SUPREME COURT COSTS OFFICE
London, EC4A 1DQ
B e f o r e :
| KELVIN JOHN AND BARBARA M FOSBERRY
|- and -
|HER MAJESTY'S REVENUE AND CUSTOMS
Mr Michael Bacon, Costs Draftsmen (instructed by The Solicitor H. M. Revenue and Customs) for the Respondents
Hearing date: 11th August 2006
Crown Copyright ©
"If you wish to produce any documents at the hearing of the Appeal, you must serve lists of these documents at this Tribunal Centre within 30 days of the date of notification shown above. A suggested format for such a list is reproduced overleaf for your assistance. You should indicate a reasonable period, commencing not earlier than 7 days and ending not later than 14 days after the service of such list, within which the Commissioners may inspect and take copies of the documents".
"Under the circumstances, it would appear that this case lacks the commercial or economic flavour that would bring the activity within the ordinary meaning of the "business" as per the VAT Act 1994 Section 4 or "economic activity" per Article 4(2) of the 6th Directive and as a result, we are still unable to register Mr & Mrs Fosberry for VAT.
I am sorry that I must give you what you and your clients will no doubt feel is a disappointing reply".
"It is our view, at this present time, that your client's activities lack the commercial element that would bring them within the concept of "business" or "economic activity.
However if there is anything you wish us to consider or which we appear to have misunderstood, please do not hesitate to bring it to our attention".
"We have received instructions from our clients to prepare for a hearing before the Tribunal and as you are well aware this can be a very costly exercise involving as it does both questions of fact and points of law. If Customs and Excise are mindful of registering the Fosberrys there would be a great saving of cost if they did this soon. If you delay before registering the Fosberrys it is possible that our client's costs will be significant".
"If Customs & Excise are to continue to argue that the Fosberrys are not conducting a business, although they use the phrase "the activities lack the commercial element", it would seem desirable for the Fosberrys to serve notice on the Inland Revenue as a third party to the proceedings. It has been established for many years that foster carers are assessable under the provisions of Schedule D, Case 1 and it would be incongruous for the Fosberrys activities not to be a business for value added tax purposes but a business for income tax purposes. Would you please let us know the appropriate procedure for serving proper notice on the Inland Revenue".
"All this highlights what can only be called a ludicrous stance by Customs & Excise and we do hope that Policy Division sees sense and that this case is stopped before it can go any further".
"I note the point that you do not feel that the Commissioners should be able to ask for more information once they have made a decision. However, if we are to reconsider that decision as you ask, then any pertinent information, as well as legal argument, which is relevant to Families for Children, the children and Mr & Mrs Fosberry is at the centre of our disagreement".
"We suggest that you accept that the Fosberrys are bound to succeed and agree to remove your objection to registration but in the light of the Kingscrest appeal the matter of mandatory registration, if it applies, be deferred until such time as that case is decided. If you do this it will just leave the matter of costs and the basis on which they are to be awarded to be decided".
"The majority of your letter is a submission on the merits of the appeal. Since the case is effectively stayed pending the outcome of another, I do not believe it would be sensible to rehearse arguments in correspondence".
"It is wholly wrong that the liability of the Fosberrys should be determined on the basis of submissions made by Kingscrest which is not concerned with fostering and the distortion of competition. Can an application now be made to enlarge the argument to encompass the ultra vires of the statutory instruments on the footing that they distort competition and place the Fosberrys at a disadvantage. It may be necessary to decide the point of whether the Fosberrys are conducting an economic activity before considering any other matters and if this is so then this aspect of the appeal must be brought forward but on the understanding and assumption that if the Fosberrys are successful in maintaining that they are conducting an economic activity that the matter would be stood over until Kingscrest is decided. On the question of Kingscrest as we have intimated in this letter it would be right and proper for the Fosberrys to be joined with that case so that submissions can be made to the European Court".
