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Procedure.Tax
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R11: Costs on further appeal
Costs of permission to appeal hearings
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Respondents entitled to costs of successfully resisting permission to appeal application in Upper Tribunal
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“Suppose, in this case, I had given permission to appeal, following a contested hearing, and Softhouse had gone on, only to lose the substantive appeal. Would it be reasonable to refuse HMRC their costs of resisting the application, when they are ultimately shown to have been correct in the decision from which the proceedings have stemmed? If a successful appellant is entitled, in principle, to all of his costs it seems to me that the same must be true of a successful respondent, and the control mechanism, as HMRC have said, is that costs can be recovered only if they are reasonably incurred. In other words, there is the jurisdiction to make the direction HMRC are seeking, but it should be exercised in favour of a successful respondent, not as a matter of routine, but only when it was reasonable for that respondent to incur costs in resisting an application.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §12, Judge Bishopp).
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Respondent has burden of showing its intervention at permission to appeal hearing was reasonable
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“the fact of an oral application necessarily implies that the applicant has already failed twice, on paper applications, to secure permission. A respondent should ordinarily be cautious about incurring costs against that background. In the light of those factors respondents seeking their costs of resisting an application, whether HMRC or taxpayers, will bear the burden of demonstrating that intervention (rather than relying on the experience and expertise of the Upper Tribunal judges) was reasonable; it will not be assumed.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §13, Judge Bishopp).
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Risk of stifling legitimate appeal means UT should lean against PTA costs orders
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“Taxpayers seeking to challenge decisions of the First-tier Tribunal before this tribunal already risk an adverse costs direction if they lose (even though they may not have been exposed to costsshifting in the First-tier Tribunal); the risk of an adverse costs award in the event of an unsuccessful application for permission to appeal may well operate as an additional disincentive to an appellant who, despite having been refused twice, does in fact have a meritorious appeal—and there are several examples of permission being given only on oral renewal of an application, and in some such cases the appellants have gone on to succeed. For that reason, as it seems to me, the tribunal should lean towards refusing a costs direction in favour of the respondent to an application for permission…Nevertheless, the presumption should not be excessively hard to displace.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §§17…18, Judge Bishopp).
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Legitimate interest in outcome does not make it reasonable
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“I do not doubt that HMRC had a legitimate interest in the outcome of the application but the fact of a legitimate interest does not of itself make it reasonable to incur costs in protecting it; an assessment of the risk is necessary.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §16, Judge Bishopp).
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Reasonable where application for permission based on deceitful or partial grounds
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“…a respondent with serious reason to think that the applicant was attempting to obtain permission by deceit, or by attacking findings of fact on a partial even if not deceitful account of the evidence available to the First-tier Tribunal, would be foolish if he did not resist the application.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §16, Judge Bishopp).
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Not reasonable simply because HMRC have litigated the same point repeatedly
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“I accept that HMRC have been obliged to defend several appeals in which the essence of the argument advanced was that Mobilx was wrongly decided, and that although the argument has been decisively rejected many times applications are still being made for permission to appeal to this tribunal in order to advance it again—this case being only one example of many. But that is not, in my view, a sufficient reason for an award of costs.” (Softhouse Consulting Limited v. HMRC PTA/333/2013, §19, Judge Bishopp).
Exceptional cases where no costs order made
Where HMRC change their argument on appeal and the taxpayer limited involvement in the appeal
“…over the course of the appeal to the F-tT and then to this tribunal HMRC have changed the basis of their refusal to meet Mr Patel’s claim… It is in my view a further relevant factor that although Mr Patel made some written submissions, he did not attend the hearing before us to oppose the appeal with full argument. In addition, though it is a minor point which would not be enough alone, I observe that there is no indication in HMRC’s grounds of appeal that they would seek a direction in respect of costs, an indication which would at least have put Mr Patel on warning, and might perhaps have prompted him to concede the appeal… Against that background it would, in my judgment, be unfair to compel Mr Patel to pay, or contribute to, HMRC’s costs of an appeal which, even if only in part, their changing case has made necessary and I therefore decline to make the 20 requested direction.” (HMRC v. Patel [2014] UKUT 484 (TCC), §§15…16…17, Judge Bishopp).
