Roger Preston Group Ltd v Revenue and Customs (COSTS - Complex category case) [2021] UKFTT 132 (TC)

FTT-Tax

Roger Preston Group Ltd v Revenue and Customs (COSTS - Complex category case)

[2021] UKFTT 132 (TC) · 2021-04-26

[34]" 34. The question whether costs incurred before the start of tribunal proceedings can be recovered as "costs of and incidental to" those proceedings where the tribunal's power under rule 10(1)(b) is exercised also does not arise for decision, given my earlier conclusions. Judge Mosedale in the present case referred to a number of FTT decisions where it appears some tribunals have treated costs incurred before the start of proceedings as incidental to those proceedings and some have held that only costs incurred in bringing, defending or conducting the proceedings are recoverable. Since there appears to be some inconsistency in practice and the point is of wider significance, it is convenient for this court to consider it.

[35]As Judge Mosedale noted in her decision, the phrase "costs of and incidental to" used in section 29 of the TCEA is also used in other contexts. The wording echoes that used in section 51(1) of the Senior Courts Act 1981 that "the costs of and incidental to all proceedings" in, amongst other courts, the civil division of the Court of Appeal and the High Court, shall be in the discretion of the court. CPR 7.2(1) provides that "proceedings are started when the court issues a claim form". CPR 44.2(6)(d) provides expressly that the orders which the court may make under that rule include an order that a party must pay costs incurred before the proceedings have begun. 36. The use of the "costs of and incidental to" wording in section 29 cannot be accidental and must have been intended to mean that, subject to any relevant difference in the FTT Rules compared with the Civil Procedure Rules, the same costs are in general recoverable once rule 10(1)(b) comes into play as are recoverable on an assessment of costs following civil proceedings covered by section 51 SCA. Those costs do include some pre-action costs. In In re Gibson's Settlement Trusts

[1981] Ch 179

, Sir Robert Megarry V.-C. considered an appeal from the taxation of costs of an originating summons issued by trustees of a settlement trust. One issue raised was whether the taxing officer had been right to allow recovery of costs incurred before the summons was issued. The Vice-Chancellor held: i) on an order for taxation of costs, costs that would otherwise be recoverable are not to be disallowed by reason only that they were incurred before the action was brought; ii) where the costs order is for costs of and incidental to proceedings, the words "incidental to" extend rather than reduce the ambit of the order;

[37]iii) it is important to identify the proceedings, in the sense not only of the correct stage of the proceedings but also by determining the nature of those proceedings: "Only when it is seen what is being claimed can it be seen what the proceedings are to which the costs relate": page 186B.37. The Vice-Chancellor cited the judgment of Lord Hanworth MR in Pêcheries Ostendaise (Soc. Anon) v Merchant's Marine Insurance Co

[1928] 1 KB 750

which referred to costs for "materials ultimately proving of use and service in the action" and commented that it would be "most unfortunate if the costs of obtaining evidence while it was fresh after an accident could not be allowed, even if litigation seemed probable, merely because no writ had then been issued": page 186D. He went on to say at page 187B-E: (5) Obviously the test cannot be simply whether the materials in question proved in fact to be of use in the action, for otherwise when a case is settled before trial … it would often not be possible to say with any certainty which materials had been or would have been of use in the action. Nor would it be right to penalise the successful litigant for obtaining materials which appeared likely to be of use in the action but which, in the event, were never used because the other party did not contest the point. … Neither the fact that at the time when the costs were incurred no writ or originating summons had been issued, nor the fact that the immediate object in incurring the costs was to ascertain the prospective litigant's chances of success, will per se suffice to exclude the costs from being regarded as part of the costs of the litigation that ensues. Of course, if there is no litigation there are no costs of litigation. But if the dispute ripens into litigation, the question then arises how far the ambit of the costs is affected by the shape that the litigation takes."

38. Although there is no equivalent in the FTT Rules to the express provision in CPR 44.2(6)(d), I consider that the power in rule 10(1)(b) to award costs of and incidental to the proceedings can include costs incurred before the appeal was notified to the FTT. Which costs are properly recovered is a matter for the costs officer who is experienced in these matters to decide. I would, however, say this as regards the costs incurred by the parties in steps taken before the FTT appeal is lodged. The ability of the applicant to recover the costs of notifying the appeal to HMRC does not, in my view, turn on whether the taxpayer chooses the option of internal review or decides to bring the appeal straight to the tribunal. I agree with the UT's comment that defining the scope of a possible order for costs by reference to the subjective intentions of a potential appellant at a particular stage is "hedged around with too many difficulties and uncertainties to form a reliable basis for decision": [71].

