Introduction

The case of Distinctive Care Ltd v. Revenue And Customs [2019] EWCA Civ 1010 serves as a pivotal judicial decision in the realm of tax law and tribunal proceedings within England and Wales. This landmark case addresses the scope of the First-tier Tribunal's (FTT) jurisdiction to award costs to a party based on unreasonable conduct related to bringing, defending, or conducting proceedings. The primary parties involved are Distinctive Care Ltd (DCL), the appellant, and Her Majesty's Revenue and Customs (HMRC), the respondent. The crux of the dispute revolves around HMRC's issuance of an information notice under Schedule 36 of the Finance Act 2008, which DCL contends was ultra vires, thereby seeking cost recovery on the grounds of HMRC's unreasonable behavior.

Summary of the Judgment

The appellate journey commenced when DCL challenged the validity of an information notice issued by HMRC concerning Stamp Duty Land Tax (SDLT) liabilities. The First-tier Tribunal (FTT) dismissed DCL's application for costs, a decision upheld by the Upper Tribunal (UT). DCL appealed to the Court of Appeal, arguing that HMRC's actions in issuing and failing to promptly withdraw the information notice warranted a cost award under rule 10(1)(b) of the Tribunal Procedure Rules (TPR). The Court of Appeal, presided over by Lady Justice Rose, affirmed the lower tribunals' stance, concluding that HMRC's conduct prior to the commencement of FTT proceedings did not fall within the jurisdiction for awarding costs. Consequently, the appeal was dismissed, solidifying the limitation of cost awards to conduct during the proceedings rather than actions preceding them.

Analysis

Precedents Cited

The judgment extensively referenced several key precedents to underpin its findings:

• Market & Opinion Research International Ltd v HMRC [2015] UKUT 12 (TCC) ("MORI") – Addressed unreasonable conduct in defending an untenable decision.
• Shahjahan Tarafdar v HMRC [2014] UKUT 362 (TCC) ("Tarafdar") – Explored HMRC's obligation to withdraw unreasonable decisions at appropriate stages.
• Catan v HMRC [2012] UKUT 172 (TCC) – Clarified the interpretation of "bringing" proceedings and the scope of unreasonable conduct.
• Bulkliner Intermodal Limited v HMRC [2010] UKFTT 395 (TC) ('Bulkliner') – Asserted that unreasonable behavior prior to proceedings commencement does not fall within costs award scope.
• Willow Court Management Co (1985) Ltd v Alexander and ors [2016] UKUT 290 (LC) – Reinforced limitations on assessing pre-commencement conduct.

These precedents collectively emphasize that cost awards for unreasonable conduct are confined to actions undertaken during the actual tribunal proceedings, not before their initiation.

Legal Reasoning

Lady Justice Rose meticulously dissected rule 10(1)(b) of the TPR, which grants the FTT discretion to award costs when a party behaves unreasonably in bringing, defending, or conducting proceedings. The central question was whether HMRC's issuance of an information notice, prior to the formal commencement of FTT proceedings, constituted unreasonable behavior within the tribunal's purview for cost awards.

The Court of Appeal underscored that "bringing" proceedings pertains strictly to actions within the tribunal's timeframe, specifically the lodging of a notice of appeal as per rule 20 of the FTT Rules. HMRC's conduct in issuing the information notice, though later deemed incorrect, occurred prior to the appeal's formalization and therefore did not fall within the scope of the FTT's cost award jurisdiction. The court distinguished between pre-commencement actions and conduct during the proceedings, maintaining that only the latter could instigate a costs award under rule 10(1)(b).

Furthermore, the court addressed the contention regarding costs incurred before proceedings, affirming that "costs of and incidental to" could encompass pre-appeal expenses, provided they are of use and service in the subsequent litigation. However, this aspect did not influence the primary determination concerning HMRC's unreasonable behavior.

Impact

This judgment delineates a clear boundary for tribunals concerning cost awards related to unreasonable conduct. By affirming that actions undertaken before the formal commencement of proceedings are outside the tribunal's jurisdiction for such awards, the Court of Appeal has set a precedent that emphasizes procedural boundaries. This ensures that tribunals focus on the conduct within their specific proceedings, thereby preventing them from becoming venues for reassessing pre-litigation interactions between parties.

For HMRC and other governmental bodies, this decision reaffirms the importance of adhering to procedural correctness before engaging in tribunal-driven appeals. It also provides taxpayers with clarity on the limitations of seeking cost recoveries based on the administrative actions taken prior to formal disputes.

Complex Concepts Simplified

Rule 10(1)(b) of the Tribunal Procedure Rules (TPR)

This rule allows tribunals to award costs to a party if the opposing party has acted unreasonably in initiating, defending, or managing the proceedings. Unreasonable conduct can encompass behaviors like persistently failing to comply with rules or unnecessarily prolonging the case.

Costs of and Incidental to Proceedings

This phrase refers to not only the direct costs associated with the tribunal proceedings but also those ancillary expenses that contribute to the litigation, even if incurred before the formal commencement of the case. However, such costs must be demonstrably useful in the ensuing litigation to be recoverable.

Ultra Vires

Literally meaning "beyond the powers," this term is used to describe actions taken by an authority that exceed the scope of their legal power or authority. In this case, DCL argued that HMRC's issuance of the information notice was beyond its legal authority under Schedule 36 to the Finance Act 2008.

Conclusion

The Distinctive Care Ltd v. Revenue And Customs [2019] EWCA Civ 1010 decision serves as a critical reference point in understanding the boundaries of cost awards within tribunal proceedings. By affirming that only conduct during the formal proceedings—specifically the actions taken after lodging a notice of appeal—falls within the jurisdiction for costs awards, the Court of Appeal has clarified the application of rule 10(1)(b). This ensures a focused and fair assessment of unreasonable behavior, preventing the tribunal system from delving into pre-litigation conduct. Consequently, parties engaging in tribunal proceedings are reminded to maintain reasonable and compliant behavior from the outset of any appeal, fostering a more efficient and equitable legal process.