Ulster Metal Refiners Ltd v R & C Commissioners [2024] UKUT 184 (TCC);
Jurisdiction | UK Non-devolved |
Judgment Date | 25 June 2024 |
Neutral Citation | [2024] UKUT 184 (TCC) |
Court | Upper Tribunal (Tax and Chancery Chamber) |
[2024] UKUT 184 (TCC)
Mr Justice Peter Roth, Deputy Upper Tribunal Judge Anne Redston
Upper Tribunal (Tax and Chancery Chamber)
Value added tax – Procedure – Application for costs – Whether FTT had erred in finding there was no clear winner – Yes – Whether reduction due to reflect HMRC partial success – Yes – Whether further reduction due to reflect conduct of appellant – Yes – Appeal allowed but share of costs reduced to 40% – Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (SI 2009/27), r. 10.
In Ulster Metal Refiners Ltd v R & C Commrs [2024] BVC 511, the Upper Tribunal (UT) overturned the costs decision of the First-tier Tribunal (FTT) and remade it, awarding costs to the appellant but reduced to take account of various factors including the conduct of its director.
Ulster Metal Refiners Ltd (UM) was a company based in Northern Ireland. They had been denied credit for input tax recovery on purchases of soft drinks from three suppliers (Irwin, Magee and PCB), on the basis they knew or should have known the transactions at issue were connected with fraud. They appealed and the appeal was allocated as complex, but UM had not opted out of costs. Following a long-running and complex case history, their appeal had eventually succeeded in relation to the Irwin deals, which accounted for around 90% of the denied VAT (Ulster Metal Refiners Ltd).
Both parties made cost applications: HMRC for the costs of a strike-out application they had successfully defended, and for 10% of their costs in the substantive hearing to reflect their partial success in relation to the Magee and PCB deals; and UM for all of its costs on the basis it was ultimately successful in relation to 90% of the denied invoices.
The FTT, in the “costs decision”, awarded HMRC, as the clear winner, their costs of the strike-out application under the general rule that the unsuccessful party will be ordered to pay the costs, but found there was no clear winner at the substantive hearing and therefore the general rule did not apply. UM’s application for costs was then refused, owing to the untruthful conduct of its director, Mr Donaldson, and HMRC’s application was also declined. There was therefore no award of costs in relation to the substantive hearing.
Permission to appeal the costs decision was given on the grounds that the FTT may have been incorrect in concluding there was no clear winner in the substantive appeal and had therefore begun its considerations from the wrong starting point.
The UT had no hesitation in agreeing that was the case. UM had succeeded in relation to 90% of the transactions. On a common sense view, they had been the overall winner and the FTT should have begun its consideration of the costs position from that starting point. That had been an error of law. The UT therefore had jurisdiction either, to remit the case to the FTT with directions or, to remake it. The UT decided to remake it.
It started from the position that UM was the overall winner but reduced the award of their costs by 10% to reflect HMRC’s partial success, and a further 5% so that HMRC recovered their costs in relation to the Magee and PCB deals. They then considered both parties’ conduct and concluded the award should be further reduced to reflect Mr Donaldson’s conduct. Had it been honest and straightforward the time required to prepare the case and cross-examine witnesses (and the related costs) would have been significantly reduced. It was therefore appropriate to reduce the award of costs from 85% to 40% to reflect the unwarranted increase in time and costs.
The court’s discretion as to the awards of costs (or expenses in Scotland) is wide but only applies to the costs of the proceedings in the Tribunal and not any work undertaken before an application for a hearing is made. Additionally, as this case makes clear, in a complex case, costs should follow the event to ensure any order reflects the overall justice of the case. Starting from an identification of the successful party, it can then take into account all the circumstances of the case, including any conduct of the parties that had an impact on the costs incurred. Perhaps surprisingly, therefore, dishonest conduct will not always be penalised.
Comment by Angela Bedi, Senior Technical Writer, Croner-i Ltd.
Mr David Bedenham of Counsel, instructed by CTM Tax Litigation Limited appeared for the appellants
Mr James Puzey and Mr Joseph Millington of Counsel, instructed by the General Counsel and Solicitor to HM Revenue and Customs appeared for the respondent
[1] Ulster Metal Refiners Limited (“the Appellant” or “UM”) is a company based in Northern Ireland of which Mr Henry Donaldson is the director. The Appellant appealed to the FTT against a decision made by HM Revenue & Customs (“HMRC”) to deny credit for input tax on the basis that it knew or should have known that the transactions in question were connected with fraud. On 12 August 2021, the FTT issued its decision (“the FTT Decision”) allowing the Appellant's appeal in relation to around 90% of the VAT denied.
[2] The Appellant's appeal had been allocated as “complex” under the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the FTT Rules”), and the Appellant had not opted out of costs. On 7 September 2021, the Appellant applied to the FTT for an order that its costs be paid by HMRC.
[3] On 7 April 2022, the FTT issued a decision (“the Costs Decision”) refusing that application on the basis that:
- there was no clear winner;
- some of Mr Donaldson's evidence had been untruthful; and
- Mr Donaldson had conducted the litigation tactically and failed to act with candour.
[4] The UT (Judge Jonathan Richards, as he then was) granted the Appellant permission to appeal against the Costs Decision on the following ground:
The FTT erred in concluding that there was “no clear winner” of the substantive appeal. It should have concluded the Company was the “clear winner” and gone on to consider whether the criticisms it made of the Company's conduct of the litigation (when weighed against the criticisms it made of HMRC's conduct) justified an exception to the general rule that the Company should have its costs of the substantive appeal.
[5] For the reasons explained in the main body of this judgment, we find that the Appellant was the “clear winner” because it had succeeded in relation to around 90% of the disputed VAT, and that the FTT had therefore made an error of law. From that starting point, we reduce the Appellant's costs to take into account the fact that HMRC had been successful in part, and make a further reduction to reflect Mr Donaldson's conduct. Overall, we award the Appellant 40% of its costs.
[6] Rule 10 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 (“the FTT Rules”) is headed “Orders for costs”, and so far as relevant to this case, reads as follows:
(1) The Tribunal may only make an order in respect of 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 … 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
- …
(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 to do so.
(4)–(5) …
(6) The amount of costs (or, in Scotland, expenses) to be paid under an order under paragraph (1) may be ascertained by–
- summary assessment by the Tribunal;
- agreement of a specified sum by the paying person and the person entitled to receive the costs or expenses (the receiving person); or
- assessment of the whole or a specified part of the costs or expenses[, including the costs or expenses of the assessment,] incurred by the receiving person, if not agreed.
(7) Following an order for assessment under paragraph (6)(c) the paying person or the receiving person may apply–
- in England and Wales, to a county court, the High Court or the Costs Office of the Supreme Court (as specified in the order) for a detailed assessment of the costs on the standard basis or, if specified in the order, on the indemnity basis; and the Civil Procedure Rules 1998 shall apply, with necessary modifications, to that application and assessment as if the proceedings in the tribunal had been proceedings in a court to which the Civil Procedure Rules 1998 apply; …
[7] Part 44 of the Civil Procedure Rules (“CPR”) contains “General Rules about Costs”. CPR 44.2 is headed “Courts discretion as to costs” and includes the following provisions:
(1) The court has discretion as to –
- whether costs are payable by one party to another;
- the amount of those costs; and
- when they are to be paid.
(2) If the court decides to make an order about costs –
- the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party; but
- the court may make a different order.
(3) …
(4) In deciding what order (if any) to make about costs, the court will have regard to all the circumstances, including –
- the conduct of all the parties;
- whether a party has succeeded on part of its case, even if...
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