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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 >> Neil Martin Ltd v Revenue and Customs [2006] EWHC 2425 (Ch) (28 September 2006) URL: http://www.bailii.org/ew/cases/EWHC/Ch/2006/2425.html Cite as: [2006] EWHC 2425 (Ch)

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IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

		Royal Courts of Justice Strand London WC2A 2LL
		28 September 2006

Introduction

1. In . February 1988 Mr Neil Martin established a construction industry contracting and sub-contracting business with the trading style Martin Construction & Landscapes. Mr Martin continued to operate as a sole trader until 1999 by which time the business had grown considerably and employed over thirty people. During this period Mr Martin had the benefit of a sub-contractor's tax certificate issued by the Inland Revenue under statutory provisions to which I will refer in more detail later in this judgment. This certificate enabled Mr Martin to be paid gross for sub-contracting work rather than subject to deduction of tax which would otherwise be required.

2. Following advice from his accountant Mr Martin decided to transfer his business to a limited company. The Claimant company, Neil Martin Limited, was duly incorporated on 26 February 1999. Mr Martin's intention was to transfer the sole trader business to the Claimant, and for the Claimant to commence trading, on or about 16 June 1999 following a transitional period during which certain administrative matters, such as the transfer of assets, establishment of new banking facilities and VAT registration, could be dealt with.

3. One of the most important matters to be attended to was the obtaining of a. sub-contractor's tax certificate for the Claimant. This case is concerned with the Claimant's application for such a certificate and how the Defendants ("the Revenue") dealt with that application. In barest outline, the Claimant submitted its application to its local tax office at Barrow-in-Furness, Cumbria in either Mayor June 1999. The certificate was not received until September 1999. The Claimant alleges that, in consequence, it has suffered serious economic loss. It claims that, because it could not produce the tax certificate during the relevant period, it lost new business and its cashflow in respect of completed work was badly disrupted.

4. In May 2005 the Claimant commenced these proceedings in the Manchester District Registry seeking damages from the Revenue in respect of its alleged losses on the basis of breach of statutory duty and/or breach of a common law duty to process the Claimant's application for a certificate with reasonable expedition.

5. On 28 September 2005 District Judge Needham ordered that the following issues be tried as preliminary issues (and he also ordered that the claim be transferred to the Royal Courts of Justice):

   "(1) Whether a breach by the Defendant of section 561(2) of the Income and Corporation Taxes Act 1988 would give rise to a cause for action for damages by the Claimant there may be occasions when we make a mistake or cause unreasonable delay.

   If this happens you are entitled to expect from us

   •    an apology

   •    an explanation of what went wrong

   •    whenever it is both reasonable and possible to do so, to have the mistake corrected so that you are back in the same position you would have been had things gone right in the first place, and

   •    when appropriate, an explanation of the steps we have taken to ensure that the mistake does not happen again.

   Where we make a serious mistake, or cause a serious delay, you may be entitled to claim any additional costs you have incurred as a direct result of that mistake or delay. Such costs may include loss of earnings and reasonable out-of-pocket expenses, including professional fees, bank charges, loss of interest or interest on overpaid tax or National Insurance contributions. In exceptional circumstances you may also be entitled to claim for any worry and distress you suffer as a direct consequence of that mistake, or from any excessive delay in the handling of your complaint.

   Persistent error by us

   Even if we make errors which are not serious, we may pay any reasonable costs that you incur as a direct result of persistent mistakes we have made in dealing with your tax or National Insurance affairs. Examples of such costs might be professional fees, incidental personal expenses, bank charges, loss of interest or wages or fees which you would have earned and which you lost through having to sort things out. They could also include such items as postage and telephone charges. We will do this where we

   •    persisted in the mistake even after it had been pointed out unless there was a genuine difference of opinion between us

   •    kept making the same type of mistake. For instance, if we had to issue a Notice of Coding three times before we got it right, even though the facts we were given remained the same

   •    made a lot of unconnected mistakes in any 12-month period for the same tax year or for the same period of assessment. For instance, if we kept having to amend a PA YE code because of new facts, but each time we got the amendment wrong

   (2) If so, whether the Defendant was in breach of section 561 (2) of the Income and Corporation Taxes Act 1988 in the circumstances alleged by the Claimant in the Particulars of Claim.

   (3) Whether the Defendant owed a common law duty of care to the Claimant to process the Claimant's application for a certificate under section 561 (1) of the Income and Corporation Taxes Act 1988 with reasonable expedition.

   (4) If so, whether the Defendant was in breach of that common raw duty of care in the circumstances alleged by the Claimant in the Particulars of Claim".

   It is these issues which I have tried. As will be apparent, they concern whether the Revenue owed the Claimant the legal duties upon which the claim is based and, if so, whether there were any breaches of those duties. I am not concerned to deal with any issues going to causation or quantum. However, I have approached my task on the footing that, if I found either of the relevant legal duties to exist and found the Revenue to have been in breach of any such duty, I should specify the precise period of culpable delay so as to assist with resolution of the second stage of the claim.

6. I was told that this is the first case to reach trial in which it has been argued in remotely comparable circumstances that the Revenue is , liable to pay damages for breach of a private law obligation. It therefore raises issues of some general interest.

7. The Claimant was represented by Mr Nicholas Bowen (instructed by Gabb & Co). The Revenue was represented by Mr Michael Kent QC and Mr Jonathan Cannan (instructed by the Solicitor to HM Revenue & Customs). I should record at the outset that I derived great assistance from the comprehensive submissions made by Counsel on both sides.

   The Construction Industry Scheme

8. Sub-contractors in the construction industry are subject to a statutory deduction scheme the aim of which is to combat tax fraud. Until 31 July 1999 the relevant arrangements were known as the Construction Industry Tax Deduction Scheme ("CITDS"). From 1 August 1999 a revised arrangement known as the Construction Industry Scheme ("CIS") has had effect. The statutory basis for each scheme is to be found in the provisions contained in sections 559 to 567 of the Income and Corporation Taxes Act 1988 ("ICTA") and regulations made thereunder.

9. The general purpose and effect of these arrangements was explained by Ferris J in Shaw (Inspector of Taxes) v Vicky Construction Ltd [2002] STC 1544 at paragraphs 3-5:

   "In the absence of the statutory provision with which this appeal is concerned Vicky would be entitled, like any other sub-contractor, to be paid the contract price in accordance with its contract with the contractor without any deduction in respect of its own tax liability. However it became notorious that many sub-contractors engaged in the construction industry "disappeared" without settling their tax liabilities, with the consequential loss of revenue to the exchequer.

   In order to remedy this abuse Parliament has enacted legislation, which goes back to the early 19705, under which a contractor is obliged. except in the case of a sub-contractor who holds a relevant certificate, to deduct and pay over to the Revenue a proportion of all payments made to the sub-contractor in respect of the labour content of any sub-contract. The amount so deducted and paid over is, in due course, allowed as a credit against the sub-contractor's liability to the Revenue.

   The need to make and pay over such deductions can be an irritation to the contractor obliged to carry out this exercise. It also adversely affects the cashflow of the sub-contractor. Accordingly it is advantageous to a sub-contractor to have a statutory certificate rendering such a deduction unnecessary. The provision of such a certificate tends to make the sub-contractor holding the certificate a more attractive party for the contractor to deal with and, by enabling the sub-contractor to receive the contract price without deduction, improves the sub-contractor's cashflow".

   I also refer to the observations of Laddie J in Cormack (Inspector of Taxes) v CBL Cable Contractors Ltd [2005] EWHC 1294 who, having quoted the above passage from Vicky. said (at paragraph 3):

   "In other words, to avoid the loss to the Revenue caused by sub-contractors defaulting on their tax liabilities, the contractor is obliged to pay the sub-contractor's likely tax liability in advance. The existence of a CIS certificate enables the sub-contractor to be treated like any other trader both by the Revenue and by the contractors for whom it works. It will be appreciated from this that a CIS certificate is very valuable to the sub-contractor. The ability to control the grant of these certificates is also of importance to the Revenue. In substance, the statutory scheme is designed to ensure that they are only granted to sub-contractors who are likely to comply with their tax obligations".

10. The principal difference between the CITDS and the CIS was the introduction of registration cards under the latter scheme. Under the CITDS payments to sub-contractors with a certificate (known as a "714 certificate") were made gross; payments to sub-contractors without a certificate were made subject to deduction of tax at a rate set pursuant to statute. This rate generally shadowed the basic rate of income tax. From 1 July 1997 to 31 July 1999 the rate was 23%. Under the CIS payment to sub-contractors with a certificate (which, as appears below. became known as a CIS6 certificate) were made gross; payments to sub-contractors with a registration card were made subject to deduction (the rate remaining 23% until 5 April 2000 when it was reduced to 18%); and it was illegal for any payment to be made to a sub-contractor who held neither a certificate nor a registration card.

11. Under both the CITDS and the CIS certificates were only granted if certain very specific conditions were satisfied. As Laddie J remarked in Cormack, these conditions were designed to ensure that certificates were only issued to sub-contractors who were likely to be reliable in accounting to the Revenue for tax due. When the CIS was introduced, changes were made to the conditions for obtaining a certificate which, broadly speaking, made those conditions more rigorous. Under the CIS, the only condition for issuing a registration card was an identity check.

    The statutory provisions

12. The principal provisions of Part XIII Chapter IV of ICTA governing the CIS are as follows. Section 559 provides, so far as is material, that

    "(1) Subject to the following provisions of this section, where

    a contract relating to construction operations is not a contract of employment but -

    (a) one party to the contract is a sub-contractor; and

    (b) another party to the contract ("the contractor") is either a sub-contractor under another such contract relating to all or any of the construction operations or is a person to whom section 560(2) applies,

    this section shall apply to any payments which are made under the contract and are so made by the contractor to

    (i) the sub-contractor;

    (ii) a person nominated by the sub-contractor or the contractor; or

    (iii) a person nominated by a person who is a sub-contractor under another such contract relating to all or any of the construction operations ...

    (2) Subsection (1) shall not apply to any payment made under the contract in question if the person to whom it is made or, if it is made to a nominee, each of the following persons, that is to say, the nominee, the person who nominated him and the person for whose labour (or, where that person is a company. for whose employees' or officers' labour) the payment is made, is excepted from this section in relation to those payments by virtue of section 561...

    (4) On making a payment to which this section applies the contractor shall deduct from it a sum equal to the relevant percentage of so much of the payment as is not shown to represent the direct cost to any other person of materials used or to be used in carrying out the construction operations to which the contract under which the payment is to be made relates; and the sum so deducted shall be paid to the Board and shall be treated for the purposes of income tax or, as the case may be, corporation tax -

    (a) as not diminishing the payment; but

    (b) subject to subsection (5) below, as being income tax or, as the case may be, corporation tax paid in respect of the profits of the trade, profession or vocation of the person for whose (or for whose employees' or officers') labour the contractor makes the payment.

    (4A) In subsection (4) above "the relevant percentage" in relation to a payment, .means such percentage (not exceeding the percentage which is the basic rate for the year of assessment in which the payment is made) as the Treasury may by order determine.

    (5) Where a sum deducted and paid to the Board under subsection (4) above is more than sufficient to discharge the liability to income tax of the person referred to in (b) of that subsection in respect of the profits mentioned in that paragraph, so much of the excess as is required to discharge any liability of that person for Class 4 contributions shall be treated as being, for the purposes of the Social Security Act, Class 4 contributions paid in respect of the profits so mentioned."

    For these purposes "sub-contractor" is defined in section 560(1):

    "For the purposes of this Chapter a party to a contract relating to construction operations is a sub-contractor if, under the contract

    (a) he is under a duty to the contractor to carry out the operations, or to furnish his own labour (that is to say, in the case of a company, the labour of employees or officers of the company) or the labour of others in the carrying out of the operations or to arrange for the labour of others to be furnished in the carrying out of the operations; or

    (b) he is answerable to the contractor for the carrying out of the operations by others, whether under a contract or under other arrangements made or to be made by him".

    The principal category of persons to whom section 560(2) applies (see section 559(1)(b)) is:

    "(a) any person carrying on a business which includes construction operations".

13. The exception from section 559 foreshadowed in section 559(2) is contained in section 561:

    "(1) Subject to the provisions of regulations under section 566(2), a person is excepted from section 559 in relation to payments made under a contract if a certificate under this section has been issued to that person and is in force when the payment is made ...

    (2) If the Board are satisfied, on the application of an individual or a company, that -

    (a) where the application is for the issue of a certificate to an individual (otherwise than as a partner in a firm), he satisfies the conditions set out in section 562 ...

    (c) where the application is for the issue of a certificate to a company, the company satisfies the conditions set out in section 565 and, if the Board have given a direction under subsection (6) below, each of the persons to whom any of the conditions set out in section 562 applies in accordance with the direction satisfies the conditions which so apply to him,

    the Board shall issue to that individual or company a certificate excepting that individual or company ... from section 559 ...

    (6) Where it appears to the Board, on an application made under subsection (2) above by a company, that the company -

    (a) was incorporated on a date within the period of three years ending with the date of the application; or

    (b) has not carried on business continuously throughout that period; or

    (c) has carried on business continuously throughout that period but the business has not at all times in that period consisted of or included the carrying out of construction operations; or

    (d) does not at the date of the application hold a certificate which is then in force under this section;

    the Board may direct that the conditions set out in section 562 or such of them as are specified in the direction shall apply to the directors of the company and, if the company is a close company, to the persons who are the beneficial owners of shares in the company or to such of those directors or persons as are so specified as if each of them were an applicant for a certificate under this section ...

    (8) The Board may at any time cancel a certificate which has been issued to a person and is in force under this section if it appears to them that-

    (a) it was issued on information which was false;

    (b) if an application for the issue of a certificate under this section to that person were made at that time. the Board would refuse to issue a certificate;

    (c) that person has permitted the certificate to be misused; or

    (d) in the case of a certificate issued to a company, there has been a change in the control of the company and information with respect to that change has not been furnished in accordance with regulations under section 566(2);

    and may by notice require that person to deliver the certificate to the Board within the time specified in the notice ...

    (9) A person aggrieved by the refusal of an application for a certificate under this section or the cancellation of such a certificate may, by notice given to the Board within 30 days after the refusal or, as the case may be, cancellation, appeal to the General Commissioners or, if he so elects in the notice, to the Special Commissioners; and the jurisdiction of the Commissioners on such an appeal shall include jurisdiction to review any relevant decision taken by the Board in the exercise of their functions under this section".

14. In broad terms, both individual and corporate applicants for a section 561 (2) certificate must satisfy three tests: the "business" test; the "turnover" test; and the "compliance" test. These tests are set out respectively in section 562(2), (2A) and (8)-(10) for individuals and section 565(2), (2A)-(2C) and (3)-(10) for companies. As I have mentioned, these tests under the CIS were more stringent than those which applied under the CITDS. In particular, the turnover test was new and the compliance test was more exacting. Section 562 provides:

    "(1) In the case of an application for the issue of a certificate under section 561 to an individual the following . conditions are required to be satisfied by that individual. ..

    (2) The applicant must be carrying on a business in the United Kingdom which satisfies the following conditions, that is to say -

    (a) the business consists of or includes the carrying out of construction operations or the furnishing or arranging for the furnishing of labour in carrying out construction operations;

    (b) the business is, to a substantial extent, carried on by means of an account with a bank;

    (c) the business is carried on with proper records and in particular with records which are proper having regard to the obligations referred to in subsections (8) to (12) below; and

    (d) the business is carried on from proper premises and with proper equipment, stock and other facilities.

