Morris v Roberts (HMIT)
| Jurisdiction | England & Wales |
| Judgment Date | 25 May 2005 |
| Date | 25 May 2005 |
| Court | Chancery Division |
Chancery Division.
Lightman J.
Fred Philpott (instructed by Howell & Co, Birmingham) for the solicitors.
Sam Grodzinski (instructed by the Solicitor of Inland Revenue) for the Crown.
The following cases were referred to in the judgment:
B v B (Wasted Costs: Abuse of Process)UNKFLR[2001] 3 FCR 724; [2001] 1 FLR 483
Company (No. 006798 of 1995), Re aWLR[1996] 1 WLR 491
Dempsey v JohnstoneUNK[2003] EWCA Civ 1134; [2004] PNLR 25
Fletamentos Maritimos SA v Effjohn International BV [2003] Ll Rep PN 26
Medcalf v MardellUNKELR[2002] UKHL 27; [2003] 1 AC 120
Persaud v PersaudUNK[2003] EWCA Civ 394
R v IR Commrs, ex parte Archon Shipping CorpTAXTAX[1998] BTC 405; 71 TC 203
R v IR Commrs, ex parte Taylor (No. 2)TAXTAX[1990] BTC 281; 62 TC 578
R v IR Commrs, ex parte TC Coombs & CoTAXELR[1991] BTC 89; [1991] 2 AC 283
Ridehalgh v HorsefieldELR[1994] Ch 205
Tolstoy Miloslavsky v AldingtonWLR[1996] 1 WLR 736
Woolwich Building Society v Fineberg [1989] PNLR 216
Capital gains tax - Appeal - Wasted costs order - Taxpayers claiming residence abroad or alternatively benefit of double taxation agreement for capital gains tax purposes - Revenue issuing notices requiring documents and information - Appeal against special commissioner's decision upholding notices - Taxpayers going to live in Switzerland without informing Revenue - Appeal withdrawn - Application for costs against solicitor - Whether appeal lodged and withdrawn with no prospect of success to delay proceedings - Whether abuse of process - Whether solicitor liable where acting on clients' instructions - Whether wasted costs order appropriate -Supreme Court Act 1981, s. 51- Civil Procedure Rules 1998, r. 48.7.
This was an application by the Revenue for a wasted costs order against a firm of solicitors on the basis that they should have known that an appeal brought and then withdrawn by their clients was an abuse of process brought for the illegitimate collateral purpose of delaying the Revenue's investigation in to the capital gains tax liability of their clients.
The taxpayers, a husband and wife who were UK nationals, in October 1997 sold their shares in a company for £20.3m. The taxpayers acquired a property in Spain and filed tax returns for the year 1997-98 on the basis that they were not resident or ordinarily resident in the UK in that tax year. The Revenue began an investigation into their tax affairs and came to the view that the taxpayers had spent more time in the UK during the year 1997-98 than was allowed to qualify for non-residence. The solicitors had been instructed by the taxpayers to represent them in relation to their tax affairs. The Revenue sought a detailed schedule of the days allegedly spent in the UK. Prolonged correspondence with the solicitors followed. They asserted that the taxpayers were entitled to rely on the double taxation agreement between Spain and the UK. Some three years after the information had been requested, the Revenue in April 2002 obtained consent from a general commissioner to issue notices under s. 20(1) of the Taxes Management Act 1970.
The taxpayers failed to comply with the notices and the general commissioners imposed penalties on the taxpayers for failure to comply. Before the general commissioners the solicitors conceded that the taxpayers had been UK tax resident during the relevant years and argued that in light of that concession the information sought in the notices was no longer relevant. Thereafter further penalties were imposed on the taxpayers for their continued failure to comply with the original notices. The solicitors lodged an appeal to the High Court against the general commissioners' decision and a second appeal with the special commissioners against the further penalties imposed. In April 2003, shortly before the date set down for the High Court hearing, the solicitors wrote to the Revenue stating that they wished to withdraw the appeal. In May 2003 the appeal was dismissed by consent order with costs against the taxpayers. In March 2004 a special commissioner dismissed the appeals against the continuing penalties. The solicitors lodged an appeal against the special commissioner's decision. Meanwhile the taxpayers had left Spain and moved to Switzerland without informing the Revenue.
