“[34] This leads to a third example where the proceedings were commenced in the VAT Tribunal and straddle1 April 2009 in a substantial way, as in the case of Atlantic 's appeal. It is to be assumed for the purposes of this example that substantial work has been carried out and considerable expense incurred over a significant period before that date and that substantial work will be carried out and considerable expense will be incurred over a significant period after1 April 2009 . The issue then is how costs are to be dealt with. A number of questions arise including these: If a party seeks a prospective direction, how should that be resolved? Does it make any difference when the application for such a direction is made? How is the relative amount of work and expense in the first period as compared with the second period to be taken into account, if at all? If neither party makes an application to the tribunal for some sort of prospective direction, how should the tribunal deal with costs at the end of the day?”
“[44] When one comes to the third example, one question facing the tribunal dealing with an application for a prospective direction will be whether to make one at all. There are good arguments for doing so, although it will always be a matter of discretion. In particular, both the 1986 Rules and the 2009 Rules satisfy the second policy which I have identified, that of providing certainty. The 1986 Rules provide certainty in that it is known that a costs-shifting regime will apply; the 2009 Rules provide certainty in that the costs regime will be identified at an early stage depending on whether the taxpayer elects to opt out of costs shifting. If either party seeks to depart from the default regime, they ought, for reasons I will explain, to make an application at an early stage for a prospective direction .”
“[50] Ideally, any application to depart from the default regime ought to be done within a reasonable time of1 April 2009 . If an application were made shortly after1 April 2009 , and if the tribunal were to reject the idea of a direction applying different regimes, then it would have to attempt to resolve the tension as best it can. But if the application were delayed for some time, the passage of time will make it more difficult, I consider, to obtain a prospective direction disapplying r 10 and applying r 29. This is not, in my view, because of any reasonable expectation on the part of the taxpayer that the default regime will apply, but rather because this is what the second policy, the policy of certainty which lies behind the 2009 Rules, requires. If neither party makes an application for a prospective direction, that certainty is to be found in the default regime and the passage of time renders a departure from that regime more difficult to justify. … [54] A party to a tax appeal, whether the taxpayer or HMRC, has not only a reasonable expectation that the relevant procedural rules will be applied, but also the right to have them applied in fact. In the case of current proceedings, the relevant rules are to be found in the 2009 Rules read with para 7 [of sch 3 Transfer Order]. Neither a taxpayer nor HMRC are entitled to have the 2009 Rules applied as if para 7 did not exist. But unless a direction is made under para 7, whether a prospective direction or a direction at the time when a costs order comes to be made, then r 10 will apply. In that sense, it is perfectly true that a taxpayer has a reasonable expectation that r 10 will apply, indeed he has a right to that effect. [55] But that is not to say that there is some justified expectation of the taxpayer (or indeed of HMRC) that the default regime will apply which is, of itself, a factor which should be taken into account in the exercise of the discretion. If it is suggested that the tribunal should exercise its discretion by declining to apply r 29 because there is a reasonable expectation that r 10 will apply, I do not agree with it. When it comes to exercising the discretion under para 7, whether in making a prospective direction or in making an actual order for costs, the tribunal must, of course, act judicially applying the correct principles whatever they may be. In the case of an application for a prospective order, the passage of time since1 April 2009 will be a relevant factor, as I will explain, in how that discretion should be exercised. The taxpayer has not only a reasonable expectation, but also a right to insist, that the discretion will be exercised in accordance with those principles; and if it is the case that those principles result in the passage of time making it more difficult for HMRC to obtain a prospective direction that r 29 should apply, then the taxpayer can be said to have a reasonable expectation that it will be correspondingly more likely that r 10 will apply. The reasonable expectation arises because of the way that the taxpayer is entitled to expect that the discretion will be exercised; it is not the case that the discretion must be exercised in favour of the application of r 10 because there is a reasonable expectation that it will be. As with cause and effect, the relationship between the exercise of discretion and the reasonable expectation of a taxpayer goes in only one direction and is important to remember which way the arrow of the relationship, like the arrow of causation, points. [56] Accordingly, a tribunal must be careful to take account of the expectations of a taxpayer only as a reflection of the factors which lead to those expectations and must be careful not to give separate weight to those expectations (unless, of course, there are expectations generated by other matters, such an express representation by HMRC that it would not seek to impose a costs-shifting regime).”
“[68] It will be apparent from what I have already said that I agree broadly with the view that delay beyond a reasonable time after1 April 2009 is relevant to the exercise of the discretion. And I would agree with Judge Wallace [in the First-tier Tribunal] to this extent namely that, after a reasonable time has expired, parties who wait and see how a case develops before making an application should not ordinarily expect their application to succeed. [69] In [54] Judge Wallace stated what for him, on the facts of the case, was the decisive factor against applying r 29. It was the lapse of time since1 April 2009 until the making of the application by HMRC on28 October 2010 , some 19 months later adding that 'there has been nothing in the conduct of the appellant or otherwise to make it necessary to apply those rules [the old costs rules] in order to ensure that the proceedings are dealt with fairly and justly'. He went on to express full agreement with the reasoning of Judge Berner in Hawkeye . It was implicit in what Judge Wallace was saying there that r 29 ought not to apply at all; in other words, he was deciding that it would not be appropriate to make a costs order in favour of HMRC at the end of the appeal if it was successful even in relation to the costs incurred in the VAT Tribunal; and that, no doubt, is why he effectively acceded to Atlantic's application to confirm the application of Rule 10. [70] I consider that it was within the range of reasonable decisions open to him for him to have reached the conclusion that the lapse of time in the present case was such that HMRC should not obtain the prospective costs order which they sought in relation to the entire proceeding including the costs in the VAT Tribunal. In particular, he was entitled to reach that conclusion notwithstanding that HMRC had indicated, early in the proceedings, that they would be seeking a costs order if successful. That indication was given before the jurisdiction of the VAT Tribunal had been transferred to the Tax Chamber and before the 2009 Rule were in force. HMRC's indication that it would seek costs under rules, the 1986 Rules, which gave them a right to do so is not to be taken as an indication about how costs would be dealt with under the entirely different regime found in the 2009 Rules. Further, he was entitled, in my view, to reach that conclusion notwithstanding earlier orders on interim applications that costs should be 'in the case' or 'in the cause'. The particular circumstances of those orders cannot be taken as an acceptance by Atlantic that a costs-shifting regime was to apply to the entire proceedings.”