    (2A) The applicant must satisfy the Board, by such evidence

    as may be prescribed in regulations made by the Board, that the carrying on of the business mentioned in subsection (2) is likely to involve the receipt, annually in the period to which the certificate would relate, of an aggregate amount by way of relevant payments which is not less than the amount specified in regulations made by the Board as the minimum turnover for the purposes of this subsection ...

    (8) The applicant must, subject to subsection (10) below, have complied with all obligations imposed on him by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an inspector accounts of, or other information about, any business of his in respect of periods so ending.

    (9) An applicant who at any time in the qualifying period had control of a company shall be taken not to satisfy the condition in subsection (8) above unless the company has satisfied that condition in relation to periods ending at a time within that period when he had control of it. ..

    (10) An applicant or company that has failed to comply with such an obligation or request as is referred to in subsection (8) above shall nevertheless be treated as satisfying that condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (13) below will be satisfied ...

    (12) The applicant must, if any contribution has at any time during the qualifying period become due from him under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 have paid the contribution when it became due.

    (13) There must be reason to expect that the applicant will, in respect of periods ending after the end of the qualifying period, comply with such obligations as are referred to in subsections (8) to (12) above and with such requests as are referred to in subsection (8) above ...

    (14) In this section "the qualifying period" in relation to an application for the issue of a certificate under section 561 means the period of three years ending with the date of the application".

15. Section 565 provides:

    "(1) In the case of an application for the issue of a certificate under section 561 to a company (whether as a partner in a firm or otherwise), the following conditions are required to be satisfied by the company.

    (2) The company must be carrying on (whether or not in partnership) a business in the United Kingdom and that business must satisfy the conditions mentioned in section 562(2)(a) to (d).

    (2A) The company must either -

    (a) satisfy the Board, by such evidence as may be prescribed in regulations made by them, that the carrying on of its business is likely to involve the receipt, annually in the period to which the certificate would relate, of an aggregate amount by way of relevant payments which is not less than the amount which is the minimum turnover for the purposes of this subsection; or

    (b) satisfy the Board that the only persons with shares in the company are companies which are limited by shares and themselves excepted from section 559 by virtue of a certificate which is in force under section 561 ...

    (2B) The minimum turnover for the purposes of subsection (2A) above is whichever is the smaller of-

    (a) the amount obtained by multiplying the amount specified in regulations as the minimum turnover for the purposes of section 562(2A) by the number of persons who are relevant persons in relation to the company; and

    (b) the amount specified for the purposes of this paragraph in regulations made by the Board.

    (2C) For the purposes of subsection (28) above a person is a relevant person in relation to the company-

    (a) where the company is a close company, if he is a director of the company (within the meaning of Chapter II of Part V) or a beneficial owner of shares in the company; and

    (b) in any other case, if he is such a director of the company.

    (3) The company must, subject to subsection (4) below, have complied with all obligations imposed on it by or under the Tax Acts or the Management Act in respect of periods ending within the qualifying period and with all requests to supply to an inspector accounts of, or other information about, the business of the company in respect of periods so ending.

    (4) A company which has failed to comply with such an obligation or request as is referred to in subsection (3) above shall nevertheless be treated as satisfying this condition as regards that obligation or request if the Board are of the opinion that the failure is minor and technical and does not give reason to doubt that the conditions mentioned in subsection (8) below will be satisfied.

    (5) The company must, if any contribution has at any time during the qualifying period become due from the company under Part I of the Social Security Act 1975 or Part I of the Social Security (Northern Ireland) Act 1975 have paid the contribution when it became due.

    (6) The company must have complied with any obligations imposed on it by the following provisions of the Companies Act 1985 insofar as those obligations fail to be complied with within the qualifying period, that is to say -

    (a) sections 226, 241 and 242 (contents, laying and delivery of annual accounts) ...

    (c) section 288(2) (return of directors and secretary and notification of changes therein);

    (d) sections 363 to 365 (annual returns) ...

    (8) There must be reason to expect that the company will, in respect of periods ending after the end of the qualifying period, comply with all such obligations as are referred to in subsections (2) to (7) above and with such requests as are referred to in subsection (3) above ...

    (9) In this section "qualifying period" means the period of three years ending with the date of the company's application for a certificate under section 561".

16. Under section 566(2) the Revenue has power to make regulations inter alia

    "(a) prescribing the period for which certificates under section 561 are to be issued and the form of such certificates

    (b) providing for the renewal of such certificates

    (c) providing for the issue, renewal or cancellation of such certificates or the giving of directions under section 561(6) ... on behalf of the Board".

17. Pursuant to these and related powers the Revenue made the Income Tax (Sub-contractors in the Construction Industry) Regulations 1993 ("the Regulations") which (as amended in 1998 in the period leading up to the introduction of the CIS) provided relevantly as follows:

    "7A. (1) The power to issue or replace a registration card may be exercised either by an inspector or by any person nominated by the Board.

    (2) The power to require the surrender of, or cancel, a registration card may be exercised by an inspector.

    7B. (1 )

    Any person aggrieved by the refusal to issue or replace a registration card under Regulation 7 A(1) or the cancellation of a registration card under Regulation 7 A(2) may, by notice given to the Board within 30 days-of the refusal or, as the case may be, the cancellation, appeal to the General Commissioners or, if he so elects in the notice, to the Special Commissioners, to determine the matter ...

    7D.(1 ) A registration card containing the information specified in Regulation 7C(2) or (3), as the case may be, shall be issued by an inspector or any person nominated by the Board, to the individual whose name, national insurance number and photograph appear on it.

    (2) A registration card containing the information specified in Regulation 7C(4) shall be issued by an inspector or any person nominated by the Board, to the company whose name appears on it...

    7F (1 ) Before making any payment to which section 559 applies to a sub-contractor, and unless the circumstances specified in paragraph (3) apply, a contractor shall -

    (a) ensure that the sub-contractor's registration card is produced to him and

    (b) satisfy himself by inspection of the registration card that the person producing it is the user of that registration card ...

    21. The power to issue, renew, require the surrender of or cancel a sub-contractor's tax certificate or to give directions under subsection (6) of section 561 may be exercised by an inspector.

    21A. (1) The amount specified as the minimum turnover for the purposes of section 562(2A) (in these Regulations referred to as "the individual turnover threshold") is an annual turnover of £30,000 ...

    (3) In these Regulations, "the multiple company turnover threshold" for a company, in relation to a particular period, means, subject to paragraph (4), an annual turnover equal to the individual turnover threshold multiplied by the number of persons who are relevant persons in relation to the company ...

    (6) The amount specified for the purposes of section 565(2B)(b) ("the alternative company turnover threshold") is £200,000.

    21B. (1) Paragraph (2) prescribes the evidence by which

    (a) an individual must satisfy the Board, as mentioned in section 562(2A), that the individual turnover threshold is likely to be met. ..

    (c) a company must satisfy the Board, as mentioned in section 565(2A)(a), that the multiple company turnover threshold is likely to be met,

    and the matters of which the Board must be satisfied, referred to in sub-paragraph (a), (b) or (c), shall be presumed conclusively from such prescribed evidence

    (2) The evidence prescribed is, subject to paragraph (5), such evidence as complies with either of the six month test or the main three year test. ..

    21C. (1) The evidence that complies with the six month test is -

    (a) evidence of turnover of the business mentioned in section 562(2), section 564(2) or section 565(2), as appropriate, during a period of six consecutive income tax months or any lesser consecutive period falling entirely within the year ending with the date of the application;

    (b) evidence showing that such turnover during the appropriate period mentioned in sub-paragraph (a) equalled or exceeded 70 per cent of the relevant turnover threshold; ...

    21C. (1) The evidence that complies with the main three year test is-

    (a) evidence of turnover of the business mentioned in section 562(2), 564(2) or 565{2), as appropriate, during the period of three consecutive years falling entirely within the period of four years ending with the date of the application;

    (b) evidence showing that-

    (i) such turnover equalled or exceeded the relevant turnover threshold in at least two out of the three consecutive years mentioned in sub-para9raph (a), and

    (ii) the average turnover for those three years equalled or exceeded 90 per cent of the average of the relevant turnover threshold in each of those three years ...

    26. (1 ) A sub-contractor's tax certificate shall be valid, during the period prescribed in paragraph (2), (3), (4) or (5), as the case may be, for the purpose of allowing payments to be made to the user of the certificate without the deduction required by section 559 and for no other purpose.

    (2) ... where the Board have been satisfied as mentioned in Regulation 21 B(1), by evidence complying with the six month test, the period prescribed is one year from the date from which the certificate is valid.

    (3) ... where the Board have been satisfied as mentioned in Regulation 21 B(1) or (3), by evidence complying with the main three year test or the alternative three year test, the period prescribed is three years from the date from which the certificate is valid ...

    27 (1 ) At any time within a period of six months before the date of expiry of a sub-contractor's tax certificate the person to whom it is issued may apply for its renewal".

18. The Regulations also prescribe a number of forms for use in connection with the CIS. Those which are relevant to the narrative contained later in this judgment are as follows:

    CIS2	Application by an individual for a tax certificate/registration card
    CIS3	Application by a company for a tax certificate/registration card
    CIS4	Registration card
    CIS6	Sub-contractor's tax certificate (for sole traders and companies
    CIS8	Application by a company director for a tax certificate/registration card (must accompany a CIS3 application)

19. Certain features of the statutory regime are immediately apparent from the provisions quoted above. First, the Revenue may not issue a tax certificate unless it is "satisfied" that the statutory conditions have been met. The legislation therefore must envisage that certificates will not be issued before a suitable period for investigation has elapsed. Secondly, subject to being satisfied that the prescribed conditions have been met, which is essentially a fact-finding exercise, the Revenue has no discretion whether to grant a tax certificate. Section 561 (2) imposes a mandatory obligation on the Revenue both to process an application for a tax certificate made by an individual or company and to issue such a certificate if the relevant conditions are satisfied. Thirdly, neither the statute nor the Regulations impose any time limit within which the Revenue must process an application for a certificate. Fourthly, section 561 (9) provides a statutory remedy, by way of appeal to the General or Special Commissioners, in the event of the refusal of an application or the cancellation of a certificate. It provides no remedy in respect of delay. -Fifthly, the features identified above in relation to certificates apply equally (save in respect of satisfying conditions) to the issue of registration cards under the Regulations. Sixthly, the Regulations are highly prescriptive and detailed as to the manner in which applications for certificates and registration cards are to be made and processed.

    Revenue Guidance

20. In connection with the CIS the Revenue issued a number of leaflets and guidance notes to some of which I should refer. The leaflet IR40 (CIS), "Conditions for getting a Sub-contractor's Tax Certificate", was issued in December 1998. This leaflet dealt principally with the application of the business, turnover and compliance tests. In relation to "Change in the status of a business" it provided as follows:

    "Where a sole trader or partnership becomes a company, or a partnership becomes a sole trader, a new business is created which in each case will need a new certificate. In all such cases, if the nature of the business has changed. the applicant will have to go through the turnover test again, and would have to use the six month test as soon as possible. However, if the business is essentially the same (same assets, goodwill, same trade) the new business may apply immediately on the basis of the three year test".

    Although not stated explicitly this clearly meant that the three year turnover test in respect of a company would, when there was no change in the nature of the business, be judged by reference to the accounts of the previous business entity. This was made more clear in the Revenue's own internal guidance manual ("CISM") which, although designed principally to assist Revenue officers in carrying out their duties, was publicly available. CISM 3141 stated:

    "If the business is essentially unchanged from before the change in type, you can treat it as the same concern, and allow use of the old concern's turnover for the purpose of the Turnover Test. Depending on how long the old concern existed, the new concern can apply immediately on the basis of the three year or six month test",

21. IR40 (CIS) also dealt with the time for processing applications:

    "We can deal with most renewal applications quickly, but for all first applications you should allow at least one month for the Tax Office to examine your application and notify you of approval. In complex cases, the examination may take much longer; and if it does we will let you know. Examples of complex cases are: partnership or company applications where the partners' or directors' affairs have to be reviewed, joint applications, and cases where facts are difficult to establish.

    After receiving notification of approval, you should allow ten . working days for the certificate to be prepared and sent to you. If you have not received a certificate by then, please contact your Tax Office. Please note, however, that no certificates will be issued before April 1999".

    In this connection I should mention that the Claimant contended that its application was a "renewal" application for these purposes. This was disputed by the Revenue. CISM 3100 also stated:

    "The Revenue has made a commitment to issue certificates to all sub-contractors as soon as possible following receipt of new applications. In normal circumstances a certificate will be issued within 3 days of receipt of an authorised application at the CIS Centre".

    The reference here to the "CIS Centre" is to the Processing Centre at Netherton, Liverpool which dealt with the issuing of all certificates and registration cards under the CIS following receipt of approved application forms from local tax offices. The period referred to therefore does not embrace the time required for approval of the application at the local tax office. There is a minor discrepancy between the 3 and 10 day periods referred to in these documents. However, in practice, as I shall explain hereafter, the period required for processing at Netherton became substantially longer than this during the summer of 1999.

22. CISM 3421 dealt with the making of section 561 (6) directions, namely that on an application by a company for a certificate, the compliance test should be satisfied by its directors individually:

    "This does not mean that you should always make such a direction. As a broad rule you might make a s.561 (6) direction where you have any doubts about the Revenue's entitlement to expect future compliance based on the history of any of the directors. The following are situations where you should make a direction:

    •    all new companies

    •    there is a major change of management or control of a company shortly before the . Certificate application or whilst the application is being assessed".

23. I should also refer briefly to IR14/15 (CIS), a leaflet also issued in December 1998 which dealt with the operation of the CIS as a whole. This provided at paragraph 7.11:

    "A sub-contractor should notify the Tax Office of any change to the business, registered office or private address".

    The Claimant's application for a tax certificate

24. Much of what happened during the period which is material to this case was not the subject of any serious dispute. There were, however, a small number of contested factual issues which I must resolve.

25. I heard oral evidence from six witnesses. For the Claimant, Mr Martin gave evidence. The Revenue called five witnesses: Mr David Harrison, who was the nominated CIS local office co-ordinator ("CISLOC") and was the officer at the Furness tax office who dealt with the Claimant's application; Mr Trevor Cunningham, who in 1999 was an operational analyst working for the Business Management and Services Division of the Revenue and who explained how the CIS was introduced and operated on a countrywide basis; Mr John Wild, who in 1999 was the Processing Manager at the Processing Centre in Netherton; Mr Kevin Dunn, who joined the Revenue's Complaints Management Team in May 2001 and dealt with the latter stages of the Claimant's claim for compensation under the Revenue's voluntary scheme (to which I shall refer hereafter); and Mr Sean Griffin who is employed by the Revenue as an Operational Strategy Manager and gave evidence inter alia as to the alleged resource implications of any recognition that the Revenue owed private law obligations to taxpayers.

26. I should record at this stage that I was satisfied that all these witnesses were entirely honest and were trying to assist the Court. Given the areas of dispute between Mr Martin and Mr Harrison to which I shall refer I should however state that I found Mr Martin to be rather hazy on dates. This is, of course, not entirely surprising as the relevant events took place seven years ago. However, his unwillingness to accept contradiction by reference to contemporary documents did make me doubt his reliability on matters of detail. As for Mr Harrison, I found him sensibly undogmatic on points of detail and disarmingly frank in accepting that in certain respects he had made mistakes in the processing of the Claimant's application.

