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You are here: BAILII >> Databases >> United Kingdom Supreme Court >> Eclipse Film Partners No 35 LLP v Revenue and Customs [2016] UKSC 24 (11 May 2016) URL: http://www.bailii.org/uk/cases/UKSC/2016/24.html Cite as: [2016] 3 All ER 719, [2016] STC 1385, [2016] UKSC 24, [2016] WLR(D) 254, [2016] 1 WLR 1939, [2016] WLR 1939, [2016] BTC 20, [2016] STI 1531 |
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[2016] UKSC 24
On appeals from: [2014] EWCA Civ 184
JUDGMENT
Eclipse
Film
Partners
No
35
LLP
(Appellant)
v
Commissioners
for Her
Majesty’s
Revenue
and
Customs
(Respondent)
before
Lord Neuberger, President
Lord Mance
Lord Sumption
Lord Toulson
Lord Hodge
JUDGMENT GIVEN ON
11 May 2016
Heard on 13 April 2016
Appellant Jolyon Maugham QC Kate Balmer (Instructed by GRM Law) |
|
Respondent Rajesh Pillai (Instructed by Her
|
LORD NEUBERGER: (with whom Lord Mance, Lord Sumption, Lord Toulson and Lord Hodge agree)
The Rules
4. Rule 5 is headed “Case management powers” and it is in these terms:
“(1) Subject to the provisions of the 2007 Act and any other enactment, the Tribunal may regulate its own procedure.
(2) The Tribunal may give a direction in relation to the conduct or disposal of proceedings at any time, including a direction amending, suspending or setting aside an earlier direction.
(3) In particular, and without restricting the general powers in paragraphs (1) and (2), the Tribunal may by direction -
…
(i) require a party to produce a bundle for a hearing …”
In addition to sub-paragraph (i), rule 5(3) has eleven other sub-paragraphs, which include powers to (a) extend or shorten time for complying with the Rules, (c) permit or require an amendment, (f) hold a case management hearing, (h) adjourn a hearing, and (k) transfer proceedings to another tribunal.
“The Tribunal may only make an order in respect of costs (or, in Scotland, expenses) -
(a) under section 29(4) of the 2007 Act (wasted costs) …;
(b) if the Tribunal considers that a party or their representative has acted unreasonably in bringing, defending or conducting the proceedings;
(c) if -
(i) the proceedings have been allocated as a Complex case under Rule 23 (allocation of cases to categories); and
(ii) the taxpayer (or, where more than one party is a taxpayer, one of them) has not sent or delivered a written request to the Tribunal, within 28 days of receiving notice that the case had been allocated as a Complex case, that the proceedings be excluded from potential liability for costs or expenses under this sub-paragraph …”
The facts
9.
Eclipse
Film
Partners
No
35
LLP
(“
Eclipse”)
filed a tax return in
respect of the period which ended on 5 April 2007. The
Revenue
issued a closure
notice determining that
Eclipse
did not carry on a trade or business, which, if
correct, would have had severely adverse tax consequences for
Eclipse.
Accordingly,
Eclipse
appealed to the FTT against the closure notice. The appeal
was allocated as a Complex case under Rule 23, and, within the 28-day period specified
therein,
Eclipse
served a request under rule 10(3), that “the proceedings be
excluded from potential liability for costs or expenses under” rule 10(1)(c).
10.
Thereafter, Eclipse
and the
Revenue
agreed directions for the procedure
leading up to the hearing. The FTT duly made those directions, which included
in para 13 a direction that the parties should try and agree an appropriate
bundle of documents, which should be prepared by
Eclipse,
who were to serve
three copies on the
Revenue
and three copies on the FTT. Paragraph 13 of the
agreed Directions also provided that, if the parties were unable to agree the
Bundle, each party was to prepare its own bundle of documents and serve three
copies on the other party and on the FTT.
11.
The parties were unable to agree a Bundle, and there was a hearing
before the FTT, at which, among other issues, that problem was discussed. The
upshot of the hearing so far as this problem was concerned was an oral
direction by the FTT that Eclipse
prepare the Bundle, and that “the costs
should be shared”.
