Spc00651 

SPECIAL COMMISSIONERS -- Costs -- Regulation 21 -- Behaviour wholly unreasonable?  Not wholly unreasonable -- Application refused

THE SPECIAL COMMISSIONERS					       

	NIGHTSWOOD B V	Appellant

	- and -

	THE COMMISSIONERS FOR HER MAJESTY’S
	REVENUE AND CUSTOMS	Respondents

		Special Commissioner: 	ADRIAN SHIPWRIGHT

Sitting in public in London on 2 November 2007

Carol Fraser of Mitchelmoores for the Appellant

Andrew Rein of HM Revenue and Customs for the Respondents

© CROWN COPYRIGHT 2007

DECISION

Introduction
1.	This decision concerns the Respondent’s application for costs following the Appellant’s withdrawal of its appeal.
2.	The parties agreed that the application should be treated as if heard in public and that a decision rather than a direction was required which should be published.
3.	The Respondent’s confirmed that they were not alleging actual bad faith on the part of the Appellant or its adviser.  The claim was that the behaviour of the Appellant in relation to its appeal was wholly unreasonable.
4.	Whilst I have considerable sympathy with the Respondents’ application I consider it would be going too far to treat the conduct in question as “wholly unreasonable”.
5.	I note for the sake of completeness that the parties agreed that the issue of costs if I awarded them should go the appropriate authority under Regulation 21.
The Issue
6.	The issue in this application was whether the Appellant’s conduct was wholly unreasonable in connection with the hearing.
The Law
7.	The position is governed by Regulation 21 of the Special Commissioners Regulations.  This provides:
“(1) Subject to paragraph (2) below, a Tribunal may make an order awarding the costs of, or incidental to, the hearing of any proceedings by it against any party to those proceedings (including a party who has withdrawn his appeal or application) if it is of the opinion that the party has acted wholly unreasonably in connection with the hearing in question.
(2) No order shall be made under paragraph (1) above against a party without first giving that party an opportunity of making representations against the making of the order.
(3) An order under paragraph (1) above may require the party against whom it is made to pay to the other party or parties the whole or part of the costs incurred by the other party or parties of, or incidental to, the hearing of the proceedings, such costs to be taxed if not otherwise agreed.
(4) Any costs required to be taxed pursuant to an order under this regulation shall be taxed in the county court according to such of the scales prescribed by rules of court for proceedings in the county court as may be directed by the order or, in the absence of any such direction, by the county court.
(5) In the application of this regulation to proceedings in Scotland—
(a)     any reference to costs shall be construed as a reference to expenses;
(b)   in paragraph (4) above, for the references to the county court there shall be substituted references to the sheriff court and for the reference to proceedings there shall be substituted a reference to civil proceedings.
(6) In the application of this regulation to proceedings in Northern Ireland, for paragraphs (3) and (4) above there shall be substituted—
“(3) An order under paragraph (1) above may require the party against whom it is made to pay to the other party or parties the whole or part of the costs incurred by that other party or parties of, or incidental to, the hearing of the proceedings, such costs to be taxed in the county court if not determined by the Tribunal or otherwise agreed.
(4) Any costs which may be determined by the Tribunal under paragraph (3) above shall be determined by reference to the scales prescribed by rules of court for proceedings in the county court and any costs required to be taxed pursuant to an order under this regulation shall be taxed in the same manner as costs in equity suits or proceedings in the county court.”

8.	The Appellant’s advisor produced copies of two decisions:
Baldwin v FSA FIN/2005/0011
Scott v McDonald (1996) SpC91
Factual Background
9.	This appeal concerned the reclaim of withholding tax in respect of royalties paid.  
10.	A directions hearing (Preliminary Hearing under Regulation 9) was called for 31 July 2007.  The Respondents suggested that at that hearing a preliminary or first issue should be decided.
11.	This issue was whether the claim had been properly made which could have disposed of the whole appeal.
12.	 I conducted the Hearing.  I made the following directions released on 9 August 2007:
1.  That unless the Parties can agree these matters the following questions shall be determined as just preliminary issues in this appeal, namely:
(A)  Were valid claims made on the forms Neth 6 dated 6 October 2000 and 27 October 2003; and 
(B)  If so what was the amount claimed on form Neth dated 27 October 2003?
(“the Preliminary Issues”)
2.  The hearing of these first or preliminary issue be reserved to the Special Commissioners making these directions
3.  The Appellant shall within 21 days of the release of these directions serve on the Respondent and the Special Commissioners’ Office any documents (including Witness Statements) on which the Appellant intends to rely at the hearing of the Preliminary Issues that are additional to the documents contained in the bundle prepared by the Respondents for the directions hearing on 31 July 2007.
4.  The Appellant shall, 14 days before the hearing, serve its Skeleton Argument concerning the Preliminary Issues on the Respondents and the Special Commissioners’ Office
5.  The Respondent shall, 7 days before the hearing serve its Skeleton Argument concerning the Preliminary Issues on the Appellant and the Special Commissioners’ Office
6.  The question of costs be reserved
7.  Liberty to apply

