's dispensing power regarding non-compliance with its rules: all feature in a recent Inner House decision

Despite their technical exterior – a heady mix of pensions litigation and tax law – both Cunningham v Pensions Ombudsman 2019 SLT 1361 and the subsequent Cunningham v Namulas Pension Trustees Ltd [2020] CSIH 73 are of much broader significance to court lawyers: first, regarding the basis on which a court will exercise its dispensing powers, and secondly as a reminder of the process and judicial approach to that relatively rare appeal beast, the stated case.

This article focuses on stated case procedure in the context of an appeal from a statutory body, but many of the principles can be applied to similar procedure elsewhere, including sheriff court and criminal appeals.

Background

Cunningham was the holder of a self invested personal pension plan (a “SIPP”), a tax efficient vehicle within which certain types of investments could be held. Significantly, excluded from allowable investments were most types of residential property.

Namulas Pension Trustees Ltd was the SIPP's trustee. The principal assets of the SIPP were a terraced building and a garage, within short proximity of each other in Edinburgh. Cunningham was appointed as one of two managing agents for the properties in 2002.

The properties were used for commercial purposes for over a decade until 2012. At that point, a Mr and Mrs S expressed interest in purchasing the properties, resulting in a provisional agreement to purchase them. Between then and January 2014, building works were carried out on the properties, at times with Cunningham's knowledge.

The position changed at the end of that year, when eviction proceedings began against Mr and Mrs S without Namulas' knowledge. In March 2015, Namulas became aware of and took control of the proceedings. It attempted to settle the matter by sale of the properties. Various valuations were obtained by parties and Namulas agreed a figure for sale. Cunningham objected to the figure, and instructed Namulas to transfer his SIPP to another provider. It refused to, considering that it first required confirmation from HMRC in respect of any tax liability. In October of that year, a completion certificate was issued, and in December Namulas advised HMRC of the change to residential use.

Complaint to Ombudsman

Cunningham lodged a complaint with the Pensions Ombudsman (“TPO”), which was dealt with by the Deputy Pensions Ombudsman (“DPO”) under s 145A and s 146 of the Pension Schemes Act 1993. He claimed that Namulas had breached its fiduciary duties to him as a beneficiary, by failing to avoid the tax liability, sell the properties at an appropriate value and transfer the SIPP to a new provider.

Following investigation, the DPO issued a preliminary decision on 7 February 2018 indicating that she was not minded to uphold Cunningham's complaint. That was followed by Cunningham bringing a negligence claim against Namulas. He then sought to withdraw his TPO complaint. Notwithstanding this, the DPO continued her investigation and issued a final decision on 11 January 2019 which affirmed her preliminary view.

Late statutory appeals and the court's discretion

Before considering the nuts and bolts of the stated case, it is worth pausing for breath to consider an earlier hearing, which provides practitioners with useful guidance on the court's dispensing powers.

In terms of RCS, rule 41.8(3), appeals against such decisions must be brought within 14 days of the determination. Cunningham did not lodge his note with the court until six months after the final decision. He therefore also required to make an application under rule 2.1(1), in terms of which the court could relieve his failure to comply with the rules in the case of “mistake, oversight or other excusable cause”.

Rule 2.1 is a discretionary remedy. That said, when will a court entertain an appeal brought outwith a statutory timeframe?

The court considered it necessary to identify first the cause of the mistake, to enable it to consider whether it was “excusable”. A distinction had to be drawn between a deliberate decision to do or refrain from doing something (and not normally be covered by the discretion) on the one hand, and an ignorance in relation to statutory procedure on the other.

The severity of the mistake in terms of timing is significant. In this case the appeal was brought several months after a relatively tight statutory deadline (see, by contrast, Lilburn v Pensions Ombudsman [2018] CSIH 2). The court also looked at the actions of the noter during the period in question, and in particular, his failure to follow legal advice.

