The Test Claimants in the FII Group Litigation v The Commissioners of Inland Revenue & Anor

When a superior court remits costs for reconsideration after setting aside earlier costs orders, the first-instance court must exercise its discretion afresh. Earlier reasoning may inform the overall picture, but the superseded order is not a starting point and is not binding. The outcome of later proceedings may be considered where it forms part of the litigation’s background, although uncertain future appeals and incomplete quantification require caution. In complex group litigation, a percentage-based order is generally preferable to an issue-by-issue order where issues interlock and allocation would be arbitrary. Success should be assessed by the importance of claim components or topics, rather than by a simple tally of issues.

The proceedings formed part of exceptionally complex group litigation concerning claims for recovery of tax and related reliefs. The Supreme Court remitted to Henderson J the costs of the liability proceedings in the High Court and Court of Appeal after setting aside earlier costs orders. It also required determination of the costs of the first reference to the ECJ, which had not previously been decided by the High Court.

The court had to determine whether to take account of the superseded costs orders and the later quantification trial, and how best to assess relative success across numerous interlocking issues.

1. Fresh exercise of discretion. The earlier High Court and Court of Appeal costs orders had been set aside by a superior court. The court therefore had to determine costs afresh in light of the whole history of the proceedings. The earlier reasoning remained part of the background and could assist in understanding the earlier assessment, but the superseded orders were neither the starting point nor binding.
2. Later quantification proceedings. The outcome of the quantification trial necessarily formed part of the legal and factual background. It was not wrong in principle to consider it, but its significance had to be treated cautiously because substantial claims had not been quantified, the trial concerned only certain test claimants, and permission to appeal had been granted on important issues.
3. Method of assessment. A percentage-based order was appropriate. CPR 44.2(7) supported considering a proportionate order before making an issue-based order. In litigation involving numerous interlocking issues, an issue-based approach would risk arbitrary assumptions about costs allocation. A simple tally of wins and losses was also inadequate. The court should assess the relative importance of grouped topics and the components of the claims affected, allowing for the fact that success on one issue may be nullified by failure on another.
4. Orders. The claimants were substantially successful on the first ECJ reference, and HMRC were ordered to pay 75% of its costs. Aggregating the liability proceedings in the High Court and Court of Appeal, and exercising the discretion afresh, HMRC were ordered to pay 65% of the claimants’ costs of those proceedings.

1. Supreme Court: Earlier costs orders were set aside, and the costs of the liability proceedings in the High Court and Court of Appeal were remitted to Henderson J for fresh determination.
2. High Court (Chancery Division): The present court ordered HMRC to pay 75% of the costs of the first ECJ reference and 65% of the costs of the liability proceedings in the High Court and Court of Appeal.