HM Revenue & Customs v Brayfal Ltd

An appellate court should interfere with a tribunal’s discretionary costs order only for an error of principle or where the decision falls outside the generous ambit of reasonable disagreement. A tribunal may make a partial costs order where a party has not been wholly successful, including where the party exaggerated its case or gave false evidence. The tribunal need not calculate the deduction mechanically by reference to hearing time or document volume. It may take a broad-brush view, including the significance of evidence that led to part of the claim being disallowed.

Brayfal had succeeded in its appeal against HMRC’s refusal to allow recovery of input tax connected with transactions alleged to involve fraud. The tribunal nevertheless reduced its costs recovery to 90 per cent because part of the input-tax claim was disallowed after the tribunal rejected evidence given by Brayfal’s principal. Following remittal and reconsideration of the substantive appeal, Brayfal challenged the costs deduction. The issues were whether the tribunal should have given Brayfal a further opportunity to address the deduction and whether the amount deducted was legally excessive.

1. The cross-appeal was dismissed. The court held that the tribunal was exercising a discretion. Intervention was justified only if it left out of account a material factor, took an impermissible factor into account, or exceeded the generous ambit within which reasonable disagreement was possible.

2. The tribunal was not required to give Brayfal a further opportunity to dissuade it from making the deduction. Brayfal had applied for costs if the appeal succeeded, but the appeal had not succeeded in full. The tribunal was entitled to determine costs in light of its substantive decision.

3. The tribunal was entitled to make a partial costs order. A party need not recover all its costs where it has been unsuccessful on part of its case. A deduction may also be justified where the party has exaggerated its case or given false evidence. The deduction was founded on the tribunal’s disallowance of part of the input-tax claim and its rejection of the evidence of Brayfal’s principal on that issue.

4. In assessing the amount, the tribunal was entitled to take a broad-brush approach. It was not required mechanically to count days, hours or pages. The fact that the issue emerged during oral evidence showed that it had occupied hearing time, and the tribunal could also take account of its rejection of the relevant evidence.

5. The decision fell within the permissible range of reasonable decisions. Other tribunals might have made a different deduction, but that did not establish an error of law. Brayfal was ordered to pay HMRC’s costs of the cross-appeal on the standard basis if not agreed.

• VAT & Duties Tribunal: Brayfal’s substantive appeal was allowed subject to a reduction of its input-tax claim and a costs order limiting recovery to 90 per cent.
• High Court (Chancery Division): The substantive appeal was remitted for further reasons and was later dismissed by the judge sitting as a judge of the Upper Tribunal. Brayfal’s cross-appeal against the costs deduction was dismissed in [2011] EWHC 407 (Ch).