Distinctive Care Ltd v Revenue And Customs

Under rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, the relevant conduct of a respondent begins with the proceedings before the First-tier Tribunal, not with the earlier issue of the appealable decision. Pre-commencement conduct may inform the assessment of later conduct, but cannot itself extend the costs jurisdiction.

Once notified of an appeal, a respondent must promptly review whether it can properly defend the case. The power under section 29 of the Tribunals, Courts and Enforcement Act 2007 may include costs incurred before notification of the appeal, including suitable internal-review costs. Recovery depends on the nature of the work and the scope of the eventual appeal, not the party’s subjective purpose.

Distinctive Care Ltd appealed to the Court of Appeal from the Upper Tribunal’s decision, reported at [2018] UKUT 0155 (TCC), which had upheld the First-tier Tribunal’s refusal of costs, reported at [2016] UKFTT 764 (TC).

HMRC had issued an information notice under Schedule 36 to the Finance Act 2008. After the taxpayer appealed to the First-tier Tribunal, HMRC withdrew the notice. The central issues were whether the original issue of the notice, or HMRC’s failure to withdraw it earlier, amounted to unreasonable conduct under rule 10(1)(b), and whether costs incurred before the tribunal appeal were costs of and incidental to those proceedings.

The appeal was dismissed unanimously. Lady Justice Rose gave the leading judgment, with which Lord Justice Floyd and Lord Justice Lewison agreed.

1. Rule 10(1)(b) is directed to conduct in the First-tier Tribunal proceedings. The appellant brings those proceedings by sending or delivering the notice of appeal under rule 20. HMRC’s earlier decision to issue the appealable information notice therefore did not constitute bringing or conducting the proceedings. The approach in Catanã v HMRC [2012] UKUT 172 (TCC), Cancino v Secretary of State for the Home Department [2015] UKFTT 00059 (IAC) and Willow Court Management Co (1985) Ltd v Alexander and ors [2016] UKUT 290 (LC) supported that conclusion.
2. Pre-commencement behaviour may inform the assessment of post-commencement handling, but it cannot itself bring earlier conduct within rule 10(1)(b). The focus is on the standard of handling the case rather than the quality of the original decision. Alleging bad faith does not create an exception to that temporal limit.
3. Conduct may include an omission. Once the tribunal has notified HMRC of the appeal under rule 20(5), HMRC must act promptly if it becomes clear that the appeal cannot properly be defended. The relevant inquiry includes the reason for withdrawal, whether withdrawal could have occurred earlier, and whether the delay was unreasonable. HMRC withdrew the notice promptly after receiving notification from the tribunal, so Grounds 1 and 2 failed. Ground 3 consequently did not require determination.
4. Although unnecessary to the disposal of the appeal, the court considered Ground 4 because of its wider significance. “Costs of and incidental to” proceedings may include costs incurred before the appeal is notified. The nature of the work and the scope of the ultimate appeal determine recoverability. Costs arising from an internal review may therefore be incidental where the work or materials are useful in the tribunal appeal; the taxpayer’s subjective intention when incurring them is not decisive.

1. Court of Appeal (Civil Division): dismissed the appeal from the Upper Tribunal.
2. Upper Tribunal (Tax and Chancery Chamber): upheld the First-tier Tribunal’s refusal of a costs order, [2018] UKUT 0155 (TCC).
3. First-tier Tribunal (Tax Chamber): refused the taxpayer’s application for costs following HMRC’s withdrawal of the information notice, [2016] UKFTT 764 (TC).