27. The relevant facts, as J find them, are as follows.

28. Before dealing with the minutiae of the Claimant's application, I should say something about the steps taken by the Revenue nationwide to manage the introduction of the CIS. The Revenue began a publicity drive to alert sub-contractors to the new scheme as early as 1995. In 1998 a large number of Press Releases about the CIS were issued. In November 1998 national advertising commenced in the popular press and telephone helplines for both contractors and sub-contractors were opened at the same time. Also in November 1998 application forms for certificates and registration cards, accompanied by guidance notes on how to complete them, were automatically sent to all known contractors and sub-contractors. New leaflets, IR40 (CIS) and IR14/15 (CIS) to which I have already referred, were published in December 1998 and made available through local tax offices or through the Revenue's order line.

29. One of the principal objectives behind this publicity drive was to encourage sub-contractors to apply for certificates and registration cards early so as to avoid a glut of applications in the few months prior to the start of the new scheme on 1 August 1999. The Revenue expected to receive a steady flow of new applications from about December 1998 (although the new certificates and registration cards would not actually be issued until April 1999). However, this did not materialise. In response, during the period March to May 1999 the Revenue sent contractors' packs (including the I R 14/15 guidance, a poster and certain other flyers and leaflets) to over 100,000 contractors on its database. In Maya second phase of publicity commenced with radio advertising using the well-known comedian Paul Whitehouse, billboard advertising in shopping malls, seminars arranged by the Construction Industry Training Board and even the distribution of one million beer mats publicising the CIS. The Revenue also made contingency plans to deal with a possible logjam of applications during the summer of 1999.

30. Despite all these preparations, and as the Revenue had feared, the system had to cope with what Mr Wild described as a "bow wave" of work from about mid-May to August 1999. The effect which this had on the timely production of certificates and registration cards must be examined on two different levels. The increased number of applications during these months plainly had the potential to slow down approval of applications at the local tax office level. However, the degree of delay depended on how busy those offices were in terms of CIS applications. Furness was a relatively small office with a small sub-contractor population, In the year to December 1999 it dealt with only 700 registration card applications and 200 certificate applications. The bow wave had its most marked effect at the Processing Centre at Netherton as this one centre processed approved applications for certificates and registration cards for the entire country. During those summer months in 1999 processing time at Netherton stretched to about three weeks, compared to the 3 or 1 D-day periods envisaged in the published literature.

31. In accordance with the steps referred to in paragraph 28 above, a CIS2 application form and guidance notes were sent to Mr Martin on 30 November 1998. The CIS2 form was the correct one as Mr Martin was then in business as a sole trader. The form was sent to Mr Martin at 25 Roose Road, Barrow-in-Furness, Cumbria, This was in fact Mr Martin's parents' address although Mr Martin was either living there at the time or had only recently moved out to his new address at 10 Strathnaver Avenue, Walney, Barrow-in-Furness. 25 Roose Road was the address held by the Revenue for Mr Martin in their self-assessment records. In any event, the CIS2 form reached Mr Martin either directly or via his father shortly after it was sent. Like many other sub-contractors around the country, Mr Martin did nothing with it at the time.

32. In February 1999 Mr Martin's accountant advised him to visit his local tax office to ask about the CIS. By this time he had already formulated his plan to transfer his business to a limited company. Mr Martin says that he did not receive one of the contractors' packs distributed by the Revenue in March-May 1999. It is not necessary for me to decide whether he did or not.

33. On 14 May 1999 Mr Martin completed and signed the CIS2 application form which he had received by post in November/December 1998. In section 2 of the form he stated that the trading name of his business was "Neil Martin Limited". He completed the declaration in support of an application for a certificate and left blank the alternative declaration in support of a registration card application.

34. It is common ground that Mr Martin took the completed CIS2 form to the Furness tax office and was referred to Mr Harrison with whom he had an interview for about 20 minutes to half an hour. It is also common ground that during this interview Mr Martin told Mr Harrison of his plans to start trading through the Claimant company and that he wanted a CIS6 certificate, not a registration card, for the Claimant. However, there is a dispute as to the date of this meeting. Mr Martin alleges that it took place on 14 May, the date on which he signed the form. Mr Harrison says that his first meeting with Mr Martin was not until 9 June. This dispute could obviously have an impact on the extent of any culpable delay on the part of the Revenue.

35. Having heard both Mr Martin and Mr Harrison give evidence, I formed the view that neither had any actual recollection of the date of the meeting. This is hardly surprising. However, I find that the meeting did not occur until 9 June. There are two principal reasons for this. First, Mr Martin has throughout the history of this matter accepted that there was a meeting on 9 June but the first suggestion of a meeting on 14 May was not made until his second witness statement was served on the second day of the trial. In particular, there is no mention of a meeting on 14 May in a chronology which Mr Martin personally prepared in November 1999. The only objective fact tying the meeting to the 14 May is the date of Mr Martin's signature on the form. However, it seems to me just as likely that Mr Martin completed and signed the form at home or at work and did not get around to visiting the tax office until a later date. My second principal reason is the explanation given by Mr Martin for there being meetings on both 14 May and 9 June. His evidence was that Mr Harrison told him on 14 May to come back in early June because if he applied for a certificate in May he would not get the benefit of the full period of validity of the certificate and in any event it would only take a few days to get a certificate. I cannot accept that Mr Harrison said either of these things. As CISLOC Mr Harrison would have been well aware that the period of validity of CIS certificates and registration cards did not begin until 1 August 1999 (even if issued before then) so there was no question of Mr Martin not getting the benefit of the full period of validity. Mr Harrison was also aware of the Revenue's published statements that processing of applications in the tax office could take at least a month and he was also aware of the recent increase in the number of applications. In those circumstances it seems to me highly unlikely that he would have promised a certificate in a few days.

36. The other important feature of this first meeting on 9 June was that Mr Harrison, having correctly pointed out that Mr Martin needed to complete CIS3 and CIS8 forms rather than the CIS2 form, told Mr Martin that he could not accept Mr Martin's sale trader accounts in support of the turnover test. Mr Martin needed to produce company accounts in relation to the Claimant. In practice, of course, this meant that the Claimant would have to trade for a period on the basis of being paid subject to deduction before it could apply for a certificate. I should mention one further matter in connection with this meeting. Mr Harrison's evidence was that Mr Martin expressed uncertainty as to whether he would, to start with, transfer his sale trader business to the Claimant entirely or would run the two concerns side by side. Mr Martin denied saying any such thing. It is not necessary for me to resolve this dispute. It only goes to the question whether Mr Harrison's statement about sole trader accounts can be justified. The Revenue's pleaded case in relation to this was, until shortly before the trial started, that Mr Harrison's advice was "mistaken". On day 2 of the trial I refused the Revenue permission to withdraw that admission.

37. After the meeting on 9 June Mr Martin reported to his accountant what Mr Harrison had said about the need for company accounts. The accountant did not agree and recommended Mr Martin to try again. Mr Martin attended at the tax office on 16 June 1999 with completed, but unsigned, CIS3 and elS8 forms and asked Mr Harrison to accept his sole trader accounts in support of the turnover test. Mr Harrison again refused. A further telephone conversation to the same effect took place on 22 June.

38. It is common ground that at the next meeting Mr Harrison relented and agreed that sole trader accounts were acceptable in support of the Claimant's application. It is not entirely clear to me what prompted Mr Harrison's change of heart. There is again, however, a dispute as to the timing of this meeting. Mr Martin maintains that Mr Harrison accepted the sole trader accounts at a meeting on 2 July; that the CIS3/CIS8 forms were completed at this meeting; but that he was summoned back to the tax office on 8 July to complete another form because one of the forms completed on 2 July had been mislaid. By contrast Mr Harrison maintains that there was no further meeting until 20 July when he accepted the sale trader accounts and the CIS3/CIS8 forms were completed but, by an oversight, left unsigned.

39. In my judgment, Mr Martin is mistaken about this aspect of the chronology. His version of events does not include a meeting on 20 July at all. However, it is clear from the date stamp on the completed CIS8 form that Mr Martin's identity was checked at a meeting on 20 July. There is no other material corroborating the suggestion that a form completed on 2 July was lost and Mr Martin's account does not satisfactorily explain why both the CIS3 and CIS8 forms were actually signed on 26 July (in circumstances I shall shortly relate) when, according to him, only one form was lost after 2 July.

40. I therefore accept that there was no further meeting between Mr Martin and Mr Harrison after 16 June until 20 July at which point Mr Martin left the completed forms with Mr Harrison. Shortly thereafter, Mr Harrison realised that he had omitted to obtain Mr Martin's signature to the forms so he wrote to Mr Martin on 23 July (at 10 Strathnaver Avenue) enclosing the forms and asking Mr Martin to sign them "where marked" and to return them immediately for processing. This letter also referred to their "recent" meeting at which the forms had been completed. This also supports the conclusion that the forms were completed on 20 July rather than 2 or 8 July.

41. Mr Martin did not recollect receiving this letter but again I think he is mistaken about this. It is entirely consistent with what happened next that he did receive it. Both forms were signed by Mr Martin on 26 July in the places indicated by "x" marks (as referred to in the 23 July letter) and are stamped as having been received in the post room at the Furness tax office on 29 July.

42. The curious feature of these forms ("the July forms") is that they were both stamped as authorised by the Furness office on 30 July as applications for a registration card rather than as applications for a CIS6 certificate. This duly resulted in the July forms being processed at Netherton as applications for a registration card and a registration card was issued in early September. The surviving copy of the July CIS3 form shows the declaration in support of an application for a registration card as having been completed but the writing is illegible. In the July CIS8 form the corresponding declaration is not completed. There was some debate during the trial as to how this occurred and who filled in the relevant boxes on the CIS3 form.

43. I am in no doubt that the relevant boxes were not filled in by Mr Martin. He did not want a registration card and had made this plain throughout his dealings with Mr Harrison. Equally, I accept that Mr Harrison had nothing to do with this. He was well aware that Mr Martin did not want a registration card and the "x" marks referred to in his 23 July letter to Mr Martin are to be found next to the declarations for a certificate only. I accept the only other explanation canvassed by the parties, namely that when the July forms arrived at the Furness office by post, one of Mr Harrison's staff mistakenly processed them as applications for a registration card and sent them off to Netherton without consulting Mr Harrison. This explanation fits with the fact that, although Mr Harrison had to approve all certificate applications, more junior staff could process registration card applications.

44. This also explains what happened next. Mr Harrison had been expecting to receive the signed July forms from Mr Martin in response to his letter of 23 July. When they did not turn up (as he thought) Mr Harrison assumed that they had gone missing. He therefore issued duplicate forms ("the August forms") on 6 August. Mr Martin completed and signed the ClS3 form on 6 August and the CIS8 form on 9 August. It is not clear why they were signed on different dates. At all events, there was evidently a further meeting between Mr Martin and Mr Harrison on 9 August as that was the date on which Mr Martin's identity was checked for the purposes of the August forms. This time the forms were completed unambiguously as applications for a certificate. On the same day, Mr Harrison, conscious of the delays in dealing with the Claimant's application, provided Mr Martin with a letter of comfort stating:

    "I can confirm that Neil Martin Limited qualifies for a Sub-contractors' Certificate (CIS6).

    This will be produced by the Processing Centre shortly and should be with the company within the next 14 days".

    It was intended that, by producing this letter, the Claimant would be able to persuade contractors to pay gross during the period until the certificate actually materialised. Unfortunately, Mr Martin discovered that contractors were not interested in the letter; they wanted to see the certificate itself.

45. The August forms were authorised for a certificate by Mr Harrison on 11 August and were sent via the internal Revenue mail service ("tax post direct") to Netherton. Regrettably, there was a problem of a different kind with the August forms. Both CIS3 and CISB forms must carry the unique tax reference number ("UTR") of the company on whose behalf the application is made. When the forms arrive at Netherton the UTR is automatically checked against a database and any discrepancies identified. In the event of error the likely result is that the forms will be returned to the local tax office for alteration. In the case of the August CIS3 form, one of Mr Harrison's staff had incorrectly inserted Mr Martin's own UTR rather than that of the Claimant. The surviving copy of this form shows that the Claimant's UTR was subsequently substituted for Mr Martin's UTR by Mr Harrison in manuscript. Although the precise dates remain unclear (and, in particular, none of the Revenue witnesses could tell me the origin of two date stamps for 13 August and 7 September 1999 which appear on the August forms), Mr Harrison and Mr Wild accepted that the August forms must have been returned by Netherton to Furness for correction of the UTR and that this resulted in further delay in the issuing of the Claimant's certificate.

46. On or about 7 September 1999 Mr Martin received the registration card issued pursuant to the July forms. Understandably, he was mystified by this and telephoned the Furness tax office to enquire what was happening. On 10 September a CIS6 certificate was issued by Netherton pursuant to the August forms but was posted to Mr Martin's parents' address at 25 Roose Road. On 13 September Mr Martin, still having heard nothing about the Claimant's certificate, wrote to Mr Harrison as follows:

    "As you are already aware of our current position with the delay of our CIS6 registration card [this should of course read "certificate"]. I would like to take this opportunity to update you on our current financial position.

    We have made every effort to keep all of our employees in work since the 1 August, but with all our debtors withholding monies due to ourselves we have had no choice but to payoff and terminate the majority of our employees ... Unless we receive our card by the 24 September our bank will take over and foreclose the business into receivership ...

    With reference to the above I hope you can help us to resolve the situation and start back on the long climb to the financial position we were in around July".

47. Mr Martin claims that the CIS6 certificate did not arrive at his parents' address until 18 September. Although it is not clear why it took eight days to get from Netherton to Barrow, I accept this. Mr Martin further claims that, because the certificate was sent to the wrong address, he did not actually receive it until 27 September. However, this assertion is clearly wrong. On 24 September Mr Martin wrote to Mr Harrison as follows:

    "Further to my letter dated 13/9/99, I can confirm that the ClS6 Card arrived on the 18/9/99 and has been" passed to our debtors for processing of payment".

    Thus Mr Martin had evidently received the certificate and made use of it by 24 September. Nevertheless, I am prepared to accept that the posting of the certificate to an address at which Mr Martin did not then live did result in a short additional delay in his becoming aware of its arrival. I conclude that Mr Martin actually received the certificate no later than 20 September.

    The Aftermath

48. The Revenue has at all material times operated a complaints and redress process as set out in "Code of Practice 1: Mistakes by the Inland Revenue" ("COP1"). This process, and in particular the granting of any financial redress under it, is voluntary and discretionary. In terms of procedure, COP1 provides for complaints to be handled in the first instance by the Director responsible for the region in which the relevant tax office is situated. If not satisfied, the complainant can then refer the matter to an independent Adjudicator. Finally, the complainant can ask his MP to refer the matter to the Parliamentary Ombudsman.

49. In terms of remedy, COP1 contains the following relevant paragraphs:

    "Putting things right

    We try to make things as straightforward as possible for our customers and to give a high standard of service. Unfortunately,

    •    continually failed to act on information you provided".

50. Mr Martin availed himself of the COP1 process. On 26 November 1999 his complaint was rejected by the regional Director. In response Mr Martin sent a more detailed account of the problems allegedly caused by the delay in issuing the CIS6 certificate together with the chronology to which I have referred in paragraph 35 above. On 21 December 1999 Mr Martin's complaint was referred to the independent Adjudicator (Dame Barbara Mills QC). On 28 March 2000 the Adjudicator rejected Mr Martin's complaint. She found no evidence of serious errors or delays on the part of the Revenue. It is to be noted that at this stage the Revenue was maintaining that Mr Harrison was not obliged to accept Mr Martin's sole trader accounts in support of an application by the Claimant.

