Revenue & Customs v Gardiner & Ors

The indemnity principle is not infringed where a successful party establishes a contractual retainer under which it is liable for the relevant costs, even though a third party has undertaken to pay them. The retainer may be express or implied, and a representative may instruct counsel as the party’s agent. The presumption of liability is displaced only where the paying party proves an agreement that the successful party will never be liable. Costs must nevertheless be reasonably incurred and proportionate.

HMRC appealed from Deputy Master White’s order requiring it to pay the Gardiners £19,825 following their successful tax-penalty appeals before the First-tier Tribunal (Tax Chamber). Counsel’s fees had been funded by the Gardiners’ former tax advisers, EDF Tax Defence Ltd.

The appeal challenged both the finding that the Gardiners were liable for counsel’s fees and the amount allowed. The central issues were whether EDF had acted as the Gardiners’ agent in instructing counsel, whether the Gardiners had contractual liability for the fees, and whether the amount was reasonable and proportionate.

1. Indemnity principle. The appeal against the making of the costs order was dismissed. A successful party may recover costs where it proves an express or implied contractual retainer with solicitors or representatives to act on its behalf. The retainer may impose sole or dual liability, including liability arising through an agent.
2. The material question is liability, not the identity of the person who ultimately pays. It is immaterial that a third party has undertaken to meet the costs, or that the successful party is unlikely to be required to pay them. The presumption of liability is displaced only where the paying party proves an express or implied bargain that, under no circumstances, would the successful party be liable.
3. EDF acted for the Gardiners with their knowledge and assent and instructed counsel as their agent. There was no agreement that the Gardiners would never be liable for counsel’s fees. The indemnity principle was therefore not infringed.
4. Quantum. The appeal against the amount of costs succeeded in part. The party seeking costs must show that they were reasonably incurred and proportionate. Preparation undertaken merely as a precaution, including preparation for witnesses who would not be called, was not recoverable at the level appropriate to a fully contested hearing.
5. The counsel’s fee was reduced from £16,500 to £12,000. The final costs certificate was reduced by £4,500 to £15,325.

1. High Court (Queen’s Bench Division): appeal from Deputy Master White’s decision in the Senior Courts Costs Office. The appeal on liability was dismissed; the appeal on quantum succeeded in part.
2. First-tier Tribunal (Tax Chamber): the Gardiners succeeded in appeals against penalties and obtained a costs order under rule 10(1)(b) of the First-Tier Tribunal (Tax) Procedure Rules.