Revenue and Customs v Blue Sphere Global Ltd

Part 36 of the Civil Procedure Rules 1998 applies to statutory appeals from the VAT and Duties Tribunal unless the Rules expressly exclude it. Part 36.3(2) permits offers in appeal proceedings.

Where judgment is at least as advantageous to a claimant as its Part 36 offer, the court should ordinarily award the prescribed enhanced interest and indemnity-costs consequences unless doing so would be unjust. A public authority’s pursuit of an appeal in the public interest does not itself make those consequences unjust. The regime encourages parties to avoid litigation and is not punitive. The approach in Carver v BAA PLC, concerning a defendant’s offer and differently worded rule, does not govern claimant offers.

HMRC appealed from the High Court (Chancery Division), where Sir Andrew Morritt, Chancellor, had decided the proceedings identified as CH2009APP0066. Blue Sphere Global Ltd successfully resisted HMRC’s appeal concerning repayment of input tax in the context of MTIC fraud.

BSG then relied on a Part 36 offer dated 2 July 2009, offering £1,200,000 inclusive of repayment supplement and interest, with costs payable separately. HMRC argued that Part 36 did not apply to an appeal begun in the VAT and Duties Tribunal. Alternatively, it argued that the consequences would be unjust because it was acting in the public interest. The central issues were the applicability of Part 36 and the resulting costs and interest orders.

1. Disposition. Lord Justice Moses gave full effect to BSG’s Part 36 offer. BSG was awarded indemnity costs from 23 July 2009, interest on the unpaid repayment sum at base rate plus 10 per cent until payment, and interest on costs up to £145,000 at the same rate. Lord Justice Carnwath agreed.
2. Application of Part 36 to the appeal. Rule 2.1 of the Civil Procedure Rules 1998 applies the Rules to proceedings in the High Court and Court of Appeal, subject to specified exclusions. Statutory appeals from the VAT and Duties Tribunal were absent from the exclusionary table. Part 52 and paragraph 20.1 of its Practice Direction made provision for such appeals but did not exclude Part 36.
3. The wording of Part 36.3(2) expressly permits an offer in appeal proceedings. The court rejected the argument that the provision applied only where an offer could have been made at first instance. If appeals from the VAT and Duties Tribunal were intended to be excluded, the Rules could have said so.
4. Rule 36.14. The claimant-offer limb applies where judgment is at least as advantageous to the claimant as the offer. A claimant whose offer is refused must continue to obtain at least the offered sum. The fact that the margin is small does not itself establish injustice. Carver v BAA PLC [2008] EWCA Civ 412 [2009] 1 WLR 113 concerned a defendant’s offer and the differently worded defendant-offer limb, so it did not govern this case. In any event, BSG had won by a significant margin.
5. The court considered all the circumstances under rule 36.14(4). HMRC’s public-interest role in combating MTIC fraud was important, but it did not justify depriving a successful taxpayer of the offer’s consequences. The purpose of indemnity costs and enhanced interest is to encourage the avoidance of unnecessary proceedings, rather than to penalise a party. The reasoning in Petrotrade v Texaco [2002] 1 WLR 947, at [64], with paragraph 63 of McPhilemy v Times Newspapers [2001] EWCA Civ 933, supported that approach.

• Court of Appeal (Civil Division) — After BSG successfully resisted HMRC’s appeal, the court determined the effect of the Part 36 offer and awarded indemnity costs and enhanced interest.
• High Court (Chancery Division) — The proceedings were decided by Sir Andrew Morritt, Chancellor, under case number CH2009APP0066. BSG’s position was upheld and HMRC appealed.
• VAT and Duties Tribunal — The underlying statutory appeal had begun in the Tribunal. The judgment gives no further details of its decision.