Innocent Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 September 2011 |
| Neutral Citation | [2011] UKFTT 607 (TC) |
| Date | 16 September 2011 |
| Court | First Tier Tribunal (Tax Chamber) |
[2011] UKFTT 607 (TC)
Mrs B Mosedale (Tribunal Judge) (Chairman)
Mr E Brown, Counsel, instructed by PwC for the Appellant
Ms E Mitrophanous, Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs, for the Respondents
Costs - Transitional case - Old costs regime directed - Costs awarded against appellant - Whether Sheldon statement applicable - The tribunal had previously decided the substantive appeal, on the question of whether the appellant's fruit smoothies were zero-rated, in favour of the commissioners and had awarded costs against the appellant (see [2011] TC 00771) - The jurisdiction of the tribunal to direct the costs regime applicable to the old tribunal rules arose under para. 7(3) of the Transfer of Tribunal Function and Revenue and Customs Appeals Order 2009 (SI 2009/56) in respect of proceedings commencing before 1 April 2009 - The appellant contended that it should not be directed to pay the commissioners' costs, in accordance with the Sheldon Statement, a parliamentary answer given by the Right Hon. Robert Sheldon in 1978 in which he stated that, with certain exceptions, the commissioners would not generally seek costs against unsuccessful appellants - It was not suggested that the appeal involved an important point of law requiring clarification or that the appeal was frivolous or vexatious - The issue for the tribunal was whether the appeal fell within another exception, namely being a substantial and complex case involving a large sum of money and comparable to a High Court case - The appellant's view was that the commissioners must show that all these conditions were met before they were entitled to a costs order - Held, that the appellant was well aware that it was in the old costs regime and it must be assumed to be familiar with the terms of the Sheldon statement - It was the appellant's choice to put a great deal of resources into the appeal - It instructed leading and junior counsel, called expert evidence and presented all possible legal and factual arguments that could be made in support of its case - The hearing was substantial and lengthy and comparable to one in the High Court, and a large sum of money was at stake - In the judgment of the tribunal, the appeal was within the exception to the Sheldon statement and, having an unfettered discretion, the tribunal considered it appropriate that the costs of the appeal should follow the event - The commissioners then asked for the costs of the disputed costs application - This was challenged by the appellant on the grounds that there was a real dispute between the parties on the applicability of the Sheldon statement and it was proper for the company to object to the application - However, having decided that the "costs follow the event" rule should apply, the tribunal awarded the commissioners their reasonable costs of the successful costs application hearing.
1.The Appellant lodged an appeal on 23 May 2007 against HMRC's refusal to repay output tax accounted for by it on the sale of its fruit smoothies. Prior to the hearing of that appeal at a pre-hearing review in 2009 I directed (with the consent of both parties) that the costs regime under Rule 29 of the Value Added Tax Tribunal Rules 1986 would apply to the appeal.
2.The jurisdiction of the Tribunal to direct the costs regime of the old Tribunal rules arises under Paragraph 7(3) of the Transfer of Tribunal Function and Revenue and Customs Appeals Order 2009 which provides that in "current proceedings":
The tribunal may give any direction to ensure that proceedings are dealt with fairly and justly and, in particular, may -
(a) apply any provision in procedural rules which applied to the proceedings before the commencement date; or
(b) disapply any provision of the Tribunal Procedure Rules.
This appeal was "current proceedings" because it was commenced before the new Tribunal came into existence on 1 April 2009 (see paragraph 6 of the same Order).
3.A Tribunal panel of which I was the Judge heard the appeal in June and July 2010 and we issued our decision on 27 October 2010 that HMRC was correct to refuse the Appellant's voluntary disclosure. HMRC applied for their costs by Notice of Application dated 29 October 2010. I awarded HMRC costs at the hearing of that application on 9 June 2011, and at the Appellant's later request now give more fully and in writing the reasons for that decision which were given briefly and orally at the hearing.