Loser still pays costs even if appeal caused by FTT failing to deal with argument
“[The taxpayer] resisted [HMRC’s] application in principle for costs if HMRC won on the basis that this was his first bite of the cherry on this point. As we have said, we consider that having failed to persuade the First-tier Tribunal to review its decision and having been granted permission to appeal, the appellant should have applied to the Upper tribunal to remit the appeal to the First-tier Tribunal to make a decision on the validity aspects that had been argued but on which no decision had been given. In that way there would have been no costs of substance in the Upper Tribunal. As it is we have heard this appeal and consider that costs should follow the event in the normal way.” (Gunn v. HMRC [2011] UKUT 59 (TCC), §12).
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Bear in mind that previous proceedings took place in no costs jurisdiction
"[27] Nevertheless, this court does have a wide discretion in the award of costs. I bear in mind that this is a case in which all previous proceedings have taken place in the no costs jurisdictions of the employment tribunal and the EAT. It would be disproportionate to require Ms Hughes to pay the costs of instructing leading counsel; and an award of costs of £33,000 would in any event be disproportionate to the amount likely to be in dispute at the remitted hearing." (Office Equipment Systems Ltd v. Hughes [2018] EWCA Civ 1842, Bean LJ)
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No costs where set aside application caused by successful party’s default
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“At the end of the hearing, Mr Beal applied for an order that Mr Huitson pay the costs incurred by HMRC in opposing the applications. I refused that the application on the ground that HMRC’s failure to copy their letter of 29 July and formal response to Mr Huitson or Montpelier gave rise the application and hearing. In my opinion, if HMRC had copied the documents to Mr Huitson or Montpelier then the application to set aside the EOT decision would probably not have been made or, if made, would probably have been dealt with on the papers without the need for a hearing. I considered that it would not be fair or just to require Mr Huitson to pay HMRC’s costsin those circumstances." (Huitson v. HMRC [2017] UKUT 75 (TCC), §38, Judge Sinfield).
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Costs of hearing below
SRI International v. HMRC, UT (FTT costs awarded)
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Trial and subsequent appeals are separate proceedings
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"[18] It is clear that for some purposes the trial and successive appeals do constitute distinct proceedings. In particular they are distinct proceedings for the purpose of awarding and assessing costs: see Masson, Templier & Co v De Fries [1910] 1 KB 535, 538-539 (Vaughan Williams LJ); Wright v Bennett [1948] 1 KB 601; Goldstein v Conley [2002] 1 WLR 281, at paras 79 (Clarke LJ), 107 (Sir Anthony Evans). The authorities were helpfully reviewed by Rix LJ in Hawksford Trustees Jersey Ltd v Stella Global UK Ltd (No 2) [2012] 1 WLR 3581. In that case, the Court of Appeal held that for the purpose of section 29 of the Access to Justice Act 1999, the costs incurred in respect of an ATE premium were recoverable only in the proceedings to which the policy related, ie as part of the costs of the trial if the policy related only to the trial, and not as part of the costs of the appeal. In Gabriel v BPE Solicitors [2015] AC 1663, para 16, this court applied the same principle when holding that a trustee in bankruptcy, by prosecuting an appeal to the Supreme Court, did not expose himself to liability for the costs of the distinct proceedings conducted by the bankrupt at trial or on appeal to the Court of Appeal." (Pelvin v. Paragon Personal Finance Ltd [2017] UKSC 23 - for other purposes, however, they may be the same proceedings, as was the case on the facts)
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"[29] It follows that the term "of and incidental to" is not apt to include the costs of the proceedings from which an appeal is brought. Appeal courts have power to make orders in respect of the costs in underlying proceedings because it is expressly conferred by legislation or by the rules. By virtue of section 15(3) of the 1981 Act the Court of Appeal is conferred with all the jurisdiction of the court or tribunal from which an appeal is brought. Section 28A of the 1981 Act has similar effect for the High Court hearing appeals by way of case stated. CPR Part 52.10 confers like power on any civil court exercising an appellate jurisdiction (including the High Court on an appeal by way of case stated). Thus when an appeal court makes an order in respect of the costs incurred in the underlying proceedings it is not using power conferred by section 51 but express power conferred elsewhere." (Darroch v. FA Premier League [2016] EWCA Civ 1220, Burnett LJ)
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Costs in the Court of Appeal and Supreme Court
CPR rules
No recovery of costs for work that would be done by a solicitor unless done by a solicitor
“It follows in our view that the appellant is not entitled to recover costs as a disbursement in respect of work done by Tenon which would normally have been done by a solicitor who had been instructed to conduct the appeal. This means that the appellant is not entitled to recover for the cost of Tenon providing general assistance to counsel in the conduct of the appeals.” (Agassi v. Robinson [2005] EWCA Civ 1507, §75).