"Given that Customs & Excise never had any contact with the Fosberrys and the fact that the basis of their claim to refuse registration was that the Fosberrys were not conducting a business, although initially they claimed that they were making exempt supplies in the course of business, there can be no factual witness statements filed by Customs & Excise. It is true that they can have an opinion but that is a matter for the trial. Opinions are a matter of fact. Accordingly on the instructions of our clients we object to the application".
"The Commissioners have reconsidered their contentions, set out in their Statement of case of 28 November 2002 and have decided that they will no longer defend the appeal brought by Mr & Mrs K Fosberry under reference number LON/02/0530.
The Commissioners will undertake to pay your clients' reasonable costs".
"The Commissioners of Customs & Excise have informed me that they have withdrawn the decision which was the subject of your appeal.
If I do not hear from you to the contrary within 28 days I will assume that you no longer wish to proceed with your appeal. The appeal will be treated as withdrawn and the papers put away at that time".
"Thank you for your letter of 2 November 2004. We have received a copy of the solicitor's office letter dated 1 November 2004 but there is no indication in that letter as to the basis on which costs should be paid. Our view is that they should be paid on an indemnity basis and we await their reply. If that is not agreed then the appeal must be continued to decide this matter".
"NOTING that on 2 November 2004 the Respondents notified the Appellants that they had withdrawn the decision that had been the subject of the appeal and that they would undertake to pay the Appellants' reasonable costs.
AND NOTING that on 7 November 2004 the Appellants (through their representative B J Rice & Associates) applied that their costs should be on an indemnity basis.
AND UPON BEING INFORMED by the parties that they agreed that Rule 29(1)(b) of VAT Tribunals Rules 1986 should apply and that the Appellants' costs should be assessed by a Costs Judge of the Supreme Court.
AND UPON HEARING Mr B J Rice for the Appellants and Mr A Bacon of A & M Bacon Limited for the Respondents
IT IS DIRECTED as follows:
1. The assessment of costs shall be made on the standard basis.
2. The Appellants shall prepare their claim for costs on a formal basis and in accordance with Section 4 of the Costs Practice Direction in Part 43 (as set out in Section A of the Civil Procedure Rules).
3. The Respondents are at liberty to apply for their costs of this Application".
"17. Taking all these circumstances into consideration, I cannot draw the conclusion that the conduct of the Commissioners has been unreasonable, still less can I say that it has earned some implicit expression of disapproval or stigma. For those reasons I dismissed the Fosberrys' application for costs on the indemnity basis".
"18. Mr Bacon for the Commissioners, and on their instructions, has asked for their costs of the costs application. He has subsequently put in a schedule of costs in connection with the application and the Commissioners' costs amount to £1,050. Mr B J Rice argued that this was not a proper case for the Tribunal to award costs against his clients. He accepts that his clients were unsuccessful in their application. He relies, however, on the written answers given by the Minister of State, Treasury, (Peter Brooke MP) of 24 July 1986 to a Parliamentary Question. The Statement reads:
"As a general rule, Customs and Excise do not seek costs against unsuccessful appellants. They do, however, ask for costs in narrowly defined cases so as to provide protection for public funds and the general body of tax payers. They will, therefore, seek to continue to ask for costs at those exceptional tribunal hearings of substantial and complex cases where large sums are involved and which are comparable with High Court cases, unless the appeal involves an important general point of law requiring clarification. They will also continue to consider seeking costs where the appellant has misused the tribunal procedures – for example in frivolous or vexatious cases, or where the appellant has failed to appear or to be represented at a mutually arranged hearing without sufficient explanation, or where the appellant has first produced at a hearing relevant evidence which ought properly to have been disclosed at an earlier stage and which could have saved public funds had it been produced timeously. The new penalty provisions and right of appeal to the value added tax tribunals have made no change to this policy."
"(1) A tribunal may direct that a party or applicant shall pay to the other party to the appeal or application –
(a) ...such sum as it may determine on account of the costs of such other party of and incidental to and consequent upon the appeal or application."
