HM Revenue and Customs (HMRC) has failed in an indemnity principle challenge to a costs order made in the First-tier Tribunal’s tax chamber.
However, it was successful in arguing that counsel’s fee for a hearing was disproportionate.
In Revenue and Customs v Gardiner and Ors [2018] EWHC 1716 (QB), three members of the Gardiner family were among several taxpayers who successfully challenged penalties imposed by HMRC for negligent filling out of tax returns.
They and the others had received advice from EDF Tax Defence Ltd on the appeal and, relatively late on, instructed counsel to act. However, HMRC then decided not to submit evidence and the case was summarily dismissed.
Each party ordinarily bears their own costs in the tax chamber, but Tribunal Judge Cannan acceded to the Gardiners’ request that HMRC pay their barrister’s fees under rule 10(1)(b) of the First-Tier Tribunal (Tax) Procedure Rules, which allows for costs orders where the “[paying] party or their representative has acted unreasonably in bringing, defending or conducting the proceedings”.
On detailed assessment in the Senior Courts Costs Office, Deputy Master White ordered HMRC to pay £19,825 – including £16,500 for counsel’s fees for the main case (the receiving party had claimed £25,000), £2,000 for the oral hearing of the detailed assessment and £650 for bill preparation.
The fees of counsel were met by EDF, but HMRC failed in its indemnity principle argument over this. On appeal, Mrs Justice Slade, sitting with Master Haworth as assessor, upheld the deputy master’s decision that counsel appeared as a representative not of EDF but in reality of the Gardiners.
She said: “Deputy Master White did not err in failing to consider and decide the threshold question of whether the Gardiners had established a contract under which they had a liability to pay counsel’s fees.
“Deputy Master White heard evidence from Mr Macleod of EDF, who he found to be an entirely honest witness. Mr Macleod was frank about the possible or probable benefit to EDF in funding the case. However, EDF were acting for the Gardiners. The Deputy Master did not err in so finding…
“The present case is materially indistinguishable in this respect from other cases in which claimants are funded by third parties, such as trade unions. Frequently, as in this case, litigation is funded by the third party to further their own interests as well as those of the funded party. However, that does not negate the liability of the funded successful claimant to pay for legal fees incurred, albeit met by a third party acting as his agent in giving instructions.”
Further, the evidence also supported the deputy master’s conclusion that there was no agreement the Gardiners “would never be liable for counsel’s fees”.
As to the level of counsel’s fee, the Gardiners argued that there was a risk that HMRC would have belatedly seen the need to adduce live witness evidence.
“Counsel submitted that this necessitated some anticipatory preparatory work to ensure that any such witness could be effectively cross-examined,” Slade J said. “In my judgment, this does not support maintaining fees at a level which would be justified for a fully contested hearing with witnesses. A paying party should not have to meet costs incurred for work which is not necessary but is carried out of an abundance of caution.”
She continued that EDF was informed by HMRC that it was not going to call any evidence at about the same time as counsel was instructed. “The sum of £16,500 which may well have been appropriate for a fully contested hearing was too high for the appeal which was known well in advance would not to be vigorously resisted. The sum of costs awarded in respect of counsel’s fee is reduced to £12,000.”