Specialist tax advice may qualify as expert assistance (with the cost allowable as a disbursement)
“But it seems to us that it does not necessarily follow that the appellant is not entitled to recover costs in respect of the ancillary assistance provided by Tenon in these appeals. Mr Mills is an accountant who has expertise in tax matters, especially in the kind of issues that arose in the present case. It may be appropriate to allow the appellant at least part of Tenon's fees as a disbursement. It may be possible to argue that the cost of discussing the issues with counsel, assisting with the preparation of the skeleton argument etc is allowable as a disbursement, because the provision of this kind of assistance in a specialist esoteric area is not the kind of work that would normally be done by the solicitor instructed to conduct the appeals. Another way of making the same point is that it may be possible to characterise these specialist services as those of an expert, and to say for that reason that the fees for these services are in principle recoverable as a disbursement.” (Agassi v. Robinson [2005] EWCA Civ 1507, §75 – sent for detailed assessment).
Non-party costs order against insurer where it becomes the real litigant
"76. It may be convenient to draw together the threads of this rather long analysis into some concluding propositions. First, the underlying question, whether the non-party has either become the real defendant in relation to an insured claim, or intermeddled in an uninsured claim, is fundamental to the exercise of the section 51 jurisdiction, in insurance cases. It is the conduct of the non-party which matters, rather than the mere rarity of the case.
77. Secondly, the Chapman principles are useful guidelines for establishing whether the liability insurer has become the real defendant in all but name, in a case where some part of the claim (including the claim for costs) is or may lie outside the limits of cover, so that the insured has at least a prima facie joint interest with the insurer in the outcome of the litigation.
78. Thirdly , the Chapman principles are not likely to be of assistance where the question is (as here) whether the liability insurers crossed the line in becoming involved in the funding and conduct of the defence of wholly uninsured claims, as opposed to claims where there is limited cover. In such cases the insurer may cross the line by conduct falling well short of total control, and without becoming the real defendant, if the insurer intermeddles in the uninsured claim in a manner which it cannot justify.
79. But, fourthly, where there is a connection between uninsured claims and claims for which the insurer has provided cover, it may well be that the legitimate interests of the insurer will justify some involvement by the insurer in decision-making and even funding of the defence of the uninsured claims without exposing the insurer to liability to pay the successful claimant’s costs. This is just such a case because of the very close connection between insured and uninsured claims, raising common issues to be tried together in test cases in group litigation, and the limited nature of Travelers’ involvement in the uninsured claims.
80. Fifthly, causation remains an important element in what an applicant under section 51 has to prove, namely a causative link between the particular conduct of the non-party relied upon and the incurring by the claimant of the costs sought to be recovered under section 51. If all those costs would have been incurred in any event, it is unlikely that a section 51 order ought to be made.
81. Sixthly, the non-disclosure of limits of cover by the defendant at the request of the insurer is unlikely to amount to relevant conduct, for as long as the law continues to make that non-disclosure legitimate.
82. Seventhly, asymmetry or lack of reciprocity in costs risk, as between the uninsured claimant and the defendant’s insurer, is unlikely on its own to be a reason for the making of a non-party costs order against the insurer where, as here, the asymmetry arises because a claimant sues an uninsured and insolvent defendant and incurs several-only costs liability in group litigation.
83. Applied to this case, those conclusions mean that this appeal should be allowed. This is because, of the three elements of the conduct of Travelers which the judge regarded as crossing the line, the first (non-disclosure) was not unjustified intermeddling, although it did cause those costs to be incurred, while the second and third (decision-making about offers and admissions), even if amounting to unjustified intermeddling, which I doubt, plainly had no relevant causative consequences. The Court of Appeal’s alternative route to the judge’s conclusion, based essentially upon the asymmetry point, was in my view wrong for the reasons already given." (Travelers Insurance Company Ltd v. XYZ [2019] UKSC 48)
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