51. In June 2000 John Hutton MP referred Mr Martin's complaint to the Parliamentary Ombudsman (Mr Michael Buckley). The Ombudsman's investigation resulted in a striking and important letter dated 6 October 2000 from Miss Ann Chant CB, Deputy Chairman of the Inland Revenue, to the Ombudsman. The following passages are material:

    "On 9 June Mr Martin visited Furness Tax Office to apply for a Sub-contractor's Tax Certificate. The Tax Office could not accept the application because it was a form prepared for Mr Martin as a sole trader rather than as a limited company. They also mistakenly said that they could not accept his application because he had no accounts for Neil Martin Limited and accounts were needed to satisfy one of the conditions for issuing a certificate ...

    After discussions with Mr Harrison, the Construction Industry Scheme Manager at Furness, it was agreed that the sole trader accounts would be acceptable. This was, of course, the correct decision, and Mr Martin should not have had his application rejected on this issue in the first place ...

    I am sorry that it took so long for us to issue Mr Martin with the Sub-contractor's Certificate. We have been unable to establish exactly what happened in this case because Mr Martin's description of his contacts with Furness Tax Office do not tally with the office's notes of his visits and calls there. This was a particularly hectic time for the office, and I do not claim that their record-keeping would have been infallible. Anyway, it is clear that we made a number of mistakes in dealing with his application.

    When Mr Martin called in to our Furness office on 9 June, we should not have told him that we could not accept his application without company accounts. Our instructions say that where a business incorporates, and the nature of that business is essentially the same, then we base the qualifying tests for a certificate on the previous business. It would seem at this stage all that needed to be done was for Mr Martin to fully complete application forms for his company and transpose the figures he had entered on the sole trader forms which he had already completed.

    As it was, Mr Martin called back to the Tax Office on 16 June with completed company application forms. At this stage we should have been able to carry out the necessary identity check and then processed his application. Unfortunately, the Inspector requested sight of some accounts before he could accept the application. Again, this was wrong ...

    Whatever the dates involved, when Mr Martin did visit the tax office he left without signing the forms. As part of our identification cheek, our instructions require us to check the signatures on the application forms, so it is clear that we should not have let this happen ...

    The certificate was sent to the wrong address, and 1 apologise for this. We send certificates to the applicant's private address, and the latest private address for Mr Martin on our Self Assessment records at the time was 25 Roose Road, but we had details of his new address in the company file, and the Inspector should have checked this. However, Mr Martin's father lived at 25 Roose Road (as did another director of the company) so presumably no delay was caused by the certificate going there.

    Conclusion

    We made a number of mistakes in dealing with the company's application. As a result, the certificate was delayed by some six or seven weeks, and Mr Martin had to have some further unnecessary delays with Furness Tax Office in July and August. J think our shortcomings amount to persistent error within our Code of Practice on Mistakes and, therefore, we would be pleased to consider a claim from Mr Martin for any reasonable costs he has directly incurred as a result of our errors. I understand that he has already submitted some figures to illustrate his business losses, but a detailed claim would help us to deal with this as quickly as possible.

    Lastly, it is clear that the report provided to the Adjudicator was substantially incorrect. We told her unequivocally that we were correct to tell Mr Martin that his company did not qualify for a certificate in the absence of company accounts. This was specifically recorded in her report on the case in which Mr Martin's complaint was not upheld. It also appears that other relevant information (albeit not an issue raised by Mr Martin) was not provided. I am deeply concerned about this, and am writing to Barbara Mills to explain, and offer my full apologies".

52. On 11 January 2001 the Ombudsman upheld Mr Martin's complaint, essentially on the basis of the admissions made in Miss Chant's letter.

53. In the light of the Ombudsman's decision and Miss Chant's unequivocal acceptance that the Revenue had been guilty of "persistent error" within the scope of COP1, Mr Martin advanced a claim for compensation under the voluntary scheme. On 5 February 2001 the solicitors then acting for him notified the Revenue of a claim for £474,242. The bulk of this claim related to contracts allegedly lost because of the Claimant's inability to produce its CIS6 certificate.

54. Over the next year correspondence ensued between the Revenue and Mr Martin's solicitors in relation to this claim. The Revenue understandably sought further information and documentary evidence to test the claim, some of which at least was provided by Mr Martin's solicitors. A meeting between the parties also took place in Manchester on 19 June 2001.

55. On 13 May 2002 the Revenue wrote to Mr Martin rejecting most of the elements of his Claim. It was prepared to consider a payment only in respect of administration expenses incurred by Mr Martin, such as legal fees, postage, telephone bills and travel expenses amounting in total to about £3,000. The balance of the claim, in particular the part relating to lost business, was rejected on the basis that there was insufficient evidence to establish a causal link between the Revenue's failures and the Claimant's poor cashflow and loss of contracts in succeeding months. The amounts claimed were also said to be mere speculative. projections of what might have happened. In earlier correspondence the Revenue had in addition pointed out that Mr Martin was attempting to recover the gross value of the alleged lost contracts rather than net profit. Following some further submissions by new solicitors instructed by Mr Martin, the Revenue confirmed its decision on 16 July 2003.

56. I should emphasise that, as the issues before me were limited to whether the Revenue owed the Claimant private law duties and were in breach of any such duties, I heard no evidence and no argument as to whether the Revenue's conclusions in relation to the COP1 claim were correct. However, it is of some significance for present purposes that the Revenue did not contend that under COP1 consequential economic losses, such as loss of net profit, could not as a matter of principle be recovered.

    The Preliminary Issues

57. I have set out the issues ordered to be tried in paragraph 5 above. Issues (1) (statutory duty) and (3) (common law duty of care) raise questions of law. I propose to deal with them first before going on to consider the questions of breach raised in issues (2) and (4).

58. Before embarking on an analysis of the relevant law I should mention one important development which occurred during the trial. The Claimant's pleaded case alleged a direct common law duty of care on the part of the Revenue. However, it became clear during the trial that Mr Bowen wished to argue in the alternative that the Revenue was vicariously liable for the negligence of Mr Harrison. I also heard oral evidence directed to this issue. On day 5 I gave the Claimant permission to amend its Particulars of Claim so as to allege that the Revenue was vicariously liable for the negligence of Mr Harrison in the following specific respects:

    (1) the refusal to accept sale trader accounts In support of the Claimant's application for a certificate;

    (2) the failure to ensure that the July forms were signed by Mr Martin;

    (3) the incorrect processing of the July forms as an application for a registration card;

    (4) a failure to advise the Claimant that it required in addition an old- style 714 certificate to cover the period between June and 31 July 1999;

    (5) the error made on the August CIS3 form regarding the Claimant's UTR;

    (5) the failure to send the CIS6 certificate to the correct address.

    In the light of these amendments, I have, with the agreement of Counsel, treated issues (3) and (4) as expanded so as to embrace the claim based on vicarious liability for the acts and omissions of Mr Harrison.

    Breach of statutory duty

59. English law does not recognise a claim for damages for breach of a public law right as such. A claimant who wishes to recover monetary compensation for losses allegedly suffered as a result of a breach by a public authority of its statutory duties must therefore satisfy the Court that the statute in question confers on him a private law cause of action. The position is, of course, different where the claimant's objective is to enforce performance of the relevant duty rather than recover compensation for past breaches. In the latter case, the claimant may obtain appropriate remedies by way of an application for judicial review.

    60 .. There were two limbs to Mr Bowen's argument on this part of the Claimant's case. First, recognising that section 561(2) of ICTA imposes no express time limit for the processing of certificate applications, he argued that the subsection should be construed as if it read

    " ... the Board shall within a reasonable time issue to that individual or company a certificate ... ".

    This argument was based largely, but not entirely, on the Court's interpretative obligations under section 3 of the Human Rights Act 1998. That, in turn, raised questions of considerable difficulty such as the extent to which section 3 operated retrospectively in relation to legislation enacted before 2 October 2000. Secondly, Mr Bowen argued that section 561 (2) as so construed was intended to confer a private law cause of action on a sub-contractor who suffered loss as a result of undue delay by the Revenue in processing his application for a tax certificate.

61. For present purposes, I am prepared (without so deciding) to assume that the words "within a reasonable time" should be read into section 561 (2). I will therefore proceed to consider the principles governing whether a private law remedy should be inferred ..

62. It is clear from the authorities that, ultimately, this is a question of construction of the particular statute. Here, the issue is whether Parliament in 1988 intended to confer a tortious right of action on ·applicants for a tax certificate under section 561 (2) in the event of undue delay.

63. The House of Lords has on a number of occasions given guidance as to the factors or indicators which may be relevant in this process of construction. Thus in Cutler v Wandsworth Stadium Ltd [1949] AC 398 at 407, Lord Simonds stated:

    "My Lords, in my opinion the judgment of the Court of Appeal was clearly right. It is, I think, true that it is often a difficult question whether, where a statutory obligation is placed on A, B who conceives himself to be damnified by A's breach of it has a right of action against him. But on the present case I cannot entertain any doubt. I do not propose to try to formulate any rules by reference to which such a question can infallibly be answered. The only rule which in all circumstances is valid is that the answer must depend on a consideration of the whole Act and the circumstances, including the pre-existing law, in which it was enacted. But that there are indications which point with more or less force to the one answer or the other is clear from the authorities which, even where they do not bind, will have great weight with the House. For instance, if a statutory duty is prescribed but no remedy by way of penalty or otherwise for its breach is imposed, it can be assumed that a right of civil action accrues to the person who is damnified by the breach. For, if it were not so, the statute would be but a pious aspiration. But "where an Act" (I cite now from the judgment of Lord Tenterden CJ in Doe v Bridges 1 B&Ad.847, 859) "creates an obligation and enforces the performance in a specified manner, we take it to be a general rule that performance cannot be enforced in any other manner". This passage was cited with approval by the Earl of Halsbury LC in Pasmore v Oswaldtwistle Urban District Council [1898] AC 387, 394. This general rule is subject to exceptions. It may be that, although a specific remedy is provided by the Act, yet the person injured has a personal right of action in addition".

    More recently, in Lonrho Ltd v Shell Petroleum Co Ltd [1982] AC 173 at 185, Lord Diplock said:

    "The sanctions Order thus creates a statutory prohibition upon the doing of certain classes of acts and provides the means of enforcing the prohibition by prosecution for a criminal offence which is subject to heavy penalties including imprisonment. So one starts with the presumption laid down originally by Lord Tenterden CJ in Doe d. Murray v Bridaes (1832) 1 B&Ad.847, 859, where he spoke of the "general rule" that "where an Act creates an obligation, and enforces the performance in a specified manner ... that performance cannot be enforced in any other manner" - a statement that has frequently been cited with approval ever since, including on several occasions in speeches in this House. Where the only manner of enforcing performance for which the Act provides is prosecution for the criminal offence of failure to perform the statutory obligation or for contravening the statutory prohibition which the Act creates, there are two classes of exception to this general rule.

    The first is where upon the true construction of the Act it is apparent that the obligation or prohibition was imposed for the benefit or protection of a particular class of individuals, as in the case of the Factories Acts and similar legislation. As Lord Kinnear put it in Butler (or Black) v Fife Coal Co Ltd [1912] AC 149, 165, in the case of such a statute:

    "There is no reasonable ground for maintaining that a proceeding by way of penalty is the only remedy allowed by the statute ... We are to consider the scope and purpose of the statute and in particular for whose benefit it is intended. Now the object of the present statute is plain. It was intended to compel mine owners to make due provision for the safety of the men working in their mines, and the persons for whose benefit all these rules are to be enforced are the persons exposed to danger. But when a duty of this kind is imposed for the benefit of particular persons there arises at common law a correlative right in those persons who may be injured by its contravention".

    The second exception is where the statute creates a public right (Le. a right to be enjoyed by all those of Her Majesty's subjects who wish to avail themselves of it) and a particular member of the public suffers what Brett J in Benjamin v Storr (1874) LR 9CP, 400, 407, described as "particular, direct and substantial" damage "other and different from that which was common to all the rest of the public"."

64. These passages therefore direct attention to the following questions: (1) Does ICTA provide a remedy for breach of the duty imposed by section 561 (2)? (2) Was that duty imposed for the benefit or protection of a particular class of individuals? (3) Did the statute create a public right and has the Claimant suffered "particular, direct and substantial" damage other and different from that which is common to the rest of the public?

65. These questions, except possibly the third, do not admit of easy answers. As for the first, section 561 (9) provides an express statutory remedy in the event of the refusal of an application for a certificate or of the cancellation of a certificate under section 561 (8). However, it provides no remedy for the breach of which the Claimant complains, namely undue delay. As for the second question, it can be argued that the duty imposed by section 561 (2) was obviously imposed for the benefit of a particular class, namely sub-contractors who apply for a tax certificate, because they are the only possible beneficiaries of the exemption provided by that subsection. However, the authorities seem to me to require a broader survey of Parliament's intentions. In the present case, the primary purpose of ICTA as a whole is to impose liability for income and corporation taxes on taxpayers for the benefit of the general public (including non-taxpayers). The purpose of Part XIII Chapter IV of ICT A, which governs the CIS, is to protect the Revenue, and thus the general public, against tax fraud by sub-contractors. As for the third question, although Mr Bowen argued faintly to the contrary, this is not in my judgment a case where section 561 (2) creates a general public right and the Claimant has suffered special damage. The Revenue's duty under section 561(2) is owed only to the specific sub-contractor who applies for a certificate.

66. The fact that the first two questions, at least, do not provide an obvious answer make it all the more important to remember that these are indicators only and not free-standing tests, As Lord Simonds said in Cutler, the only. rule is that "the answer must depend on a consideration of the whole Act and the circumstances, including the pre-existing law, in which it was enacted". This was echoed by Lord Slynn of Hadley in Phelps v Hillingdon London Borough Council [2001] 2 AC 619 at 652. Having referred to the guidance in Cutler and Lonrho he said:

    "Arguably, both of these can be said to apply to some sections of the Education Acts. But again neither is conclusive; a broader approach is required. As Lord Jauncey of Tullichettle put it in B v Deputy Governor of Parkhurst Prison. ex parte Hague [1992] 1 AC 58, 170:

    "It must always be a matter for consideration whether the legislature intended that private law rights of action should be conferred on individuals in respect of breaches of the relevant statutory provision»."

67. Mr Bowen made a spirited attempt to persuade me that Parliament intended to confer a private law claim for damages on sub-contractors experiencing undue delay in the processing of their certificate applications. He relied on a number of factors. First, that the duty imposed on the Revenue by section 561(2) is specific and clear. There is no discretion whether or not to grant a certificate. The only question is whether the statutory tests have been satisfied. The subsection involves a purely fact-finding exercise. Secondly, the commercial importance to sub-contractors of the prompt processing of a certificate application in a business where margins are tight and cashflow is king. In addition. the effect of the CIS is to interfere with normal contractual relations between contractors and sub-contractors. Thirdly, sub-contractors who apply for tax certificates are a relatively small and ascertainable group. Fourthly, the imposition of a private law remedy may enhance the statutory purpose of preventing tax fraud as it will increase confidence in the fairness of the system. Fifthly, in the absence of a claim for breach of statutory duty, sub-contractors in the position of the Claimant will have no remedy in respect of past losses.