These words indicate that the tribunal has a power, exercisable at its discretion, both to award costs and as to the amount of the costs. The Tribunal had no power to review a decision of the Commissioners to ask for costs. Nonetheless the words of the Minister of State and the expectations that they are intended to convey to taxpayers are, I think, matters that should be taken into account by tribunals in considering how to exercise their discretion when dealing with costs applications by the Commissioners".
"1. The Whole bill
Instructions of B J Rice & Associates under a CFA.
The Respondent has serious concerns as to the entitlement of the Appellants to recover costs in this matter either at all and/or under a CFA.
(a) Acting by unqualified person
(i) B J Rice &Associates are not solicitors. They are lay advisors claiming to have expertise in VAT matters. They describe themselves as "Chartered Tax Advisors and Accountants".
(ii) The VAT Tribunal is a Court by virtue of the definition of "Court" in s.119 of the Courts and Legal Services Act 1990 and the VAT Tribunal is one of those listed in Part One of Schedule One of the Tribunals and Enquiries Act 1992.
(iii) s.20(1)(a) of the Solicitors Act 1974 prohibits an unqualified person from "acting as a solicitor" or as such to issue any writ or process or commence or prosecute or defend any action, suit or other proceedings in his own name or in the name or any other person in any court of civil or criminal jurisdiction....
s.20(2)(a) and (b) of the Solicitors Act 1974 provides that any person who is in breach of the provision of (1) above shall be guilty of an offence and shall be guilty of contempt of court.
(iv) s.25 of the Solicitors Act 1974 provided that no costs in respect of anything done by an unqualified person acting as a solicitor shall be recoverable by him or by any other person in any action, suit or matter.
(v) In Piper Double Glazing Limited v B C Contracts  1 WLR 777 it was made clear that to fall within the phrase "acting as a solicitor" the act in question "must be an act which is lawful only for a qualified solicitor to do ...
(vi) s.28 of the Courts and Legal Services Act 1990 was considered in R (Factortame) Limited v Transport Secretary (No. 8)  QB 381. It makes provision for those who have the "right to conduct litigation". The Law Society is such a body. The institute of Chartered Accountants is not. Thus accountants have no right to conduct litigation
(vii) s.119 of the Courts and Legal Services Act 1990 defines the right to conduct litigation. It means "(a) to issue proceedings before any court; and (b) to perform any ancillary functions in relation to proceedings (such as entering appearances to actions)". The Respondent submits that B J Rice & Associates are at most expert advisors to the Claimants, they are not solicitors but are carrying out acts which only solicitors are entitled to carry out and that the Claimants are not entitled to recover costs paid to that firm. In this connection the Respondent will also rely upon the case of Westland Helicopters Limited v Sheikh Salah Al-Hejailan  EWCH 1688 (Com).
(b) Acting under a Conditional Fee Agreement
s.58(1) of the Courts and Legal Services Act 1990 provides that a Conditional Fee Agreement (CFA) which satisfies all of the conditions applicable to it by virtue of s.58 shall not be unenforceable by reason only if its being a CFA but any other CFA shall be unenforceable.
s.58(2)(a) states that a CFA is an agreement with a person "providing advocacy or litigation services which provides for his fees and expenses or any part of them to be payable only in specified circumstances ..."`
Regulation 1 of the CFA Regulations 2000 defines "client" as someone who has instructed his legal representative to provide advocacy or litigation services. It goes on to define "legal representative" as a person who provides the advocacy or litigation services to which the CFA relates.
B J Rice & Associates are not legal representatives nor providers of advocacy and litigation services under the statutory legislation. Accordingly not all of the conditions of s.58 are satisfied and the CFA is therefore unenforceable.
On the basis of the indemnity principle, no costs are payable by the Respondent to the Claimant".