Eclipse’s
solicitors accordingly prepared the Bundle, which
was
very
extensive indeed (the total for the parties ran to over 700 lever-arch
files), and its size was in part attributable to requests by the
Revenue
for
the inclusion of documents of what some might think were of marginal relevance.
12.
In due course, the hearing took place, and, after some fourteen days of
evidence and argument, the FTT gave a reserved decision dismissing Eclipse’s
appeal on the substantive issue of the
validity
of the closure notice - [2012] UKFTT 270 (TC). (That decision was subsequently affirmed by the Upper Tribunal,
[2014] BTC 503, whose decision was in turn upheld by the Court of Appeal,
[2015] BTC 10, and we refused
Eclipse
permission to appeal to the Supreme Court
on 13 April 2016).
13.
Following the hearing before the FTT, Eclipse’s
agents sent the
Revenue
invoices for a total of £108,395.48 (inclusive of
VAT),
representing half the
cost to
Eclipse
of preparing the Bundles. After some discussion between the
parties, and after the FTT had given its decision, the
Revenue
applied to the
FTT to set aside the oral direction that the parties should share the costs of
preparing the Bundles (“the Order”), on the ground that the FTT had no
jurisdiction to give such a direction, in the light of Rule 10. The FTT held
that it had had such jurisdiction and therefore dismissed the
Revenue’s
application. The
Revenue
appealed, and the Upper Tribunal took a different
view,
and held that the Order was made without jurisdiction, and consequently
set it aside - [2013] UKUT 1041 (TCC).
Eclipse’s
appeal to the Court of Appeal
failed - [2014] EWCA Civ 184.
Eclipse
now appeals to this court.
Discussion
14.
The reasoning of the Court of Appeal and the Upper Tribunal, which is
reflected in the Revenue’s
argument before us, is
very
simple, and it is as
follows. This was a Complex case under Rule 23, and therefore the FTT would
have had a broad jurisdiction as to costs if no request (“Request”) under rule
10(1)(c)(ii) had been served, but, as such a Request was served by
Eclipse,
the
effect of rule 10(1)(c) is that the FTT could only make an order for costs if,
and to the extent that, rule 10(1)(a) (wasted costs) and/or rule 10(1)(b)
(unreasonable behaviour) could be invoked, and neither of those provisions
applied here.
15.
Two arguments are advanced on behalf of Eclipse
to counter this
analysis. As an initial point, it is said that the Order was not really an
order for the payment of costs; it was on analysis an order for the sharing of
costs. The flaw in that argument is that it assumes that the sharing of costs
cannot involve the payment of costs. On the facts of this case, even though the
result of the payment of half
Eclipse’s
expenses in preparing the Bundles could
fairly be described as the
Revenue
“sharing” those costs, it would also
undoubtedly involve the
Revenue
“paying” costs, in the sense that they would be
reimbursing
Eclipse
half the expenses which it had incurred in having the
Bundles prepared. What the Order plainly envisaged was (i)
Eclipse
incurring
the expense of the preparation of the Bundles and (ii) then recovering half the
expense from the
Revenue.
Step (ii) is plainly an order, albeit a partially
proleptic order, for the recovery of costs.
16.
The second, and main, argument advanced on behalf of Eclipse
is that it
is inherent in rule 5(3) that the orders that the FTT makes thereunder can
include terms as to costs. For instance, it is said that it would be
unrealistic to suggest that the FTT might grant permission to one party to
amend its case under rule 5(3)(c) or to have an adjournment under rule 5(3)(h),
without being able to do so on terms as to costs which compensate the other
party for any prejudice suffered as a result. Despite its initial attraction, I
do not find that argument convincing, for a number of reasons.
17.
First, Eclipse’s
interpretation of rule 5(3) robs rule 10(1) of much of
its force. The purpose of rule 10(1) is to shut out the FTT from making
cost-shifting orders in all “ordinary” cases save in those where a party or a
party’s legal advisers have behaved unreasonably or worse, and even in Complex
cases the taxpayer can opt to avoid cost-shifting. While this would prevent a
taxpayer from recovering costs from the
Revenue,
its principal purpose is no
doubt to protect a taxpayer from a costs exposure which goes beyond having to
pay his own lawyers. Warren J said in Atlantic Electronics Ltd
v
Revenue
and
Customs
Comrs [2012] STC 931, para 8, that the policy that “in cases other
than Complex cases … the inability to recover costs is not seen as likely to
lead to a denial of access to justice” but that “in Complex cases, the choice
of the taxpayer is to prevail”. The only quarrel I have with that is that it
seems to me that in non-Complex cases, the normal inability of either the
taxpayer or the
Revenue
to recover costs is positively intended to improve
access to justice in the majority of such cases.