REASONS FOR DIRECTIONS
1.  The appeal could relate to the matters to which the closure notice related dated 6 October 2000 and 27 October 2003.
2.  At the hearing it became clearer that the dispute related to the amount claimed in the Neth 5 dated 27 October 2003.   The amount of the earlier claim apparently being agreed.
3.  Despite time being allowed the parties were unable to agree this.
4.  The Respondents produced in their bundle a document apparently date stamped as to receipt as to what they said was the claim dated 27 October 2003 they received.  It was in English.
5.  A document partly in Dutch was also produced which had no figures in it.
6.  Section 42 and Schedule 1A TMA set out the requirements for valid claim including the need for quantification.
7.  Accordingly, determining the validity of the claims and the amount (if any) claimed on the 27 October 2003 would materially advance the case.
13.	The preliminary or first issue was not heard for the purely technical reason that it was uncertain whether sufficient notice had been given if it were to be treated as an application by the Respondents for a preliminary or first issue to be heard.  The Appellant was aggressively opposed to a preliminary or first issue being heard.
14.	During the directions hearing the Respondents sought to take me to the small bundle of documents they had submitted for the directions hearing.  The Appellant’s representative sought forcefully to prevent this for reasons that still remain unclear to me.
15.	I decided to allow the Respondents to take me to the documents.  This was on the basis that it was helpful to have some understanding of the context and background of the case in deciding what to direct.
16.	On seeing the documents it became clear that there was a question as to whether the claim had been properly made.
Submission of the Parties in outline
Respondents submissions in outline
17.	The behaviour of the Appellant’s representative was wholly unreasonable, although it was not argued there was bad faith.
18.	The reasons for considering the behaviour to be unreasonable were:
(a)	the Appellant’s representative continued to press the appeal even though it was clear it was hopeless;
(b)	she failed to engage with HMRC’s legal argument. 
Appellant submissions in outline
19.	The Appellant’s representative contended that she knew the law and was entitled to have her case decided by the appropriate tribunal.  It was her right to do so.  Accordingly, her behaviour in relation to the hearing was clearly not “wholly unreasonable”.
20.	She directed me to the two cases that she had produced, listed above.
Discussion
21.	If I could award costs in accordance with the Respondents application I would do so.  However, I only have jurisdiction where the conduct in relation to the hearing was “wholly unreasonable”.
22.	Whilst I do not consider the Appellant’s behaviour was sensible, essentially reasonable or necessarily in the best interest of her clients in the absence of bad faith in the particular circumstances of this case I do not consider that the behaviour of the Appellant’s representative was wholly unreasonable.  It was not what I would expect were I the client paying for the Appellant’s representative.  That, though, is a question for them, not for me.
23.	I have considered the two decisions produced on behalf of the Appellant.  I do not find them helpful.
24.	Paragraph 13 of the Financial Services Act is in different terms from Regulation 21.  Accordingly, it is not really in point.  The extempory judgment in ** related to a case of bad faith which was not alleged here.  They do not appear to assist the Appellant.
25.	I fully accept that the Appellant is not bound to accept HMRC’s views and arguments and has the right to have the matter decided by the appropriate authority.  However, this should be done in a sensible and reasonable manner.  In most jurisdictions there is a power to award costs inter alia to control this.  There is no such jurisdiction here nor any wasted costs order jurisdiction.  It is strongly to be hoped that the new rules for the Tax Chamber of the new Tribunal will deal properly with this important aspect and give a wide discretionary power to deal with costs for the benefit of both HMRC and the taxpayer.
26.	Whilst I have great sympathy with the Respondent’s application I find that it has not been shown that the behaviour of the Appellant’s representative was “wholly” unreasonable even though it does not appear sensible or in the Appellant’s best interest.  Accordingly, reluctantly the Respondents application is dismissed.

ADRIAN SHIPWRIGHT

SPECIAL COMMISSIONER
RELEASE DATE: 19 December 2007

SC/3063/2007 

Authorities referred to in skeletons and not referred to in the decision: