Shinelock Ltd
| Jurisdiction | UK Non-devolved |
| Judgment Date | 16 April 2021 |
| Neutral Citation | [2021] UKFTT 318 (TC) |
| Court | First Tier Tribunal (Tax Chamber) |
[2021] UKFTT 318 (TC)
Judge Jeanette Zaman
Costs – Applications by appellant for order based on respondents' conduct – Decision made prior to outcome of substantive appeals known – Held respondents had acted unreasonably – Conduct of appellant also relevant – Order made for costs – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10(1)(b).
The First-tier Tribunal (FTT) allowed a taxpayer company's applications for an order of costs on the basis that HMRC had acted unreasonably in conducting proceedings.
The appellant (Shinelock) had sold a property for more than it had paid for it and had paid the difference to its controlling shareholder, Mr Ahmed. Shinelock did not bring any chargeable gain into account in its self-assessment. Following an enquiry HMRC issued an assessment on the basis that Shinelock had realised a chargeable gain on the disposal of the property which was subject to corporation tax.
Shinelock appealed on two grounds, one of which was in their skeleton argument, which set out that the sum paid to Mr Ahmed was deductible under the loan relationship regime or under the property income rules in CTA 2009, Pt. 4.
In HMRC's skeleton argument they refused both submissions, but also stated that the Tribunal did not have jurisdiction to consider the loan relationship argument as the necessary claim had not been made under CTA 2009, s. 459 (the current year jurisdiction argument) and also that the payment was a distribution and not deductible for corporation tax.
Three weeks after part of the appeal had been heard HMRC raised the question as to the jurisdiction of the Tribunal to determine the availability of a carry forward deficit (the carry forward jurisdiction argument).
Shinelock made two costs applications under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/273), r. 10(1)(b).
- An application seeking costs on an indemnity basis of the resumed hearing in respect of the carry forward jurisdiction argument.
- An application seeking costs on the standard basis in respect of some of Shinelock's costs incurred in pursuing the appeal to date because HMRC: raised the current year jurisdiction argument one week before the first part of the substantive hearing, raised the carry forward jurisdiction argument after the first part of the substantive hearing; and did not set out the full details of their argument that the payment was a distribution in their statement of case.
The FTT made its decision with reference to:
- the principles governing applications made under r. 10(1)(b) as summarised by the Upper Tribunal in Market & Opinion Research International Ltd v R & C Commrs [2015] BVC 504;
- the UT's consideration of whether HMRC had acted unreasonably in failing to argue what was ultimately a winning argument sooner in R & C Commrs v Cheshire Centre for Independent Living (now known as Disability Positive) [2020] BTC 560;
- the applications having been made at a time when the substantive appeal remained undetermined; and
- the overriding objective in SI 2009/273, r. 2 to deal with cases fairly and justly.
The FTT concluded that some aspects of HMRC's conduct were unreasonable and it was appropriate for there to be a costs order, but that a more nuanced order than that sought was appropriate as Shinelock had to bear a proportion of its costs. The FTT also concluded that HMRC's conduct did not merit an order for costs being made on the indemnity basis.
In respect of the first application the FTT decided that the costs could not yet be agreed or assessed as they had not been incurred. The FTT directed the parties to try and agree on the amount of costs under the second application taking account of matters it had highlighted.
The FTT agreed with the taxpayer that HMRC had acted unreasonably in raising arguments late in the proceedings and that there should be an award of costs, but discounts had to be made to take account of the taxpayer's own behaviour.
[1] This is my decision on two costs applications which have been made by Shinelock Limited (“Shinelock”) in respect of HMRC's conduct of Shinelock's appeal. They seek an order for costs under rule 10(1)(b) of The Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (the “Tribunal Rules”).
[2] As detailed further below, they are being determined at a stage at which the hearing of the substantive appeal has been part-heard (by me), with the date of the resumed hearing yet to be scheduled. (The first part of the substantive hearing was heard on 27 and 28 January 2021.) There is thus no decision on the substantive appeal, and accordingly there is no successful or unsuccessful party. HMRC has provided a full response to the applications which have been made and has not made any representations to the effect that the costs applications should only be determined after the outcome of the substantive appeal is known. Indeed, whilst one of the applications (the second application) could be considered after the event, the first application addresses the costs that have yet to be incurred by Shinelock for the resumed hearing. I have concluded that it is fair and in the interests of justice that I make a decision on these applications at this stage.
[3] Whilst in this decision I give a brief description of the facts and issues in the substantive appeal, they are set out by way of background and to explain the matters which give rise to the costs applications. Those descriptions are not findings of fact or conclusions on any of the issues which are disputed in the substantive appeal.
[4] Shinelock has made two costs applications:
- application dated 19 February 2021 – this application seeks costs on an indemnity basis of the resumed hearing (whether that be by way of remote video or written submissions for determination on the papers) in respect of what Mr Boch has termed the new jurisdiction argument, although I refer to as the Carry Forward Jurisdiction Argument; and
- application dated 4 March 2021 – this application seeks costs on the standard basis in respect of some of Shinelock's costs incurred in pursuing this appeal to date, including for the hearing in January 2021 and preparing the costs application. That application asks that the costs (of £10,000 plus VAT) be summarily assessed.
[5] For the reasons set out below, I have concluded that the threshold for an order for costs under rule 10(1)(b) of the Tribunal Rules is met, but that a more nuanced order than that sought is appropriate in that Shinelock must bear a proportion of its costs. HMRC's conduct does not merit an order for costs being made on the indemnity basis.
[6] Section 29 of the Tribunals, Courts and Enforcement Act 2007 (“TCEA 2007”) provides as follows:
(1) The costs of and incidental to–
- all proceedings in the First-tier Tribunal, and
- all proceedings in the Upper Tribunal,
all proceedings in the Upper Tribunal,
(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.
(4) In any proceedings mentioned in subsection (1), the relevant Tribunal may–
- disallow, or
- (as the case may be) order the legal or other representative concerned to meet,
the whole of any wasted costs or such part of them as may be determined in accordance with Tribunal Procedure Rules.
(5) In subsection (4) “wasted costs” means any costs incurred by a party–
- as a result of any improper, unreasonable or negligent act or omission on the part of any legal or other representative or any employee of such a representative, or
- which, in the light of any such act or omission occurring after they were incurred, the relevant Tribunal considers it is unreasonable to expect that party to pay.
(6) In this section “legal or other representative”, in relation to a party to proceedings, means any person exercising a right of audience or right to conduct the proceedings on his behalf.
(7) In the application of this section in relation to Scotland, any reference in this section to costs is to be read as a reference to expenses.
[7] Rule 10 of the Tribunal Rules provides:
(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)–
- under section 29(4) of the 2007 Act (wasted costs) and costs incurred in applying for such costs;
- if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;
- if–the proceedings have been allocated as a Complex case under rule 23 (allocation of cases to categories); andthe taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph; or
- in a MP expenses case, if–the case has been allocated as a Complex case under rule 23 (allocation of cases to categories); andthe appellant has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph.
(2) The Tribunal may make an order under paragraph (1) on an application or of its own initiative.
(3) A person making an application for an order under paragraph (1) must–
- send or deliver a written application to the Tribunal and to the person against whom it is proposed that the order be made; and
- send or deliver with the application a schedule of the costs or expenses claimed in sufficient detail to allow the Tribunal to undertake a summary assessment of such costs or expenses if it decides...
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