![TC09510 - [2025] UKFTT 00501 (TC)](https://backend.juristeca.com/files/emisores/logo_7HSuEAV.png){kind=logo}
the law
the law
The power of the Tribunal to award costs is derived from section 29 of the Tribunals, Courts and Enforcement Act 2007 which provides as follows:
29 Costs or expenses
The costs of and incidental to-
all proceedings in the First-tier Tribunal; and
all proceedings in the Upper Tribunal,
shall be in the discretion of the Tribunal in which the proceedings take place…
The discretion afforded to the Tribunal is subject to Rule 10 of the Tribunal Rules which provides as follows:
10.(1) The Tribunal may only make an order in respect of costs (or, in Scotland, expenses)—
under section 29(4) of the 2007 Act (wasted costs) and costs incurred in applying for such costs;
if the Tribunal considers that a party or their representative has acted
unreasonably in bringing, defending or conducting the proceedings;
The Appellant has applied under Rule 10(1)(b).
In Market & Opinion Research International Limited v HMRC [2015] UKUT0012 (TCC) (“MORI”) at [22] and [23], the Upper Tribunal endorsed the approach set out by the FTT in that case to the question of whether a party had acted unreasonably.
That approach could be summarised as follows, and has been endorsed by the later Upper Tribunal decision in Distinctive Care Ltd v HMRC [2018] UKUT 155 (TCC) at [44] to [45], which in turn was endorsed by the Court of Appeal in Distinctive Care Ltd v HMRC [2019] EWCA Civ 1010:
the threshold implied by the words “acted unreasonably” is lower than the threshold of acting “wholly unreasonably” which had previously applied in relation to proceedings before the Special Commissioners;
it is possible for a single piece of conduct to amount to acting unreasonably;
actions include omissions;
a failure to undertake a rigorous review of the subject matter of the appeal
when proceedings are commenced can amount to unreasonable conduct;
there is no single way of acting reasonably, there may well be a range of
reasonable conduct;
the focus should be on the standard of handling the case (which we
understand to refer to the proceedings before the FTT rather than to the wider
dispute between the parties) rather than the quality of the original decision;
the fact that an argument fails before the FTT does not necessarily mean
that the party running that argument was acting unreasonably in doing so; to
reach that threshold, the party must generally persist in an argument in the face of an unbeatable argument to the contrary; and
the power to award costs under Rule 10 should not become a “backdoor
method of costs shifting”.
The legal test to apply when considering whether a party who has withdrawn from the appeal has acted unreasonably can be found in Shahjahan Tarafdar v HMRC [2014] UKUT 0362 (TCC) (“Tarafdar”) at [34], where three questions are posed:
What was the reason for the withdrawal of that party from the appeal?
Having regard to that reason, could that party have withdrawn at an earlier stage in the proceedings?
Was it unreasonable for that party not to have withdrawn at an earlier stage?
Here, it is also very material to the application to consider the meaning of ‘bringing, defending or conducting the proceedings’.
HMRC submit that the relevant conduct is limited to the conduct after the Appellant submitted the appeal to the Tribunal. They say that this starts from when the hardship appeal was approved. The Appellant submits that because Officer King ‘advised’ the Appellant to apply for an ADR, which cannot be applied for until after an appeal has been lodged, the conduct of HMRC should be considered from this point.
The Upper Tribunal in Distinctive Care said:
Over what period is conduct to be assessed?
The FTT’s jurisdiction to award costs against HMRC only arises if “the Tribunal considers that [HMRC] or their representative has acted unreasonably in bringing, defending or conducting the proceedings”. The FTT’s view on this point was that even if the original issue of the information notice had amounted to “acting unreasonably”, HMRC had still not acted unreasonably “in bringing, defending or conducting the proceedings” – as referred to at [18] above. But Judge Mosedale went on to say that in any event she did not consider HMRC to have acted unreasonably – see [61] and [67] of the FTT’s decision.
Logically, before assessing whether a party has acted unreasonably, it is necessary to define the time span over which that party’s actions are to be assessed and tested for reasonableness. To put it another way, the focus of the FTT’s enquiry must be on the reasonableness of the relevant actions. Rule 10(1)(b) states that the enquiry must consider whether the relevant party “acted unreasonably in bringing, defending or conducting the proceedings”.
