Eclipse Film Partners No 35 LLP v Commissioners for Her Majesty’s Revenue and Customs

The First-tier Tribunal’s statutory power to award costs is subject to the applicable Tribunal Procedure Rules. Under the Tax Chamber Rules, rule 10 generally excludes cost-shifting except for wasted costs, unreasonable conduct and Complex cases in which the taxpayer has not opted out.

The Tribunal’s general case-management powers under rule 5 do not confer a separate power to award costs. An order requiring one party to reimburse another for expenditure remains an order for costs even if described as sharing costs. The Tribunal may, however, make an amendment or adjournment conditional on the applicant paying the resulting costs.

Eclipse appealed against a tax closure notice. The proceedings were allocated as a Complex case, but Eclipse exercised its right under rule 10(1)(c) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 to exclude the proceedings from ordinary costs liability.

During case management, the First-tier Tribunal directed Eclipse to prepare extensive document bundles and stated that the parties should share the cost. The Tribunal later upheld that direction. The Upper Tribunal set it aside for want of jurisdiction, and the Court of Appeal dismissed Eclipse’s appeal in [2014] EWCA Civ 184.

The issue before the Supreme Court was whether the Tribunal’s general case-management powers under rule 5 permitted that costs direction notwithstanding the restrictions in rule 10.

1. Appeal dismissed unanimously. Lord Neuberger delivered the judgment, with which Lord Mance, Lord Sumption, Lord Toulson and Lord Hodge agreed. The direction required the Revenue to reimburse half of Eclipse’s expenditure on preparing the bundles. It was therefore an order for the recovery of costs, despite being expressed as an arrangement for sharing costs.

2. Section 29(1) and (2) of the Tribunals, Courts and Enforcement Act 2007 gives the First-tier Tribunal broad costs powers, but section 29(3) makes those powers subject to the Tribunal Procedure Rules. Rule 10(1) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009 establishes a scheme which generally prevents cost-shifting. Apart from wasted costs and unreasonable conduct, unrestricted costs jurisdiction in a Complex case exists only where the taxpayer has not exercised the prescribed opt-out. Eclipse had opted out.

3. Rule 5 did not confer an independent jurisdiction to award costs whenever the Tribunal exercised a case-management power. Such a construction would deprive rule 10(1) of much of its effect. It would also be inconsistent with rules 10(3)–10(7), which specifically regulate the initiation, assessment and recovery of costs awarded under rule 10(1), while providing no corresponding machinery for awards under rule 5.

4. The conclusion did not prevent the Tribunal from making permission to amend or an adjournment conditional upon the applicant paying costs wasted or incurred because of that step. No comparable conditional arrangement had been made here. Rule 16(2)(b), which expressly requires provision for a summoned witness’s expenses, further demonstrated that the Rules state expressly when a party may be made liable for costs.

5. The comparatively informal and flexible nature of tribunal procedure was relevant to interpretation but did not alter the result. The issue was one of principle arising from the Rules, and the detailed circumstances surrounding preparation of the bundles could not enlarge the Tribunal’s jurisdiction. The order was precluded by rule 10(1).

1. United Kingdom Supreme Court: Dismissed Eclipse’s appeal and affirmed that the costs-sharing direction was outside the First-tier Tribunal’s jurisdiction: [2016] UKSC 24.

2. Court of Appeal: Dismissed Eclipse’s appeal from the Upper Tribunal: [2014] EWCA Civ 184.

3. Upper Tribunal: Allowed the Revenue’s appeal and set aside the costs-sharing direction as having been made without jurisdiction: [2013] UKUT 1041 (TCC).

4. First-tier Tribunal: Held that it had jurisdiction to direct the parties to share the cost of preparing the bundles and dismissed the Revenue’s application to set aside that direction.