68. I accept all these points and_ need only comment specifically on the fifth. It is clear that a sub-contractor experiencing undue delay in the processing of his certificate application could apply for judicial review of the Revenue's failure to notify a decision and thereby secure performance of the Revenue's statutory duty. However, in the absence of a private law obligation, the Court would have no power to award damages in respect of losses incurred by reason of the delay: see, for example, per Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 730F-H. In the present context the Revenue placed no reliance on the voluntary COP1 scheme because the existence or otherwise of a claim for breach of statutory duty depends on Parliament's intentions in 1988 and the Revenue could not establish whether COP1 was operational at that time.

69. Nevertheless, I have reached the conclusion that Parliament did not intend to confer a private law claim for damages on sub-contractors experiencing delay in the processing of their certificate applications. There are a number of reasons for this. First, this seems to me to be the only conclusion consistent with section 561 (9). Parliament provided an express but limited remedy in the case of refusals and cancellations. The General/Special Commissioners, on appeal by a sub-contractor, could reverse the Revenue's decision to refuse or cancel a certificate. My understanding is that they could not award any form of monetary compensation for losses incurred by reason of a wrongful refusal or cancellation and neither Counsel argued to the contrary. The conclusion seems to me inescapable that Parliament did not intend sub-contractors who had certificates refused or cancelled to have a claim for monetary compensation against the Revenue. If it had so intended, provision would have been made for such a remedy in section 561 (9). Since it is clear that the same type of losses as are alleged by the Claimant to have resulted from delay could result from wrongful refusal or cancellation of a certificate, it would be absurd to find that Parliament intended a private law claim to arise in the case of delay but not in the case of refusal or cancellation. None of this explains why no remedy at all for delay is provided by section 561(9). I suspect it is because Parliament simply did not have in mind the possibility of significant delay by the Revenue in performing its functions under the subsection. It should be borne in mind that at least part of the delay in the Claimant's case was caused by the one-off bow wave of applications on the introduction of the new scheme. In any event, I am satisfied that the denial of a private law claim to the Claimant will not reduce the duties imposed on the Revenue by section 561 (2) to a "pious aspiration" (to use the celebrated expression employed by Lord Simonds in Cutler). As I have mentioned, sub- contractors experiencing undue delay would be able to enforce performance of the Revenue's duty by an application for judicial review. The absence of a financial remedy for past losses does not deprive the statutory duty of substance.

70. Secondly, I think it is wholly unrealistic to treat any part of Part XIII Chapter IV of ICT A as having been enacted for the protection or benefit of sub-contractors. Those provisions were enacted to protect the Revenue, and thereby the general public, against potential fraud by sub-contractors. The fact that section 561 creates an exemption from the general scheme does not alter this. The legislation in the present case does not seem to me to be at all comparable with that designed to protect factory or mine workers. I am reinforced in this conclusion by the fact that Counsel's researches did not reveal any previous case in which a claim for breach of statutory duty has succeeded where the relevant duty was to grant an exemption from a scheme primarily designed to regulate the activities of a class including the claimant. It is also pertinent in this context to refer to the observations of Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council at 731-2:

    "Although the question is one of statutory construction and therefore each case turns on the provisions in the relevant statute, it is significant that your Lordships were not referred to any case where it had been held that statutory provisions establishing a regulatory system or a scheme of social welfare for the benefit of the public at large had been held to give rise to a private right of action for damages for breach of statutory duty. Although regulatory or welfare legislation affecting a particular area of activity does in fact provide protection to those individuals particularly affected by that activity, the legislation is not to be treated as being passed for the benefit of those individuals but for the benefit of society in general".

    These remarks were made in circumstances where the claimants were within the class of individuals for whom the statutory scheme in fact provided protection. They apply with added force where the claimant is within the class of individuals whose conduct is being regulated.

71. Thirdly, the relevant question is not whether it would have been appropriate or reasonable for Parliament to have provided a private law . remedy but whether, as a matter of construction, it actually intended to do so. The points relied on by Mr Bowen seem to me to go more to the former question than to the latter.

    Common law duty

    The applicable principles

72. Whether the law will impose a tortious duty of care in respect of the exercise of statutory powers or the performance of statutory duties by public authorities is a notoriously difficult question. I take comfort from the following passage in the speech of Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council at 735:

    "In this category, the claim alleges either that a statutory duty gives rise to a common law duty of care owed to the plaintiff by the defendant to do or refrain from doing a particular act or (more often) that in the course of carrying out a statutory duty the defendant has brought about such a relationship between himself and the plaintiff as to give rise to a duty of care at common law. A further variation is a claim by the plaintiff that, whether or not the authority is itself under a duty of care to the plaintiff, its servant in the course of performing the statutory function was under a common law duty of care for breach of which the authority is vicariously liable.

    Mr Munby, in his reply in the Newham case, invited your Lordships to lay down the general principles applicable in determining the circumstances in which the law would impose a common law duty of care arising from the exercise of statutory powers or duties. I have no doubt that, if possible, this would be most desirable. But I have found it quite impossible either to detect such principle in the wide range of authorities and academic writing to which we were referred or to devise any such principle de novo. The truth of the matter is that statutory duties now exist over such a wide range of diverse activities and take so many different forms that no one principle is capable of being formulated applicable to all cases".

    Similarly, in Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 at 1059 Lord Steyn said:

    "There are, however, a few remarks that I would wish to make about negligence and statutory duties and powers. This is a subject of great complexity and very much an evolving area of the law. No single decision is capable of providing a comprehensive analysis. It is a subject on which an intense focus on the particular facts and on the particular statutory background, seen in the context of the contours of our social welfare state, is necessary."

73. The present case is concerned only with economic loss. In a purely private law context, the imposition of a common law duty of care to prevent financial loss depends on the application of a number of tests which are now well-known, even if they do not always provide a straightforward answer. The current state of the law in this context was summarised by Lord Bingham of Cornhill in Customs & Excise Commissioners v Barclays Bank plc [2006] 3 WLR 1 at 5:

    "The test of tortious liability in negligence for pure financial loss

    The parties were agreed that the authorities disclosed three tests which have been used in deciding whether a defendant sued as causing pure economic loss to a claimant owed him a duty of care in tort. The first is whether the defendant assumed responsibility for what he said and did vis-à-vis the claimant, or is to be treated by the raw as having done so. The second is commonly known as the threefold test: whether loss to the claimant was a reasonably foreseeable consequence of what the defendant did or failed to do; whether the relationship between the parties was one of sufficient proximity; and whether in all the circumstances it is fair, just and reasonable to impose a duty of care on the defendant towards the claimant (what Kirby J in Perre v Apand Pty Ltd [1999] HCA 36 , (1999) 198 CLR 180, para.259, succinctly labelled "policy"). Third, is the incremental test, based on the observation of Brennan J in Sutherland Shire Council v Heyman (1985) 157 CLR 424, 481, approved by Lord Bridge of Harwich in Caparo Industries plc v Dickman [1990] 2 AC 605 ,618, that

    "It is preferable, in my view, that the law should develop novel categories of negligence incrementally and by analogy with established categories. rather than by a massive extension of a pima facie duty of care restrained only by indefinable "considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed".

    Mr Brindle QC for the Bank contended that the assumption of responsibility test was most appropriately applied to this case, and that if applied it showed that the Bank owed no duty of care to the Commissioners on the present facts. But if it was appropriate to apply either of the other tests the same result was achieved. Mr Sales for the Commissioners submitted that the threefold test was appropriate here, and that if applied it showed that a duty of care was owed. But if it was appropriate to apply either of the other tests they showed the same thing. In support of their competing submissions Counsel made detailed reference to the leading authorities ... These authorities yield many valuable insights, but they contain statements which cannot readily be reconciled. I intend no discourtesy to Counsel in declining to embark on yet another exegesis of these well-known texts. I content myself at this stage with five general observations. First, there are cases in which one party can accurately be said to have assumed responsibility for what is said or done to another, the paradigm situation being a relationship having all the indicia of contract save consideration. Hedley Byrne would, but for the express disclaimer, have been such a case. White v Jones and Henderson v Merrett, although the relationship was more remote, can be seen as analogous. Thus, like Colman J (whose methodology was commended by Paul Mitchell and Charles Mitchell, "Negligence Liability for Pure Economic Loss" [2005] 121 LQR 194, 199), I think it is correct to regard an assumption of responsibility as a sufficient but not a necessary condition of liability, a first test which, if answered positively, may obviate the need for further enquiry. If answered negatively, further consideration is called for.

    Secondly, however, it is clear that the assumption of responsibility test is to be applied objectively (Henderson v Merrett p.181) and is not answered by consideration of what the defendant thought or intended ...

    The problem here is, as I see it, that the further this test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the Jess difference there is between this test and the threefold test.

    Thirdly, the threefold test itself provides no straightforward answer to the vexed question whether or not, in a novel situation, a party owes a duty of care ...

    Fourthly, I incline to agree with the view expressed by the Messrs Mitchell in their article cited above, p.199, that the incremental test is of little value as a test in itself, and is only helpful when used in combination with a test or principle which identities the legally significant features of a situation. The closer the facts of the case in Issue to those of a case in which a duty of care has been held to exist, the readier a court will be, on the approach of Brennan J adopted in Caparo v Dickman, to find that there has been an assumption of responsibility or that the proximity and policy conditions of the threefold test are satisfied. The converse is also true.

    Fifthly, it seems to me that the outcomes (or majority outcomes) of the leading cases cited above are in every or almost every instance sensible and just, irrespective of the test applied to achieve that outcome. This is not to disparage the value of and need for a test of liability in tortious negligence, which any law of tort must propound if it is not to become a morass of single instances. But it does in my opinion concentrate attention on the detailed circumstances of the particular case and the particular relationship between the parties in the context of their legal and factual situation as a whole"

74. The existence of a public law dimension in the present case has, it seems to me, two principal consequences. First, the authorities indicate that certain additional issues or tests have to be grafted onto the underlying private law foundation. Secondly, the statutory framework will playa very important role in the Court's decision as to how the private law criteria, especially the "fair, just and reasonable" test, should be applied.

75. The starting-point for considering the impact of the public law dimension is the decision of the House of Lords in X (Minors) v Bedfordshire County - Council, a case concerned with the performance of duties imposed on local authorities by child protection and education legislation. In the leading speech, Lord Browne-Wilkinson said this at 736-737:

    " Discretion

    Most statutes which impose a statutory duty on local authorities confer on the authority a discretion as to the extent to which, and the methods by which, such statutory duty is to be performed. It is clear both in principle and from the decided cases that the local authority cannot be liable in damages for doing that which Parliament has authorised. Therefore if the decisions complained of fall within the ambit of such statutory discretion they cannot be actionable in common law. However if the decision complained of is so unreasonable that it falls outside the ambit of the discretion conferred upon the local authority, there is no a priori reason for excluding all common law liability ...

    It follows that in seeking to establish that a local authority is liable at common law for negligence in the exercise of a discretion conferred by statute, the first requirement is to show that the decision was outside the ambit of the discretion altogether: if it was not, a local authority cannot itself be in breach of any duty of care owed to the plaintiff.

    In deciding whether or not this requirement is satisfied, the court has to assess the relevant factors taken into account by the authority in exercising the discretion. Since what are under consideration are discretionary powers conferred on public bodies for public purposes the relevant factors will often include policy matters, for example social policy, the allocation of finite financial resources between the different calls made upon them or (as in Dorset Yacht) the balance between pursuing desirable social aims as against the risk to the public inherent in so doing. It is established that the courts cannot enter upon the assessment of such "policy" matters. The difficulty is to identify in any particular case whether or not the decision in question is a "policy" decision".

    He went on to deal at 739 with the principles which apply if the claim is justiciable:

    "If justiciable, the ordinary principles of negligence apply

    If the plaintiff's complaint alleges carelessness, not in the taking of a discretionary decision to do some act, but in the practical manner in which that act has been performed (e.g. the running of a school) the question whether or not there is a common law duty of care falls to be decided by applying the usual principles Le. those laid down in Caparo Industries plc v Dickman [1990] 2 AC 605 , 617, 618. Was the damage to the plaintiff reasonably foreseeable? Was the relationship between the plaintiff and the defendant sufficiently proximate? Is it just and reasonable to impose a duty of care? See Rowling v Takara Properties Ltd [1988] AC 473; Hill v Chief Constable of West Yorkshire [1989] AC 53

    However the question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done. The position is directly analogous to that in which a tortious duty of care owed by A to C can arise out of the performance by A of a contract between A and B. In Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 your Lordships held that A (the managing agent) who had contracted with B (the members' agent) to render certain services for C (the Names) came under a duty of care to C in the performance of those services. It is clear that any tortious duty of care owed to C in those circumstances could not be inconsistent with the duty owed in contract by A to B. Similarly, in my judgment a common law duty of care cannot be imposed on a statutory duty if the observance of such common law duty of care would be inconsistent with, or have a tendency to discourage, the due performance by the local authority of its statutory duties".

    and with the difference between direct and vicarious liability at 739-740:

    "Direct liability and vicarious liability

    In certain of the appeals before the House, the local authorities are alleged to be under a direct duty of care to the plaintiff not only in relation to the exercise of a statutory discretion but also in relation to the operational way in which they perform that duty.

    This allegation of direct duty of care owed by the authority to the plaintiff is to be contrasted with those claims which are based on the vicarious liability of the local authority for the negligence of its servants, Le. for the breach of a duty of care owed by the servant to the plaintiff, the authority itself not being under any relevant duty of care to the plaintiff. Thus, in the Newham case the plaintiffs' case is wholly based on allegations that two professionals, a social worker and a psychiatrist, individually owe professional duties of care to the plaintiff for the breach of which the authorities as their employers are vicariously liable. It is not alleged that the authorities were themselves under a duty of care to the plaintiff.

    This distinction between direct and vicarious liability can be important since the authority may not be under a direct duty of care at all or the extent of the duty of care owed directly by the authority to the plaintiff may well differ from that owed by a professional to a patient. However, it is important not to lose sight of the fact that, even in the absence of a claim based on vicarious liability, an authority under a direct duty of care to the plaintiff will be liable for the negligent acts or omissions of its servant which constitute a breach of that direct duty. The authority can only act through its servants.

    The position can be illustrated by reference to the hospital cases. It is established that those conducting a hospital are under a direct duty of care to those admitted as patients to the hospital (I express no view as to the extent of that duty). They are liable for the negligent acts of a member of the hospital staff which constitute a breach of that duty, whether or not the member of staff is himself in breach of a separate duty of care owed by him to the plaintiff ... Therefore in the cases under appeal, even where there is no allegation of a separate duty of care owed by a servant of the authority to the plaintiff, the negligent acts of that servant are capable of constituting a breach of the duty of care (if any) owed directly by the authority to the plaintiff'.

    He summarised the relevant enquiry to be conducted as follows (740):

    " Summary

    In accordance with the principles I have discussed, I propose to approach each of these cases as follows. I will consider first (if such claim is advanced) whether the statutory provisions by themselves give rise to a private law claim in damages (category A). I will turn then to consider whether in each case there is a common law duty of care owed to the plaintiff. I will consider the following matters in turn, to the extent that they are relied upon.

    (1) Direct duty of care owed by the local authority

    (a) Is the negligence relied upon negligence in the exercise of a statutory discretion involving· policy considerations: if so the claim will pro tanto fail as being non-justiciable; (b) were the acts alleged to give rise to the cause of action within the ambit of the discretion conferred on the local authority; if not (c) is it appropriate to impose on the local authority a common law duty of care?

    (2) Vicarious liability of the local authority

    (a) Is the duty of care alleged to be owed by the servant of the local authority consistent with the proper performance of his duties to the local authority; if so (b) is it appropriate to impose on the servant the duty of care alleged?"

