Distinctive Care Ltd v Revenue and Customs Commissioners
| Jurisdiction | UK Non-devolved |
| Judgment Date | 15 May 2018 |
| Neutral Citation | [2018] UKUT 155 (TCC) |
| Date | 15 May 2018 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
[2018] UKUT 0155 (TCC)
Upper Tribunal (Tax and Chancery Chamber)
Judge Greg Sinfield, Judge Kevin Poole
Michael Firth, instructed by Reynolds Porter Chamberlain LLP solicitors, appeared for the appellant
Sadiya Choudhury, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Procedure – Costs – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10 – Distinctive Care Ltd [2016] TC 05491 (DCL) – FA 2008, Sch. 36 – The Vardy Properties [2012] TC 02242 case in late 2012 – Royal Borough of Kensington & Chelsea [2014] TC 03850 – The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 – BPP University College of Professional Studies [2014] TC 03768 – Catana v R & C Commrs [2012] BTC 1,625 – Tarafdar v R & C Commrs [2014] BVC 533 – Marshall & Co v R & C Commrs [2016] BVC 509 – Bulkliner Intermodal Ltd [2011] TC 00677 – Scott (t/a Farthings Steak House) v McDonald (HMIT) (1996) Sp C 91 – Market & Opinion Research International Ltd v R & C Commrs [2015] BVC 504 – Invicta Foods Ltd v R & C Commrs [2014] UKFTT 456 (TC) – R & C Commrs v Procter & Gamble UK [2009] BVC 461 – Biogen Inc v Medeva plc [1996] UKHL 18– BPP Holdings Ltd v R & C Commrs [2017] BVC 36.
Concerns the application for an order of costs. Consideration was given to whether the correct procedure was undertaken, if the tribunal permitted to consider, the test whether a person acted unreasonably and whether costs incidental to proceedings. The Upper Tribunal (UT) agreed with the First-tier Tribunal (FTT) that HMRC did not act unreasonably and the appeal was dismissed.
The Appellant had entered Stamp Duty Land Tax (SDLT) scheme and had not submitted an SDLT return. This was discovered close to four years later and therefore HMRC issued an SDLT determination, which was appealed. The agents, who were also responsible for the scheme, continued to act for the Appellant and others that had implemented the same scheme. The Appellant was issued with an information notice under FA 2008, Sch. 36, which the Appellant appealed. The Appellant accepted a review although subsequently lodge their appeal with the Tribunal on 24 July 2015. On 7 September the Tribunal notified HMRC of the appeal and 15 days later HMRC withdrew the information notice.
The FTT had dismissed the Appellant's application for an order for costs in relation to the appeal that had been notified to the FTT and by the FTT to HMRC. The FTT identified procedural defects in relation to the costs application. The FTT would have been willing to wave all but one defect: the costs application was calculated as a straight one thirtieth apportionment of total time spent by advisers rather than time spent in relation to the appeal. The FTT considered procedural irregularities; whether HMRC had acted unreasonably and whether costs were incidental to the proceedings.
The UT identified that if the FTT were correct that HMRC had not acted unreasonably for the purposes of r. 10(1)(b)The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, then the other points need not be considered.
Rule 10(1)(b) states that
(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)–
- …
- if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings; …
The UT found that there was no extension of the wording to include an assessment of a respondent's conduct prior to commencement of proceedings, even where conduct effectively forces an appellant to commence proceedings. The UT set out an analysis of how conduct is to be assessed with reference to relevant cases:
- The threshold implied by the words acted unreasonably is lower than the threshold of acting wholly unreasonably;
- A single piece of conduct may amount to acting unreasonably;
- Actions include omissions;
- A failure to have rigorously reviewed the subject matter can amount to unreasonable conduct;
- There may well be a range of reasonable conduct;
- The focus should be on the standard of handling the case (proceedings before the FTT);
- The fact that an argument fails before the FTT does not necessarily mean that the party running that argument was acting unreasonably – the party must generally persist in an argument against an unbeatable argument to the contrary; and
- The power to award costs should not become a method of costs shifting.
The UT added that the assessment should not be with the benefit of hindsight. The UT also noted that in Tarafdar v R & C Commrs [2014] BVC 533 the application of the test in cases involving withdrawal from proceedings should pose the following questions:
- What was the reason for the withdrawal of that party from the appeal?
