Eastenders Cash and Carry Plc
| Jurisdiction | UK Non-devolved |
| Judgment Date | 27 March 2012 |
| Neutral Citation | [2012] UKFTT 219 (TC) |
| Date | 27 March 2012 |
| Court | First-tier Tribunal (Tax Chamber) |
[2012] UKFTT 219 (TC)
Judge Guy Brannan
Geraint Jones QC, instructed by Anami Law, appeared for the Appellant
Richard Smith, instructed by the General Counsel and Solicitor to HM Revenue and Customs, appeared for the Respondents
Procedure - costs - application for costs out of time - whether discretion to entertain an application should be exercised - Tribunal Rules 2009, r. 5(3)(a) - whether direction should be made to apply r. 29 of the VAT Tribunals Rules 1986 - Atlantic Electronics Ltd[2011] TC 01138 considered - alternatively whether order for costs should be made under r. 10 Tribunal Rules 2009 - whether respondents acting unreasonably
The First-tier Tribunal admitted the taxpayer's late application for costs in the exercise of its discretion under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273) ("FTT Rules 2009"), r. 5(3)(a). It, however, applied FTT Rules 2009, r. 10 in denying the taxpayer's application for costs as the proceedings mainly took place after the effectivity of FTT Rules 2009. It also found HMRC's defence of the appeal reasonable, which further precluded the taxpayer from collecting costs.
The taxpayer company applied for costs in relation to the Tribunal's decision dated 29 December 2010 which allowed the taxpayer's appeal and directed HMRC to review its application for a licence under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 (SI 1999/1278) ("WOWGR 1999").
The taxpayer was a wholesaler of alcohol, tobacco, groceries and convenience goods in the UK. It had lodged a notice of appeal against HMRC with the VAT Tribunal on 25 September 2008. The Tribunal issued a decision favourable to the taxpayer dated 29 December 2010. The taxpayer then applied for costs after the decision was rendered. HMRC argued that the taxpayer was out of time to make a costs application.
The taxpayer submitted that there was clear prejudice if it was denied the opportunity to make an application in respect of an appeal in which it had been successful and that a few weeks delay made little difference. The taxpayer argued that its case was covered by the Value Added Tax Tribunals Rules 1986 (SI 1986/590) ("VAT Tribunals Rules 1986"), r. 29 and that it contained no time limit for making an application for costs under the said rule.
It further argued that the 28-day time limit contained in FTT Rules 2009, r. 10(4) did not apply to an application for costs made under VAT Tribunals Rules 1986, r. 29. It added that, based on Atlantic Electronics LtdTAX[2011] TC 01138 ("Atlantic"), a taxpayer had a reasonable expectation of recovering his costs if successful.
In the alternative, the taxpayer submitted that should FTT Rules 2009, r. 10 apply, the Tribunal had a discretion to award costs application on the basis that HMRC had acted unreasonably in defending and conducting the proceedings for refusing an application for a WOWGR 1999 registration by the taxpayer.
HMRC countered that the taxpayer had instructions to apply for costs early and that there was no excuse for the failure to submit an application for costs between 9 February 2011 and 7 March 2011. They added that the default position was that FTT Rules 2009, r. 10(4) applied, unless it could be shown that it was necessary for the time limit to be disapplied so that proceedings could be dealt with fairly and justly.
HMRC also submitted that while the appeal was commenced prior to FTT Rules 2009 coming into force, this was not enough to require the Tribunal to direct that fairness and justice demanded that VAT Tribunals Rules 1986 should apply. The taxpayer had no legitimate expectation that VAT Tribunals Rules 1986 would apply on or after 1 April 2009. The taxpayer had no accrued right to costs until the Tribunal directed that VAT Tribunals Rules 1986, r. 29 should apply. The taxpayer's reliance on the merits of the claim did not assist with the question whether it was fair and just to apply VAT Tribunals Rules 1986.
(2) Whether the application was made out of time and if so, whether the Tribunal should exercise its discretion to permit the late application.
(3) Whether the old costs rules contained in VAT Tribunals Rules 1986, r. 29 should apply.
(4) Whether the Tribunal should exercise its discretion under FTT Rules 2009, r. 10(1)(b) to award costs to the taxpayer.
Held, dismissing the taxpayer's application:
The Tribunal permitted that the application be admitted in the exercise of its discretion under FTT Rules 2009, r. 5(3)(a). It explained that the taxpayer reasonably argued its case and that its delay in filing the application was attributable to reasonable causes.