The appeal was eventually withdrawn and the Revenue applied for a wasted costs order pursuant to s. 51 of the Supreme Court Act 1981 and CPR, r. 48.7 for costs incurred in relation to the second High Court appeal. The Revenue contended that the appeal was an abuse of the court's process in light of the protracted delay on the part of the taxpayers; their outright refusal to provide the information necessary to enable the Revenue to assess whether they were liable to capital gains tax; their non-compliance with statutory disclosure obligations; their clear intention not to comply; their non-compliance with any order for payment of costs or penalties; a continuing series of hopeless challenges to notices and appeals; and the unprincipled claims to avoid payment of tax unarguably payable.
The Revenue argued that the solicitors had been party to the taxpayers' conduct throughout and that the inference from their conduct was that they were content to adopt any stance, prosecute any appeal, and advance any argument regardless of merit in order to delay the proceedings and prevent disclosure of information to which the Revenue were entitled by statute. Furthermore, the purpose in bringing the appeal against the special commissioner's decision and then abandoning it at the last moment was to secure for the taxpayers practical immunity from tax liability.
Held, granting the application:
1. In deciding whether a wasted costs order should be made, a distinction had to be drawn between a legal representative acting on instructions pursuing a case that he knew would fail and lending his assistance to proceedings amounting to an abuse of process of the court. In considering whether a solicitor had acted in proceedings constituting an abuse of process, it was relevant to consider the ability or willingness of his client to bear the costs consequences of those proceedings and to give effect to previous orders made against him in connected litigation.
2. The fact that there might be a slight prospect of success would not preclude a finding that the proceedings were abusive, particularly if the solicitor knew that his client could not or would not pay. Actual knowledge on the part of a legal representative that litigation would be an abuse of process was sufficient to render him liable for wasted costs. A legal representative would also be liable to a wasted costs order if, exercising the objective professional judgment of a reasonably competent solicitor, he ought reasonably to have appreciated that the litigation constituted an abuse of process. The circumstances might impose a duty on solicitors to investigate with the greatest care their clients' motives for launching proceedings or an appeal. It was no answer for a solicitor to say that he was merely carrying out his client's instructions because the solicitor's duty to his client was always subject to his duty to the court. The fact that the solicitor might not, by reason of legal professional privilege, be able to explain what his instructions were or what advice he gave, meant that a court should not make a wasted costs order unless satisfied that there was nothing the practitioner could say, if unconstrained, to resist the order. However, privilege was not a trump card which would always preclude the making of a wasted costs order.
3. In the present case, the solicitors must have known that the abandoned appeal was hopeless and that it was being prosecuted for reasons unconnected with success of the appeal. The appeal was the last of a series of actions and omissions by the taxpayers and the solicitors designed to evade or delay liability for and payment of capital gains tax. The only reasonable conclusion was that the solicitors knew that the taxpayers would have recourse to any device to achieve their objective. They knew that the taxpayers would not pay any costs or penalties and, as competent solicitors, they should have known that the appeal was an abuse of process brought for an illegitimate collateral purpose and that their own actions furthered their clients' inadmissible objectives. By their conduct, the solicitors had occasioned the waste of the Revenue's costs of the appeal and it was right that a wasted costs order should be made against them.
Lightman J: Introduction
[1] This is an application by the Inspector of Taxes ("the Revenue") for a wasted costs order against Howell & Co ("Howell") made pursuant to directions given on 13 October 2004 by Etherton J who held that cause had been shown for the making of the application. The order sought relates to the Revenue's costs of an appeal to the High Court ("the appeal") brought by Howell on behalf of their clients Mr and Mrs Morris ("the Morrises") against a decision of a Special Commissioner made on 31 March 2004 ("the Decision"). Those costs amount to £3,200. The sum is small but the application is justified by the history of events and the principles at stake in this protracted engagement between the Revenue and the Morrises.
[2] The basis on which the application has been made is that: (1) the appeal was an abuse of the court's process; (2) Howell (a) knew that the appeal was an abuse of process; or (b) even if they did not know, they ought to have known this, in the sense that a reasonably competent solicitor would have appreciated this; and (c) the principal reason why the appeal was an abuse was that it was brought for a reason unrelated to its substantive outcome and in particular for the collateral purpose of achieving delay in the Revenue's investigation of the tax liability of the Morrises. Mr Philpott...
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