England and Wales High Court (Senior Courts Costs Office) Decisions

IN THE HIGH COURT OF JUSTICE
SUPREME COURT COSTS OFFICE 

		Clifford's Inn, Fetter Lane London, EC4A 1DQ
		6 October 2006

Master Wright

1. Mr and Mrs Fosberry wrote to HM Customs & Excise on 7 May 2002 with VAT application forms.  They said that they were foster parents who look after children within their family in their home and that they made supplies to a private fostering agency who were already registered for VAT.   They said that following a High Court decision in March of that year (Commissioners of Customs & Excise v Kingscrest Associates Ltd) they were obliged to become VAT registered
2. H M Customs & Excise refused to allow the registration and on 20 June 2002 B J Rice & Associates lodged a Notice of Appeal with the VAT and Duties Tribunals on their behalf.
3. On 27 June 2002 the VAT and Duties Tribunals wrote to B J Rice & Associates acknowledging receipt and saying that the Appeal had been notified to the Commissioners of Customs & Excise.  The letter said:

"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".

4. On 29 July 2002 H M Customs & Excise wrote to Mr and Mrs Fosberry with a number of questions.  Mr and Mrs Fosberry passed this letter on to Mr B J Rice of B J Rice & Associates who wrote on their behalf to H M Customs & Excise on 12 August 2002.  In the meantime H M Customs & Excise had applied to the VAT and Duties Tribunals for an extension of time up to 2 September 2002.
5. A further application for an extension of time was made by H M Customs & Excise on 29 August 2002 and B J Rice & Associates wrote to the VAT and Duties Tribunals on 18 September 2002 to say that while their clients did not object to this extension to 2 October 2002, they would object to any further extension of time.
6. In the meantime (on 16 September 2002) H M Customs & Excise wrote to B J Rice & Associates in response to their letter of 12 August.  In their letter they said:

"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 6^th 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".

7. B J Rice & Associates wrote to H M Customs & Excise in reply to their letter of 16 September setting out their reasons for disagreeing with the decision.   On 1 October 2002 H M Customs & Excise replied to B J Rice & Associates in a letter in which they said:

"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".

8. On the Same day H M Customs & Excise made an application for a further extension of time to 4 November 2002.  B J Rice and Associates wrote to the VAT and Duties Tribunal on 9 October 2002 objecting to this application.  The objection to the application for the matter to be stood over was listed for hearing on 4 November 2002 and the VAT and Duties Tribunals wrote to B J Rice & Associates to inform them of this on 18 October 2002.
9. At the hearing the Tribunal directed the Commissioners of Customs & Excise to serve their Statement of Case and List of Documents by 29 November 2002 and ordered that Mr & Mrs Fosberry ("the Appellants") should serve their List of Documents by the same date.  The Tribunal also ordered that the Appellants should, by 10 January 2003, serve a Witness Statement by a partner covering the business of the Appellants.  The Appellants were represented by Mr B J Rice and H M Customs & Excise were represented by Mr Tack of the Department's Solicitors Office.
10. B J Rice & Associates wrote to H M Customs & Excise ("the Respondents") on 7 October 2002 in reply to their letter of 1 October.  They disagreed with the conclusions reached by them and concluded:

"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".

11. B J Rice & Associates wrote to the VAT and Duties Tribunals on 8 October 2002 enclosing a copy of the letter of 1 October 2002 which they had received from the Respondents. In the letter they said:

"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".

12. On 5 November 2002 B J Rice & Associates wrote to the Respondents a further lengthy letter setting out their reasons for thinking that they were wrong and inviting them to accept the registration with an undertaking to pay Mr & Mrs Fosberry's reasonable costs.  On the same day the VAT and Duties Tribunals made the Order to which I have already referred (paragraph 9 above).
13. B J Rice & Associates wrote again to the Respondents on 18 November 2002. In the letter they said:

"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".

14. On 19 November 2002 the Respondents wrote to B J Rice & Associates referring to their letters of 7 October and 5 November 2002.  In the letter they said:

"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".

