Viridor Waste Management Ltd & Ors, R (on the application of) v HM Revenue and Customs

Factual and Procedural Background

This opinion concerns an application for costs following the dismissal of a judicial review application brought by a group of companies ("Company A") against Her Majesty's Commissioners for Revenue and Customs ("HMRC"). The substantive claim was dismissed on 25 July 2016. The costs application relates solely to Company A's claim and not to a similar claim by another group, which has been resolved by agreement. The court assumes familiarity with the substantive judgment dismissing the claim.

Legal Issues Presented

1. Whether it is appropriate to depart from the general rule that the unsuccessful party pays the successful party’s costs.
2. If departure is appropriate, whether the court should deprive HMRC of part of their costs relating to a specific issue ("the cards face up issue").
3. Whether the court should go further and order HMRC to pay Company A’s costs of that issue.
4. How any departure from the general rule should be implemented in terms of cost apportionment or issue-based orders.

Arguments of the Parties

Appellant's Arguments (Company A)

• The "cards face up issue" was a discrete, distinct factual allegation raised by HMRC involving claims of exaggeration and misrepresentation by Company A.
• HMRC's allegation that Company A falsely stated regulatory requirements was a prejudicial and damaging claim that necessitated extensive factual rebuttal, increasing costs.
• Company A incurred significant additional costs, including five further witness statements, due to this issue.
• This issue exemplified a "kitchen sink" approach to litigation, where a prejudicial allegation with no substantive basis was introduced.
• Company A wholly succeeded on this issue, and therefore it is appropriate that HMRC bear the costs related to it, either by bearing their own costs or paying Company A’s costs for it.
• Suggested two possible cost orders: either an issue-based order dividing costs by issue or a proportional cost order dividing costs before and after a specified date (17 July 2015).

Respondent's Arguments (HMRC)

• HMRC argued that the "cards face up issue" was an essential element of their claim and not a freestanding point.
• HMRC contended that not every case where the successful party loses on an issue warrants departing from the general rule on costs.
• They emphasized that the issue was not pursued unreasonably or hopelessly, and the manner of pursuing it was proper.
• Suggested that an order requiring HMRC to pay Company A’s costs on this issue would be unjust, particularly as Company A’s claim was wholly unsuccessful.
• Raised practical concerns that differential rates between legal representatives could result in HMRC paying a net sum to Company A, which would be inappropriate given the overall outcome.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by affirming the general rule under CPR r 44.2(2)(a) that the unsuccessful party pays the successful party’s costs. Since Company A’s claim was dismissed, HMRC are the successful party. However, the court considered whether departure from this rule was justified because HMRC lost on a discrete issue ("the cards face up issue") which involved serious allegations requiring detailed factual rebuttal and additional costs.

The court examined relevant authorities, noting that most dealt with cases of partial success on both sides, unlike the present case where HMRC were wholly successful. The court identified three key questions: whether to depart from the general costs rule; if so, whether to deprive HMRC of costs or require them to pay Company A’s costs on the issue; and how to structure any such order.

The court accepted that it had power to depart from the general rule and that it was appropriate to do so to the extent of depriving HMRC of the extra costs incurred on the lost issue. However, the court found no clear evidence that HMRC acted unreasonably in pursuing the issue, which militated against ordering HMRC to pay Company A’s costs on it. The court emphasized that such an order would be exceptional and was not justified here.

Considering causation and fairness, the court observed that the lost issue would not have arisen but for Company A bringing the claim, and conversely Company A would not have incurred costs on it if they had not sued at all. This supported the decision not to require HMRC to pay Company A’s costs on the issue.

Regarding the form of the costs order, the court found it practicable to use a proportional approach rather than an issue-based order. It accepted Company A’s suggestion to treat costs before 17 July 2015 separately and apply a discount thereafter to reflect the extra costs attributable to the lost issue. The court concluded that a 15% reduction on HMRC’s costs after that date would fairly reflect the additional costs incurred due to the issue.

Holding and Implications

Order: Company A shall pay HMRC their costs of the proceedings up to 17 July 2015 in full, and 85% of HMRC’s costs incurred from 17 July 2015 onwards, to be assessed on the standard basis if not agreed.

Implications: The court departed from the general rule to the limited extent of reducing HMRC’s recoverable costs to reflect a discrete issue on which HMRC lost. However, it did not order HMRC to pay Company A’s costs on that issue, as HMRC’s conduct was not unreasonable and the overall claim was wholly unsuccessful. This decision clarifies that while courts have discretion to adjust costs for distinct issues lost by the successful party, such adjustments are fact-sensitive and exceptional when the defendant is wholly successful. The ruling imposes a proportional costs adjustment rather than a full issue-based costs order, emphasizing practical fairness without establishing a novel precedent beyond the facts of this case.