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The law
The law
Section 29, Tribunal Courts and Enforcement Act 2007 provides that the award of costs of and incidental to all proceedings in the Tribunal shall be at the discretion of the Tribunal and subject to the FTT Rules.
The relevant provisions of Rule 10, Tribunal Procedure (First-tier Tribunal)(Tax Chamber) Rules 2009, are as follows:
Orders for costs
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 Tribunal may make an order under paragraph (1) on an application or of its own initiative.
A person making an application for an order under paragraph (1) must—
send or deliver a written application to the Tribunal and to the person against whom it is proposed that the order be made; and
send or deliver with the application a schedule of the costs or expenses claimed in sufficient detail to allow the Tribunal to undertake a summary assessment of such costs or expenses if it decides to do so.
An application for an order under paragraph (1) may be made at any time during the proceedings but may not be made later than 28 days after the date on which the Tribunal sends—
a decision notice recording the decision which finally disposes of all issues in the proceedings; or
notice under rule 17(2) of its receipt of a withdrawal which ends the proceedings.
The Tribunal may not make an order under paragraph (1) against a person (the "paying person") without first—
giving that person an opportunity to make representations; and
if the paying person is an individual, considering that person's financial means.
The amount of costs (or, in Scotland, expenses) to be paid under an order under paragraph (1) may be ascertained by—
summary assessment by the Tribunal;
agreement of a specified sum by the paying person and the person entitled to receive the costs or expenses (the "receiving person"); or
assessment of the whole or a specified part of the costs or expenses, including the costs or expenses of the assessment, incurred by the receiving person, if not agreed.
What constitutes "unreasonable conduct" for the purposes of Rule 10 was considered by the Upper Tribunal in Distinctive Care Ltd v HMRC [2018] UKUT 155 (TCC), and upheld on appeal by the Court of Appeal ([2019] EWCA Civ 1010). In its decision, the Upper Tribunal set out at [44] to [46] the basis on which conduct is to be assessed:
[44] In Market & Opinion Research International Limited v HMRC [2015] UKUT 12 (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:
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".
[45] We would wish to add one small gloss to the above summary, namely that (as suggested by the FTT in Invicta Foods Limited v HMRC [2014] UKFTT 456 (TC) at [13]), questions of reasonableness should be assessed by reference to the facts and circumstances at the time or times of the acts (or omissions) in question, and not with the benefit of hindsight.
[46] In assessing whether a party has acted unreasonably, this Tribunal in MORI went on to say this (at [49]):
"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."
I was also referred to the decisions of the First Tier Tribunal in Generator Power Ltd v HMRC [2024] UKFTT 1019 and Proctor & Gamble International Operations SA v HMRC [2022] UKFTT 299, but I do not consider that they add very much to the Upper Tribunal’s decision in Distinctive Care, (as endorsed by the Court of Appeal).
The corresponding provision in the Rules of the Property Chamber were considered by the Upper Tribunal (Lands Chamber) in Willow Court Management Company (1985) v Alexander [2016] UKUT 290 (LC):
[24] An assessment of whether behaviour is unreasonable requires a value judgment on which views might differ but the standard of behaviour expected of parties in tribunal proceedings ought not to be set at an unrealistic level. We see no reason to depart from the guidance given in Ridehalgh at 232E, despite the slightly different context. “Unreasonable” conduct includes conduct which is vexatious, and designed to harass the other side rather than advance the resolution of the case. It is not enough that the conduct leads in the event to an unsuccessful outcome. The test may be expressed in different ways. Would a reasonable person in the position of the party have conducted themselves in the manner complained of? Or Sir Thomas Bingham’s “acid test”: is there a reasonable explanation for the conduct complained of?