15. On 29 November 2002 the VAT and Duties Tribunal wrote to Mr B J Rice of B J Rice & Associates enclosing the Respondents' Statement of Case and List of Documents.  The letter asked who would be representing the Appellants at the hearing of the appeal and asked for dates during the next four months which the Appellants wished to avoid and for preferences as to the venue.  It also asked for an estimate of the hearing time, a List of documents and how many witnesses, if any, were to be called.
16. On 8 December 2002 B J Rice & Associates replied with the information which had been requested. Correspondence between B J Rice & Associates and the Respondents continued.  On 6 December 2002 B J Rice & Associates wrote to the Respondents about their Statement of Case and on 13 January 2003 they wrote again inviting the Respondents to withdraw their objections to the registration of the firm "subject only to the matter of costs".
17. On 28 January 2003 the VAT and Duties Tribunals wrote to Mr B J Rice giving notice of a preliminary directions hearing to take place on 12 February 2003.  B J Rice & Associates wrote to the Respondents again on 3 February 2003 stating their Client's case.
18. At the directions hearing on 12 February 2003 the Appellants were represented by Mr B J Rice and the Respondents were represented by Mr Raymond Hill of Counsel.  The Tribunal Chairman directed that the matter be stood over until the outcome of the appeal in the case of Kingscrest Associates Limited and then relisted for further directions as necessary.
19. On 24 February 2003 B J Rice & Associates wrote to the Respondents again stating their clients' case and concluding:

"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".

20. On 13 May 2003 the Respondents wrote to B J Rice & Associates in reply to that letter.  They said that the appeal had been stood over pending the outcome of the Kingscrest matter and that it would be unjust to end the Fosberry's case whilst there were still "justiciable matters".  They concluded their letter by saying:

"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".

21. On 22 July 2003 B J Rice & Associates wrote to the VAT and Duties Tribunals to say that the Kingscrest Appeal had now been referred to the European Court for directions on the ultra vires of the amendment to the categories of exemption brought about by two statutory instruments.  The letter said:

"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".

22. On 28 July 2003 the Respondents applied to the Tribunal for a direction that the time limits be extended for a period of six months pending the reference of the judgment of the European Court in the case of Kingscrest.
23. There was a directions hearing before the Tribunal on 22 September 2003 at which, it seems, Mr B J Rice appeared for the Appellants and Mr Raymond Hill of Counsel appeared for the Respondents.  There seems to have been an application for the joinder of the Fosberry case with another appeal brought by Families for Children and for the reference of both cases to the European Court so that they could be heard together with the Kingscrest case.
24. It appears from the letter written by B J Rice & Associates to the VAT and Duties Tribunals on 1 December 2003 that the application made on 22 September had been unsuccessful and that the Chairman of the Tribunal invited the Commissioners to consider their Statement of case in the Fosberry appeal. There was a further directions hearing on 2 April 2004 at which the Appellants were represented by Mr B J Rice and the Respondents were represented by Mr Raymond Hill of Counsel.  Directions were given for the appeal to be listed not before July 2004, Witness Statements to be exchanged by the end of May 2004, a single paginated bundle of documents to be relied on by both parties to be lodged with the Tribunal by the end of June 2004 and for skeleton arguments for both parties to be lodged at least seven days before the hearing.
25. On 6 April 2004 the VAT and Duties Tribunals wrote to Mr B J Rice saying that they were now ready to list the Fosberrys appeal for hearing and asking for similar information to that requested in their letter of 29 November 2002 (paragraph 15 above).
26. Mr B J Rice wrote to Mr Tack of the solicitor's office H M Customs & Excise on 14 April 2004 referring to what he said was their "piecemeal" approach and inviting the Respondents to admit that certain statutory instruments were unlawful. B J Rice & Associates also wrote to H M Customs & Excise solicitors office on 24 April 2004 referring to a telephone conversation on 15 April and saying that there were some points that needed clarification.   It was a lengthy letter.
27. On 28 May 2004 the Respondents made an application to the Tribunal for an extension of time of two weeks to serve their Witness Statements.  B J Rice & Associates wrote to the VAT and Duties Tribunal on 8 June 2004 saying:

"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".

28. On 25 June 2004 the Tribunal heard the application but the Appellants did not attend and were not represented because, apparently, no notice of the hearing had been given to them.  The Respondents were represented by Mr Raymond Hill of Counsel.  The Order records that the application of 28 May 2004 had been withdrawn.  On 23 July 2004 there was a further directions hearing.  Mr B J Rice represented the Appellants and Mr Tack of the solicitors' office of H M Customs & Excise represented the Respondents.  The Order recorded that the Fosberrys and the Families for Children appeals were to be heard over the period 29 November to 1 December 2004, (the Fosberry appeal to be heard first) and gave directions for draft Statements of fact, skeleton arguments, agreed Statements of fact and Witness Statements and for the preparation of a common bundle.  On 1 November 2004, however, the Respondents wrote to B J Rice & Associates:

"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".