4.The Appellant objected to HMRC's application for costs. It considered HMRC should not seek costs against it because HMRC should abide by the so-called Sheldon statement. This was a parliamentary answer given by the Right Hon. Mr Sheldon in 1978 and was as follows:
the Commissioners [ie HM Customs & Excise] have concluded that, as a general rule, they should continue their policy of not seeking costs against unsuccessful appellants; however, they will ask for costs in certain cases so as to provide protection for public funds and the general body of taxpayers. For instance, they will seek costs at those exceptional tribunal hearings of substantial and complex cases where large sums are involved and which are comparable with High Court cases, unless the appeal involves an important point of law requiring clarification. The Commissioners will also consider seeking costs where the appellant has misused the tribunal procedure - for example, in frivolous or vexatious cases, or where the appellant has failed to appear or to be represented at a mutually arranged hearing without sufficient explanation, or where the appellant has first produced at a hearing relevant evidence which ought properly to have been disclosed at an earlier stage and which have saved public funds had it been produced timeously.
5.A re-affirmimation of this statement was given by the Right Hon Mr Brooke in 1986 and was as follows:
The new penalty provisions and right of appeal to the value added tax tribunals have made no change to this policy. Customs and Excise, with the agreement of the Council on Tribunals, consider that appeals against penalties imposed under FA 1985 Finance Act 1985 section 13s13 [now VATA 1994 Value Added Tax Act 1994 section 60s60 - civil dishonesty penalties] on the grounds that a person has evaded VAT and his conduct has involved dishonesty fall to be considered as being comparable with High Court cases. Where such appeals are unsuccessful, Customs and Excise will normally seek an award of costs.
6.A written ministerial statement was made by the Financial Secretary to the Treasury on 10 March 2009 in respect of transitional cases under the new regime:
the practice set out by the Right Hon. Robert Sheldon, now Lord Sheldon of Ashton-under-Lyne, on 13 November 1978 - and restated on 24 July 1986 by the Right Hon. Peter Brooke, now Lord Brooke of Sutton Mandeville - will also continue to apply on a transitional basis, and HMRC will not seek costs from appellants in most cases.
7.The Appellant's case was that this meant, other than in the exceptional cases as mentioned by Mr Sheldon, or dishonesty cases as mentioned by Mr Brooke, the old rule for costs (which applies to this case) was assymetrical: under the pre-1 April 2009 rules an Appellant could expect an award of costs in its favour if it won its appeal but would not expect HMRC to seek costs against it if it lost.
8.HMRC did not disagree: their application for costs was made on the basis that this was one of those exceptional cases recognised by Mr Sheldon which was (in their view) substantial and complex, involving a large sum of money and which was comparable to a High Court case.
9.Costs awards under the old rules are in the discretion of the Tribunal. A Tribunal would normally award costs in line with the expectations of the parties: the party which wins the appeal would normally expect an order of costs in their favour. However, an Appellant which loses an appeal would not expect an award of costs to be made against them where the Sheldon statement applies. Although the Sheldon statement is of course, extra-statutory, I consider that in the exercise of my discretion I would the normally give effect to the Sheldon statement and will do so in this case.
10.I agreed with the Appellant that it is irrelevant that they had sought an order for costs in their favour if they won. The policy set out in the Sheldon statement was intended to be assymetrical. HMRC did not dispute this.
11.Rightly the Appellant did not suggest that the appeal involved an important point of law requiring clarification so the exception to the exception to the Sheldon rule of no costs against an unsuccessful appellant did not apply. Similarly it was not suggested by HMRC that the appeal was frivolous or vexatious or that that the Appellant did not attend or that late-produced evidence had put HMRC to extra cost. Nor was it a civil dishonesty case. The Appellant said their appeal was clearly arguable and brought in good faith: this was not disputed.
12.Therefore, the issue for the Tribunal is whether this appeal was a substantial and complex one, involving a large sum of money and which was comparable to a High Court case. The Appellant's view was that the HMRC must show that all the...
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