- Having regard to that reason, could that party have withdrawn at an earlier stage in the proceedings?
- Was it unreasonable for that party not to have withdrawn at an earlier stage?
The UT agreed that FTT applied the correct test in reaching their conclusion and that conclusion was unimpeachable.
The UT went on to consider the other issues:
- Rule 10(3)(b) requires the schedule of costs to be sufficiently detailed to allow the Tribunal to undertake a summary assessment of costs;
- Rule 10(5)(a) provides that the Tribunal may not make an order against a person without first giving that person an opportunity to make representations;
- The UT considered that the FTT was correct that information of costs should be more detailed indication that the name of each fee earner, hourly rate, level of experience should be included to enable the FTT to form a view
The decision clearly sets out the requirements for an application of costs and may assist greatly when considering seeking an order.
[1] This is the appeal of the appellant, Distinctive Care Limited (“DCL”), from the decision of the First-tier Tribunal (“FTT”) (Judge Barbara Mosedale), neutral citation [2016] TC 05491, by which the FTT dismissed DCL's application for an order for costs against the Respondents (“HMRC”) in relation to an appeal which had been notified to the FTT and subsequently by the FTT to HMRC, whereupon HMRC immediately withdrew their original decision and confirmed that they would not defend the appeal.
[2] Put briefly, the FTT decided that there were certain procedural defects in relation to the costs application which it was inclined to waive, but that it was not prepared to waive one defect, namely the failure of the costs application to make clear that it was calculated as a straight one thirtieth apportionment of the total time spent by DCL's advisers in dealing with 30 almost identical appeals, rather than individually by reference to the time spent in relation DCL's own appeal.
[3] Accordingly, the FTT dismissed the application for costs. However, it also indicated that if the procedural defects in the costs application had not been fatal, it would have refused the application in any event, on the basis that HMRC's prompt withdrawal from the proceedings at the first possible opportunity after their commencement could not be characterised as acting unreasonably in defending or conducting the proceedings.
[4] The FTT also made some comment about two further matters “in case this goes higher”:
- as the appeal concerned the issue of an information notice under Schedule 36 Finance Act 2008, it expressed some provisional views on the reasonableness of HMRC's decision to issue such a notice, and on the question of whether an examination of reasonableness should encompass HMRC as a whole or only the officer who actually issued the notice, and
- it considered the scope of any potential award of costs in the light of the phrase costs of and incidental to … proceedings, in particular with reference to costs incurred prior to the notification of the appeal to the FTT.
[5] The appeal to this Tribunal was brought with permission of Judge Berner, granted after an oral hearing of DCL's application for permission, following the refusal of such permission on the papers by Judge Bishopp.
[6] The FTT's main findings of fact, which are not the subject of any challenge were brief and are as follows (with errors as to dates corrected in square brackets):
- On 3 March 2015, HMRC issued the appellant with an information notice under Schedule 36 Finance Act 2008 paragraph 1. The appellant appealed this to HMRC on 25 March 2015, and following a review, to the Tribunal on 24 July 2015. The Tribunal notified HMRC of the appeal on 7 September [2015]. On [22] September 2015 HMRC withdrew the information notice and notified the Tribunal it would not defend the appeal. The Tribunal allowed the appeal on 16 November [2015].
- On 3 December 2015 the appellant submitted to the Tribunal a claim for costs in the sum of £2,500 on the basis of unreasonable behaviour by HMRC. The appeal was categorised as basic so unless there was unreasonable behaviour, or wasted costs, the Tribunal has no jurisdiction to award costs. The appellant did not alleged (sic) there were wasted costs. The application was accompanied by a breakdown of costs.
[7] The FTT made some more detailed findings at [27] to [33]:
[27] The appellant acquired a property in 2008 in respect of which HMRC considered no SDLT return had been made. This was discovered close to four years later, so to protect HMRC's position on time-limits, an SDLT determination was issued on 12 January 2012. Eight days later, the appellant lodged an appeal with HRMC against the determination.
[28] The Vardy Properties [2012] TC 02242 case in late 2012 confirmed HMRC's belief that the scheme was ineffective but also revealed that they could not be certain who was liable to pay the SDLT in each case without consideration of the transaction documentation. The information notice that was later issued was to demand this...
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