29. On 2 November 2004 the Tribunal wrote to Mr B J Rice:

"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".

30. On 7 November 2004 B J Rice & Associates replied:

"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".

31. On 27 December 2004 B J Rice & Associates wrote to Mr & Mrs Fosberry with their bill of costs. This totalled £33,108.44 inclusive of VAT.  The bill narrative states that the financial terms agreed between Mr & Mrs Fosberry and B J Rice & Associates were that work carried out on the appeal and matters incidental and consequent to the appeal should be invoiced at the rate of £310 per hour (£200 per hour plus a 55% success fee).  However it was acknowledged that appeals can be costly.  It was agreed that in the event of failing to persuade the Commissioners of Customs & Excise or the Tribunal that the application for registration was properly made the fee would be limited to £6,200, this being 20 hours work.  In the event of the appeal succeeding there would be no such restriction.  All costs were subject to value added tax at the prevailing rate.
32. On 28 December 2004 B J Rice & Associates sent a copy of their bill to the solicitor's office H M Customs & Excise and set out their reasons for contending that the Respondents should pay the Appellants' costs on the indemnity basis.  On 7 January 2005 H M Customs & Excise solicitor's office wrote to B J Rice & Associates acknowledging receipt and saying that they had asked Mr Bacon of A & M Bacon Legal Costs Consultants to consider the reasonableness of the claim and to liaise with them.
33. On or about 31 January 2005 Mr B J Rice wrote to the Tribunal with an application that the Respondents should be ordered to pay the Appellant's costs on the indemnity basis.
34. Negotiations took place between B J Rice & Associates and A & M Bacon Limited.   These did not enable the parties to reach agreement about costs.  There was therefore a further hearing before the Tribunal on 4 July 2005.  The Chairman's Direction states:

"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".

35. H M Customs & Excise applied for their costs of the Fosberrys' Application for costs on the indemnity basis.  The Chairman of the Tribunal Mr Stephen Oliver QC released his Decision on costs on 28 July 2005.  Having set out the background to the matter, he said:

"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".

36. Dealing with the costs of the Appellants' application, he said:

"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."

37. The general rule in civil litigation is that the unsuccessful party should pay the successful party's costs. The outcome of the present application for indemnity costs is that the Fosberrys were wholly unsuccessful.  The entire hearing was taken up with the question of whether indemnity costs should be awarded against the Commissioners who had already undertaken to pay the costs of the Fosberrys.  Thus applying the general civil litigation rule, the Fosberrys should pay the Commissioners' costs of the application.
38. Does the Parliamentary Answer require a different order?  As a statutory tribunal I am bound by the Tribunals Rules (s.1 1986/560).  Rule 29 provides:

"(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".

39. The Chairman then gave his reasons for finding that, as unsuccessful applicants for indemnity costs, the Appellants must pay the costs of the Respondents.  He awarded the Respondents the sum of "£1,050 on account of their costs of the application".
40. B J Rice & Associates as "Applicant's Agent" served Notice of Commencement of assessment of bill of costs on A & M Bacon Limited together with the Fosberrys bill of costs on 21 September 2005.  Points of Dispute were prepared and served dated 5 October 2005.  They are signed by David Hogg, Acting Solicitor for H M Revenue & Customs.  So far as is relevant to the matters which were argued before me on 11 August 2006 the Points of Dispute are:

"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 [1974] 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) [2003] 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 [2004] 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".

41. B J Rice & Associates served Replies to the Points of Dispute.  The Reply to the Points of Dispute which are set out above is as follows:

"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".