[39]I also disagree with the implication of Judge Mosedale's test that the costs of the internal review itself can never be incidental to the appeal because they are incurred to bring the dispute to an end without litigation. It is the nature of the work done and the scope of the ultimate appeal that determine whether those costs are incidental to the appeal, not the subjective intention of the party when incurring the costs. For example, materials gathered or produced for the purpose of the internal review may then be recycled in the appeal before the FTT. Those costs are clearly of and incidental to the appeal even though they were largely incurred at the earlier stage." 35. I have set out this passage in its entirety becaue it is important. HMRC correctly contend that this passage is, strictly speaking, obiter because it is on the footing of Rule 10(1)(b) and not Rule 10(1)(c). But that does not mean that I should thereby simply disregard the detailed discussion which the Court (despite its conclusions in relation to the earlier grounds) clearly considered appropriate. Although I may not, strictly speaking, be bound by it, it is nonetheless, on any view, highly persuasive. It discusses the relevant authorities, in the context of a tax appeal. And, stating the obvious, the leading decision comes from a former President of the Tax and Chancery Chamber of the Upper Tribunal. 36. Although the appeal in Distinctive Care concerned the Tribunal's jurisdiction (under Rule 10(1)(b)) to award costs to a party in an appeal where the opposing party has acted unreasonably in bringing, defending or conducting the proceedings, I am bound to say that I do not see anything in this part of the discussion which should be limited to Rule 10(1)(b) and which should not be equally relevant to Rule 10(1)(c), and I apply the guidance which Rose LJ set out. 37. I have reservations about the Appellant's suggested, date-based, approach, set out in paragraph 2 of its draft order, because to my mind this sidesteps the point that the real challenge on assessment in a case of this kind is identification of the costs which are, and which are not, truly incidental to the appeal - which are recoverable - as opposed to those which not truly incidental to the appeal but relate to something other than the appeal (for instance, an investigation) - which are not recoverable. 38. I do not consider that any date should be applied or stipulated, because it risks influencing the cost judge's assessment of whether costs incurred after a certain date should prima facie be treated as costs incidental to the appeal. If that were to be the starting point, it would not be correct.39. HMRC invite me to order that it pays the Appellant's costs of and incidental to the proceedings in the First-tier Tribunal, under this appeal number. But I am apprehensive in case that should be seen as setting the opposite trap - namely, giving rise to an assumption that costs incurred before the drawing of the Notice of Appeal should not prima facie be treated as costs of and incidental to the appeal. If that were to be the starting point, it would also be incorrect.

40. The correct position is different to that adopted by either of the parties.

41. I have already set out my view that costs incidental to an appeal may extend to include costs which were incurred before the Notice of Appeal and I respectfully adopt Lady Justice Rose's guidance in Paragraph [39] of Distinctive Care : It is the nature of the work done and the scope of the ultimate appeal that determine whether those costs are incidental to the appeal, not the subjective intention of the party when incurring the costs. I am expressing no view as to whether those include or do not include the costs of the investigation. I cannot do so on the basis of the information and materials before me. Whether the costs of the investigation are recoverable as 'incidental' will also depend on whether (as per Lord Handworth MR in Pêcheries Ostendaise , cited with approval in Distinctive Care ) those costs were "materials ultimately proving of use and service in the [appeal]."

42. Subject to those observations, I therefore leave it open for the costs judge to examine the nature of the work done and the scope of the ultimate appeal, and to decide whether or not the costs incurred were genuinely of use and service in the subsequent litigation in order to determine whether those costs are or are not incidental to the appeal. As to that exercise of segregation, HMRC say that it is not for me to determine the point, and I - not without a degree of relief - agree. Interest

43. The Appellant invites me to order that interest on its costs run at the rate of 8% from the date of the release of the Decision. HMRC agree that provision should be made for interest, but submit that it should be at the rate of 2.1%.

44. As to the appropriate date from which interest should run, it is to be the date of the Tribunal's decision on the basis of which the award of costs is made: see Curran v HMRC

[2012] UKFTT 655 (TC)

at [38] per Judge Roger Berner. In this case, that is 9 February 2021.

45. I have a discretion as to the rate of interest. The Appellant invites me to award 8%. I do not consider 8% (being the rate of interest which, under the terms of the Judgments Act 1838, and unless otherwise ordered, applies to judgment debts of more than £5,000) to be appropriate. There is no evidence (for example) that the Appellant has had to borrow money to fund this appeal, or has lost the benefit of money which could otherwise have been put out at 8%. Moreover, and self-evidently, it far exceeds the rates of interest generally prevailing in the marketplace, and the base rate (at an historic low), and the rates of interest applied by HMRC to the late payment of taxes.

46. HMRC invite me to consider and apply section 52 of the Finance (Nr 2) Act 2015 and the so-called "special repayment rate" of base rate plus 2: section 52(6). That is a rate of 2.1%. I am doubtful whether the "special repayment rate" is really the correct rate, because it does not obviously apply to interest on costs following a decision of this Tribunal, which is not a tax debt in the usual sense. Nonetheless, 2.1% - looked at irrespective of the 2015 Act - is a rate of the kind which aligns with the rates in the marketplace, and it is the rate I award. Disposal: My order

47. By no later than 21 days from the release of this decision, HMRC shall make the agreed interim payment to the Appellant on account of its costs. That interim payment is made on the usual footing being that, if the interim payment exceeds the sum of costs eventually assessed, or agreed, then the balance (together with any applicable or allowable interest, at the direction of the costs judge) shall be repaid.

48. HMRC shall pay the Appellant's costs of and incidental to this appeal, to be assessed on the standard basis, if not agreed, by the Senior Court Costs Office, 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. The costs judge shall decide what costs are and are not recoverable as incidental costs to the substantive appeal.

49. The Appellant has invited me to order that it pay its costs of drafting the application for costs. The Respondent has made no submissions. I will deal with the matter of the costs of this application for costs on paper, if called upon to do so. Insofar as I may make any order of costs as between the parties, I am minded to assess those by way of summary assessment. Any party wishing to seek an order of payment of costs in its favour in relation to this application for costs shall make such application in writing within 28 days of the date of release of this decision, and shall provide a Practice Form N260 Statement of Costs supported with an indemnity certificate. Right to apply for permission to appeal

50. This document contains full findings of fact and reasons for the decision. Any party dissatisfied with this decision has a right to apply for permission to appeal against it pursuant to Rule 39 of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009. The application must be received by this Tribunal not later than 56 days after this decision is sent to that party. The parties are referred to “Guidance to accompany a Decision from the First-tier Tribunal (Tax Chamber)” which accompanies and forms part of this decision notice. DR CHRISTOPHER MCNALL TRIBUNAL JUDGE RELEASE DATE: 04 MAY 2021