18.
The logic of Eclipse’s
argument means that every time that the FTT makes
a direction, not merely under one of the subparagraphs of rule 5(3), but under
the more general powers contained in rule 5(2), it can attach an order for
costs, even where neither the party against whom the order is made, nor its
legal advisers, have behaved unreasonably. While this would not, of course,
mean that the FTT could deal with costs as if there was no fetter on its
powers, it would
very
significantly cut down the effectiveness of the no
costs-shifting scheme in rule 10(1).
19.
Secondly, Eclipse’s
argument is inconsistent with rules 10(3) to 10(7).
As explained in para 7 above, those paragraphs contain rules as to how any
costs awarded by the FTT pursuant to rule 10(1) are to be assessed and
recovered. If there is a power to award costs under Rule 5, as
Eclipse
effectively argues, there would appear to be a lacuna in the Rules, because
there are no such provisions governing the assessment and recovery of such
costs. I appreciate that this argument has limited force in relation to paras
10(3) to 10(5), as the paying party would normally (but not always) be expected
to have the opportunity to make submissions about costs at the hearing at which
such costs could, on
Eclipse’s
case, be awarded. However, that point does not,
I think, apply to rules 10(6) and 10(7).
20.
Thirdly, rejecting Eclipse’s
case does not mean that the FTT cannot give
permission to amend, or grant an adjournment, on terms as to costs. If, for
instance, a party wishes to amend its case or be granted an adjournment, there
is nothing in the Rules which would prevent the FTT from deciding that it will
only give permission to amend, or grant the adjournment, on terms that that
party pays the other party’s costs wasted or incurred as a result of the
proposed amendment or adjournment. However, that is not what happened in this
case.
21.
Fourthly, while of very
slender force, there is rule 16(2)(b), which
enables, indeed requires, the FTT to provide for the costs of a witness, who is
required to attend a hearing, to be paid for by one or other party. It was
suggested on behalf of
Eclipse
that it showed that rule 10(1) did not amount to
an absolute code. To my mind, if anything, rule 16(2)(b) supports the
Revenue’s
case: it shows that, where the Rules intend to enable or require the FTT to
render a party liable for costs, they say so.
Some supplementary points
22.
Four other points should be mentioned. First, I have only referred to
the basic facts of this case. Although Moses LJ, who gave the only reasoned
judgment in the Court of Appeal thought otherwise (see paras 19-22 of his
judgment), I agree with Mr Maugham QC, for Eclipse,
that, in connection with
the point at issue, it is inappropriate to consider the detailed facts of this
case relating to the preparation of the Bundle and which led to the making of
the Order. This case raises an issue of principle, which turns on the
interpretation of the Rules.
24.
Thirdly, the fact that things could have been arranged so as to achieve
the same result as the Order is irrelevant to the outcome of this appeal. As
Moses LJ pointed out in para 22 of his judgment, the FTT could have ordered
both parties to prepare the Bundles jointly, in which case there would have
been a powerful argument for saying that Eclipse
could have recovered the £108,395.48
which they now claim, simply on the basis of a contribution between two jointly
liable parties. But that is not what happened here:
Eclipse
were liable for the
preparation of the Bundles, and it is not sensibly possible to characterise the
Order as having any effect other than requiring the
Revenue
to pay some of
Eclipse’s
costs, an order which was precluded by rule 10(1).
25.
Finally, it is perhaps worth recording that, during the hearing of this
appeal, Lord Toulson mentioned the possibility of Eclipse
having a claim
against the
Revenue
for £108,395.48 based on restitution, in the same way that a
restitutionary claim may be made where services are performed under a contract
which is for some reason unenforceable or
void. That argument could not be
pursued before us, and therefore I should say no more about it.
Conclusion
26. In the event, for the reasons given in paras 17 to 21 above, I would dismiss this appeal.