Introduction

The case of British-American Tobacco (Holdings) Ltd v. Revenue and Customs (TC) [2017] UKFTT 99 (TC) revolves around an application for costs made by British-American Tobacco (BAT) against Her Majesty's Revenue and Customs (HMRC). BAT sought reimbursement of costs incurred during a case management hearing (CMH) on June 6, 2016, arguing that HMRC acted unreasonably in defending and conducting the proceedings. The central legal issue pertains to the interpretation and application of Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009, which allows for the awarding of costs if a party's conduct is deemed unreasonable.

Summary of the Judgment

The First-tier Tribunal (Tax Chamber) dismissed BAT's application for costs. The Tribunal meticulously examined whether HMRC's conduct during the CMH was unreasonable under Rule 10(1)(b). After analyzing relevant statutory provisions and judicial precedents, the Tribunal concluded that HMRC had not acted unreasonably. Consequently, BAT was not entitled to recover the costs it sought.

Analysis

Precedents Cited

The judgment extensively references several key precedents that shaped the Tribunal’s decision:

• Market & Opinion Research International Ltd v Revenue & Customs [2013] UKFTT 475 (TC): Provided a foundational summary of the principles for determining unreasonableness under Rule 10(1)(b).
• Bulkliner Intermodal Ltd v HMRC [2010] UKFTT 395 (TC): Emphasized that even a single instance of unreasonable conduct could satisfy the threshold for award of costs.
• Thomas Holdings Limited v HMRC [2011] UKFTT 656 (TC): Clarified that omissions could constitute unreasonable conduct.
• Leslie Wallis v HMRC [2013] UKFTT 81 (TC): Asserted that failing to succeed in a contention does not automatically imply unreasonableness.
• Roden and Roden v HMRC [2013] UKFTT 523 (TC): Highlighted that pursuing an unsuccessful case does not inherently constitute unreasonable behavior unless there is evidence of an abuse of process.
• Catan v Revenue and Customs Commissioners [2012] STC 2138: Defined the breadth of “bringing, defending or conducting” proceedings under Rule 10(1)(b).
• John Scofield v Revenue & Customs [2012] UKFTT 673 (TC): Underlined the need to align Rule 10(1)(b) with the overriding objective of fair and just Tribunal proceedings.
• Patel v Air India [2010] EWCA Civ 433: Discussed the threshold of irrationality in cost awards, though deemed not directly applicable here.

Legal Reasoning

The Tribunal undertook a two-step analysis:

1. Determination of Unreasonableness: The Tribunal assessed whether HMRC's actions during the CMH met the threshold of unreasonableness as stipulated by Rule 10(1)(b). This involved evaluating HMRC's attempts to exclude Parliamentary Materials and manage the admissibility of evidence.
2. Discretionary Decision on Costs: Upon determining unreasonableness, the Tribunal would then decide whether it was appropriate to award costs.

Key points in the Tribunal’s reasoning include:

• The threshold for unreasonableness is intentionally low, allowing for costs to be awarded based on any unreasonable conduct, whether habitual or a single instance.
• HMRC's efforts to exclude Parliamentary Materials were scrutinized. While HMRC sought to limit evidence pertaining to the Finance Bill and related materials, the Tribunal found BAT's arguments for admitting such materials were not sufficiently articulated to render HMRC's actions unreasonable.
• The Tribunal recognized that rules governing cost awards should not be a "backdoor" mechanism for cost-shifting, as cautioned in Eastenders Cash and Carry Plc v HMRC [2012] UKFTT 219 (TC).
• The conduct of HMRC did not rise to the level of irrationality or abuse of process described in the Patel v Air India case.

Impact

This judgment clarifies the application of Rule 10(1)(b) within the context of tax tribunals. It reinforces the principle that only conduct that falls clearly outside reasonable behavior warrants the awarding of costs. The decision serves as a precedent for future cases, emphasizing that the mere failure to succeed in a contention does not equate to unreasonable conduct. Additionally, the Tribunal's cautious approach to cost awards in CMHs underscores the judiciary's intent to prevent the overuse of cost-shifting mechanisms, thereby promoting fair and just processes.

Complex Concepts Simplified

Rule 10(1)(b) of the Tribunal Procedure (First-tier Tribunal) (Tax Chamber) Rules 2009

This rule allows the Tribunal to award costs if it determines that a party or their representative has acted unreasonably in bringing, defending, or conducting the proceedings. The key point is that there must be a discernible lack of reasonableness in the conduct, whether through actions or omissions.

Unreasonableness in Legal Proceedings

Unreasonableness, as applied in this context, does not require gross misconduct. Instead, it refers to conduct that falls below the standard expected of a reasonable party in similar circumstances. This can include unnecessary prolongation of proceedings, inappropriate exclusion of relevant evidence, or failure to comply with procedural rules.

Pepper v Hart Principle

This legal principle allows courts to refer to parliamentary materials (such as debates and reports) when interpreting ambiguous statutory provisions. In this case, BAT sought to use such materials to clarify the meaning of penalty provisions under the Tobacco Products Duty Act 1979.

Conclusion

The decision in British-American Tobacco (Holdings) Ltd v. Revenue and Customs offers valuable insights into the application of Rule 10(1)(b) concerning the awarding of costs based on unreasonable conduct. The Tribunal's thorough analysis reaffirms that only clear instances of unreasonableness warrant cost awards, thereby safeguarding against unwarranted financial burdens on parties solely due to unsuccessful contentions. This judgment not only clarifies the parameters of unreasonableness in tax tribunal proceedings but also emphasizes the importance of judicial discretion in ensuring fair and just outcomes.