76. In Stovin v Wise [1996] AC 923 the House of Lords addressed the interrelationship between claims for breach of statutory duty and for breach of a common law duty of care in a statutory context. In his dissenting speech at 934 Lord Nicholls of Birkenhead framed the issue thus:

    "The Anns principle has to cope with a complication absent from other landmark decisions such as Donoghue v Stevenson [1932] AC 562 and Hedley Byrne v Heller & Partners Ltd [1964] AC 465. Typically, although not necessarily, the effect of an application of the Anns principle will be to bring home against an authority a liability for damages for failure to perform public law obligations created by statute. Thus in the Anns case, unlike in Donoghue v Stevenson and the Hedley Byrne case, it is necessary to consider the legislative intention. Resort to Anns is not required when Parliament created a statutory duty and also, expressly or impliedly, a cause of action for breach of the duty. The problem only arises outside the area where Parliament has willed that the individual shall have a remedy in damages. This gives rise to the difficulty of how much weight should be accorded the fact that, when creating the statutory function, the legislature held back from attaching a private law cause of action. The law must recognise the need to protect the public exchequer as well as private interests."

    Lord Nicholls went on at 935 to say this:

    "Since the will of the legislature is paramount in this field, the common law should not impose a concurrent duty inconsistent with this framework. A common law duty must not be inconsistent with the performance by the authority of its statutory duties and powers in the manner intended by Parliament, or contrary in any other way to the presumed legislative intention".

    The answer given by the majority of their Lordships to the issue framed by Lord Nicholls appears from the speech of Lord Hoffmann at 952-953:

    "Whether a statutory duty gives rise to a private cause of action is a question of construction: see Rea. v Deputy Governor of Parkhurst Prison. ex parte Hague [1992] 1 AC 58. It requires an examination of the policy of the statute to decide whether it was intended to confer a right to compensation for breach. Whether it can be relied upon to support the existence of a common law duty of care is not exactly a question of construction, because the cause of action does not arise out of the statute itself but the policy of the statute is nevertheless a crucial factor in the decision. As Lord Browne-Wilkinson said in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, 739C in relation to the duty of care owed by a public authority performing statutory functions:

    "The question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done".

    The same is true of omission to perform a statutory duty. If such a duty does not give rise to a private right to sue for breach, it would be unusual if it nevertheless gave rise to a duty of care at common law which made the public authority liable to pay compensation for foreseeable loss caused by the duty not being performed. It will often be foreseeable that loss will result if, for example, a benefit or service is not provided. If the policy of the Act is not to create a statutory liability to pay compensation, the same policy should ordinarily exclude the existence of a common law duty of care".

77. This theme was developed in Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 where Lord Hoffmann stated at 1065:

    "Since the existence of the statutory power is the only basis upon which a common law duty was claimed to exist, it seemed to be relevant to ask whether, in conferring such powers, Parliament could be taken to have intended to create such a duty. If a statute actually imposes a duty, it is well settled that the question of whether it was intended to give rise to a private right of action depends on the construction of the statute ... If the statute does not create a private right of action, it would be, to say the least, unusual if the mere existence of the statutory duty could generate a common Jaw duty of care.

    For example, in O'Rourke v Camden London Borough Council [1998] AC 188 a homeless person sued for damages on the ground that the council had failed in its statutory duty to provide him with accommodation. The action was struck out on the ground that the statute did not create a private law right of action, . ,

    In the absence of a right to sue for breach of the statutory duty itself, it would in my opinion have been absurd to hold that the council was nevertheless under a common law duty to take reasonable care to provide accommodation for homeless persons whom it could reasonably foresee would otherwise be reduced to sleeping rough. (Compare Stovin v Wise [1996] AC 923, 952-953). And the argument would in my opinion have been even weaker if the council, instead of being under a duty to provide accommodation, merely had a power to do so".

    He added at 1 067:

    "Speaking for myself, I find it difficult to imagine a case in which a common law duty can be founded simply upon the failure (however irrational) to provide some benefit which a public authority has power (or a public law duty) to provide".

    Lord Hoffmann's use of the word "simply" in this passage is explained by what he said at 1 068-1 069:

    "My Lords. I must make it clear that this appeal is concerned only with an attempt to impose upon a local authority a common law duty to act based solely on the existence of a broad public law duty. We are not concerned with cases in which public authorities have actually done acts or entered into relationships or undertaken responsibilities which give rise to a common law duty of care. In such cases the fact that the public authority acted pursuant to a statutory power or public duty does not necessarily negative the existence of a duty. A hospital trust provides medical treatment pursuant to the public law duty in the 1977 Act, but the existence of its common law duty is based simply on its acceptance of a professional relationship with the patient no different from that which would be accepted by a doctor in private practice. The duty rests upon a solid, orthodox common law foundation and the question is not whether it is created by the statute but whether the terms of the statute (for example, in requiring a particular thing to be done or conferring a discretion) are sufficient to exclude it".

    Lord Scott of Foscote put the matter even more trenchantly at 1078-1079:

    "I respectfully agree with these passages from [Lord Hoffmann's] judgment in Stovin v Wise. Indeed, I would be inclined to go further. In my opinion, if a statutory duty does not give rise to a private right to sue for breach, the duty cannot create a duty of care that would not have been owed at common law if the statute were not there. If the policy of the statute is not consistent with the creation of a statutory liability to pay compensation for damage caused by a breach of statutory duty, the same policy would, in my opinion, exclude the use of the statutory duty in order to create a common law duty of care that would be broken by a failure to perform the statutory duty. I would respectfully accept Lord Browne-Wilkinson's comment in X (Minors) v Bedfordshire County Council at p. 739 that "the question whether there is such a common law duty and if so its ambit, must be profoundly influenced by the statutory framework within which the acts complained of were done". But that comment cannot be applied to a case where the defendant has done nothing at all to create the duty of care and all that is relied on to create it is the existence of the statutory duty. 'In short, I do not accept that a common law duty of care can grow parasitically out of a statutory duty not intended to be owed to individuals ...

    There are, of course, many situations in which a public authority with public duties has a relationship with a member of the public that justifies imposing on the public authority a private law duty of care towards that person. And the steps required to be taken to discharge that private law duty of care may be steps comprehended within the public duties. Barrett v Enfield London Borough Council [2001] 2 AC 550 and Phelps v Hillingdon London Borough Council [2001] 2 AC 619 are examples. But the council in the present case had no relationship with Mrs Gorringe that it did not have with every other motorist driving on the stretch of road in question".

78. The issue of a public authority's vicarious liability for its employees has also been considered at length in recent cases. In Phelps v Hillingdon London Borough Council [2001] 2 AC 619 at 653-655 Lord Slynn of Hadley said this:

    "If a duty would exist where advice was given other than pursuant to the exercise of statutory powers, such duty of care is not excluded because the advice is given pursuant to the exercise of statutory powers. This is particularly important where other remedies laid down by the statute (e.g. an appeals review procedure) do not in themselves provide sufficient redress for loss which has already been caused.

    Where, as in Pamela's case, a person is employed by a local education authority to carry out professional services as part of the fulfilment of the authority's statutory duty, it has to be asked whether there is any overriding reason in principle why (a) that person should not owe a duty of care (the first question) and (b) why, if the duty of care is broken by that person, the authority as employer or principal should not be vicariously liable (the second question).

    I accept that, as was said in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, there may be cases where to recognise such a vicarious liability on the part of the authority may so interfere with the performance of the local education authority's duties that it would be wrong to recognise any liability on the part of the authority. It must, however, be for the local authority to establish that: it is not to be presumed and I anticipate that the circumstances where it could be established would be exceptional.

    As to the first question, it is long and well-established, now elementary, that persons exercising a particular skill or profession may owe a duty of care in the performance to people who it can be foreseen will be injured if due skill and care are not exercised, and if injury or damage can be shown to have been caused by the lack of care. Such duty does not depend on the existence of any contractual relationship between the person causing and the person suffering the damage. A doctor, an accountant and an engineer are plainly such a person. So in my view is an educational psychologist or psychiatrist and a teacher including a teacher in a specialised area, such as a teacher concerned with children having special educational needs. So may be an education officer performing the functions of a local education authority in regard to children with special educational needs. There is no more justification for a blanket immunity in their cases than there was in Capital & Counties plc v Hampshire County Council [1997] OB 1004.

    I fully agree with what was said by Lord Browne-Wilkinson in the X (Minors) case [1995] 2 AC 633, 766 that a head teacher owes "a duty of care to exercise the reasonable skills of a headmaster in relation to such [sc a child's] educational needs" and a special advisory teacher brought in to advise on the educational needs of a specific pupil, particularly if he knows that his advice will be communicated to the pupil's parents, "owes a duty to the child to exercise the skill and care of a reasonable advisory teacher". A similar duty on specific facts may arise for others engaged in the educational process, e.g. an educational psychologist being part of the local authority's team to provide the necessary services. The fact that the educational psychologist owes a duty to the authority to exercise skill and care in the performance of his contract of employment does not mean that no duty of care can be or is owed to the child. Nor does the fact that the educational psychologist is called in pursuance of the performance of the local authority's statutory duties mean that no duty of care is owed by him, if in exercising his profession he would otherwise have a duty of care.

    That, however, is only the beginning of the enquiry. It must still be shown that the educational psychologist is acting in relation to a particular child in a situation where the law recognises a duty of care. A casual remark, an isolated act may occur in a situation where there is no sufficient nexus between the two persons for a duty of care to exist. But where an educational psychologist is specifically called in to advise in relation to the assessment of future provision for a specific child, and it is clear that the parents acting for the child and the teachers will follow that advice, prima facie a duty of care arises. It is sometimes said that there has to be an assumption of responsibility by the person concerned. That phrase can be misleading in that it can suggest that the professional person must knowingly and deliberately accept responsibility. It is, however, clear that the test is an objective one ...

    As to the second question, if a breach of the duty of care to the child by such an employee is established, prima facie a local educational authority is vicariously liable for the negligence of its employee. If the educational psychologist does have a duty of care on the facts is it to be held that it is not just and reasonable that the local education authority should be vicariously liable if there is a breach of that duty? Are there reasons of public policy why the courts should not recognise such liability? I am very conscious of the need to be cautious in recognising such a duty of care where so much is discretionary in these as in other areas of social policy. As has been said, it is obviously important that those engaged in the provision of educational services under the statutes should not be hampered by the imposition of such a vicarious liability. I do not, however, see that to recognise the existence of the duties necessarily leads or is likely to lead to that result. The recognition of the duty of care does not of itself impose unreasonably high standards. The courts have long recognised that there is no negligence if a doctor "exercises the ordinary skill of an ordinary competent man exercising that particular art ••...

    The difficulties of the tasks involved and of the circumstances under which people have to work in this area must also be borne fully in mind. The professionalism, dedication and standards of those engaged in the provision of educational services are such that cases of liability for negligence will be exceptional. But though claims should not be encouraged and the courts should not find negligence too readily, the fact that such claims may be without foundation or exaggerated does not mean that valid claims should necessarily be excluded,"

    Lord Slynn also said this at 658:

    "Since the authority can only act through its employees or agents, and if they are negligent vicarious liability will arise, it may rarely be necessary to invoke a claim for direct liability".

79. Further guidance was given in Carty v Croydon London Borough Council [2005] 1 WLR 2312 at 2326-2328 by Dyson LJ:

    "In my judgment, the decision in Gorringe's case provides no support for the broad proposition advanced by Mr Ross. The question whether there can be a common law duty of care where there is no private law right to claim damages for breach of statutory duty does not admit of a blanket answer. There may be aspects in the role of an education officer which involve consultation or advice in respect of policy matters. It may be that, in respect of decisions taken in the performance of this part of an education officer's role, his or her activities would be non-justiciable. So too, a claim for damages for the careless failure to perform a statutory duty would not lie, because Parliament did not intend to confer on individuals the right to bring claims for damages for breach of statutory duty. That is why the mere fact that Mr McCormack failed to make a formal reassessment of the Claimant's needs in accordance with the specific requirements of regulation 9 of the 1983 Regulations cannot give rise to a private law claim (for breach of statutory duty or negligence).

    But where an education officer, in the performance of his or her statutory functions, enters into relationships with or assumes responsibilities towards a child, then he or she may owe a duty of care to that child. Whether such a duty is in fact owed will depend on the application of the Caparo test. ..

    Mr Ross advances a number of reasons why we should hold that education officers do not owe a duty of care to the children whose educational interests they are employed to serve. First he submits that an education officer is not a "professional" person, and that for this reason the principles enunciated in Barrett's case [2001] 2 AC 550 and Phelps' case [2001] 2 AC 619 have no application. There can only be vicarious liability for the acts and omissions of a professional person, whose conduct can be judged by the application of the Bolam test. He submits that an education officer performs an administrative function, which is different in kind from, for example, that of a professional person such as (in the field of education) an educational psychologist or teacher in the field of education, and a social worker (in the field of the social welfare of children). Unlike these professional persons, education officers have no professional qualifications and are not regulated by a professional body. Education officers are more akin to civil servants.

    I would hold that education officers who perform the statutory functions of local education authorities are professional persons for whose negligence authorities may be vicariously liable just as they may be liable for the acts and omissions of education psychologists and teachers. The phrase "professional person" is not a term of art. In M v Newham Borough Council (reported as X (Minors) v Bedfordshire County Council [1995] 2 AC 633, Sir Thomas Bingham MR said, at p.666:

    "Those who engage professionally in social work bring to their task skill and expertise the product partly of training and partly of experience. which ordinary uninstructed members of the public are bound to lack. I have no doubt that they should be regarded as members of a skilled profession. Their task is one of immense difficulty, and frequently they are exposed to unjust criticism; but both those things may, to a greater or lesser extent be said of other professionals also."

    These observations were approved by Lord Slynn in Barrett's case [2001] 2 AC 550, 569G. In my judgment they apply with equal force to education officers. In his witness statement, Mr McCormack gave evidence as to his own experience and expertise ...

    There is nothing in previous authority to suggest that the existence of a duty of care depends on the person having "professional" qualifications, or that education officers stand on a different footing from those employed by public bodies to perform statutory functions and who are undeniably professional persons".

    A note of caution was, however, sounded by Mummery LJ at 2337-2338:

    "One of my concerns in this developing area of the law ... is that it is all too easy, as apparently happened in some aspects of the presentation of this case at trial, to slip into the fallacy that an education officer owes a duty of care to a child because (a) under the 1981 Act the local education authority has duties and discretions in relation to children with special educational needs and (b) the education officer is employed by the authority to perform functions relevant to the performance of the statutory duties and discretions. This approach would produce a kind of circular vicarious liability in reverse: an education officer, through whom a local education authority performs its statutory functions, might, by use of the tort of negligence, be made personally liable for the failings of the authority. As employer, the authority would then be vicariously liable for the tort of negligence committed by the education officer in the course of his employment. As Gibbs J pointed out the result would be to introduce by the backdoor an action for breach of statutory duty in a case where, as here, it was agreed that no cause of action for breach of statutory duty was created by the relevant legislation.

    The authorities draw an important distinction. On the one hand there are the established grounds of liability in private law for advice negligently given, or not given, by an individual possessing professional skills. The duty of care may arise out of a special relationship, which may exist in a statutory as well as in a non-statutory setting. The duty is owed to the other person in the relationship who claims to have suffered non-physical damage and loss as a result of the negligent exercise of those skills. On the other hand, the courts have firmly rejected the notion that In a case where, as here, it is accepted that there is no cause of action for breach of statutory duty, it is sufficient for the purposes of establishing common law liability in negligence to show that an employee of a public authority, such as an education officer, has not performed, or has not properly exercised, relevant statutory obligations and discretions of the public authority."