42. On 31 January 2006 B J Rice & Associates signed a Request for detailed assessment hearing as "Applicant's Accountant". With it they lodged, among other documents, the bill of costs and the Points of Dispute and the Points of Reply.  In view of the issues which had been raised I held a Directions hearing on 24 March 2006 and, having heard the parties, I made an order to stay the detailed assessment proceedings for 42 days to enable the parties to try to reach agreement.  The order provided that if the parties could not reach agreement within that time either one could apply for a date for a one day hearing and should then serve a Witness Statement setting out its position with regard to the Defendant's Points of Dispute Number One and that the other party should serve a Witness Statement in Reply within 21 days thereafter.
43. The parties were unable to reach agreement and B J Rice & Associates wrote to the Supreme Court Costs Office on 10 May 2006 requesting a date for the hearing.  The hearing was fixed for Friday 11 August 2006.
44. B J Rice & Associates had written a letter to H M Revenue & Customs dated 5 April 2006 which they describe as a more detailed response to Point No.1 of the Points of Dispute.  There was a disagreement between the parties as to whether the letter complied with the Order of 24 March 2006.  On 7 July 2006 Mr B J Rice served a document which he described as "skeleton argument prepared pursuant to Master Wright's Order of 24 March 2006.  This skeleton argument replicates the contents of a letter dated 5 April 2006 submitted to H M Revenue & Customs and the Supreme Court Costs Office when the request for a hearing date was made".  On 10 July 2006 a Witness Statement was signed by Mr John Quesnel of H M Revenue & Customs Solicitors Office which was stated to be "in compliance with paragraph 4 of the Order of Costs Judge Wright dated 24 March 2006".
45. B J Rice & Associates prepared a Reply to Mr Quesnel's Witness Statement.  Mr Bacon objected to it on the grounds that no authority had been given for such a document and that he had not seen it.  I decided to allow Mr Rice to introduce the document and there was an adjournment to give Mr Bacon time to consider it.  B J Rice & Associates also provided copies of the Conditional Fee Agreement dated 14 June 2002 and a copy of a letter written by Mr Rice to Mr & Mrs Fosberry dated 13 June 2002  with an attendance note attached.
46. Mr Bacon had given notice of an intention to refer to a number of authorities in addition to those to which the Respondents referred in their Points of Dispute.  These were (including those referred to in Mr Quesnel's Witness statement) Customs and Excise Commissioners v Ross and Others [1990] STC 353, and [1990] 2 ALL ER 65,` Andre Agassi v S Robinson (H M inspector of Taxes) [2005] EWCA Civ 1507, United Building and Plumbing Contractors v Malkit Singh Kajla [2002] EWCA Civ 628, Sisu Capital Fund Ltd and Others V Tucker and Others [2005] EWHC 2321(Ch) and Khan v H M Revenue and Customs [2006] EWCA Civ 89.
47. At the hearing on 11 August 2006 Mr Michael Bacon appeared on behalf of H M Revenue & Customs and Mr B J Rice appeared on behalf of Mr & Mrs Fosberry.  Mr Bacon referred to Rule 25 of the Value Added Tax Tribunals Rules 1986 which states:

"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".

48. Mr Bacon said that the Value Added Tax Tribunal is a Court as defined by Section 119 of the Courts and Legal Services Act 1990 (a point which is agreed by both parties).  He submitted that while Rule 25 gave Mr & Mrs Fosberry the right to appoint any person (including Mr B J Rice) to represent them at the hearing of the appeal this did not entitle them to recover from H M Revenue & Customs any fees which they might incur in so doing.
49. Mr Bacon referred to Sections 27 and 28 of the Courts and Legal Services Act 1990 ("the Act").  Section 27 refers to "Rights of audience".  Mr Bacon said that it was conceded that Rule 25 gave Mr & Mrs Fosberry the right to appoint Mr B J Rice to represent them at the hearing.  However that Rule did not give Mr Rice (or his firm B J Rice & Associates) the right to conduct litigation before the Court.  The "right to conduct litigation" was defined by Section 119 of the Act as the right:

"(a)      to issue proceedings before any court; and

  (b)      to perform any ancillary functions in relation to  proceedings (such as entering appearances to actions)".

50. Mr Bacon submitted that since Mr Rice did not have the right to conduct litigation, Mr & Mrs Fosberry could not recover the fees which they had incurred with Mr Rice and his firm from H M Revenue & Customs.  Only an "authorised litigator" as defined by Section 119 of the Act was qualified in that respect.  In Section 119 of the Act "authorised litigator" is defined as "any person (including a solicitor) who has a right to conduct litigation granted by an authorised body in accordance with the provisions of this Act".
51. Mr Bacon referred to Rule 29 of the Value Added Tax Tribunals Rules 1986.  This states:

"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".

