Drummond v Revenue and Customs Comrs
| Jurisdiction | UK Non-devolved |
| Judgment Date | 13 May 2016 |
| Neutral Citation | [2016] UKUT 221 (TCC) |
| Date | 13 May 2016 |
| Court | Upper Tribunal (Tax and Chancery Chamber) |
Judge Greg Sinfield
The appellant appeared in person assisted by Andrew Stephenson, as permitted by rule 11(5) of the Tribunal Procedure (Upper Tribunal) Rules 2008
Howard Watkinson, counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the respondents
Procedure – Costs – Application by respondents to set aside protective costs order in favour of appellant – Application granted – Whether Upper Tribunal has power to make protective costs and costs capping orders – Yes – Procedure and criteria for protective costs and costs capping orders.
The Upper Tribunal (UT) has accepted HMRC's application to set aside an earlier costs order on the basis that it would not be consistent with the overriding objective set out in the Tribunal Procedure (Upper Tribunal) Rules 2008 (SI 2008/2698), r. 2(1) to deal with cases fairly and justly, not to set aside the order given that the order had been made on the misunderstanding that HMRC had consented to it and therefore had been issued short and without reasons. Mr Drummond was, however, invited to resubmit his application for protection from costs.
In Drummond TAX[2013] TC 02456, the First-tier Tribunal (FTT) ruled that Mr Drummond was not entitled to a refund of VAT incurred under the do-it-yourself (DIY) builders scheme for VAT. The FTT refused Mr Drummond permission to appeal so Mr Drummond applied to the Upper Tribunal (UT), under the Tribunal Procedure (Upper Tribunal) Rules 2008 (SI 2008/2698), r. 21 of for permission to appeal which the UT granted. In considering a subsequent application by Mr Drummond to raise a point not argued before the FTT, the UT pointed out to Mr Drummond that it was usual practice in the UT for the unsuccessful party to pay the costs of the successful party and that Mr Drummond could be required to pay HMRC's costs in the event that he lost his appeal.
Mr Drummond then requested the UT issue a ruling in advance on whether an award for costs would be made against him in the event of his appeal being unsuccessful contending that the grounds of his appeal were unique and also of specific public interest and that it was essential for the matter to be heard. The UT made an order on 24 September 2015 that there would be no order as to costs save where a party or its representative has acted unreasonably within SI 2008/2698, r. 10(3)(d). HMRC applied for the order to be set aside on the grounds that the UT had no jurisdiction to make a prohibitive costs order (PCO) and that the order should not have been made.
HMRC then accepted that the UT did have the power to make a PCO by virtue of the Tribunals Courts and Enforcement Act 2007 (“TCGA 2007”), s. 29 and SI 2008/2698, r. 10 for the reasons given by Judge Berner in Robert Ames v R & C Commrs UT/2015/0180, abandoning their first ground for having the order set aside. As the Ames decision was unpublished, the UT decided to set out the reasons why HMRC were right to concede on this point.
The UT noted that TCEA 2007, s. 29(2) provided that the UT has full power to determine by whom and to what extent costs are to be paid and although the power was subject to SI 2008/2698, those rules contained no limitation on that power. Accordingly, the UT had by TCEA 2007, s. 25(1)(a) the same powers, rights, privileges and authority in England and Wales as the High Court and s. 25(3)(b) provided that those powers were not to be taken to be limited unless they were expressly so in SI 2008/2698. In making any order in respect of costs, it was, therefore, necessary to determine what powers the High Court had to make costs orders.
The UT then considered the costs rules codified in the Civil Procedure Rules (CPR). CPR 44.2(1) provided that the court had discretion as to whether costs were payable by one party to another, the amount of those costs and when they were to be paid. Further, CPR 44.2(1) was to be read in the context of CPR 44.2(2) which stated that the general rule was that the unsuccessful party will be ordered to pay the costs of the successful party although the court could make a different order. The High Court could make three types of orders: a PCO, a costs capping order (CCO) under CPR 3.19 and an order under CPR 52.9A limiting costs in an appeal (ACO). The CPR contained no rules in relation to PCOs but these had been recognised in English law since R v Lord Chancellor ex parte CPAG WLR[1999] 1 WLR 347. The leading authority on PCO's was R (Corner House Research) v Secretary of State for Trade and Industry UNKWLR[2005] EWCA Civ 192, [2005] 1 WLR 2600.
