Distinctive Care Ltd v The Commissioners for HM Revenue and Customs

JurisdictionEngland & Wales
JudgeLady Justice Rose,Lord Justice Floyd,Lord Justice Lewison
Judgment Date13 June 2019
Neutral Citation[2019] EWCA Civ 1010
CourtCourt of Appeal (Civil Division)
Date13 June 2019
Docket NumberCase No: A3/2018/1684

[2019] EWCA Civ 1010

IN THE COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE UPPER TRIBUNAL (TAX AND CHANCERY CHAMBER)

(Judge Sinfield and Judge Poole)

[2018] UKUT 0155 (TCC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Before:

Lord Justice Lewison

Lord Justice Floyd

and

Lady Justice Rose

Case No: A3/2018/1684

Between:
Distinctive Care Limited
Appellant
and
The Commissioners for Her Majesty's Revenue and Customs
Respondents

Michael Firth (instructed by Reynolds Porter Chamberlain LLP) for the Appellant

Sadiya Choudhury (instructed by the General Counsel and Solicitor to HM Revenue and Customs) for the Respondents

Hearing date: 16 May 2019

Approved Judgment

Lady Justice Rose
1

This appeal concerns the jurisdiction of the First-tier Tribunal to award costs to a party in an appeal where the opposing party has acted unreasonably in bringing, defending or conducting the proceedings. The Upper Tribunal (Judge Sinfield and Judge Poole), whose decision is reported at [2018] UKUT 155 (TCC), upheld the decision of the FTT (Judge Mosedale) reported at [2016] UKFTT 764 (TC) that the jurisdiction was not engaged in the circumstances of this case, principally because the alleged unreasonable behaviour by HMRC comprised the issue of the appealable decision rather than conduct occurring after that decision had become the subject of proceedings before the FTT. The Appellant (‘DCL’) argues that the issue of an appealable decision by HMRC is part of the bringing of proceedings for the purposes of the costs rule. In the alternative, DCL argues that HMRC's ongoing failure to withdraw the appealable decision following the start of the FTT proceedings amounts to behaviour in the conduct of the proceedings once those proceedings are underway. There are also issues raised about whether HMRC's conduct was unreasonable in this case and whether, if the test for an award of costs is met, DCL's costs incurred before the FTT proceedings started can be recovered.

The facts

2

On 3 March 2015, HMRC issued DCL with an information notice under paragraph 1 of Schedule 36 to the Finance Act 2008. Paragraph 1 provides that an officer of HMRC may by notice in writing require a person to provide information or produce a document if the information or document is reasonably required for the purpose of checking the taxpayer's tax position. The documents requested by the notice concerned DCL's liability for stamp duty land tax (‘SDLT’) in respect of premises acquired in 2008. In January 2012 HMRC had issued a determination that DCL owed SDLT arising from that transaction and DCL had challenged that determination before the First-tier Tribunal. Those proceedings were still pending when the HMRC officer dealing with DCL's SDLT tax affairs, a Mr Kane, issued the information notice. DCL took the view that HMRC did not have power to issue an information notice under Schedule 36 relating to a liability in respect of which HMRC had already issued a determination.

3

Paragraph 29(1) of Schedule 36 gives a right of appeal against an information notice. DCL notified an appeal against the information notice to HMRC on 25 March 2015 and then accepted HMRC's offer of an internal review. HMRC notified DCL on 26 June 2015 that the internal review had upheld the decision to issue the information notice. DCL then lodged an appeal with the First-tier Tribunal on 24 July 2015 asserting that the information notice was ultra vires. The FTT notified HMRC that the appeal had been lodged on 7 September 2015. On 22 September 2015 HMRC wrote to DCL and the FTT saying that “following the recent receipt of legal advice” they had concluded that they could not rely on the power in Schedule 36 to require the production of the documents sought. They withdrew the information notice. The FTT formally allowed DCL's appeal against the information notice by decision dated 16 November 2015.