52. Mr Bacon submitted that this Rule did not provide that the fees of someone who was not an authorised litigator could be recovered.  Mr Rice's professional qualification was granted to him by the Chartered Institute of Taxation which was not an "authorised body" as defined by Section 119 and Sections 27 and 28 of the Act.  Furthermore (and this was again common ground between the parties) Mr & Mrs Fosberry were not "litigants in person" within the meaning of the Litigants in Person (Costs and Expenses) Act 1975 because there had not been an order extending that Act to Value Added Tax Tribunals (see Customs & Excise Commissioners v Ross [1990] 2 ALL ER 65).  This would prevent them from recovering anything more than their out of pocket expenses.
53. Mr Bacon referred to the cases (see paragraphs 38 and 44 above).  However he conceded that they were not all strictly applicable to the present case which relates to the special circumstances of a party to proceedings before a Value Added Tax Tribunal who is awarded costs pursuant to Rule 29 of the Value Added Tax Tribunals Rules and who wishes to recover as costs from the paying party the fees of someone who is not an "authorised litigator" within the meaning of Section 119 of the Act.
54. Mr Bacon referred to Section 58 of the Act in relation to the conditional fee agreement date 14 June 2002.  The conditional fee agreement and the letter written by Mr Rice to Mr & Mrs Fosberry dated 13 June 2002 with the attached attendance note were considered.  Mr Bacon submitted that the conditional fee agreement was unenforceable by virtue of Section 58 of the Act because it was not "an agreement with a person providing advocacy or litigation services" (Section 58(2)) and it did not comply with "such requirements (if any) as may be prescribed by the Lord Chancellor" (Section 58(3)(c)).
55. The Conditional Fee Agreements Regulations 2000 ("the CFA Regulations") which were in force at the relevant time provide in Regulation 5(1):

"5(1)    A conditional fee agreement must be signed by the client and by the legal representative".

56. Regulation 1(3) of the CFA Regulations provides:

"(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".

57. Mr Bacon submitted that Mr Rice did not fall within the definition of "legal representative" and that accordingly the CFA Regulations had not been complied with.  It followed that the conditional fee agreement was unenforceable and that therefore, on that ground alone, no costs were recoverable from H M Revenue & Customs because there had been a breach of the indemnity principle.
58. I hope that Mr Rice will not mind of I do not set out extensively the submissions which he has made.  I have set out in paragraphs 1 to 37 above the history of the appeal. From this it is, in my judgment, clear beyond doubt that both the Tribunal and those representing H M Revenue & Customs were treating Mr Rice and his firm as having not only a right of audience (under Section  27 of the Act) but also a right to conduct the litigation (under Section 28 of the Act).
59. It is correct (as Mr Bacon submitted) that Mr Rice did not have a right of audience pursuant to section 27(2)(a) of the Act.  However he did have a right of audience pursuant to Section 27(2)(b) because Rule 25 of the Value Added Tax Tribunals Rules 1986 grants the right "under" an enactment, these Rules being subordinate legislation made pursuant to the relevant Value Added Tax Act.
60. In my judgment he also had a right of audience pursuant to Section 27(2)(c) of the Act because the Tribunal clearly granted him that right in relation to the appeal (see the Direction of the Chairman on 4 July 2005 at paragraph 34 above).
61. In my judgment Mr Rice and his firm also had the right to conduct the litigation before the Tribunal. While it is correct that the right is not given pursuant to Section 28(2)(a) of the Act and that the right is not given pursuant to Section 28(2)(b) either, Mr Rice and his firm did have the right pursuant to Section 28(2)(c) of the Act.  Section 28(2)(c) states:

"(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".

62. The Notice of Appeal was signed by Mr Rice as "Representative" of the Appellants.  There is provision for a Representative to sign on the printed form of Notice of Appeal.  The Notes provided to assist completion of the Notice of Appeal say:

 "Note D

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.

Note 2

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".

63. Paragraphs 1 to 37 above demonstrate, in my judgement, that the Tribunal was treating Mr Rice and his firm as having been granted a right to conduct the litigation.  Indeed they only corresponded with Mr Rice and his firm.  H M Revenue & Customs similarly corresponded with Mr Rice and his firm, and not with the Appellants personally.
64. In the Points of Dispute at paragraph 1(a)(iii) H M Revenue & Customs refer to Section 20 of the Solicitors Act 1974 and say that there has been a breach of the provisions of the Act so that no costs are recoverable.  However Section 28(6) of the Act says:

"(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".