What appears to have tipped the balance in this case was the relative prejudice to parties, were the court not to exercise its discretion. Here, the court could find no substantive prejudice to the respondents. By contrast, in theory at least, the noter stood to lose a substantial amount of money. That was significant in reconciling justice and finality.

Appeal by stated case: the grounds

This appeal (brought under s 151 of the 1993 Act and RCS, rule 41.12) asked the Inner House to set aside the DPO's determination on the basis that she had:

  1. taken account of immaterial considerations;
  2. ignored material considerations; and
  3. adopted an unreasonable view of the facts.

For those unfamiliar with stated case procedure, the general position is that the court must proceed on the basis of the facts established by the originating tribunal (although the court has some latitude in this regard, if required, under rules 41.16 and 41.17). The original complaint had been subject to several years of factual investigation.

Cunningham argued that the fundamental duty of a SIPP trustee was to avoid triggering unnecessary tax exposure. Liability here arose at the issuing of the final completion certificate in October 2015; by that stage Namulas had full control of the eviction proceedings and ought to have done everything it could to prevent its issuing. It was argued that by focusing on events around March 2015, rather than the conduct of Namulas over the whole period, the DPO had misunderstood the complaint and failed to investigate it appropriately.

These arguments were roundly rejected by the Inner House, which described the DPO's reasoning as “clear, detailed and cogent”, with a “constellation of factors” indicating that the properties had been converted to residential use by early March 2015. These included the existence of a short assured tenancy (signed by Cunningham), the payment of council tax and the reference by others (local authority, architects etc) to the property being residential.

The court placed significance on s 174A(3) of the Finance Act 2004, guidance for which is contained in the Pensions Tax Manual. This refers to the trigger date for residential conversion being the point at which the property “becomes suitable for use as a dwelling”, taking a “commonsense approach to the facts and circumstances”. On that basis, the court held not only that the DPO was entitled to take the view that the conversion was not a result of fault on the part of Namulas, but that she was correct to do so. The court also found that the DPO was entitled to take Cunningham's own conduct into account.

Can you withdraw a complaint once lodged?

The final matter dealt with by the court was the purported withdrawal of Cunningham's TPO complaint.

In August 2018, Cunningham wrote to TPO stating that the DPO “would no longer be dealing with my complaint”. The DPO replied, stating that she had three options: (1) grant leave to withdraw, (2) discontinue the investigation, or (3) make a final determination. She invited parties to make representations. Cunningham made none. Conversely, Namulas referred to the substantial time and money already spent on the matter and that the withdrawal request appeared to indicate forum shopping by the complainer.

Cunningham argued that his letter was an unambiguous request to withdraw and that the DPO had either failed to make a decision on the request, or failed to provide reasons for her refusal. Moreover, any refusal was unreasonable because Cunningham should not be compelled to continue with a process in which he had no faith.

Each statutory body will have its own legislative framework within which it considers the basis on which a complaint may be withdrawn. That will of course be tempered by the facts. Where a party has indicated a wish to withdraw, but that apparent wish has not been reflected in their actions, the court is unlikely to be impressed. Despite his “unambiguous” request, it was found that Cunningham had in fact continued to engage, at times selectively, in the complaints process. In such circumstances, the court held that it was reasonable for the DPO to refuse to allow the withdrawal. None of the answers to the stated case were in favour of Cunningham and the appeal was refused.

What can we learn from this?

Appellate courts are often reluctant to interfere with a decision at first instance; they will generally only do so where a decision was so extravagant that no reasonable tribunal could have reached it. The fact that it would have reached a different conclusion on the same evidence is not sufficient to overturn a decision. That is indeed a high bar and it is certainly the author's experience of the process. In such circumstances, practitioners would be well advised to ensure that they are as well equipped as possible for what can often feel like an innocuous first hearing. That innocuous first hearing could well turn out to be determinative.

The Author

Frances Ennis is head of Litigation & Regulation at Bellwether Green

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