Summer Palace Ltd v Customs & Excise

An appellate court should interfere with a tribunal’s discretionary costs decision only where it is legally erroneous, unreasonable or perverse. A tribunal may make no order as to costs where the appellant has achieved only limited success, has contributed to the history of the proceedings, or has been found to have acted improperly, even though the assessment has been substantially reduced. Courts must give reasons for costs decisions. Brief reasons are sufficient, but where the reason is not implicit from the circumstances, it must be explained.

Summer Palace Ltd appealed under section 11 of the Tribunals and Inquiries Act 1992 against the Manchester VAT & Duties Tribunal’s decision to make no order as to costs. The underlying VAT assessment was reduced substantially after the Tribunal found both that the appellant had suppressed takings and that Customs’ evidence on quantum was unsatisfactory. The Tribunal gave no reasons for its costs decision.

The central issues were whether the absence of reasons amounted to an error of law and whether refusal of costs was unreasonable or perverse.

1. The appeal was dismissed. The Tribunal’s decision to make no order as to costs was within its discretion and disclosed no error of law.
2. Rule 29 of the VAT Tribunal Rules 1986 conferred a discretion as to costs. Although the Tribunal normally applied the general rule that costs follow the event, the extent of success, the parties’ conduct and other circumstances were relevant. The reduction of an assessment by approximately half did not entitle the appellant automatically to half its costs.
3. The absence of reasons was regrettable. The earlier practice reflected in Eagil Trust Co Ltd v Pigott-Brown [1985] 3 All ER 119 could no longer be applied generally. In light of Article 6 of the European Convention on Human Rights, the Human Rights Act 1998 and the jurisprudence of the European Court of Human Rights, courts must give reasons for their decisions, however briefly.
4. Applying English v Emery Reimbold & Strick Ltd [2002] EWCA Civ 605, [2002] 1 WLR 2409, an appellate court may infer the rationale for a costs order where it is clearly implicit or where there is a perfectly rational explanation. The Tribunal’s findings supplied such an explanation: the appellant had been guilty of suppression, the appeal had been allowed only to a limited extent, and the procedural history included an adjournment to enable a wholly different case to be advanced.
5. The appellant’s settlement arguments could not affect the outcome because the relevant details had not been before the Tribunal. The criticisms of Customs’ evidence did not make the costs order irrational. The judge nevertheless expressed concern about the quality and selective use of Customs’ evidence and directed that the judgment be supplied to those responsible for standards and discipline.

• High Court (Chancery Division): appeal under section 11 of the Tribunals and Inquiries Act 1992 dismissed; the Manchester VAT & Duties Tribunal’s costs decision was upheld.
• Manchester VAT & Duties Tribunal: the VAT appeal was allowed in part and the assessment was reduced; no order as to costs was made.