As was said by the Upper Tribunal in Catanã at [14] in relation to the meaning of 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.”
In agreeing with this formulation, we consider that in a costs application made against an appellant, the actions of that appellant (and its representative) in bringing the proceedings are to be considered; for an application made against a respondent, the actions of that respondent (and its representative) in defending the proceedings are to be considered; and in both cases their respective actions (and those of their representatives) in conducting the proceedings are to be considered. These are the relevant actions to be considered for the purposes of Rule 10. It may be that some earlier actions of one party or the other might inform the FTT’s assessment (for example by demonstrating bad faith), but the focus of the assessment remains on these relevant actions, not on any earlier actions.
In Marshall & Co v HMRC [2016] UKUT 0116 (TCC) (a case to which neither party directed us in the course of the hearing), the Upper Tribunal said the following about the period over which a party’s conduct is to be assessed:
“The reference to “the proceedings” in Rule 10(1)(b) is to proceedings before the Tribunal which has jurisdiction of the appeal, whilst it has such jurisdiction. In Catanã this Tribunal approved (at [9]) the following statements from Bulkliner Intermodal Limited v HMRC [2010] UK FTT 395 (TC):
“..... It is not possible under the 2009 Rules ... for a party to rely upon the unreasonable behaviour of the other party prior to the commencement of the appeal, at some earlier stage in the history of the tax affairs of the taxpayer, nor, even if unreasonable behaviour were established for a period over which the Tribunal does have jurisdiction, can costs incurred before that period be ordered. In these respects the principles in Gamble v Rowe ... remain good law. … That is not to say that behaviour of a party prior to the commencement of proceedings can be entirely disregarded. Such behaviour, or actions, might well inform actions taken during proceedings, as it did in Scott and anor (trading as Farthings Steak House) v McDonald (Inspector of Taxes) [1996] STC (SCD) 381, where bad faith in the making of an assessment was relevant to consideration of behaviour in the continued defence of an appeal.”
Contrary to the submissions of Mr Firth, there is, in our view, no warrant in Rule 10(1)(b) for extending its clear wording to include an assessment of a respondent’s conduct prior to commencement of proceedings before the FTT – even if that conduct effectively forces an appellant to commence proceedings which should not reasonably have been necessary. In our view to hold otherwise would, as well as doing clear violence to the actual wording of Rule 10(1)(b), involve the FTT in a potentially wide- ranging assessment of the reasonableness of the entirety of HMRC’s conduct leading up to the proceedings, as well as flying in the face of authority. We do not consider that it could have been the intention of the draftsman of the FTT Rules to require such an assessment which would, in many cases, necessitate a detailed enquiry into the factual history (quite possibly both complex and hotly disputed) of matters predating the FTT’s involvement.
In relation to VAT appeals, an appeal may not be brought unless either the VAT in dispute has been paid, or either HMRC or the Tribunal has determined that payment of this would cause hardship to the Appellant. This is set out in VATA 1994, s84:
84Further provisions relating to appeals.
(1)References in this section to an appeal are references to an appeal under section 83.
...
(3)Subject to subsections (3B) and (3C), where the appeal is against a decision with respect to any of the matters mentioned in section 83(1)(b), (n), (p), (q), (ra) (rb) or (zb), it shall not be entertained unless the amount which HMRC have determined to be payable as VAT has been paid or deposited with them.
(3A)Subject to subsections (3B) and (3C), where the appeal is against an assessment which is a recovery assessment for the purposes of this subsection, or against the amount of such an assessment, it shall not be entertained unless the amount notified by the assessment has been paid or deposited with HMRC.
(3B)In a case where the amount determined to be payable as VAT or the amount notified by the recovery assessment has not been paid or deposited an appeal shall be entertained if—
(a)HMRC are satisfied (on the application of the appellant), or
(b)the tribunal decides (HMRC not being so satisfied and on the application of the appellant),
that the requirement to pay or deposit the amount determined would cause the appellant to suffer hardship.
(3C)Notwithstanding the provisions of sections 11 and 13 of the Tribunals, Courts and Enforcement Act 2007, the decision of the tribunal as to the issue of hardship is final.