65. It follows, in my judgment, that Mr Rice and his firm had both a right of audience and a right to conduct litigation before the Tribunal and that the provisions of the Solicitors Act 1974 are not applicable in such circumstances.  Rule 29(2) of the Value Added Tax Tribunals Rules 1986 are applicable in this case and the provisions of Part 47 of the CPR and its practice directions apply with the necessary modifications. (See paragraph 49 above).  Accordingly Mr & Mrs Fosberry are entitled to recover as costs the reasonable and proportionate fees of Mr B J Rice and his firm on the standard basis.
66. With regard to Mr Bacon's submission (paragraph 55 above) that Mr Rice did not fall within the definition of "legal representative" in Regulation 1(3) of the CFA Regulations, it will have been noted that in those Regulations "legal representative" means the person providing the advocacy or litigation services to which the conditional fee agreement relates (see paragraph 54 above).
67. I have (for the reasons already given) found that Mr B J Rice and his firm were providing those services pursuant to Sections 27 and 28 of the Act.  Accordingly the conditional fee agreement is not unenforceable for the reasons set out in the Points of Dispute.  However the agreement itself dated 14 June 2002 together with the letter written to Mr & Mrs Fosberry by Mr Rice on 13 June 2002 and the attached attendance note were considered at the hearing.
68. In my judgment the agreement complies with Section 58(2) of the Act because it 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".  It provides for a success fee because it provides for the amount of the fees to be increased in specified circumstances above the amount which would be payable if it were not payable in specified circumstances.
69. It also complies with Section 58(3) and (4) of the Act subject to any question there may be as to whether it complies with Section 58(3)(c), that is to say that it must comply with such requirements (if any) as may be prescribed by the Lord Chancellor.
70. Mr Bacon submitted that the agreement did not comply with Regulation 3 or with Regulation 4(2)(c) of the CFA Regulations. As mentioned in paragraph 53 above, the CFA Regulations were in force at the relevant time (they have subsequently been revoked).  Regulation 3(2) of the CFA Regulations provides:

"(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".

71. The agreement provides (see the last paragraph on page (1) of 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.

72. Regulation 4 of the CFA Regulations provides:

"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"

73. Neither the Agreement itself, nor the Schedule to the Agreement nor the letter of 13 June 2002 nor the attached attendance note indicates that Mr & Mrs Fosberry were asked whether they had existing insurance cover in the form of e.g. motor or household insurance or other before the event insurance cover which might indemnify them for costs.  That, in my judgment constitutes a breach of the Regulations.
74. A breach of the CFA Regulations in this case renders the conditional fee agreement unenforceable resulting in a breach of the indemnity principle so that no costs are recoverable.
75. In Hollins v Russell [2003] EWCA Civ 718, [2003] 1 WLR 2487 the Court said:

"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".

76. The failure to set out in the Agreement the provisions of Regulation 3(2)(c) has, in my judgment, a materially adverse effect on the protection afforded to the client. Regulation 3 (2)(c) protects the client in circumstances where his representative agrees to recover costs from the paying party with a reduced success fee.  The Regulation requires that the Agreement must state that in those circumstances the client is not liable to pay the full success fee to his representative "unless the court is satisfied that the full amount should continue to be payable under it".
77. The failure to comply with Regulation 4(2)(c) is also, in my judgment, a material breach of the Regulations because it has a materially adverse effect upon the protection afforded to the client.  The Clients may have had such insurance and if this had been drawn to their attention they may have decided to proceed without agreeing a success fee.
78. The judgment of the Court of Appeal in Garrett v Halton Borough Council ;  Myatt & Others v National Coal Board [2006] EWCA Civ 1017 at paragraphs 23 to 45 sets out the Court's account of "the meaning of the test in paragraph 107 of Hollins v Russell:  does materiality require a consideration of actual detriment?"  In paragraphs 65 to 79 the Court set out its account of the steps which should be taken to comply with Regulation 4(2)(c).  In my judgment the appropriate steps were not taken in this case.
79. Accordingly Section 58(3)(c) of the Act has not in my judgment been complied with and so the conditional fee agreement dated 14 June 2002 is unenforceable by reason of Section 58(1) of the Act.  The consequence is that no costs are recoverable.
80. Mr Bacon pointed out that no notice had been given by the Appellants that they were intending to recover an additional liability because they had entered into a CFA.  It is provided by CPR 44.3B(1)(c) that no additional liability can be recovered in those circumstances unless application is made for relief from sanctions (see CPD 10.1).  Accordingly, if I am wrong about the enforceability of the CFA, it is necessary in my judgment for the Appellants to give the appropriate notice and to apply for such relief under CPR 3.8 and 3.9 before a success fee can become payable.  This is because the Value Added Tax Tribunals Rules 29(2) applies so that the provisions of CPR Part 47 and any practice directions supplementing that part apply "with the necessary modifications" in this case.