Summary

Where an appellant had begun a “missing trader fraud” appeal in the VAT and Duties Tribunal and had agreed that costs should be in the cause following the transfer of that appeal to the First-tier Tribunal, it could be concluded that it had hoped to recover its costs if successful and was therefore not entitled to protection from having to pay the commissioners’ costs when its appeal was dismissed.

Facts

The applicant commissioners sought an order for costs following an unsuccessful appeal by the respondent taxpayer (M) against their decision to refuse it credit for input tax incurred in its purchase and overseas sales of mobile phones (MTIC appeal).

M’s appeal had been brought in May 2007 before the VAT and Duties Tribunal (VDT). It had been dismissed in March 2011. The Revenue applied for a direction that M pay its costs of the appeal. Pursuant to the Value Added Tax Tribunals Rules 1986 r.29, which was in effect at the relevant time, the VDT had the power to direct one party to pay the costs of the other, if appropriate. When the jurisdiction was transferred to the First-tier Tribunal (FTT), the applicable provision was the Tribunals, Courts and Enforcement Act 2007 s.29(1) and s.29(2), which provided that costs were to be in the discretion of the tribunal. Ordinarily, each party to an appeal bore its own costs, whatever the outcome. However, pursuant to the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 r.10, the FTT could make a direction where one party had behaved unreasonably, or when an appeal had been allocated to the Complex category in accordance with r.23 and the taxpayer had not opted out of the costs-shifting regime. Although no direction formally applying r.29 of the 1986 Rules was made when the instant appeal was transferred from the VDT to the FTT; the parties agreed a direction that costs should be in the cause.

The commissioners submitted that, since M had proceeded on the footing that costs would follow the event, it would be wrong to allow it to resist a direction for costs on the technical ground that no direction formally applying r.29 of the 1986 Rules had been made. M contended that the FTT lacked jurisdiction to make the direction sought by the commissioners and argued that r.10 of the 2009 Rules applied; since the appeal had not been allocated to the Complex category, a costs direction could not be made.

Held

There had to be a positive decision to apply the 1986 Rules; in the absence of a direction pursuant to the Transfer of Tribunal Functions and Revenue and Customs Appeals Order 2009 Sch.3 para.7 or agreement to the same effect between the parties, the 2009 Rules applied automatically to the proceedings, Atlantic Electronics Ltd v Revenue and Customs Commissioners [2012] UKUT 45 (TCC), [2012] S.T.C. 931 considered. The costs-shifting regime of r.10 of the 2009 Rules, and with it the right of the taxpayer to opt out, was conferredonly in respect of cases which had been allocated to the Complex category; there was no provision by which it could be applied to appeals which had not been so allocated. The conduct of both parties was a relevant factor when determining the fair course to take. Delay in making an application under r.29 of the 1986 Rules could not be taken as a ground for refusing an application without considering other relevant circumstances, particularly those aspects of a litigant’s conduct which illuminated the reasons for the delay. An appellant bringing an MTIC appeal before April 1, 2009 would have been aware that he was within a costs-shifting regime. In the instant case, there was no reason to assume that either M or the commissioners had made a deliberate decision to wait until the outcome of the appeal was known; either party could have made an application to achieve certainty. The agreement between the parties for costs in the cause was inconsistent with a decision to be governed by the 2009 Rules alone, but indicated either a decision to remain in a costs-shifting regime, or a failure to recognise and act upon the change in rules. The commissioners had at least made their position clear and had indicated their intention to seek costs. That demonstrated a commitment to a costs-shifting regime, win or lose. It could be concluded on the evidence that M had pursued its appeal hoping to recover its costs if successful; therefore, it was manifestly unfair that it should be protected from having to pay the commissioners’ costs if unsuccessful. Accordingly, it was fair and just to exercise the para.7(3) power and direct that r.29 of the 1986 Rules should apply to the appeal throughout. M therefore had to pay the commissioners’ costs of the appeal, subject to a detailed assessment if not agreed.

Application granted