"1. The Whole Bill
Instruction of B J Rice & Associates under a CFA
(a) Acting by an unqualified person
The Respondent's comments are misconceived. The right to costs which is undoubted because of the Direction of 4 July 2005 arises because of Regulation 29. Under Regulation 29(1)(a) the Tribunal may direct (the costs to be paid) within such a period as it may specify such sums as it may determine on account of the costs (of the receiving party) incidental to and consequent upon the appeal or application. It is clear that the Tribunal has the power to determine the entitlement as to costs and the quantum thereof but more importantly there is nothing within these Regulations that would indicate that the Tribunal is influenced in any way by the Solicitors Act 1974 with regard to costs. Furthermore if the Tribunal makes a direction under Regulation 29(1)(b) that the matter of quantum be determined by a Taxing Master of the Supreme Court it does not follow that the Solicitors Act should apply by implication. The reason for this is in Paragraph 29(2) where the Tribunal gives a direction under subsection 1(b) the provisions of Part 47, Civil Procedure Rules 1998 and any practice direction supplementing that part are to apply with necessary modifications. Necessary modifications would include an applicant being represented by a person other than a solicitor.
On top of the foregoing Regulation 25 makes it clear that any party to the appeal may conduct his case himself or may be represented by any person whom he may appoint for the purpose. The term "any person" does not restrict the appointment to solicitors because if it did Regulation 25 would say solicitor not "any person" which is a term wide enough to include any professional person or company, even a firm. Having to accept as you must that any person can represent an appellant, it follows that if the recovery of costs were restricted to the cost payable to a solicitor you would expect to find a clear reference to that fact.
Stepping back for a moment it is the practice of the Tribunal to award costs to a successful applicant and for those costs to include the charges made by persons representing the applicant in proceedings before the Tribunal even though they are not solicitors.
If this point is not conceded an application will be made to the Tribunal for direction on this point and a request will be made to stay the costs proceedings until such a direction is given.
Picking up on the observations of the Respondent we note that no application has been made by the Respondent to any Court or Tribunal claiming that Bernard John Rice is in breach of any rule of Court moreover there has never been an application to a VAT Tribunal asking for a direction that a representative of an appellant be removed from the record because he is guilty of contempt of Court. The use of the word direction is hardly the terminology to claim that a person is in contempt of Court. Furthermore there is nothing in the Value Added Tax Tribunal Rules 1986 that empowers the Tribunal to fine or to do anything in respect of a person who is guilty of the offence of not being a solicitor and as such guilty of contempt of Court. It is to be remembered that the Tribunal is quite unlike a Court in that its role is not to adjudicate between parties and reach a decision on the evidence before it. In proceedings before a Value Added Tax Tribunal the onus is on the Applicant to prove that on the balance of probabilities the decision, assessments or anything done by H M Revenue & Customs is wrong. If the Applicant fails than the decision of H M Revenue & Customs stands.
(b) Acting under a Conditional Fee Agreement
The terminology used in the Regulations is to differentiate between actions per se and matters dealt with by the Tribunal. An appeal against a VAT assessment or an application to the Tribunal for some purpose or other is not the same as issuing proceedings. This is linked to the objections in 1(a). There is no challenge to the Conditional Fee Agreement just an attempt to say that the firm B J Rice & Associates is not a legal representative and thus is not entitled by virtue to Section 58 to recover costs".
"25. At the hearing of an appeal or application –
(a) any party to the appeal or application (other than the Commissioners) may conduct his case himself or may be represented by any person whom he may appoint for the purpose; and
(b) the Commissioners may be represented at any hearing at which they are entitled to attend by any person whom they may appoint for the purpose".
"(a) to issue proceedings before any court; and
(b) to perform any ancillary functions in relation to proceedings (such as entering appearances to actions)".
"29 (1) A tribunal may direct that a party or applicant shall pay to the other party to the appeal or application –
(a) within such a period as it may specify such sum as it may determine on account of the costs of such other party of and incidental to and consequent upon the appeal or application; or
(b) the costs of such other party of and incidental to and consequent upon the appeal or application to be [assessed by a Taxing Master of the Supreme Court .... by way of detailed assessment ...]
(2) Where a tribunal gives a direction under paragraph 1(b) of this rule in proceedings in England and Wales the provisions of [Part 47 of the Civil Procedure Rules 1998 and any practice directions supplementing that Part] shall apply, with the necessary modifications, to the taxation of the costs as if the proceedings in the tribunal were a cause or matter in the Supreme Court of Judicature in England".