4

HMRC's change of position arose from a failure of communication within HMRC between the Central Policy team (‘CenPOL’) and Mr Kane. In late 2012 Mr Kane had asked CenPOL whether HMRC had power to issue an information notice to a taxpayer even though there had already been a determination of the taxpayer's liability. Mr Kane had been told that HMRC's view was that they could. He therefore issued a number of information notices over the following years, including the notice sent to DCL and to several other taxpayers in DCL's position. What Mr Kane did not know was that before he sent the information notice to DCL in March 2015, the view of CenPOL had changed and they considered that information notices should not be sent out where there had already been a determination of liability. Mr Kane was not told about that change of stance before he sent out DCL's notice. When the FTT notified HMRC that DCL had lodged an appeal against the issue of the information notice, Mr Kane sought advice again from CenPOL. He was then told that HMRC's view of the law had changed and HMRC did not rely on the power in Schedule 36 in these circumstances. That was why HMRC did not contest the appeal.

5

On 3 December 2015, DCL applied to the FTT for an order that HMRC pay their costs of the appeal against the information notice on the grounds that HMRC had acted unreasonably. The appeal had been categorised as “basic” in accordance with rule 23 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) (‘the FTT Rules’). Rule 10 (as amended) provides the power for the FTT to make an order for costs:

10. Orders for costs

(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)—

(a) under section 29(4) of the 2007 Act (wasted costs) and costs incurred in applying for such costs;

(b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;”

6

That power to award costs is conferred pursuant to section 29(1) of the Tribunals, Courts and Enforcement Act 2007 (‘TCEA’) which provides:

29 Costs or expenses

(1) The costs of and incidental to—

(a) all proceedings in the First-tier Tribunal, and (b) all proceedings in the Upper Tribunal,

shall be in the discretion of the Tribunal in which the proceedings take place.

(2) The relevant Tribunal shall have full power to determine by whom and to what extent the costs are to be paid.

(3) Subsections (1) and (2) have effect subject to Tribunal Procedure Rules.”

7

The broad power to award costs conferred by section 29(1) is therefore expressed to be subject to the FTT Rules. Those Rules, by rule 10, reflect the intention that the First-tier Tribunal is designed in general to be a ‘no costs shifting’ jurisdiction, not least because many appellants are not legally represented. Rule 10 should therefore be regarded as an exception to this general expectation that both sides will bear their own costs, whatever the result of the appeal.

8

The FTT (Judge Mosedale) dismissed DCL's application for costs on a ground concerning the content of DCL's schedule of costs which is not in issue before us. She went on, however, to consider the issues that were subsequently argued before the Upper Tribunal and before this court. She noted that HMRC accepted that the information notice should never have been issued and she therefore proceeded on the assumption that DCL was right to say that HMRC acted unreasonably in issuing it. She did not accept, however, that HMRC had acted unreasonably in defending or conducting the proceedings, as then alleged by DCL. She rejected the argument that HMRC's omission to withdraw the information notice following the internal review was “operative” from the time DCL lodged the appeal with the FTT up to the moment HMRC actually withdrew the decision. She recognised that actually defending an untenable decision may well be or become unreasonable. HMRC had, however, acted reasonably in this case because they withdrew the information notice two weeks after they were notified of the appeal and before they had taken any steps to defend the appeal. Any unreasonableness in failing to withdraw the information notice as soon as HMRC changed their opinion was not relevant as it was not behaviour during the course of defending or conducting an appeal for the purposes of rule 10(1)(b).

9

Judge Mosedale went on to make findings as to whether the information notice and internal review decision were unreasonable, although she recorded that neither party appeared to be in a position to address her on the law relating to that issue. She concluded that HMRC's initial view that they could issue an information notice even though an assessment had already been issued was not obviously wrong. She was not satisfied that the law was so clear that it was unreasonable for HMRC to have issued the information notice when they did in any event: [60].

10

Finally, Judge Mosedale turned to the question of whether costs incurred by DCL before the notice of appeal was filed with the FTT were “costs of and incidental” to the proceedings in the FTT within the meaning of section 29 TCEA. She held that there was no reason why “incidental to” in the TCEA should be read differently from the meaning it is given elsewhere in cost legislation and rules. It extends the scope of the costs which may be awarded beyond those merely “of” the litigation but will require the costs to be of use and service in the subsequent litigation: [77]. She considered that costs incurred in dealing with a tax investigation were not incidental to the proceedings because they were incurred to bring the dispute to an end without litigation. So far as the costs of notifying the appeal to HMRC and pursuing an internal review were concerned, she drew a distinction between the position where those steps are taken merely to fulfil a statutory pre-condition before lodging an appeal with the FTT and the position where...

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