“(1) The Tribunal may only make an order in respect of costs… (b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings.”
“5. The principles to apply in deciding whether a party acted unreasonably were helpfully summarised by Judge Raghavan in Market & Opinion Research International Ltd v Revenue & Customs[2013] UKFTT 475 (TC) at [8]: " (1) It was to be noted that the test in the Tribunal Rules that a party or representative had “acted unreasonably” required a lower threshold than the costs awarding power of the former Special Commissioners in Regulation 21 of theSpecial Commissioners (Jurisdiction and Procedure) Regulations 1994 which was confined to cases where a party had acted “wholly unreasonably”
“It seems to us that it cannot be that any wrong assertion by a party to an appeal is automatically unreasonable…before making a wrong assertion constitutes unreasonable conduct in an appeal that party must generally persist in it in the face of an unbeatable argument that he is wrong…” (9) As cautioned by Judge Brannan in Eastenders Cash and Carry Plc v HMRC[2012] UKFTT 219 (TC) at [91] Rule 10(1)(b) should not become a “backdoor” method of costs shifting." 6. This summary was approved by the Upper Tribunal in that case,[2015] UKUT 12 (TC) at [23]. The Upper Tribunal added: “We would add only what this Tribunal (Judge Bishopp) said in Catanã v Revenue and Customs Commissioners[2012] STC 2138 , at [14] concerning the phrase “bringing, defending or conducting the proceedings” in rule 10(1)(b): ‘It is, quite plainly, an inclusive phrase designed to capture cases in which an appellant has unreasonably brought an appeal which he should know could not succeed, a respondent has unreasonably resisted an obviously meritorious appeal, or either party has acted unreasonably in the course of the proceedings, for example by persistently failing to comply with the rules or directions to the prejudice of the other side.’”
“It would not, we think, be helpful for us to attempt to provide a compendious test of reasonableness for this purpose. The application of an objective test of that nature is familiar to tribunals, particularly in the Tax Chamber. It involves a value judgment which will depend upon the particular facts and circumstances of each case. It requires the tribunal to consider what a reasonable person in the position of the party concerned would reasonably have done, or not done. That is an imprecise standard, but it is the standard set by the statutory framework under which the tribunal operates. It would not be right for this Tribunal to seek to apply any more precise test or to attempt to provide a judicial gloss on the plain words of the FTT Rules.”
“There is one point we should make in this respect. In his skeleton argument, Mr Bremner submitted that if it were suggested that HMRC should be subjected to some higher standard than other litigants, then HMRC would submit that such a suggestion was wrong. There was, it was argued, no justification for subjecting different litigants to different standards. To the extent this argument is concerned with the application of a test of reasonableness, and not some different or higher standard, we agree. However, the test of reasonableness must be applied to the particular circumstances of a case, which will include the abilities and experience of the party in question. The reasonableness or otherwise of a party’s actions fall to be tested by reference to a reasonable person in the circumstances of the party in question. There is a single standard, but its application, and the result of applying the necessary value judgment, will depend on the circumstances.”
“12... The Tribunal should not be too quick to characterise pursuing what is found to be an unsuccessful case is unreasonable behaviour: the Tribunal rules provide for a no-costs regime in virtually all tax cases (and the exception for complex cases does not apply in this case). So if in this case HMRC’s view had no reasonable prospect of success, HMRC would have been acting unreasonably if they ought to have known this but not otherwise. In considering whether HMRC ought to have known whether the case had a reasonable prospects of success, I consider that I should consider HMRC as a whole and not just the individual officer presenting the case.” 13. I respectfully agree with Judge Mosedale’s comments. 14. Secondly, in John Scofield v Revenue & Customs[2012] UKFTT 673 (TC) I noted that: “…Rule 10 (1)(b) must also be read in the light of the overriding objective (Rule 2 (1)) of the Rules which is "to enable the Tribunal to deal with cases fairly and justly." In particular, Rule 2 (4) provides that: "Parties must (a) help the Tribunal to further the overriding objective; and (b) co-operate with the Tribunal generally."”
“38. In our judgment, this must logically entail consideration of two questions, namely: (a) what do the relevant definitions in headings 6309 and 6310 mean?, and (b) having determined that, how should the correct application of these headings be determined in practice in respect of Rokit’s imports? 39. Rokit’s submissions in relation to both of these questions were clear and remained consistent throughout the proceedings. However, HMRC’s position on both questions was less than clear, and was not consistent. In particular, HMRC and Mr Bradley seemed unclear as to HMRC’s position on question (b), and whether or not they needed to succeed on question (a) for the purposes of the appeal.” 11. HMRC’s position, asserted repeatedly in correspondence and in witness evidence, was that in order to be “worn” for duty purposes, the items must be “items that most people would throw out as not being worthy of being worn any more”
“During this visit she inspected some of the clothing on the premises; the items examined had been cleaned and hung up with the intent to sell. Some of the items were being altered with the intent to sell. Officer Pell noted a number of errors on the classification of the goods.”