As the High Court had the power to make all three types of order and nothing in the UT rules expressly limited the UT's power to make similar orders in respect of costs, the UT confirmed that it could also make costs orders including PCOs, CCOs and ACOs. In exercising the same powers as the High Court, the UT took it as axiomatic that it should look to the same rules and criteria that govern the High Court when it exercised those powers, bearing in mind that the UT was governed by SI 2008/2698 and especially the overriding objective in those rules and not the CPR. Whether to make such an order was a matter for the UT, in its discretion, to decide based on its evaluation of the circumstances of the case.
Turning to HMRC's application to set the costs order aside, the UT noted that HMRC had applied for the order to be set aside on the grounds that it did not contain any reasoning and it was, therefore, unclear whether the direction had been made on Corner House principles or by analogy with CPR 52.9A. HMRC's argument referred to the case of R (Compton) v Wiltshire Primary Care Trust UNKWLR[2008] EWCA Civ 749, [2009] 1 WLR 1436 regarding the need to give reasons for making a PCO on the papers. The UT further accepted that the absence of any indication from HMRC that Mr Drummond's application was opposed had led to the assumption that HMRC had consented to it and accordingly, the UT had issued a short direction without reasons. The UT concluded that the earlier order should be set aside because not only were HMRC entitled to know the reasons why the order was made but, more fundamentally, the UT had made the order based on a misunderstanding of HMRC's position and a refusal to set aside the direction in such circumstances would not be consistent with the overriding objective of SI 2008/2698, r. 2(1), of applying those rules to enable the UT to deal with cases fairly and justly.
Accordingly, the order was set aside and Mr Drummond was invited to resubmit his application. The UT further set out the relevant information to be provided in an application for costs depending on the type of order sought (PCO, CCO or ACO).
In this case, the UT sets aside an earlier costs order in favour of Mr Drummond in respect of his appeal to the UT of the FTT's decision in Drummond TAX[2013] TC 02456. The UT had made the order on the misunderstanding that HMRC consented to it and had consequently failed to give reasons and the UT concluded that it would not be consistent with the overriding objective to deal with cases fairly and justly not to set aside the order. The UT also examine the jurisdiction of the UT in respect of costs orders concluding that the UT has equivalent powers to those of the High Court under the Civil procedure rules (CPR) and that the approach is to be taken to making costs orders is as applied under the CPR. The UT also sets out the information to be provided in an application for costs depending on the type of order sought.
[1] This decision relates to an application by the Respondents (“HMRC”) to set aside my order, dated 24 September 2015, in relation to the costs of the proceedings in this appeal, which has yet to be heard. The order, made on the application of the Appellant (“Mr Drummond”), was that there would be no order as to costs save where a party or its representative has acted unreasonably within rule 10(3)(d) of the Tribunal Procedure (Upper Tribunal) Rules 2008 (“UT Rules”). HMRC considered that the order was a Protective Costs Order (“PCO”) of the type discussed by the Court of Appeal in R (Corner House Research) v Secretary of State for Trade and Industry UNKWLR[2005] EWCA Civ 192, [2005] 1 WLR 2600 (“Corner House”). In an application dated 22 October 2015, HMRC sought to have the order set aside on the basis that
1) the Upper Tribunal (“UT”) has no jurisdiction to make such an order; and
2) in any event, the order should not have been made in this case.
HMRC abandoned the first ground for having the order set aside in their skeleton argument for the application hearing.
[2] For the reasons set out below, I have decided that the order, dated 24 September 2015, should be set aside but that the UT has jurisdiction to make a PCO and other prospective orders in relation to costs. Although the original order has been set aside, I consider that Mr Drummond should be permitted to make another application for protection from costs if he wishes to do so in the light of this decision and that HMRC should have the opportunity to make submissions in response.
[3] Mr Drummond appealed to the First-tier Tribunal (“the FTT”) against the refusal by HMRC of his claim for a refund of £14,240.79 VAT incurred by him on the construction of a house to be occupied by him and his family as their dwelling. The claim was made under section 35 of the Value Added Tax Act 1994 (“VATA94”). Section 35 VATA94 provides for the refund of VAT to persons constructing certain buildings, including a building designed as a dwelling. A building is not a “building designed as a dwelling” where the separate use or disposal of the dwelling is prohibited by the term of any statutory planning consent (see note (2)(c) to Group 5 of Schedule 8 VATA94). The new house was built on a paddock...
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