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Lessons from General Healthcare Group

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The decision of the First-tier Tribunal (FTT) in General Healthcare Group Ltd [2014] UKFTT 1087 is a timely reminder that taxpayers who join a group, and are content to follow and be bound by the test case of another taxpayer, may find that the subsequent decision is one they regret.

The procedural rules governing the FTT allow the tribunal to make what is generally called a ‘rule 18 order’, where a number of taxpayers have ‘common or related’ ‘issues of fact or law’. If for example, a number of taxpayers have entered into a tax-efficient arrangement that must be disclosed under DOTAS, and the documentation for the arrangement is broadly the same for each taxpayer, then a rule 18 order may be helpful. The reason is that, by appointing a lead case, much time and costs are saved by the tribunal not having to hear all the appeals. The lead case is heard, and the result will bind the rest of the group (rule 18(3)(b)). The FTT has shown itself partial to rule 18 orders, as such an order is felt to assist the tribunal in its overriding objective of dealing with cases ‘fairly and justly.’

That is the upside. The downside is that it is only the lead test claimant who has control over what evidence is presented to the FTT, what legal arguments are put to the tribunal, and generally how the litigation should be conducted. Control and management of the case rests, therefore, with the lead test claimant. Also, although the legal documentation may be similar, there may still be differences of fact that a taxpayer would wish to draw to the tribunal’s attention. The result is that the facts of the test case may not necessarily be the same, and the final decision may not please other members of the group.

So it was in the General Healthcare Group (GHG) case, where the FTT dismissed an application under rule 18(4) by GHG to be unbound from the decision in the lead case. GHG had argued that the FTT in the lead case had adopted the wrong factual premise as to which entity had the choice to supply certain drugs. The FTT refused the application by GHG, holding that it could not make a determination as to whether the FTT in the lead case had made such an error. Jurisdiction in that respect lies only with the Upper Tribunal on appeal.

Taxpayers need, therefore, to make a decision at the outset of litigation whether they should be proactive or allow themselves to ‘piggy back’ on a lead test case. If so, they should not expect to be able to escape the ultimate decision if it is not to their liking.