    Mummery LJ also dealt with the question whether a public authority could only be liable for the acts of a "professional" person. At 2338 he said this:

    "Despite several references in Phelps' case to "professional employees" and "professional persons", I agree with Dyson LJ that the common law duty of care to children with special educational needs is not confined to those persons, such as doctors, who have been trained and have qualified as members of a recognised profession and are subject to professional disciplinary procedures. (Some may question whether education officers are "professional persons" (para.45). It depends on the correct use of the term "professional" in current conditions.) Classification as a "professional" is irrelevant in the present context. In some situations it may be easier in practice to establish the existence of a duty of care and a breach of such a duty on the part of a person, who is professionally trained, qualified and disciplined, than on the part of a person who is not. The crucial point, however, is that the relevant duty of care in this case does not depend on the professional status of Mr McCormack any more than it depends on the statutory obligations and discretions of the London Borough of Croydon, or on policy decisions made by it, or on the kind of statutory machinery set up by it to implement the statutory functions.

    The common law duty of care in relation" to specific advice given or not given by Mr McCormack to the London Borough of Croydon about Leon Carty and in relation to his specific decisions, acts and omissions concerning Leon arose not from the terms of the 1981 Act, but from the fact that Mr McCormack (a) acted as a person with special skills and relevant experience in operating in the statutory framework established to cater for special educational needs; (b) actually undertook specific educational responsibilities towards Leon Carty; and {c) did so in the course of the particular relationship entered into by him with Leon Carty, (d) who was a child with special educational needs".

80. I must now apply these principles to the facts of the present case. I can dispose at the outset of one potential complication arising from the public law dimension. It is clear that this is not a case in which the relevant public authority is exercising a statutory discretion involving the weighing of competing policy considerations, so there is no question of the Claimant's claim being non-justiciable.

81. Mr Bowen argued that the Revenue was (a) subject to a direct duty of care to process the Claimant's application for a tax certificate with reasonable expedition, or alternatively (b) vicariously liable for the negligence of Mr Harrison who himself owed a common law duty of care to the Claimant.

    Direct duty

82. Since I have already held that the Claimant is not entitled to claim for breach of a statutory duty to process its application within a reasonable time, the dicta in Stovin and Gorrinqe to which I have referred in paragraphs 76 and 77 above present a major obstacle to the success of this claim. Mr Bowen accepted this and acknowledged that there had to be "something more" to enable him to succeed on this aspect of the case. That "something more" was, he submitted, the relationship between Mr Martin and Mr Harrison which developed during the several meetings which took place in June, July and August 1999 and involved the giving of advice by Mr Harrison as to the requirement for company accounts upon which Mr Martin placed reliance. In this regard he relied on the dicta of Dyson LJ in Carty to which I have referred in paragraph 79 above.

83. I am unable to accept that the Revenue owed such a direct duty to the Claimant. It is part and parcel of the CIS that all sub-contractor applicants, whether for tax certificates or for registration cards, will have some personal contact with Revenue officers. That is because they must undergo an identity check. It may well be that the degree and nature of the contact between Mr Martin and Mr Harrison went beyond the routine. But I do not see how that can affect whether the Revenue owed a duty, sounding in damages. to process an application with reasonable expedition. There seems to me to be no logical link between the two. I can, of course, see that the existence of such a relationship between Mr Martin and Mr Harrison may (I emphasise "may" at this stage) give rise to a common law duty of care on the part of Mr Harrison in relation to his own conduct for breach of which the Revenue may be vicariously liable. But that is another matter which I consider separately hereafter. In this connection, it should be noted that the dicta in Carty relied on by Mr Bowen are concerned with vicarious liability and not with direct liability.

84. It was not entirely clear to me whether Mr Bowen also. maintained that the Revenue owed a direct duty of care in respect of the six specific allegations of negligence to which I have referred in paragraph 58 above. In any event, I do not accept that any such duty was owed. So far as those allegations of negligence relate to Mr Harrison's own conduct, they are more appropriately dealt with under the heading of vicarious liability. On the facts of this case, I see no prospect of the Claimant establishing direct liability if vicarious liability is not proved. So far as those allegations relate to the conduct of others, the existence of a relationship between Mr Martin and Mr Harrison is irrelevant and it was not alleged that Mr Martin had a relevant relationship with any other Revenue employee. However, I will return to this point in paragraph 123 below.

    Vicarious liability

85. The focus of the debate before me was whether Mr Harrison owed a common law duty of care to the Claimant. Mr Kent did not argue that, even if such a duty was owed, the Revenue could not be vicariously liable for Mr Harrison's conduct, for example because he was not acting in the course of his employment.

86. I propose to address this issue by reference to the three-stage Caparo test. I do so principally in order to provide a structure to this part of my judgment which will make the analysis more easily intelligible. However, mindful of the House of Lords' treatment of the various different tests in the Barclays Bank case, I will work into that analysis a consideration of both the "assumption of responsibility" and "incremental" tests.

87. The Revenue rightly conceded that it was reasonably foreseeable that delay in processing the Claimant's application for a tax certificate could cause it to suffer some economic loss.

88. In my judgment, there was also a sufficient degree of proximity between Mr Harrison and the Claimant for the second limb of the Caparo test to be satisfied. Although the concept of proximity has been described as "slippery" (per Lord Nicholls in Stovin at 932) and "notoriously elusive" (per Lord Bingham in the Barclays Bank case at 10F), I have no real difficulty with it in the present case. Any duty which Mr Harrison owed arose in connection with the processing of a specific application (for a certificate under section 561 (2)) made by a specific, ascertained person (the Claimant). There is no question of such a duty leading to "liability in an indeterminate amount for an indeterminate time to an indeterminate class" (to adopt the well-known phrase of Cardozo CJ in Ultramares Corporation v Touche (1931) 174 NE 441, 444). The fact that Mr Harrison might owe, severally, duties to each of a number of applicants for tax certificates seems to me to be neither here nor there for this purpose.

89. As ever, it is the "fair, just and reasonable" element of the three-stage test which throws up the greatest uncertainty. As Lord Bingham made clear in the Barclays Bank case, the court is here engaged in the process of weighing competing policy considerations. I propose to identify and discuss in turn what appear to me to be the most relevant policy heads before trying to reach an overall conclusion.

    Mr Harrison's status

90. On day 5 of the trial the Revenue called evidence from Mr Griffin to the effect that Mr Harrison was in fact not a Tax Inspector but a Higher Officer (known in 1999 as a Grade C2 Officer), that Mr Harrison had not been fully trained as an Inspector and that he would not in 1999 have had the technical knowledge of a Tax Inspector. I was also referred to the fact that the Revenue's powers under section 561 to issue, renew or cancel a tax certificate are exercisable by an Inspector: Regulation 21 of the Regulations.

91. The purpose of this exercise appeared to be to cast doubt on whether Mr Harrison was in fact a professional person for whose conduct the Revenue could be vicariously liable. I am bound to say that I was not impressed by this. I note that Mr Harrison's own evidence (paragraph 1 of his witness statement) was that "in 1999 I was an Inspector based at Furness Tax Office". He had 37 years' service with the Revenue. Moreover, as I have mentioned, he was the nominated CISLOC. This meant that his role was "to provide a focal point for the CIS Scheme both for tax staff, contractors and sub-contractors" (paragraph 2 of his witness statement). The Revenue accepted that Mr Martin thought that Mr Harrison was a Tax Inspector and it is plain that Mr Harrison actually acted, at least with regard to the CIS, as if he was an Inspector. The authorisation stamp on the August forms was signed by Mr Harrison as "Inspector".

92. In the light of this evidence and also the dicta of Dyson and Mummery LJJ in Carty, to which I have referred in paragraph 79 above, I am satisfied that Mr Harrison was a Revenue officer exercising relevant skills and expertise in operating the CIS for whom the Revenue may be vicariously liable.

93. A related argument advanced by Mr Kent was that it was impossible to, apply the Bolam test (Bolam v Friern Hospital Management Committee [1957] 1 WLR 582 ) in relation to Mr Harrison so it was not fair, just or reasonable to impose a duty of care. This was said to arise because, as there is no private sector equivalent to the Revenue and no CIS independent of ICTA, there is no comparator group to set the standard against which Mr Harrison's conduct is to be judged. He contrasted the current case with claims against state education professionals and NHS doctors: in both cases, there are private sector comparators by reference to whom the Bolam test can be applied.

94. I found this an unattractive argument. It amounts to saying that, because the Revenue has a monopoly on tax collection, the conduct of its officers, however incompetent, cannot be judged by a Court in civil proceedings based on negligence. I also think the argument is wrong, at least in the context of the present case. The Bolam test is primarily concerned with the acceptability of different practices within a profession. But the present case is not concerned with such questions. Put bluntly, the allegation against Mr Harrison is that he committed a series of administrative blunders which caused delay to the processing of the Claimant's application. That is self-evidently the case in relation to the complaints of failing to ensure that Mr Martin had signed the July forms, of processing the July forms as an application for a registration card and of inserting the incorrect UTR on the August forms. Even in relation to his statements about the need for company accounts, Mr Harrison acted as he did, not because he was consciously following a different professional practice, but because he was simply unaware of the clear guidance in the CIS Manual. In any event, even if expert evidence were to be considered relevant, there is no reason in principle why the Revenue, if it so wished, could not have adduced evidence from another experienced tax inspector in order to justify Mr Harrison's conduct. The fact that such an expert would also be an employee of the Revenue would be no bar to the admissibility of his evidence: Field v Leeds City Council (2000) 17 EG 165; Toth v Jarman [2006] EWCA Civ 1028 .

    Assumption of responsibility

95. My focus here is on the nature of the relationship between Mr Martin and Mr Harrison. Mr Bowen argued that the series of face-to-face meetings at the Furness Tax Office together with the provision of advice by Mr Harrison as to the need for company accounts, which was relied upon by Mr Martin, furnished a sufficient evidential basis for a finding that, looking at the matter objectively, Mr Harrison had assumed a legal responsibility to the Claimant for his processing of the certificate application. If that submission is correct, then that may be sufficient to establish a duty of care: see Barclays Bank at 6C.

96. In my judgment, a necessary first step here is to characterise fairly what actually occurred at the relevant meetings .. Of course, in one sense, it would be correct to say that Mr Harrison "advised" Mr Martin that he needed to provide company accounts in support of the Claimant's application. But such a description gives rise to a real danger of misinterpreting the true relationship between Mr Harrison and Mr Martin. Mr Harrison was not advising Mr Martin, in the manner of an accountant or other tax adviser, as to what Mr Martin, in all the circumstances and in his own best interests, should do. Nor, in my judgment, could Mr Martin reasonably have understood that Mr Harrison was engaged in such an exercise. Mr Harrison's role, vis-à-vis the Claimant, as Mr Martin must have realised, was to process the application on behalf of the Revenue. His statements about the need for company accounts were, in substance, merely statements as to what evidence he would accept when processing the application. Mr Harrison was not providing Mr Martin with "professional services" in the sense which gave rise to duties of care in the Phelps and Carty cases. If Mr Harrison had had no contact with Mr Martin (except in order to check his identity) and had then refused the Claimant's application on the basis of the absence of company accounts, it would be almost impossible to argue that Mr Harrison had assumed responsibility to the Claimant yet the Claimant would have been in a similar position in terms of delay in obtaining a certificate. I do not see why it should make any difference that Mr Harrison made a pre-emptive statement as to the manner in which he would deal with the Claimant's application. Moreover, I do not think it is right to say that Mr Martin relied on Mr Harrison's statements about the need for company accounts in the way that a client relies on a professional adviser. As appears from paragraph 37 above, Mr Martin in fact consulted his own accountant on the subject and made two further attempts to persuade Mr Harrison to change his mind.

97. Another significant feature is the fact that, if there was any assumption of responsibility, it was not voluntary. Once the facts are properly interpreted, it is plain that everything Mr Harrison did was part of a compulsory process, namely the processing of an application which the Revenue was bound by section 561(2) to deal with. It will only be in exceptional circumstances that a defendant who is not acting voluntarily will be held to have assumed responsibility to a claimant. As Lord Bingham said in the Barclays Bank case at 10B-C:

    "I do not think that the notion of assumption of responsibility, even on an objective approach, can aptly be applied to the situation which arose between the Commissioners and the Bank on notification to it of the orders. Of course it was bound by law to comply. But it had no choice".

    Lord Walker of Gestingthorpe added at 26A: .

    "In this case the Appellant Bank has not, in any meaningful sense, made a voluntary assumption of responsibility. It has by the freezing order had responsibility thrust upon it".

    In his speech at 37-38 Lord Mance demonstrated that the involuntary nature of the defendant's conduct is not necessarily decisive on the overall question whether a duty of care is owed because it may nevertheless be fair, just and reasonable for such a duty to be imposed, but it must be considered as a factor pointing away from such a conclusion:

    "This brings me back to what is in my opinion the determinative factor in this case, that is the absence of any real voluntary aspect to the involvement of a third party such as the bank in relation to a claimant's freezing order such as the present. Al-Kandari is a quite different case to the present, since the specific task was there voluntarily undertaken. In White v Jones and Dean v Allin & Watts the solicitors also acted voluntarily on their clients' instructions, although the scope of their resulting duty was extended to third parties for whose benefit they so acted. In Spring v Guardian Assurance plc the relevant regulatory regime did no more than impose an obligation to obtain and give a reference of a familiar type which a former employer would commonly give, irrespective of any compulsion. It would have been incongruous if a duty of care was owed, when such a reference was not given under compulsion, but was absent just because it was. Further, if the reference had been unduly favourable, the recipient's reliance on it would have introduced an element bringing the situation close to that in Hedley Byrne, and it would have been strange if a duty were not also owed to the subject of an unduly unfavourable reference (cf. lord Goff at p.321F). Phelps v Hillingdon London Borough Council Is similarly a case where, although the defendant council and its employees were operating in the context of public statutory duties. they were nonetheless providing services which could equally well be and are provided in the private sector, and it would have been surprising if a similar duty of care were not owed by those providing them to that owed in the private sector: see per Lord Clyde (at pp.670H-671 B).

    The closest case to the present on which Mr Sales can rely is Ministry of Housing and Local Government v Sharp. But the statutory scheme there was aimed at protecting persons in respect of property purchases and, as far as necessary for that purpose, overriding other proprietary interests. Again, it would have been incongruous if a person relying on such a certificate to his detriment could have a claim because of the closeness of the situation to Hedley Byrne. but the Minister whose cause of action for reimbursement was extinguished had none (cf. per Lord Denning MR at p.268H and Salmon LJ at p.278F-H). I consider that Ministry of Housing and Local Government v - was rightly decided. It was referred to without disapproval in the speeches of Lord Templeman and Lord Griffiths in Smith v Bush (at pp.846D-G and 862F). The result reached was eminently fair, just and reasonable. The role of land registrar was established as a public service to keep accurate records and provide reliable information. The information was to enable buyers to be secure in the property rights they acquired but concomitantly to override other property interests in the public interest in order to achieve this, even though such security and overriding occurred through negligence of the registrar or a clerk fulfilling his function. It would be unjust if no compensation could be obtained for the adverse consequences on property rights of negligence of an official performing such a service in the public interest.

    There is no analogy between any of these cases and the present".