“66. One might have expected that the answer to this question would be plain, namely that in order to determine the correct classification of the imports HMRC would inspect them, and where they were in bulk containers, would agree an apportionment based on sampling, to be corroborated and if necessary adjusted by further inspections. 67. However, it is at this point that the central conundrum in this appeal arises. Rokit submits that such an apportionment was agreed with HMRC around 15 to 20 years ago, and applied since that date. It submits that Ms Pell had ample opportunity to inspect the goods to verify the apportionment in her audit visit in 2013. Finally, it submits that Ms Pell did not inspect the clothing at all during her 2015 visit, or make any request or attempt to do so. 68. In relation to the alleged apportionment agreement, HMRC appeared not to deny that this existed, but rather to argue that they have no record of it, and Rokit has failed to provide adequate proof of it. We heard evidence from Mr Shackleton as to the terms of the agreement and its genesis. We found Mr Shackleton to be an entirely credible and reliable witness, and, in the absence of any contradictory evidence from HMRC, we find as a fact on the balance of probabilities that an agreement was reached with HMRC of the sort submitted by Mr Shackleton. 69. In relation to the 2013 visit by Ms Pell to Rokit, HMRC devoted considerable resources, including an 18 page submission to the Tribunal, seeking to avoid disclosure of HMRC results of that visit and its audit report. In the event, they stated subsequently that the report had been lost, and that they would accept that Mr Shackleton’s recollections of the events of the 2013 audit were correct. In particular, they accepted the following passages from Mr Shackleton’s first witness statement: “Officer Pell was given full access to the books and records that she requested. She was able to see the bales/bags of imported clothing but chose not to inspect them. She did not at the time nor subsequently question the agreed ratios. She did not suggest that the audit had been prompted by HMRC thinking that, for whatever reason, the agreed ratios were no longer appropriate or required reappraisal. We did not receive any correspondence from HMRC which challenged the agreed ratios. As a result of the 2013 audit and the lack of any questioning of the ratios and the absence of any subsequent communications challenging the declared percentages in the relevant classifications or seeking information about the average compositions of the imported bundles, we understood that the long standing allocations continued to be agreed and accepted by HMRC.” 70. In relation to the 2015 visit by Ms Pell which precipitated the issue of the C18 Notice in this appeal, we received witness statements from Ms Pell stating that she had observed some of the clothing being cleaned and prepared for sale, and being hung on rails. We heard evidence from Ms Pell and had the opportunity to ask her questions. We did not find Ms Pell’s recollections to be wholly reliable. For instance, having given evidence that she had observed two female employees hanging up the clothing, when shown a contemporaneous photograph of the two impressively large gentlemen who were performing this task, Ms Pell thought that she may have misremembered. She also claimed to have little or no recollection of her 2013 audit visit, which we find surprising. 71. We find as a fact that neither during her 2013 audit visit nor during her 2015 visit did Ms Pell make any meaningful attempt to inspect any of the goods, with a view to determining their correct tariff classification or otherwise. 72. The conundrum is that HMRC appeared during the proceedings to argue that this is irrelevant, and that inspection of the imports could never matter in determining their correct tariff classification. 73. HMRC stated that this is because classification can never properly be determined by a formula or apportionment. It can only ever be based on written evidence of the classification of each item or items at the point of import. 74. In examination, Ms Pell eventually stated that this was her understanding, as communicated to her by HMRC’s Tariff Classification Team. She also accepted on questioning from us that a consequence of this was that it was wholly irrelevant whether she (or anyone from HMRC) had inspected any of Rokit’s imports, in 2013, or in 2015, or indeed at any time. 75. This approach is, of course, hugely convenient for HMRC. It means that any apportionment of the sort which Rokit say was agreed in the past would be unenforceable. There would be no need to keep it under review because it should never have been agreed in the first place. It also means that HMRC have no duty, either on an audit visit or otherwise, to inspect the imported goods.”
“This behaviour was plainly unreasonable in itself but, crucially, HMRC’s late change in their case meant that the time and money Rokit spent on preparation for the appeal – which was understandably aimed at demonstrating (i) that its interpretation of the relevant headings of the CN [Combined Nomenclature] was correct in law and (ii) garments showing signs of appreciable wear and rags, and in the proportions declared – was in fact entirely wasted. Had Rokit known that HMRC did not in fact take issue on either of these points, but instead put their case on a completely different legal basis, it could and would have prepared for the hearing quite differently (e.g. not going to the expense of preparing witness statements or requiring a number of its employees to be absent from work in order to give evidence at the hearing).”
“The Appellant relied on an agreement with the Respondents made between 15 and 20 years ago and could provide no written proof of the agreement. The Appellant took on significant risk in relying on an undocumented agreement and for adopting an unconventional approach to declaration based on apportionment. Had there been a contemporaneous record of the agreement, the Respondents’ position would have significantly less force. However, considering that there was no written proof, it was not unreasonable for the Respondents to require that the agreement had been made and that the import declarations matched the apportionment…”