With respect to the second issue, the Tribunal agreed with the decision in Atlantic that the amount of work and cost undertaken or incurred in the pre- and post-1 April 2009 periods was an important factor. It appeared that the large majority of work done by the taxpayer's legal advisers was carried out after FTT Rules 2009 had come into force (Atlantic Electronics LtdTAX[2011] TC 01138 considered).
Based on the schedule of costs produced by the taxpayer, it was clear that it included some costs incurred from the date of the original decision and before the appeal was lodged (which were not recoverable) and eight months when FTT Rules 2009 were applicable. It was clear that the bulk of the costs were incurred during the period when the reasonable assumption to make would have been FTT Rules 2009 (no costs shifting) would apply. This was because no application had been made for a direction that VAT Tribunals Rules 1986, r. 29 should apply.
The Tribunal also took into account that the period from the commencement of this appeal to the hearing involved a period of approximately two years. The notice of appeal was dated 25 September 2008. The proceedings had been underway for only six months before the FTT Rules 2009 came into force. The period from 1 April 2009 to the date of the hearing on 11 November 2010 was approximately 18 months. Therefore, the proceedings mainly took place in the post-1 April 2009 period - a period when the FTT Rules 2009 were in force.
Thus, the Tribunal decided that in respect of the proportionate work and expense incurred and the relative length of time before and after 1 April 2009, the balance of probabilities suggested that it should be FTT Rules 2009, r. 10, and not VAT Tribunals Rules 1986, r. 29, which should apply.
The Tribunal further explained that it would not exercise its discretion to apply VAT Tribunals Rules 1986, r. 29 because it did not think it fair for a party to adopt a wait and see approach on the question of costs. It said that the confidence of the taxpayer in the merits of its case did not justify it in refraining from clarifying the costs position until after the decision. It added that no application was made to identify the applicable cost regime.
With respect to the third issue, the Tribunal ruled that HMRC's defence of the appeal was not unreasonable and declined to award costs to the taxpayer under FTT Rules 2009, r. 10(1)(b). It explained that HMRC advanced a number of respectable arguments and it did not mean that those were wholly without merit to an extent that an award for costs would be appropriate.
The test in FTT Rules 2009, r. 10(1)(b) was whether a party has acted unreasonably in bringing, defending or conducting the proceedings. It was different from the old test which applied to proceedings before the Special Commissioners which required a party's conduct to be wholly unreasonable. There was, therefore, a lower threshold for the award of costs in circumstances of unreasonable conduct before this Tribunal.
The Tribunal added that while it could apply a split direction - applying VAT Tribunals Rules 1986, r. 29 to the period prior to 1 April 2009 and FTT Rules 2009, r. 10 to the period from 1 April 2009 to the date of the Tribunal's decision - it ruled it was not appropriate given that no application for costs had been made within a reasonable time after the effectivity of FTT Rules 2009 on 1 April 2009.
The Tribunal decided that since the application was made after the conclusion of the appeal, a split decision would be too late and that it was best to apply FTT Rules 2009, r. 10 to the proceedings as whole.
1.This is an application by the Appellant for costs in relation to a decision of this Tribunal dated 29 December 2010, which allowed the Appellant's appeal and directed the Respondents to review the Appellant's application for a licence under the Warehousekeepers and Owners of Warehoused Goods Regulations 1999 ("WOWGR").
2.The Appellant had lodged a Notice of Appeal with the VAT Tribunal on 25 September 2008.
3.In summary, there are three issues for determination. The first issue is whether the application is made out of time, and, if so, I must decide whether I should exercise my discretion to permit the late application to be made. If the application made out of time is allowed to proceed, the second question is whether I should exercise my discretion to apply the old cost rules contained in Rule 29 of the VAT Tribunals Rules 1986 ("the 1986 Rules") in relation to the costs of the appeal. The third question, if Rule 29 is not applied, is whether the Tribunal should exercise its discretion under Rule 10(1)(b) The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 ("the 2009 Rules") to award costs to the Appellant.
4.The substantive appeal concerned whether HMRC had acted reasonably in the Wednesbury sense when deciding to refuse the Appellant's application for registration under WOWGR. We decided that because the relevant HMRC officer had failed to take account of all relevant circumstances (and, indeed, had failed to apply HMRC's published guidance requiring him to do so) his decision could not reasonably have been arrived at,...
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