    Inconsistency with the statutory framework

98. There are two different considerations which arise under this head.

    First, Mr Kent argued against the imposition of a duty of care on the footing that it would create conflicting duties to which Mr Harrison would be subject and that conflict could adversely affect the performance of the Revenue's duties in relation to the CIS. He pointed out that the success of the CIS depended on tax certificates only being granted to reliable sub-contractors and argued that the imposition of a duty of care in favour of an applicant may result in certificates being granted which should not have been.

99. However, the force of this point must depend on the precise nature of the allegations of negligence which are being made. I can well see the dangers involved in imposing a duty of care in favour of an applicant in relation to the Revenue's investigative functions but it is hard to see any real conflict between the interests of the Revenue and those of the applicant in relation to the avoidance of simple administrative errors.

100. The second point brings me back to my earlier findings in relation to breach of statutory duty. It is plainly an important policy consideration that the imposition of a common law duty should not only not interfere with the due performance of the relevant public authority's statutory duties but should also not be "contrary in any other way to the presumed legislative intention" (per Lord Nicholls in Stovin at 935C). This is where there seems to me to be a problem from the Claimant's point of view. My conclusion was that Parliament did not intend to confer a private law cause of action, giving rise to monetary compensation, on sub-contractors experiencing delay in the processing of their certificate applications. My analysis of the facts in relation to the issue of assumption of responsibility leads to the conclusion that the relationship between Mr Harrison and the Claimant was no different in substance to that between Mr Harrison and any other applicant for a certificate under section 561 (2). If that is right, a duty to take care to avoid administrative delays would be owed to all applicants for a tax certificate and the Court would, by imposing such a duty, be creating a liability for breach of statutory duty through the backdoor. I refer in this connection to the observations of Mummery LJ in Carty cited in paragraph 79 above.

     Resource implications/defensiveness

101. Mr Kent submitted that a common law duty of care should not be imposed because the resource implications for the Revenue, both in terms of potential exposure to claims for damages and in terms of the waste of staff time and money involved in ensuring that proper records were kept and administrative procedures were followed so as to allow claims to be better defended, were such that serious consideration would have to be .given by the Revenue to discontinuing its current practice of providing assistance to taxpayers. In this regard Mr Kent relied on the evidence given by Mr Griffin.

102. I was not persuaded by this argument. First, Mr Griffin's evidence seemed to be based on the assumption that a finding in favour of the Claimant in the present case necessarily meant that a similar duty of care would be owed by all Revenue staff working in the 280 Enquiry Centres across the UK who provided assistance to the general public. I do not accept that that would necessarily follow. Secondly, so far as exposure to claims for damages is concerned, there seemed to me to be an unfortunate tension between this argument and the Revenue's submission (which I consider in paragraph 106 below) that the COP1 process provided the Claimant with an adequate alternative remedy. Thirdly, the risk of the Revenue actually discontinuing the practice of assisting taxpayers seems to me to be small. The Revenue does not provide assistance to taxpayers for altruistic reasons. It does so because it significantly improves the administration of tax collection and thus increases the overall tax take.

103. On the question of defensive conduct generally, I should also refer to the statement of Lord Slynn in Barrett v Enfield London Borough Council [2001] 2 AC 550 at 568:

     "As to the likelihood of an authority being over-cautious, I am of the same opinion as Evans LJ in the Court of Appeal in this case [1998] QB 367, 380:

     "I would agree that what is said to be a "policy" consideration, namely, that imposing a duty of care might lead to defensive conduct on the part of the person concerned and might require him to spend time and resources on keeping full records or otherwise providing for self-justification, if called upon to do so, should normally be a factor of little, if any, weight... "".

     Floodgates

104. There used to be a vogue for arguing that recognition of common law duties of care in novel circumstances may lead to a flood of bad claims which the hapless defendant would have to deal with. Such arguments have rarely found favour. The correct answer to them is that given by Lord Nicholls in Phelps at 667:

     "Denial of the existence of a cause of action is seldom, if ever, the appropriate response to fear of its abuse. Rather, the courts, with their enhanced powers of case management, must seek to evolve means of weeding out obviously hopeless claims as expeditiously as is consistent with the court having a sufficiently full factual picture of all the circumstances of the case",

     To be fair, I do not think the Revenue placed much, if any, reliance on this argument.

     Alternative remedies

105. In the Court of Appeal in X (Minors) v Bedfordshire County Council (1995] AC 633 at 663 Sir Thomas Bingham MR referred to

     "the rule of public policy which has first claim on the loyalty of the law: that wrongs should be remedied",

     This means that the existence, and adequacy, of any alternative remedies available to the claimant are important factors in the process of balancing competing policy considerations.

106. As I have already mentioned, it is clear that an application for judicial review would not enable the Claimant to recover financial losses caused by delay. However, the Revenue relied strongly on the existence of the COP1 scheme. There are a number of features of this scheme which call for comment. First, it is entirely voluntary and awards of monetary compensation are at the discretion of the Revenue. Secondly, however, a dissatisfied complainant may refer his complaint to an independent Adjudicator and, with the co-operation of an MP, to the Parliamentary Ombudsman. I also accept the Revenue's submission that the operation of the scheme is subject to judicial review in the same way as the old (non-statutory) Criminal Injuries Compensation Scheme: see R v Criminal Injuries Compensation Board ex parte Cummins [1992] 1 PIOR 081. Thirdly, although COP1 itself is somewhat vague as to the circumstances in which compensation for substantial consequential losses will be paid, the history of the Claimant's complaint in 1999 to 2003, which I have related at paragraphs 50-55 above, suggests that the Revenue will consider on their merits claims, for example, for loss of profits caused by delay. Fourthly, I can attach no importance to the fact that the Revenue rejected the Claimant's claim on its merits because I am in no position, and have not been asked, to determine whether that rejection was correct. Fifthly, Mr Dunn accepted that the COP1 scheme had not been designed to deal with claims for major financial loss of the sort advanced by the Claimant. Sixthly, Mr Dunn could not give me any information about previous substantial awards under the scheme and he said that, although the scheme was not subject to a fixed budget, he thought the Treasury might not be happy if a number of large awards were made.

107. I n my judgment, the existence of the COP 1 scheme is something upon which the Revenue can legitimately rely as a factor pointing away from the imposition of a duty of care. It plainly does not provide the Claimant with as good a remedy as the ability to pursue a claim for damages in a court of law but that does not mean it should be ignored altogether.

     The incremental test

108. In addition to the statements of principle to which I have referred in paragraphs 72-79 above, Counsel also referred me to a large number of cases in which claimants have sought the imposition of a common law duty of care on public authorities or their employees in order to recover economic loss. Unsurprisingly, there were cases on either side of the line. Mr Bowen relied, in particular, on Ministry of Housing and Local Government v Sharp [1970] 2 QB 223 and on A and Kanidagli v Secretary of State for the Home Department [2004] EWHC 1585 (Admin). The former case is well-known and was analysed by Lord Mance in the passage from his speech in Barclays Bank to which I have referred in paragraph 97 above. In the latter case, Keith J held the Secretary of State liable in negligence for administrative errors committed by immigration officials. Mr Bowen also relied on a number of cases concerning planning and related fields. In response, Mr Kent cited a number of cases where claims in negligence against government departments had failed, viz Jones v Department of Employment [1989] QB 1, Reeman v Department of Transport [1977] 2 Lloyds Rep 648 and Newell v Ministry of Defence [2002] EWHC 1006

109. I am bound to say that, ultimately, I did not find this a very illuminating exercise. The cases cited dealt with public authorities which have very different functions to the Revenue and concerned different statutory backgrounds and widely differing facts (as I have mentioned, no claim for damages against the Revenue has ever reached trial). It seems to me that the incremental test is useful in identifying whether the Claimant is in fact arguing for a quantum leap in the development of the law. But once one accepts, as is plainly the case, that public authorities exercising statutory functions may in appropriate cases be liable at common law for the negligence of their employees causing economic loss, there is little to be gained from a painstaking comparison of the case in question with the facts of other cases in different fields. There is no substitute for a detailed analysis of the policy considerations affecting the particular public authority in relation to the particular statutory background on the particulars facts of the case.

     Conclusions on vicarious liability

110. Weighing up the factors which I have examined in the preceding paragraphs of this judgment, I have reached the conclusion that it would not be fair, just and reasonable to impose a common law duty of care on Mr Harrison. The factors which ultimately have had the greatest influence on me are the absence of anything that can properly be described as an assumption of responsibility by Mr Harrison; the involuntary nature of the Revenue's involvement with the Claimant; the interrelationship between the claims based on common law and statutory duties; and the availability of the COP1 scheme.

     Breach of duty

111. It follows that, strictly speaking, it is not necessary for me to make any findings on the issue of breach. However, in case this matter goes further, I should state succinctly what I would have held if I had reached a different conclusion on the duty issues.

112. I need to approach the issue of breach on two alternative bases: (1) that the Revenue owed the Claimant a duty to process its application with reasonable expedition (Counsel were agreed that it did not matter for present purposes whether that was a statutory or common law duty); and (2) that Mr Harrison owed a common law duty of care to the Claimant in respect of its application for breach of which the Revenue is vicariously liable.

     Reasonable expedition

113. Mr Kent argued that if the Claimant's certificate was actually received within a period objectively judged to be reasonable, then no breach was established whether or not mistakes were made during the processing of the application. I am inclined to accept this.

114. In deciding what would have been a reasonable period for the processing of the Claimant's application, it is necessary, in my judgment, to take into account the following: the Revenue's published guidance on the likely time-scale; the complexity or otherwise of the particular application; and any special circumstances affecting the operation of the CIS as a whole. IR40 (CIS) warned that first applications could take at least one month to be processed in the local tax office. In this connection I have no hesitation in rejecting the Claimant's submission that it was making a "renewal" application: the Claimant was making its first application (Mr Martin had previously held a certificate as sole trader) and in any event the CIS was a completely new scheme: compare regulation 27 of the Regulations. I see no reason to treat the Claimant's application as one of any real complexity: although it arose from the incorporation of a sole trader business, the CIS Manual was clear as to how the application should be dealt with. The Revenue argued that Mr Harrison should have made a section 561(6) direction to the effect that the compliance test had to be satisfied by Mr Martin individually and that would have involved detailed investigation of Mr Martin's personal tax history. It seems clear from CISM3421 that Mr Harrison should indeed have done this but that is irrelevant: he chose not to do so in the exercise of his discretion and the Claimant makes no complaint about that. I therefore see no reason to allow more than one month for the Claimant's application to be processed at Furness.

115. So far as processing at Netherton is concerned, the Revenue's published guidance indicated a period of between three and ten days. However, it would not be right to ignore the effects of the bow wave of late applications by sub-contractors in the summer of 1999 which the Revenue had done its best to avoid. I would accordingly allow three weeks for processing at Netherton. On the basis of my finding that Mr Martin's first meeting with Mr Harrison took place on 9 June 1999, the Claimant's certificate should have been received by 30 July in order for Mr Kent's argument to succeed. As the certificate was not received until 20 September, that argument fails.

116. I should at this point dispose of another argument raised by the Revenue. It was pointed out that the Claimant did not commence trading until about 16 June 1999 and that, by virtue of section 565(2), the business test requires a company to "be carrying on" business. It follows, so the argument runs, that the clock did not start running against the Revenue until 20 July 1999, the date of the first meeting between Mr Martin and Mr Harrison after the Claimant started trading. I do not accept this. I see no reason, where there is a transfer of a sole trader business to a company and the company is to start trading imminently, why a certificate application should not be- processed provided that authorisation is not given until after the company starts trading. Since I have allowed until 9 July for processing at Furness, this would not have presented a problem in the present case.

117. It does not necessarily follow from what I have said that the Revenue was in breach of duty. There is always a reason for delay. If the delays in this case were not attributable to fault on the part of the Revenue I would not find it to be in breach of duty. It is therefore necessary to examine the causes of the delay which actually occurred.

118. In my judgment, the delay between 9 June and 20 July 1999 was entirely attributable to Mr Harrison's insistence on the provision of company accounts. Mr Harrison admitted in evidence that he should have been aware of the published guidance to the contrary and Miss Chant's letter of 6 October 2000 accepted that this was a failure on the part of the Revenue. The delay from 20 to 29 July was caused by the fact that Mr Martin did not sign the July forms at the meeting on 20 July. Again, both Mr Harrison in evidence and Miss Chant accepted that this was a Revenue failing because Mr Harrison should have checked that the forms had been signed. The delay from 29 July to 9 August resulted from the incorrect processing of the July forms as an application for a registration card. This error had not been identified when Miss Chant wrote to the Ombudsman but, on the basis of my findings, it was' clearly a failing on the part of the Revenue. Once the Claimant's application had been authorised by Mr Harrison, processing at Netherton should have taken no more than three weeks. In fact it took 40 days. I find that this delay was attributable in part to the insertion of the wrong UTR on the August CIS3 form and in part to the posting of the certificate to 25 Roose Road. The former clearly constituted a failing on the part of the Revenue. In my judgment, the latter did also. The application for a certificate was made by the Claimant, Neil Martin Limited, and 25 Roose Road was never an address held on the Revenue's records in respect of the Claimant. Even if Mr Martin's private address was the relevant one, he did notify Mr Harrison of his new address in accordance with IR14f15 (CIS) and Miss Chant accepted that Mr Harrison should have checked this.

119. I conclude that the entire 52-day period of delay after 30 July 1999 resulted from the Revenue's failure to process the Claimant's application with reasonable expedition.

     Vicarious liability

120. I must here deal with the six specific allegations of negligence made against Mr Harrison, although I have covered part of this ground already in dealing with the reasonable expedition claim.

121. For the reasons given in paragraph 118 above I find that Mr Harrison was negligent in respect of his insistence on company accounts, his failure to check that Mr Martin had signed the July forms and in failing to ensure that Mr Martin's change of address was logged on the system. I reject the other allegations against Mr Harrison. He was not personally responsible for the incorrect processing of the July forms as a registration card application. He did not insert the wrong UTR on the August CIS3 form: he only corrected the number when it was returned by Netherton. I do not accept that Mr Harrison had any obligation to advise Mr Martin that the Claimant required an old-style 714 certificate to cover the period until 31 July. Mr Harrison was responsible for the new CIS; he had no responsibility at all in respect of the old CITDS. Nor did Mr Martin ever ask Mr Harrison about the period leading up to 1 August 1999.

122. I conclude that the delay attributable to Mr Harrison's negligence in respect of the company accounts and the failure to procure signature of the July forms was from 9 June to 29 July. With regard to the posting of the certificate to the wrong address, the certificate was issued on 10 September and should, in the normal course, have been received by Mr Martin by 13 September. The delay attributable to Mr Harrison's negligence under this head is therefore seven days. The total period of culpable delay is 57 days.

123. The Claimant's vicarious liability claim was based entirely on liability for the acts and omissions of Mr Harrison. As appears above, I have rejected two of the allegations made on the basis that Mr Harrison was not himself responsible for what went wrong although other unidentified Revenue employees undoubtedly were. I should make it clear, for the avoidance of doubt, that even if the Claimant had been able to identify the Revenue employees responsible for those failings and had mounted a vicarious liability claim based on their conduct, I would have held that those employees did not owe a common law duty of care to the Claimant. The reasons I have .given for reaching that conclusion in respect of Mr Harrison apply a fortiori to more junior Revenue staff.

     Conclusion

124. My answers to the preliminary issues raised are as follows:

     (1) No.

     (2) Yes, to the extent indicated in paragraph 119 above.

     (3) No.

     (4) Yes, to the extent indicated in paragraphs 119 and 122 above.