UT (Tax & Chancery) UT/2023/000060 - [2024] UKUT 00070 (TCC)

The CPR do not contain any rules in relation to PCO’s. PCOs have been recognised in English public law since R v Lord Chancellor ex parte CPAG [1999] 1 WLR 347 where Dyson J set out some guidelines but refused to make a PCO on the facts of that case. The leading authority on the power to make PCOs and the procedure to be adopted is Corner House. In that case, Lord Phillips of Worth Matravers MR, who gave the decision of the court, said at [72]:

At [74], Lord Phillips set out the following guidance:

Having set out some examples of types of PCOs, which included an order capping the unsuccessful claimants’ liability for costs if they lost, Lord Phillips observed, at [76], that there is “room for considerable variation, depending on what is appropriate and fair in each of the rare cases in which the question may arise.”

The governing principles set out in Corner House have been considered and refined by the Court of Appeal in subsequent cases. It is now clear that the principles in Corner House are guidelines which are not to be read as statutory provisions but are to be interpreted and applied flexibly (see R (Compton) v Wiltshire Primary Care Trust [2008] EWCA Civ 749, [2009] 1 WLR 1436 (‘Compton’) at [23] and Morgan & Anor v Hinton Organics (Wessex) Ltd [2009] EWCA Civ 107 (‘Hinton Organics’) at [40]). Exceptionality is not an additional criterion to be satisfied but a prediction as to the effect of applying the principles set out in [74] of Corner House (see Compton at [24] and [83]). The general public importance and public interest requirements are a matter of evaluation for the judge but a case that will clarify the true construction of a statutory provision which applies to and potentially affects the whole population raises issues of general public importance (see Compton at [75] – [77]). Although private interest is a factor to be taken into consideration, it is not a bar to a PCO (see Hinton Organics at [37] - [39]). I understood HMRC to agree with the following approach to the issue of private interest, derived from Ames. It is inevitable that all tax appeals will have an element of private interest but it is the extent of the general public importance of the issue which must be taken into account, alongside other factors relevant to the fairness and justice of making such an order in appeal proceedings.

I can see no reason, as a matter of principle or policy, why the governing principles set out in Corner House should not be applied in the case of applications for PCOs in appeals to the UT. It seems to me to be obvious that consistency and good administration require the UT, when considering whether to make a PCO, to apply the Corner House principles, as modified by subsequent cases and bearing in mind the overriding objective in rule 2 of the UT Rules which is not the same as the overriding objective in the CPR.

… although private interest is a factor to be taken into consideration, it is not a bar to a PCO and a flexible approach should be applied to all aspects of the Corner House guidelines.

The court may at any stage of proceedings make a costs capping order against all or any of the parties, if—

Subject to rule 52.19A, in any proceedings in which costs recovery is normally limited or excluded at first instance, an appeal court may make an order that the recoverable costs of an appeal will be limited to the extent which the court specifies.

In making such an order the court will have regard to—

If the appeal raises an issue of principle or practice upon which substantial sums may turn, it may not be appropriate to make an order under paragraph (1).

An application for such an order must be made as soon as practicable and will be determined without a hearing unless the court orders otherwise.

In R (Corner House Research) v Secretary of State for Trade & Industry [2005] EWCA Civ 192, [2005] 1 WLR 2600 and a subsequent line of cases the Court of Appeal developed rules for protective costs orders in the context of judicial review. Such orders were made both at first instance and on appeal. In Eweida v British Airways PLC [2009] EWCA Civ 1025, the claimant, who was appealing from the EAT to the Court of Appeal, applied for costs protection on the basis that she was moving from a "no costs" jurisdiction to a costs shifting jurisdiction. The Court of Appeal dismissed her application, on the grounds that it did not have power to make a protective costs order or a costs capping order.

The outcome of Eweida, although correct on the law as it stood, was unsatisfactory for a number of reasons. Many individuals of modest means who litigate in "no costs" jurisdictions are often without legal representation. Indeed, the claimants in this case litigated before the Ashford Employment Tribunal without representation. It is usually unjust to subject such litigants to a risk of adverse costs when they proceed to a higher level. This is particularly so if they win at first instance and are dragged unwillingly into an appeal. It may also be unjust to impose a costs risk if the litigant loses at first instance, but has proper grounds for bringing an appeal. This was the case with Mrs Eweida.

Of course it is not always desirable to suspend costs shifting rules when a case comes up from a "no costs" jurisdiction. A classic example is an appeal from the EAT where one party is a well resourced employer and the other party is an employee or a group of employees backed by their union. Such a case may well involve issues of principle or practice on which substantial sums turn. Obviously, in cases like that, there is no reason to disapply the normal costs shifting rules.

It is against this background that the Rule Committee has recently promulgated the new rule 52.9A. This rule will come into force on 1 April 2013. It provides as follows…

…

This new rule is intended to address the mischief which has emerged in cases such as Eweida. Where justice so requires, the court can exclude or limit costs recovery when a case passes from a "no costs" or "low costs" jurisdiction to a court with full costs shifting powers. The new rule will not only apply to appeals from the EAT to the Court of Appeal. The enactment of this rule constitutes implementation of recommendation 71 in the Review of Civil Litigation Costs Final Report (published in January 2010).

I agree that an ACO is simply a species of PCO. As such, I consider that the UT has the power to make such an order under the TCEA 2007 and the UT Rules for the same reasons as I have stated at [18] – [23] above… [T]he UT has the benefit of the guidance provided by CPR 52.9A when deciding how to exercise its power to make orders in relation to costs. Like the ET and EAT, the FTT is a no costs jurisdiction except in a case that has been categorised under rule 23 of the FTT Rules as a Complex case and the appellant has not asked for it to be excluded from potential liability for costs under rule 10. The injustice identified by Jackson LJ in Manchester College at [30] has the same potential to arise in the UT as in the High Court and Court of Appeal. In my view, the UT would not be giving effect to the overriding objective in the UT Rules if, having the power to make a costs order to mitigate the potential injustice, it refused to do so where such an order would be appropriate under CPR 52.9A.

Taking all the criteria together and bearing in mind the overriding objective, as set out in rule 2(1) of the UT Rules, of dealing with cases fairly and justly, I consider that Mr Drummond’s application for a PCO or similar order should be refused. Mr Drummond has chosen to appeal to the UT and such an appeal carries with it the risk of an order that the unsuccessful party pays the successful party’s costs. Such a costs shifting regime is not inconsistent with the overriding objective which requires fairness and justice for both parties. There is nothing unfair or unjust in this case about refusing to protect Mr Drummond from being exposed to the risk of costs when, as I have found, he is able to pay them.