"5(1) A conditional fee agreement must be signed by the client and by the legal representative".
"(3) In these Regulations –
"client" includes, except where the context otherwise requires, a person who –
(a) has instructed the legal representative to provide the advocacy or litigation services to which the conditional fee agreement relates; or
(b) is liable to pay the legal representative's fees in respect of those services; and "legal representative" means the person providing the advocacy or litigation services to which the conditional fee agreement relates".
"(2) A person shall have a right to conduct litigation in relation to any proceedings ...
(c) where paragraph (a) does not apply but he has a right to conduct litigation granted by that court in relation to those proceedings".
The form must be signed and dated by someone authorised to do so. The status of the signatory must be given, e.g. appellant, solicitor, accountant, partner or director.
If a representative is instructed to act, please indicate status (e.g. solicitor, accountant, consultant etc). Please note that all correspondence and documents including hearing notifications will be sent to the representative, not direct to the appellant. If a representative ceases to act, he/she or the appellant should inform the Tribunal Centre at once".
"(6) Section 20 of the Solicitors Act 1974 (unqualified person not to act as a solicitor), Section 22 of that Act (unqualified person not to prepare certain documents etc) and Section 25 of that Act (costs where an unqualified person acts as a solicitor) shall not apply in relation to any act done in the exercise of a right to conduct litigation".
"(2) If the agreement relates to court proceedings, it must provide that where the percentage increase becomes payable as a result of those proceedings, then –
(a) if –
(i) any fees subject to an increase are assessed, and
(ii) the legal representative or the client is required by the court to disclose to the court or any other person the reasons for setting the percentage increase at the level stated in the agreement, he may do so,
(b) if –
(i) any such fees are assessed, and
(ii) any amount in respect of the percentage increase is disallowed on the assessment on the ground that the level at which the increase was set was unreasonable in view of the facts which were or should have been known to the legal representative at the time it was set,
that amount ceases to be payable under the agreement, unless the court is satisfied that it should continue to be so payable, and
(c) if –
(i) sub-paragraph (b) does not apply, and
(ii) the legal representative agrees with any person liable as a result of the proceedings to pay fees subject to the percentage increase that a lower amount than the amount payable in accordance with the conditional fee agreement is to be paid instead,
the amount payable under the conditional fee agreement shall be reduced accordingly, unless the court is satisfied that the full amount should continue to be payable under it.
(3) In this regulation "percentage increase" means the percentage by which the amount of the fees which would be payable if the agreement were not a conditional fee agreement is to be increased by the agreement".
"The success fee applies no matter how long the proceedings take, and is subject only to the parties agreeing a smaller percentage at the conclusion or if a "costs assessment" reduces the percentage. The hourly charge is not reduced".
The agreement does not provide for the matters set out in Regulation 3(2)(c). It ought to have done so because the VAT Tribunal is (as already stated) a Court so that the agreement "relates to Court proceedings". Accordingly there has, in my judgment, been a breach of Regulation 3.
"4 (1) Before a conditional fee agreement is made the legal representative must –
(a) inform the client about the following matters ...
(2) These matters are –
(c) whether the legal representative considers that the client's risk of incurring liability for costs in respect of the proceedings to which the agreement relates is insured against under an existing contract of insurance"
"107. The key question, therefore, is whether the conditions applicable to the CFA by virtue of Section 58 of the 1990 Act have been sufficiently complied with in the light of their purpose. Costs Judges should accordingly ask themselves the following question:
"Has the particular departure from a regulation pursuant to Section 58(3)(c) of the 1990 Act or a requirement in Section 58, either on its own or in conjunction with any other such departure in this case, had a materially adverse effect either upon the protection afforded to the client or upon the proper administration of justice?"
If the answer is "yes" the conditions have not been satisfied. If the answer is "no" then the departure is immaterial and (assuming that there is no other reason to conclude otherwise) the conditions have been satisfied".