Introduction

The case of Distinctive Care Ltd v. The Commissioners for HM Revenue and Customs (HMRC) ([2018] UKUT 155 (TCC)) serves as a pivotal decision regarding the procedural nuances of cost applications within the framework of Tax Tribunals. This case involved Distinctive Care Limited ("DCL") appealing against a decision by HMRC, which initially issued an information notice under Schedule 36 Finance Act 2008. The central issues revolved around whether HMRC acted unreasonably in bringing and conducting the proceedings, and whether DCL's schedule of costs complied with Tribunal Procedure Rule 10(3)(b).

The parties involved included DCL as the appellant and HMRC as the respondent. The judges presiding over the case were Judge Greg Sinfield and Judge Kevin Poole of the Upper Tribunal (Tax and Chancery Chamber). The judgment, delivered on May 15, 2018, offers comprehensive insights into the standards and expectations for cost applications in tax-related tribunal proceedings.

Summary of the Judgment

The First-tier Tribunal (FTT) initially dismissed DCL's application for an order for costs against HMRC. The FTT identified procedural defects in DCL's costs application, notably the failure to clearly indicate that the costs were calculated as a straight one-thirtieth apportionment of the total time spent by DCL's advisers across 30 nearly identical appeals. Although the FTT was willing to waive some minor procedural issues, it deemed this particular defect significant enough to preclude the costs application.

DCL appealed to the Upper Tribunal, arguing that the FTT erred in its assessment of procedural compliance and in its interpretation of whether HMRC acted unreasonably. The Upper Tribunal ultimately agreed with the FTT's findings that HMRC did not act unreasonably in conducting the proceedings and upheld the dismissal of DCL's costs application. However, the Upper Tribunal also provided detailed guidance on the requirements for cost schedules, emphasizing the necessity for transparency and sufficient detail to facilitate summary assessments.

Analysis

Precedents Cited

The judgment references several key cases that influenced the Tribunal's decision:

• Vardy Case (2012): Confirmed HMRC's position on the ineffectiveness of certain schemes and highlighted the necessity for transaction documentation to determine SDLT liabilities.
• Catanã v HMRC (2012): Provided interpretation for the phrase "acted unreasonably in bringing, defending or conducting the proceedings" under Rule 10(1)(b), establishing that it encompasses a broad range of unreasonable behaviors in tribunal proceedings.
• BPP Holdings Limited v HMRC (2014): Endorsed principles regarding the judicial discretion of tribunals in cost applications, emphasizing fair and just case management.
• Shahjahan Tarafdar v HMRC (2014): Offered a three-stage test for assessing unreasonable conduct in the context of withdrawal from proceedings.
• Market & Opinion Research International Limited v HMRC (2015): Outlined the standards for assessing "acting unreasonably" and the application of an objective test based on the specific facts and circumstances of each case.

Legal Reasoning

The Tribunal's legal reasoning focused on two primary aspects:

• Compliance with Tribunal Procedure Rules (Rule 10(3)(b)): The schedule of costs submitted by DCL was found to be misleading because it did not explicitly state that the costs were apportioned from 30 similar appeals. This lack of transparency violated the requirement for sufficient detail to allow for a summary assessment.
• Reasonableness of HMRC's Conduct (Rule 10(1)(b)): The Tribunal assessed whether HMRC had acted unreasonably in bringing, defending, or conducting the proceedings. Despite HMRC issuing an information notice, the Tribunal concluded that HMRC acted reasonably by withdrawing the notice promptly upon being notified of the appeal.

Furthermore, the Upper Tribunal emphasized that any analysis of conduct should focus on actions within the scope of the proceedings before the Tribunal, not encompassing unrelated activities prior to the initiation of the appeal.

Impact

This judgment has significant implications for future cost applications in Tax Tribunals, particularly regarding the necessity for clear and detailed cost schedules. Parties must ensure that their cost claims are transparent and provide sufficient detail to facilitate summary assessments. Additionally, the decision clarifies the boundaries of evaluating a party's conduct for reasonableness, limiting the assessment to actions directly related to the proceedings before the Tribunal.

Legal practitioners and parties involved in tax disputes can draw from this judgment to better prepare their cost applications, ensuring compliance with procedural requirements and understanding the standards for assessing unreasonable conduct.

Complex Concepts Simplified

Rule 10(1)(b): Acting Unreasonably

Under Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, a party may be ordered to pay costs if they acted unreasonably in bringing, defending, or conducting the proceedings. This encompasses a broad range of behaviors, including:

• Bringing an appeal that is known to have no merit.
• Resisting a clearly meritorious appeal.
• Failing to comply with Tribunal rules or directions.

The assessment of "acting unreasonably" is subjective and depends on the specific facts and circumstances of each case.

Rule 10(3)(b): Schedule of Costs

This rule requires that when applying for an order for costs, the applicant must provide a schedule of the costs claimed in sufficient detail to allow the Tribunal to undertake a summary assessment. This means:

• Listing the names and roles of individuals incurring costs.
• Detailing the time spent and the rates charged.
• Explaining how costs are calculated, especially if they are apportioned from broader activities.

Failure to provide such detail can result in the application being deemed misleading or non-compliant.

Summary Assessment vs. Detailed Assessment

A summary assessment is a streamlined process where the Tribunal assesses costs based on the detailed schedule provided without delving into each cost item exhaustively. In contrast, a detailed assessment involves a thorough examination of each cost component, often necessary when the cost claims are substantial or complex.

Conclusion

The Upper Tribunal's decision in Distinctive Care Ltd v. HMRC underscores the critical importance of procedural compliance and transparency in cost applications within Tax Tribunals. By affirming that HMRC did not act unreasonably and emphasizing the necessity for detailed cost schedules, the judgment sets a clear precedent for future proceedings.

Legal practitioners must ensure that cost applications are meticulously prepared, providing all necessary details to facilitate efficient Tribunal assessments. Additionally, understanding the scope of what constitutes unreasonable conduct is essential for both appellants and respondents to avoid unnecessary cost liabilities.

Ultimately, this case reinforces the principles of fairness and justice in Tribunal procedures, highlighting the balance between enforcing procedural rules and exercising judicial discretion to ensure equitable outcomes.