UT (Tax & Chancery) UT/2022/000099 - [2024] UKUT 00184 (TCC)

“There is therefore no equivalent of CPR Part 44 which contains general
rules about costs, and in particular no equivalent of CPR 44.2(2) under which if the court decides to make an order about costs, the general rule is that the unsuccessful party will be ordered to pay the costs of the successful party, although the court may make a different order. But although there is no express provision to this effect, it does not seem surprising that if the FTT is to have a discretion over costs, the starting point will usually be that if any order for costs is made at all, it will be that costs should follow the event, that is that the loser will pay the winner. This is what fairness and justice would seem normally to require.”

“Mr Davey QC, who appeared before me for HMRC, did not dispute that where a costs order is made, the general rule is that costs should follow the event. He also accepted that although the CPR do not apply in the tribunals, case law decided in relation to the CPR can be informative; and that a key issue for the FTT in deciding on an appropriate order for costs is that of identifying the successful party in the proceedings. That I accept, and I accept that BPP is illustrative of the general principle that the FTT will look to cases decided under the CPR as helpful guidance, but I would sound a note of caution. Under the CPR the court has to identify the successful party in order to apply (or decide not to apply) the general rule under CPR 44.2, and as appears from the authorities (below) there has been a tendency for courts to seek to identify one or other of the parties as “the successful party” (and the other as “the unsuccessful party”). But it is not obvious, at any rate to me, that the exercise that the FTT is engaged in is necessarily quite the same. No doubt in a case where there is a clear winner and loser, one would normally expect the costs to follow the event in the FTT as in a court. But that is not because any of the rules require this approach but simply because that is likely to be the fair and just outcome and hence in accordance with the overriding objective applicable in the FTT. It by no means follows that in a case where both sides have had some measure of success the FTT has to, or ought to, approach the question of what is fair and just by seeking to identify one or other party as the successful party. I would have thought that what the FTT should be doing is seeking to identify a fair and just outcome, and that that is likely to be one that reflects, by one means or another, the fact that the parties have each been successful in part.”

“I will therefore proceed on this basis, although again sound a note of caution: I agree that if the FTT identifies a party as successful when they are not (or fails to identify them as successful when they are), this is an error of principle which undermines their decision. But it does not necessarily follow that the question of whether a party is successful is always a yes/no, or hard-edged, question to which there is only one right answer. In some cases it may be that the question is rather whether the decision of the FTT is one that was open to it on the facts.”

Under CPR 44.2(a) the starting point is “the general rule” namely that “the unsuccessful party will be ordered to pay the costs of the successful party”.

There is “no general rule that a finding of dishonest conduct by the successful party will replace the usual starting point”, see Hutchinson.

It is important to identify the “successful party” or, conversely, the “unsuccessful party” at the outset, because only then is the court likely to approach costs from the right perspective, see Barnes v Time Talk cited in Kidsons.

A failure correctly to identify the successful or unsuccessful party is a “fundamental error of principle” which allows or requires the appeal court to intervene, see Day v Day.

Identifying the unsuccessful party is “a matter for the exercise of common sense” (see BCCI v Ali), and may be the person “who has to write the cheque at the end of the day” (see Day v Day).

Although the FTT Rules do not mirror the CPR, Nugee J accepted in Bastionspark that a failure by the FTT judge to identify the successful party was “an error of principle” which undermines its costs decision, and “in a case where there is a clear winner and loser” the FTT should take the same position as under the CPR, because that would result in a “fair and just outcome”.